Wired 5.12 ⎢ December 1997
SETH WARSHAVSKY has seen the future, and it works. Especially for him: at 24, the fresh-faced entrepreneur with the Beaver Cleaver grin heads an online empire that he expects will gross US$20 million in 1997 — its second year of existence. Despite its innocuous-sounding name, his Internet Entertainment Group Inc. is an empire of sex — of virtual vulvas and clickable dildos and strippers on live video, all directed from a steel-and-glass office tower high above the downtown Seattle waterfront. "Sex sells," he confided recently in a husky, world-weary voice that could have come from a man three times his age. "If widgets sold as good as sex, I'd be selling widgets — but, unfortunately, they don't."
Short and trim and nattily attired in pleated tan slacks and a designer sport shirt with rolled-up sleeves, Warshavsky looks innocent only on first glance. On closer inspection, with his stiff, buzz-cut hair and a vibrantly toothy grin, he suggests some sort of wolverine-entrepreneur crossbreed — tightly coiled, relentlessly focused, ferociously clever.
Yes, he's discovered the obvious — sex sells, and sells well on the Internet. But as the Net has evolved from military-academic conduit to wankers' paradise, he's been quicker to profit, others in the business agree, than almost anyone else in cyberspace.
"You really never lose," he continued. "It's cheaper to produce than mainstream content, and it's easier to sell."
According to Naughty Linx, an online index maintained by JMR Creations of Boston, the Web boasts some 28,000 sex sites, about half of which are set up to make money. They run the gamut, from slick business propositions like Warshavsky's ClubLove and The Playboy Cyber Club to small-time operations like The Masturbation Home Page, set up by a Houston computer programmer for folks who want to share their auto-amatory adventures online. There are informational sites — everything from Cyberqueer Australia, the gay guide to everything Down Under, to the Emergency Contraception Page, for people who think about pregnancy too late. There are specialty sites like RealDoll, where for $3,999 and up you can order "the world's finest love doll," and She-Males On-Line, which reportedly racked up an inordinate number of hits from nasa.gov and senate.gov when it went up last spring. There's even a site called Struggling with Pornography, for born-again Christians trying to wrestle with their addiction. One victim's novel solution to the problem of hotels that offer X-rated movies: cut a slit into a length of rubber tubing, slide the TV-set plug into the slit, secure it with a bicycle lock, and hide the key in a safe-deposit box — or, if that gets you too hot, just take a pair of shears and chop off the plug.
Twenty-eight thousand of these things sounds like a lot, until you realize that Network Solutions Inc., the company that assigns most of the top-level domain names in the US, has issued more than 1.5 million names — and it's only one of 200 such registries around the world. And while sex on the Net is undeniably popular — the Long Island, New York-based market research firm Media Metrix reports that 30 percent of American households with Internet access visit an adult site at least once a month — there aren't many people getting rich off it.
Most commercial sex sites are amateur jobs that collect a penny or two for each click on an ad banner but aren't set up to generate real money. One sex-site operator estimates that only about 50 sites gross $1,000 a day or more, of which only 20 or so take in upwards of $3,000 and fewer than a dozen earn more than $5,000. The big-bucks operations are run by marketing professionals like Warshavsky, not college kids or moonlighting computer engineers, and they make their money through a combination of membership fees and sales of goods and services.
Just how much they're bringing in is hard to determine, since few release figures and most industry analysts pretend they don't exist. A rare exception is Forrester Research of Cambridge, Massachusetts, which has gone so far as to venture that sex sites account for at least 10 percent of Web-based retail in the US — an estimate that would give them revenues north of $100 million for 1997.
People in the business, however, say that figure is far too low. James Mann, a spokesman for Naughty Linx, estimates worldwide revenues for sex sites — the majority of which are US-based — at $1.2 billion; Steve Becker, the independent New York-based new media and marketing consultant who guides the Penthouse Web site, puts them closer to $3 billion.
