Prime-Time Porn Borrowing tactics from the old Hollywood studios, Vivid Entertainment has ditched the plain brown wrapper and is taking the multibillion-dollar sex-film industry mainstream.
By Paul Keegan

(Business 2.0) – On a sunny day in New York City, Steve Hirsch looks like any other successful business traveler strolling across Columbus Circle toward his hotel. Dressed in jeans and leather jacket, as entertainment executives often are, he chats amiably about how having a child changes your life and how turmoil in the Middle East might affect his company's bottom line. And when he arrives at his room on the eighth floor of the Trump International hotel, he does what many road-weary businessmen do these days: He switches off CNN and goes right for the porn channel.

"These are mostly video compilations," he says dismissively as he flips past the ads--Extra Busty Beauties, Real Hard Sex, More Dripping Wet Sex, Lots of Filthy Sex, Filthy Sex Fantasies--then stops. "Here we go." It's a glitzy head shot of Jenna Jameson, the reigning superstar of porn, appearing in her latest release, I Dream of Jenna, billed as "a comical adventure with 10 of the nastiest sex scenes ever filmed!"

Hirsch is 41 years old. He has a broad, handsome face and deep California tan, and he wears his collar open, revealing glimpses of a massive chest earned from pumping iron three days a week. Jameson's film is just what he was looking for--not a compilation of steamy scenes but an actual movie with a story line, high production values, and a star-studded cast led by the vixen he calls "by far the biggest star in the history of the adult business."

But Hirsch won't actually watch this movie--he couldn't care less about Jameson's sexual escapades. What really turns him on is the business of porn. Nineteen years ago, he and a partner scraped together $20,000 to found Vivid Entertainment of Van Nuys, Calif. Today, Hirsch is a multimillionaire, Vivid is the biggest XXX film studio in the world, with revenue estimated at $100 million, and it has Jameson locked up in a seven-year deal.

More important, Hirsch is the executive most responsible for transforming a disreputable underground industry into a mainstream, multibillion-dollar business. It now sends hard-core movies to TV screens across America through hotel chains like Marriott and Hilton and satellite and cable operators Comcast, DirecTV, and AOL Time Warner (publisher of this magazine) and is turning unknown strippers and models into celebrities overnight.

You've probably never heard of Steve Hirsch--and that's how he likes it. He'd rather have you focus on his Vivid Girls, porn stars he began manufacturing in 1984 by bringing back the old Hollywood contract system. He's not a self-promoting party animal like Hugh Hefner or Bob Guccione, no grandstanding provocateur like Larry Flynt or Al Goldstein. Though he had a wild period during his 20s, Hirsch's idea of fun these days is doing bench presses and going home to his fiancee and 2-year-old daughter in his magnificent mansion in the San Fernando Valley section of Los Angeles. How boring is Hirsch? He confirms friends' suspicions that he's never even watched one of his own films from start to finish.

All of which makes this soft-spoken businessman a striking emblem of what's happened to the world of porn in recent years. As the industry has grown to proportions befitting its obsession with size--altogether, magazines, movies, websites, sex toys, phone lines, and strip clubs account for somewhere between $4 billion and $10 billion annually--it has become so complex and competitive that only the smartest, soberest business minds can prosper. And though the XXX film business was once considered the sleazy underbelly of Hollywood, today Hirsch lectures at the USC Business School and has a Dartmouth grad and MBA as co-chairman of his firm.

Nobody knows how big the film segment of the porn business is; estimates range from the skeptics' $1 billion to the industry's $4 billion. At the very least, sales are booming, and if the industry is right, porn films brought in nearly half as much as Hollywood's $9 billion take at the box office last year. Beyond dispute is that a staggering 11,300 hard-core films were released in 2002, compared with about 470 Hollywood features.

Those raunchy movie titles flickering across the TV in Hirsch's hotel room, in fact, reflect a seismic shift taking place in America's consumption of sexual entertainment. As magazines like Playboy and Penthouse continue to struggle, porn has accelerated its migration from print to film. Along the way, it's become rawer and more explicit to attract the attention of consumers already inundated with soft-core sexual imagery. Clearly, the Playboy era is over. It's a Hustler world now.

This becomes evident as Hirsch flips through the porn channels and comes upon the notorious Hustler logo. Vivid Entertainment is no favorite of the religious right, conservative feminists, John Ashcroft's Justice Department, and certain crusading journalists. But the biggest threat to Hirsch's plans to dominate the multibillion-dollar market for brand-name hard-core may come less from hostile outsiders than from the king of modern smut himself--old-media warrior Larry Flynt.

