“ NEW YORK - “Sex is a very powerful thing.”
As a guy who has spent much of his life around the porn industry, Steven Hirsch, the 43-year-old head of the adult film studio Vivid Entertainment, has no doubt uttered similar statements countless times before. Yet still, he speaks passionately about his closely held company, its growth prospects and the potential for an initial public offering in the coming months. “With all of the new technologies and the excitement surrounding them,” Hirsch says, “this is the right time for us.”
As one of adult entertainment’s largest film studios, Vivid already generates an estimated $100 million a year in revenue, cranking out 60 films per year and selling them in video stores, hotel rooms, on cable systems and on the Internet. The company sells Vivid-branded merchandise, such as condoms, snowboards, apparel and sexually explicit comic books. And through a licensing deal with Ark Restaurants (nasdaq: ARKR - news - people ), the company just opened its first night club, Vivid, inside The Venetian hotel and casino in Las Vegas.
“We’re very interested in licensing our brand,” says Hirsch, who is working on other deals to paste the Vivid name on a wide range of items, from nipple pasties for exotic dancers to aftermarket rims for cars and makeup for women.
Vivid is already a sex industry power. All of the more than 1,500 films in Vivid’s library can be accessed on the Internet, at a cost of $25 per month. About 30% of the titles found in the adult video section of stores in the U.S. are Vivid productions. And Hirsch’s stable of so-called “Vivid Girls,” with names like Sunrise Adams and Tawny Roberts, work under exclusive long-term deals, much like those used decades ago by the Hollywood studios to keep stars securely in-house and off-limits to competitors. Vivid also has an exclusive distribution deal with one of the biggest stars in the business, Jenna Jameson, who co-produces some of her own films in conjunction with the company.
“There are plenty of successful people in adult video business,” says Paul Fishbein, president of Adult Video News. “But in terms of the video market and the mainstreaming of the industry, Vivid is the top. They have really led the industry into the mainstream.”
Now Hirsch, whose own father in 1975 moved the family from Ohio to southern California to launch his own adult video distribution company, is poised to reign over the adult entertainment business. When the young Hirsch and a partner, David James, launched their own studio in 1984, they redefined the business by introducing the contract sex performers (they’ve had only a few men under contract over the years) and designing glossy, tasteful video packaging that was tame enough to get big retailers like Virgin and Tower to stock the tapes on their shelves.
Hirsch already pocketed $30 million in 2001 when he sold his hardcore cable channels The Hot Network, Vivid TV and The Hot Zone to Playboy Enterprises (nyse: PLA - news - people ) for about $90 million. Vivid had purchased The Hot Network just two years earlier for $10 million, turned it into the three channels and built distribution by convincing mainstream carriers such as News Corporation’s (nyse: NWS - news - people ) Direct TV and the former AT&T Broadband, now a unit of Comcast (nasdaq: CMCSA - news - people ), to begin carrying movies depicting explicit sex. Before then, hotels and cable and satellite distributors showed only nudity and simulated sex in their video offerings. Hirsch, who controls 33% of Vivid’s equity, split the proceeds of the sale with two partners.
Vivid films cost between $40,000 and $200,000 each and take anywhere from three days to two weeks to shoot. Most of them are done at the company’s headquarters and studio, located in the so-called capital of porn, the San Fernando Valley. Vivid employs about 100 people, and on-screen talent is by far the biggest cost. Each film uses one of the 10 Vivid Girls currently under contract. They each earn between $80,000 and $750,000 annually. Additionally four or five noncontract actors and actresses are also needed for each film.
Says Hirsch: “It’s still a wild, wild West business.”
Hirsh projects that the growth of video on demand, high definition and wireless devices will be a boon to his business. Currently, about $25 million comes from online sales annually, but Hirsch says that number will more than triple over the next several years. The company is already providing erotic games and video clips to wireless phone users, but so far that business provides just $10 million in annual revenue. However, once age and access issues are worked out in the U.S. and other countries, Hirsch predicts that wireless “will be a big business.”
This all has Hirsch considering taking Vivid public, joining other adult entertainment companies such as Playboy Enterprises and New Frontier, which have already enticed public investors into the erotica industry. Vivid considered an IPO in 2001 but backed out after the market stalled. Although Hirsch now says “the time may be right,” he has yet to retain a banker and officially begin the process.
Vivid’s two largest U.S. competitors are Wicked Pictures and Digital Playground, but Private Media Group (nasdaq: PRVT - news - people ), a worldwide distributor of films based in Spain, is the only adult video company traded publicly. Since its Nasdaq debut in December 1997, shares in the company have soared a split-adjusted 268%.
Fishbein, of Adult Video News, notes that other competitors have attempted to go public but failed. But, he says, “If anybody can do it, Vivid can do it. They are the one company that has branded itself to the consumer world. People who have not even seen an adult video have heard of Vivid and Jenna Jameson