Despite these wildly divergent estimates, everyone does agree on one thing: within the information-and-entertainment category — sales of online content, as opposed to consumer goods and financial services — commercial sex sites are almost the only ones in the black. Other content providers, operating in an environment that puts any offering that doesn't promise an orgasm at a competitive disadvantage, are still trying to come up with a viable business model. ESPN SportsZone may be one of the most popular content sites on the Web, but most of what it offers is free. Online game developers can't figure out whether to impose a flat fee or charge by the hour or rely on ad sales. USA Today had to cut the monthly subscription fee on its Web site from $15 to $13 and finally to nothing. Among major print publications, only The Wall Street Journal has managed to impose a blanket subscription fee.
"Sex and money," observes Mike Wheeler, president of MSNBC Desktop Video, a Web-based video news service for the corporate market. "Those are the two areas you can charge for."
The economics of sex are startling only because they're so seldom considered. Earlier this year, U.S. News & World Report characterized sex in the United States as an $8 billion-plus industry — bigger than Hollywood movies, bigger than the record business. In economic terms, sex is considered highly inelastic: the price can be raised, and demand won't fall. It's a staple of the hotel industry's in-house pay-per-view system — what else are you going to do on a Tuesday night at the airport Hyatt? — and a major profit center for both cable providers and long distance carriers. Likewise, consultant Steve Becker claims that every major Internet service provider has conceded to him that sex sites — which the ISPs host for a fee — are a cash cow.
"Nobody wants to admit that their network is being used to distribute smut," says Jeffrey Rayport of the Harvard Business School, "but in fact, it's a very profitable part of their business." But while telcos like MCI and AT&T and cable companies like TCI can make money off sex without being identified with it, retail outlets are not so fortunate. This perhaps explains why Blockbuster Video refuses to stock sex tapes, a decision that's done a great deal to help independent video stores stay afloat.
The Internet is hardly the first new technology whose adoption curve has been driven by sex. Cable TV, pay-per-view, camcorders, videocassettes — most of the home-entertainment innovations of the past 30 years have won acceptance by catering to humans' fixation on the love act in all its variants. The advantage they offered over adult movie theaters, as Pee-wee Herman discovered to his chagrin, was privacy. The failure of the laserdisc, on the other hand, is at least partly related to the refusal of Sony and Philips, which controlled the technology, to permit the pressing of X-rated discs. Sony has apparently learned its lesson: executives at Vivid Video, one of the top adult film companies in the United States, say the Japanese entertainment-and-electronics giant has been quite cooperative with its new DVD format, even loaning out demo players and big-screen TVs. As well they might, since no one else has come up with a convincing use for multiple camera angles.
"With sex, you're hitting a few key areas," says Warshavsky, seated behind a sleek mahogany desk across from a framed clipping from The Wall Street Journal — a story on Internet sex that landed his mug on page one and hinted at the circumstances behind his rise. "Number one: it's anonymous. Number two: everybody has a desire for it." His eyes widen in wonderment. "Everybody. Number three: it's a very impulsive purchase — and you provide them with immediate delivery so they can gratify their desire."
One other thing about sex: on the Net, it's still the kind of wide-open business an aggressive 24-year-old can dominate. According to Media Metrix, Warshavsky's flagship site, ClubLove, draws far less traffic than brand-name sites like those run by Penthouse and Playboy — yet people in the business say IEG is financially more lucrative than all of them.
Warshavsky's secret is his ability to wholesale live video to hundreds of other sites across the Web. Those strippers you'll find on PenthouseLive and other popular sites — Vivid Video, Buttsville, AlleyKatz? They're the same ones strutting their stuff at ClubLove. The buff dudes on VividMan and Steel-City? Same story.
All told, IEG has business arrangements with some 1,400 adult sites — approximately 5 percent of the Web's total. About 1,100 take part in its ClickBucks program, running banners for IEG sites and collecting two and a half cents for every hit. Another 300 have signed up for IEG's "turnkey" products, Sex Fantasy, SeXXXvision, and Virtual Girl, running live video they could never afford to produce themselves and getting 35 percent of the revenue that comes in. Twenty more are sophisticated "private label" sites like AlleyKatz, PenthouseLive, and Buttsville, running customized content on IEG's servers. Counting these last, Warshavsky claims 400,000 subscribers to 29 sites.
