The dirty little secret behind many new technologies is porn. From cinematography to video cassettes and the Internet, pornography has been a key driver of growth. Now, porn is showing up on mobile phones and it's relentlessly wearing down the wireless carrier's bandwidth.

In Japan, where third-generation wireless networks are more pervasive than in the U.S., buffet-style wireless internet access (all you can eat) is causing demand for porn to surge , while putting pressure on margins and on the networks themselves.

Japanese carriers NTT DoCoMo (DCM) and KDDI (KDDIY) now say that while the porn frenzy does bring in profits, their networks are under so much strain that they are kicking around the idea of putting some limits on how much bandwidth heavy users can actually have.

It's a problem that U.S. carriers could soon face. Unlike other sectors of the adult entertainment industry, Juniper Research estimates that global revenues for handheld hotties could reach $4.9 billion by 2013, up about 75 percent from about $2.8 billion in 2008. This stands in stark contrast to both traditional online delivery and DVD porn, where sales have recently been falling.

Yet the industry seems to be holding up well in Japan, which has more than 1,000 companies playing in the skin biz that create north of 17,000 titles per year. Some sites pick up more than 1,000 new customers a day. This style of presentation, however, sounds suspiciously like what comes out of the San Fernando Valley -- 15,000+ new titles a year, lots of companies, some making fortunes in porn. But there's no sense of how the industry as a whole is doing in Japan.

Of course, privacy laws prevent mobile carriers from seeing what their customers are downloading, but movies are assumed to be the greatest driver. And, traffic spikes around midnight, enhancing anecdotal evidence that movies without plots are the primary fare.

To sweeten the pot a bit, the online porn business is still relatively small in Japan. But I think we've seen this story before. The real money in the business will come from moving traffic and money around – payment processors, network carriers, etc. – with the content providers hung out to dry. The result will be an industry that is eating itself from the inside, as increasing production will not lead to profits, jeopardizing the flow of content (and money) relative to ancillary services.

Yet, on both sides of the Pacific, pornographers hold out hope for wireless and they've been waiting for a while. When I spoke with Ali Joone of Digital Playground at Adult Entertainment Expo in January 2008, he made it clear that he saw the future as being wireless. Meanwhile, the industry struggles to find its bottom.


Increase your money and finance knowledge from home

Investment Strategies

What's your investing game plan?

View Course »

Introduction to Value Investing

Are you the next Warren Buffett?

View Course »

Add a Comment

*0 / 3000 Character Maximum