When Hirsch was 11, his parents brought the family together in the living room of their home in Lyndhurst, Ohio, and explained that their father, Fred, a stockbroker, had just been offered a job selling 8-millimeter stag films for a man named Reuben Sturman--a shadowy figure who, it turned out, controlled nearly the entire adult-entertainment industry. The Hirsches warned Steve and his sister that if Daddy took the job, some parents might not let them come over to play.

Steve thought about it, then told his parents, "If they don't want to be friends with me, I don't want to be friends with them."

It was 1972, the year Deep Throat became the first mainstream porn film. The movie reportedly grossed more than $25 million in its first two years, and Linda Lovelace became a household name. But most consumers still had to venture out to seedy theaters to see a sex movie, which meant that magazines remained the best medium for mass-market porn--cheap, portable, high-resolution, and delivered right to your door in a brown-paper wrapper. Created in 1953, Playboy grew to a peak circulation of 7.2 million.

During the '70s, however, the invention of the VCR allowed those nude models to begin acting out men's fantasies in homes across America. A fledgling industry sprang up in the San Fernando Valley, and Fred Hirsch moved his family there in 1975. After fending off obscenity charges from his work with Sturman in Cleveland (he was acquitted in 1978), the elder Hirsch started his own company, which became Adult Video Corp.

Steve has many happy memories of his family working together to pack videos into boxes decorated with raunchy artwork--but for him, porn had lost its intrigue. "Obviously, at first, I was like, 'Wow, man, that's interesting,'" he says. "But it didn't take long before I was more interested in 'OK, how do you market these things? How do you sell these things? I want to make money!'"

Fred Hirsch's firm grew fast, to $4.2 million in sales in six years, but Steve was a cocky kid, convinced that he could do better. First of all, that artwork was horrendous, making the product look like stag movies for dirty old men, not erotic films for young couples, whom Steve saw as a largely untapped market. He also thought his father was missing a huge opportunity to promote his stars. So Steve left the family business and later teamed up with a colleague named David James to launch Vivid. (James is also a co-chairman of the company.)

Hirsch began with a single brilliant idea that would transform the industry. He approached the biggest star of the day, a classic girl-next-door blond called Ginger Lynn, and offered her something unheard of in the wham-bam world of porn: a lasting relationship. She would have input on scripts, choose her onscreen sex partners, and receive a guaranteed income that would reach six figures. All she had to do was to sign a long-term deal with Vivid, as MGM's glamorous stars used to do under Hollywood's old contract system.

Lynn hesitated at first. She was accustomed to working with top producers, and this guy was a nobody. But Hirsch is nothing if not persuasive. When she finally agreed, he began an aggressive promotional campaign, and her Vivid debut, Ginger, raced to the top of the charts. It grossed $700,000, an astounding sum in those days, and led to several hit sequels.

Suddenly the 24-year-old Hirsch found himself with lots of money and surrounded by drugs and beautiful women. That wild fun deteriorated into a cocaine habit serious enough for him to check into rehab in 1988 (today, he says, he's clean and sober). But he managed to keep Vivid growing so fast with his upscale approach--elegant box covers, high production values, better story lines, heavily promoted stars--that other companies began copying his formula.

This was about the time the Reagan and Bush administrations began cracking down on the porn industry, winning hundreds of federal obscenity convictions. But Vivid and other top film companies escaped largely unscathed; most of their movies weren't misogynistic--male fantasies to be sure, but expanding into the mainstream market meant they had to appeal to women too--and stayed within the legal boundaries. Meanwhile, the crackdown only seemed to make porn more alluring: Video rentals soared from just under 80 million in 1985 to an astonishing half-billion by 1993, helped along by a landmark 1988 California Supreme Court ruling that legalized the production of sex films.

By the mid-'90s, once-shocking magazines like Playboy had become passe, and even hard-core publications like Penthouse and Hustler struggled. Magazines remained expensive to produce and distribute and simply couldn't compete with the thrills of a dirty movie. But the porn-film revolution wouldn't be complete until consumers no longer had to make embarrassing trips to the local XXX video store. Since Internet connections were too slow, cable and satellite TV emerged as the best way to achieve the industry's dream of delivering hard-core films directly into America's homes--instantly, cheaply, and discreetly.