"Seth is a pioneer," says Steven Hirsch, the 36-year-old president of Vivid Video Inc. "He has vision. He's very talented and very creative, and in this industry there are only a few people like that." Consultant Steve Becker picks his words more carefully: "In today's business world, success requires audacity, and Warshavsky certainly has an adequate measure of that." Another colleague is blunter: "Warshavsky is a really different guy," he says, "and this is a really different industry."
LIKE MOST OF THE OTHER BIG PLAYERS IN NET SEX, Warshavsky got his start not in software or the media, but in phone sex. The moguls of audiotext are a small and rather contentious bunch, all but unknown outside their industry: Ian Eisenberg, a young Seattle businessman whose father, Joel Eisenberg, was one of the pioneers of phone sex in the '80s; Ted Liebowitz, a New York phone-sex and adult-entertainment entrepreneur who operates out of a posh brownstone on Manhattan's East Side; Steve Becker, who had run a conferencing service, 550-LOVE, and other New York phone-sex lines years before hooking up with Penthouse. Sex on the Net was a natural for them, and not just because it was about sex.
"Phone sex was the first leap into interactivity," says Steffani Martin of Albamar Inc., a New York Web-sex firm that owns the Babes4U site and is also in the phone-sex business with Eisenberg. "It's interactive in a way that video could never be. Everybody's moving to computers, but it's the same group of people."
"What is the Net?" asks Tim Elliott, president of the TeleServices Industry Association, a Los Angeles-based trade group for the audiotext industry. "It's just a phone call with pictures."
Unlike their counterparts from newspapers and magazines and Hollywood, the audiotext crowd didn't try to adapt a linear medium to the demands of cyberspace. They didn't worry about narrative flow — about the conventions of beginning, middle, and end — because in phone sex the climax is user supplied. Instead they thought in terms of action flow and response — presenting a menu of potential actions that requires a response that will generate more actions, ad infinitum. They thought about default modes, about what happens if someone makes the wrong response or no response at all. They were steeped in servers and connectivity and the technical requirements for catering to free-floating, computer-facilitated, user-directed fantasy.
They also brought to the Web a certain entrepreneurial panache not found among the corporate types who dominate online commerce. Though they like to present themselves as a multibillion-dollar industry as deserving of respect as any other, they still glory in tales of past scams — like the legendary "Here Comes Santa" infomercial, often attributed to Joel Eisenberg, which ran on a Seattle television station in December 1989. The setup was worthy of the most devilish phone phreak: put a guy in a Santa suit on TV and have him tell the kiddies they can talk to Santa personally if they hold their telephone receivers up to the set — just as it emits a tone that connects them, for a hefty toll. The television station knocked Santa off the air 10 minutes into the show when its switchboard lit up with calls from enraged parents, but still . . .
Warshavsky joined this bunch in 1990, when he was 17 — too young, he admits, to make a phone-sex call himself. He'd just settled into a studio apartment in downtown Seattle, having moved out of his parents' house in the middle-class suburb of Bellevue and dropped out of Bellevue High. He'd run a computer bulletin board in grade school, but now he valeted cars to support himself and ran a little clothing business on the side, selling embroidered shirts to Nordstrom's and a couple of boutiques.
Warshavsky, watching late-night cable TV with a friend named Josh, saw a 30-minute infomercial for a phone-sex operation called Rhonda's Phone Club. These guys must be making a fortune! Warshavsky cried — why don't we start our own line? Three weeks and $7,000 in credit card indebtedness later, J&S Communications was in business. Their number was 1-800-GET-SOME. "I still have that number," Warshavsky says proudly.
Back then, that was all he had. When a customer called in, an answering service would take down his credit card info and page Warshavsky, who would have a woman call back and talk dirty to him. Soon Warshavsky was getting calls from 50 to 60 strangers a day at $39.95 per call. He bought his friend out a year or so after they started, and, by 1995, with annual revenues hitting $60 million, he was a major player in the phone-sex business.
