Behind the Scenes: The Economics of Cam Sites

The porn industry has undergone several revolutions, and it’s now ripe for one again. Since the advent of the Internet, the porn industry has dramatically shifted the way it produces and distributes content. Then, porn was an estimated $50 billion hard-copy magazine, newspaper, and DVD industry. Now, with widespread free access and rampant piracy, the old kingdom has tumbled down. In its place, the number of adult sites have exploded online, and among them, camsites have emerged as a new model for cashing in revenue.

What started as a niche business in the adult entertainment industry, “camming,” or the streaming of live model performances, raked in $1 billion in 2013 and is continuing to grow, according to the New York Times. It’s become “the engine of the porn industry,” Alec Helmy, the publisher of Xbiz, a sex-trade industry journal, told the LA Times.

But along with new business opportunities come new challenges. Adult entertainment sites face strict government regulations on one side and a lack of support from traditional payment companies like Visa and American Express on the other. Squeezed between both pressures, cam sites accrue high operational costs that trickle down to the models who work for them. This results in all kinds of economic inequality, which in turn perpetuates other imbalances of power. We are looking to change this.

However, if you want to understand how money flows through the industry and results in low cuts for content producers, we must first understand how cam sites work.

How cam sites work:

Unlike pre-recorded films, camming isn’t susceptible to piracy because its value proposition is its personalization and interactivity. Models give live performances through webcams, and clients pay for varying degrees of intimacy. Private showings cost the most; shared viewing lowers fees. Many sites also use a tip-based model, where viewers can stream content for free but pay tips to instruct the model to perform their desired actions.

In an industry traditionally riddled with the mistreatment of women, cam sites empower them to become their own entrepreneurs. “The women work out of their homes, it’s safe, they have more control over working conditions,” Kari Lerum, a sociologist at the University of Washington, Bothell who studies sex industries, told the New York Times.

But to run such a business can require significant financial risk.

The financial risks of camsites:

In the new Internet-driven porn industry, models face tough financial choices. Because major credit card companies don’t provide services for adult entertainment sites, cam sites resort to using high-risk payment services that can charge 5% to 10% of revenue for processing payments. The “high risk” designation also forces sites to pay an annual $1,000 fee to card networks for the ability to accept card payments.

On top of that, cam sites take their own cut of revenue, resulting in dismally low payouts for models. Tip-based sites on average take around half of a model’s earnings; private sites take as much as 65% to 75%.

Models often confront sites that use deceptive marketing tricks to play up their rates as well. One company, ModelCentro, advertises a 75% payout rate on their site but obfuscates the fact that the rate is calculated after subtracting a 10% processing fee. This results in an effective rate of 67.5%. Other sites use misleading language, such as “models should receive the highest amount possible” or services are “free” to conceal their poor pay.

Still other sites use a tiered payout system, which promises models increasing revenue shares at higher sales volumes. For example, from the first $1,000 of sales, a model might pocket 60%, and from the next $1,000, she might pocket 70%. Again, these services prove misleading when they promise payouts of “up to 90% per sale;” most content producers never reach those higher tiers.

At the end of the day, the results are the same: Models get squeezed of their earnings and their work turns less profit.

A decentralized model:

The current model is inefficient with exorbitant fees and greedy middlemen. That’s why we are building SpankChain, a blockchain-based infrastructure for the adult entertainment industry. SpankChain removes third party intermediaries, and unfair payment practices with the use of smart contracts and our advanced payment processing hubs. In doing so, we lower the standard 50% transaction fee to just 5%. This allows entertainers to retain more control and overall, more revenue from their work.

We believe that this is just the start as we build out more infrastructure to support various initiatives that disrupt the adult entertainment industry. We recently announced our District0x partnership through the Red Light District, which you can check out here.

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