Christie Hefner understood half of the equation. The CEO of Playboy Enterprises knew that nude photos weren't enough anymore; she'd watched Playboy's circulation drop by half since the early '70s, down to 3.2 million today. So she created a cable channel that would soon dominate the market. But Hefner seriously underestimated America's appetite for hard-core sex. In 1999 she sold Hirsch a small channel that Playboy Enterprises had recently acquired, which Hirsch renamed the Hot Network. Hefner was betting that the country wasn't ready for the kind of steamy fare the network had been showing.

Buying that network was the smartest move Hirsch ever made. After acquiring it for nothing more than the assumption of $25 million in debt, he created two more channels--the Hot Zone and Vivid TV--and began pumping out explicit sex to an eager audience that could make the impulse purchases on which porn thrives without leaving home. In just two years, the audience for the three channels more than quintupled, from 7 million to 36 million; those viewers paid close to $400 million a year to tune in to Vivid's hard-core sex. The company overtook Playboy as operator of the world's largest adult-TV network.

Realizing her mistake, Hefner bought all three networks from Hirsch in 2001 and folded them into Playboy's Spice brand. But she had to pay dearly, to the tune of $92 million. For Hirsch, the victory was sweet. Not only was his company suddenly flush with cash, but those nasty 8mm stag films his father used to sell had become popular entertainment, piped by America's biggest cable and satellite providers directly to the masses.

Bill Asher, Vivid's Ivy League chairman, remembers that when he left Playboy's cable division to run Hirsch's hard-core channels just four years ago, he felt like he had one foot in the gutter and one in the real business world. "Now I look around," he says, "and I think to myself, 'What happened to the gutter?'"

The most popular porn star of all time is standing on the set of her new film, The It Girl, wearing nothing but knee-high boots, a see-through G-string, and a ridiculous blond beehive wig. Director Chi Chi LaRue, who doubles as a performing drag queen, is dressed more sensibly, in jeans and pullover shirt. He propels his hefty frame onto the set, pulls Jenna Jameson to one side, and demonstrates how the scene should go.

"She pulls down her panties ..."

"Um ... guys?" One of the technicians has a question.

"She sits in the chair ..."

"Guys?"

"And she has a whole routine where she reveals that she has a ..."

"Guys! This is Jenna Jameson! The world knows who she is! They know she doesn't have nuts!"

Now the whole production is in an uproar. But the man has a point. Jameson's image is currently plastered across the media landscape in a major fashion campaign (Pony footwear), a network TV series (Mr. Sterling), mainstream magazines (Vanity Fair), Hollywood movies (Howard Stern's Private Parts), and, soon, her first book (How to Make Love Like a Porn Star). So how will she ever fool anybody in this madcap role as a female cop working undercover as a man who dresses up like a woman?

"Who knows--maybe she suddenly had a sex change!" LaRue yells, trying to move things along so he can shoot his 90-minute film, all six pages of it, in just two days. As the cameras roll, Detective Jameson has her life saved by costar Nicole Sheridan, one thing leads to another--as they always do here in Silicone Valley--and LaRue goes wild ("Yes, girls! Gorgeous!"). By tomorrow, America's favorite porn queen will wrap another hit movie.

Though some critics of porn argue that the women grappling on the floor are engaged in the world's oldest profession, it's actually a curious new one--"celebrity sex workers," you might call them (see "Behind the Green Door," page 103). For this new type of mainstream star, we have Steve Hirsch to thank. In the mid-'90s, an upstart company called Wicked Pictures signed Jameson, a little-known former stripper from Las Vegas, and used all of Hirsch's techniques--putting her in high-budget movies that were heavily promoted through industry shows, parties, signings, pictorials in men's magazines, and interviews on the E! channel.

Now, Hirsch is trying to take the phenomenon to a new level. Since signing Jameson last year, he has used his team of Vivid Girls, including newcomers like Sunrise Adams, Kira Kener, and Savanna Samson, to sell Vivid condoms, Vivid herbal sex-drive boosters, Vivid comics and hardcover books, and now Sims snowboards plastered with likenesses of Vivid Girls.

This new lifestyle built around hard-core sex may prove as dramatic as the one Hugh Hefner created half a century ago. But with Playboy saddled with a famous identity as a soft-core brand, Vivid's main competitor in selling to this lucrative new market is proving to be one of Hirsch's own business partners, the notorious Larry Flynt.