But that September, the Federal Communications Commission issued an advisory against the use of 10XXX numbers, a long distance billing system without which the audiotext business would be limited to 800 and 900 numbers. The Supreme Court had already upheld a law sponsored by Senator Jesse Helms, the North Carolina Republican, blocking 900-number phone-sex calls except for those who asked the phone company in writing to have the restriction lifted. In the meantime, phone-sex entrepreneurs, Warshavsky among them, had come to rely on 10XXX long distance calls routed to such enterprising Third World countries as Guyana and São Tomé and billed directly to the customer's phone number — the revenue stream the FCC now threatened to dry up. With 800 numbers, the only way to collect money was to ask for the customer's credit card number — something many people were loathe to give out. The gravy train in phone sex was clearly ending.
But what if you could combine the interactivity of phone sex with the visual capabilities of the World Wide Web? What if the Internet really was just a telephone with pictures? Warshavsky had been cruising the Net, and he wasn't impressed with what he saw. "Everything seemed so . . . Webbish," he recalls — so text-based and plain. He'd even put up his own Web page using CUSeeMe, the interactive video technology developed at Cornell University, but the results were, as he puts it, "crap."
Then he stumbled across a site called Sizzle that offered live, streaming video from a strip club in Vancouver. "It was unbelievable! This was not just phone sex, this was not just Hustler magazine, this was not just video sex. This was all of it in one — a true multimedia experience that encompasses every facet of entertainment. I'd never seen anything like it."
Warshavsky flew to Vancouver and met with the five partners of Starnet Communications International Inc., the people behind Sizzle. They talked about a joint venture, but the discussions went nowhere. "We couldn't come to terms," says Warshavsky. "We wanted to take an extremely aggressive approach to the Net — to take a high risk and see what came back. I think we scared them. So we decided to copy or knock off what they were doing, and we took it to a whole new level."
"We gave him a full rundown on what our Net business was like," recalls Jason King, a Starnet vice president, "and he decided to do it himself. We were not too thrilled with how things ended up."
Warshavsky's site, then called CandyLand, went up in January 1996. His competitors from phone sex were already on the Web or would soon follow. They all brought lots of cash: being well capitalized, they could afford to innovate in ways many other content providers could not. "Most people don't invest the type of money we invest in infrastructure," says Warshavsky, who by his own account has put some $3 million into IEG's sites — to pay for 12 SGI servers, 12 Pentium-based video servers, two Oracle servers for credit card processing, two T3 connections, and 48 PCs for point-to-point videoconferencing and long distance telephone billing. "The Net follows the money," says Rod Collen, a star graphic designer at IEG. "The military had the money to create it, and the sex industry has the money to expand it."
How is sex changing the Web? Most obviously in graphics: no matter how you feel about the content, sex sites are among the most visually dazzling around. IEG employs three programmers and eight graphic designers who are encouraged to be as creative as possible and who, unlike their counterparts at Microsoft or CBS, have no corporate image to worry about. Much of their time is spent working on compression techniques to make the sites look cool while downloading quickly with a 28.8 modem.
"This is a dream job for a graphic designer," boasts Collen, a sandy-haired 27-year-old who wears a Vandyke beard and a T-shirt and works in a bullpen lined with Macintosh and Windows NT machines. "We're on the cutting edge of everything. If there's a new technology out there and we want to add it to the site, it's not hard to convince management."
Sex sites are on the cutting edge in other areas as well — in database management (it's not easy serving up all those JPEGs), in online payment systems designed to make it easy to make credit card charges on the Internet. Every day, IEG's 20 customer-service workers get faxes from people afraid to send their credit card numbers over the Net. Customer service also has to deal with piles of bank notices about people who've denied their credit card charges — a perennial problem for the phone-sex industry, and now for Web sex as well.
"With sex comes shame," one worker quips. "It doesn't matter if it's virtual or not."
Warshavsky recently launched a new company, Interfund Financial Services, to deal with these issues by facilitating "impulse friendly" online commerce. With IFS, customers can submit an encrypted credit card number through dedicated lines, put their charges on their phone bill, or even have their bank account debited directly.
Like Microsoft's Wallet, Bill Gates's online payment service, IFS is intended to give small Web site operators the ability to collect money easily and inexpensively. Unlike the Wallet, it won't involve a cumbersome download-and-installation process, which Warshavsky likens to 7-Eleven erecting a hurdle in front of its cash registers. "If you're going to take money from somebody," he says, "you want to make it the easiest thing in the world."
Equally significant are the video technologies that will complete the transformation of the Web from a static medium to an active one. "Everyone was saying there's going to be great live videoconferencing technology, everyone thought that was wonderful — and then nothing," says Christophe Pettus of Blowfish, a San Francisco-based online retailer of erotic merchandise. "The technology that's making that real is delivering erotic entertainment. This is in fact the killer app — though most mainstream businesspeople are still in denial about that."
Not so adult filmmakers. Today, the Web is no more than a promotional device for the adult movie industry, which this year is expected to generate nearly $5 billion from video sales and rentals. But the prospect of worldwide video-on-demand via the Web, with its ease of distribution and its potential for easily circumventing local and national obscenity laws, has visions of dollar signs dancing across the San Fernando Valley, the pocket of northern LA sprawl where the US porn industry is headquartered. David James, a partner at Vivid Video, says that within a few years, video-on-demand will be the company's biggest revenue source, outstripping even sales of videocassettes.
Warshavsky has been thinking ahead as well, trying to get in position for convergence. When the Internet morphs into TV and the dozens of channels now available via cable or satellite become countless millions, the only content with any reach will be branded offerings (HBO, MSN, Penthouse) or those that make it onto some sort of channel guide. So he's been talking with Time Warner, with Viacom, with The Microsoft Network. He even retained Korn/Ferry International, the executive recruiting firm, to find a vice president of business development who could make deals with the giant media conglomerates — though in the end he hired someone with a sex-industry background.
At the moment, of course, Web video is still in the nickelodeon era: the images are tiny and fuzzy, and on 28.8 modems they're hopelessly jerky as well. Even so, this is the heart of Warshavsky's business, accounting for 65 percent of the traffic on his Web sites and forming the basis for his lucrative series of partnerships. And because people will pay to watch strippers on live video when they won't watch much else, he has one of the leading laboratories for its development.
Last year, for example, anyone who wanted to see IEG's live strip shows had to first download Xing Technology's StreamWorks, close their browser, install the program, and then relaunch the browser — a time-consuming process, not to mention a distracting one. What if you forgot where you downloaded it? What if you weren't tech-savvy enough to try? What if you were just too horny to wait? "Sex," as Warshavsky is fond of pointing out, "is a completely impulsive purchase." And at $49.95 per 30-minute clip, every lost impulse counts.
So his programmers developed software that would push the video directly to the customer's computer. It took them about a month. When push video was implemented in November of last year, IEG's income from live video shot up 30 percent. It now accounts for 40 percent of the company's revenues, with membership fees contributing another 35 percent and online games, pay-per-view movies, and sales of dildos and other sex toys making up the rest. "That's what it's going to take to make money on the Net," Warshavsky declares. "Ease of use and instant gratification."
IF YOUR EMAIL IN-BOX HAS BEEN ANYTHING LIKE MINE LATELY, you probably awoke one morning last summer to find a message from the ravishing porn star Felecia, who appears on the Net exclusively for IEG. Subject: RIDE KYLIE IRELAND HARD! It seems the lovely Ms. Ireland, star of the recent release Smooth Ride, was scheduled to appear that weekend in the Arcade, the live-video section of the ClubLove Web site.
ClubLove features many other virtual locales: the Video Theatre, which offers downloadable QuickTime videos and pay-per-view movies; the Dressing Room, which enables you to pick up bios and photos of ClubLove's performers and send them email; The Gallery, where you can download photos of the ClubLove Girls and stills of people engaged in most of the nonviolent sex acts that two or more living adult humans can conceivably engage in; the Yellow Pages, a phone-sex directory; and the Sexual Relief Map, pinpointing strip joints, adult bookstores, and escort services across the country. But none of these measure up to the Arcade — the virtual peep show, the cash cow of the company, the future.