Last year, Flynt's LFP Inc. of Los Angeles became the exclusive distributor of Vivid's videotapes and DVDs. That move was just part of a major diversification strategy by Flynt as profits in the skin-magazine industry have dwindled. Several years ago, he created his own line of raunchy films, Hustler Video. More recently he has been busy expanding his Larry Flynt's Hustler Clubs and his Hustler Hollywood superstores of erotica into nationwide chains.

Now Flynt is directly going after Vivid by negotiating to acquire its main competitor, VCA Pictures. (Will competing against his own distributor be a problem? "We'll have to see," Hirsch says.) VCA is a 25-year-old San Fernando Valley institution that will allow Flynt to reach a mainstream audience without the liability of the Hustler brand, which many people associate with a crude misogyny--like the famous 1978 magazine cover of a nude woman going through a meat grinder. ("That was not our finest moment," says Jimmy Flynt, Larry's nephew and national marketing director, who nevertheless insists that "Larry Flynt puts women up on pedestals.")

It isn't clear how far Flynt would push the boundaries at VCA, but he has always understood that pornography thrives on violating social taboos. And as popular culture shatters each taboo, the bar is constantly being raised for what will arouse or excite an audience. Even Vivid, whose movies feature only consensual sex, has begun to allow the depiction of certain sexual acts once considered too extreme for its mainstream brand. "Not only does hard-core porn not shock people today," Hirsch says, "but I think they want more--harder and harder and harder and harder."

This trend has led in recent years to a spate of disturbing films with violent imagery that are condemned by industry leaders. Extreme Associates of North Hollywood, Calif., brags that its film, Forced Entry, features "homicidal rapists and serial killers as well as the poor, lost sluts they kidnap, torture, rape, and kill!" Extreme is operated by Robert Zicari (also known as Rob Black), who has dared authorities to declare the films obscene, and in April succeeded in becoming one of the few porn companies to be investigated by the federal government in more than a decade.

Obscenity cases have proved increasingly difficult to prosecute, however, as digital technology and the pervasiveness of sexual imagery have weakened the Supreme Court's famous 1973 decision holding that "community standards" are the crucial factor. In other words, market forces may ultimately decide what kind of porn will be piped to a video screen near you.

In the battle shaping up between Hirsch and Flynt to grab the biggest share of the mainstream market, Vivid and LFP are pursuing different strategies. While Flynt believes there will still be big profits in trucking videotapes and DVDs from state to state, Hirsch is betting that the Internet will render those media obsolete and that digital distribution will take over soon. That's why he cut his staff from 200 to 50 after handing his distribution over to Flynt, turning Vivid into a pure film studio--like an XXX-rated version of Pixar.

For now, Vivid derives half its revenue from domestic sales of videotapes and DVDs, but Hirsch believes things will change quickly and the other 50 percent--international sales (20 percent and growing), website subscriptions (15 percent), satellite and cable (10 percent), and hotel rentals (less than 5 percent)--will eventually become dominant. Profit margins are 20 percent in all divisions, the company says, and now Vivid is negotiating with wireless providers in the hope that customers will be able to access explicit images anywhere they feel the urge--in airports, at restaurants and bars, or on battlefields in faraway countries.

Hirsch's faith in technology is clear during a tour of his breathtaking mansion, which in addition to marble floors and antique furniture has all the latest gadgets--videocameras that let him keep tabs on his adorable 2-year-old daughter, a jumbo TV next to a pool wired with lights that gradually shift the water color through a wide palette of reds, blues, and greens.

It will be a strange world, indeed, that his little girl will inherit if Daddy's vision is finally realized and porn completes its evolution into prime-time entertainment with the arrival of broadband Internet TV. The streaming of film over the Net is a breakthrough the entire entertainment industry is bracing for, but if the history of technology teaches us anything, it's that porn will lead the way. For Hirsch, this is the final step, when satellite and cable operators can be cut out of the picture and his studio's explicit sex films can be delivered at lightning speeds around the world, in many different languages, directly from Vivid's website.

When that happens, hard-core porn will truly be everywhere--OK, maybe not on his jumbo screen by the pool, since Hirsch doesn't watch the stuff himself. But everywhere else on the planet. And that's enough to make this normally cool and reserved businessman truly excited by the possibilities that tonight seem as endless as the moonless sky over his estate in the foothills of the Santa Susana mountains. A broad smile spreads across his face. "The sky's the limit," he says.

Paul Keegan (pkeegan@business2.com) is a senior writer at Business 2.0.