"We view the Net as an interactive TV-type thing," Warshavsky declared, clicking off his cell phone. We were in his black 740-series BMW, driven by a denim-clad young chauffeur because Warshavsky lost his license after racking up 20-odd moving violations in five years. Cutting through IEG's once-seedy downtown neighborhood, where X-rated businesses like Champ Arcade and Fantasy Unlimited are fast giving way to trendy restaurants and high-rise condos, we headed for the dockside loft building where the ClubLove Girls do their thing.
"Right now, it's a novelty," Warshavsky continued in his rasping, nasal voice. "But when the mediums converge and you have true interactive TV, it's going to be unbelievable. You could be watching CNN and your stock quotes would pop up onscreen. You could be reading Penthouse magazine and an adult film star would pop up and talk to you in broadcast quality — 30 frames a second, truly interactive. Anything could happen!"
Well, almost anything.
A few minutes later, we pulled up at a renovated brick warehouse and took an elevator upstairs. Striding down a long corridor to a door marked "IEG — Employees Only," Warshavsky knocked and was admitted by a slender, 30ish woman wearing a loose-fitting housedress and glasses: Mara Mehren, his director of talent. Mehren, the den mother of IEG's live video operation, supervises the 14 young women who work in shifts on four stage sets that have been built inside the loft — bedroom, health club, shower, and dungeon. Except for the occasional visit from Warshavsky or a technician, it's a females-only environment; the seven men who strip for Manhole, IEG's gay site, work out of Mehren's house in a suburb 30 miles away.
For a few hours every other weekend, the Arcade features stars like Felecia and Kylie Ireland — sex heroines whose promotional appearances fuel not just their XXX video careers but their marketability on the exotic-dance circuit, where the real money is. The women who staff the Arcade full time, however, are unknowns, many of them students and artists who use their $20 an hour to cover the rent.
Women like Laura, a slim, peroxide-blond Annie Lennox look-alike, who told me when I went back the next day, "I can't believe I actually get paid to work here. I mean, come to a really nice environment to goof around nude for the benefit of unseen admirers — what could be better?"
"Working for Warshavsky makes everything worth it," Mehren averred as she stroked Oreo, her black-and-white Pekingese, while sitting at a bank of monitors on which various young women were enthusiastically exposing themselves.
Though Mehren once worked for Ian Eisenberg, she's been with Warshavsky for years, ever since he convinced her to run the talent end of his phone-sex operation. "I love the guy," she continued enthusiastically. "He's a very demanding man, he expects perfection — but he's got weaknesses, too." Weaknesses? "Oh, candy, food — bring him a muffin in the morning and he's happy. He's a little kid, you know. And the majority of this is all his creativity."
We were sitting in a dingy, bare-bones loft jammed willy-nilly with electronics; cables snaked down from the ceiling and fans whirred ceaselessly, fighting the heat of the overhead lights. Directly across from the monitors were two 8- by 8-foot cubicles, the bedroom and the health club (which came complete with little powder-blue weights, courtesy of the set-design firm Warshavsky hired to do the decor). The dungeon and the shower were around the corner; tucked in the closet of the shower room were a pair of T1 connections to pipe the video back to headquarters. A series of Panasonic controllers under the first four monitors allowed Mehren to manipulate the camera in each cubicle with a joystick. A fifth monitor let her see who was logged on and for how long.
Because no one was online when I was there — early afternoon Pacific time — the sites were running canned video from earlier performances. If someone had logged on, Laura would have dashed into the selected cubicle and started moaning and pulling at her leotard on cue. Despite such periodic lulls, Mehren maintained that business is remarkably steady: 24 hours a day, seven days a week, 52 weeks a year. Generally, there's a rush on the dungeon at three or four in the morning and another on the health club a few hours later. "Holidays don't apply," she said. "But tax day is a little slow."
The Arcade opened a couple of months after IEG's first Web site went up — "Let's see," Mehren mused, thinking back to her previous cat as she tried to pinpoint the date, "when did Snowflake pass away?" It draws college kids, women, guys throwing bachelor parties, but mostly it draws businessmen and professionals logging on from work. The demographics, which IEG gets by sharing data with credit card companies, are 90 percent male, 70 percent living in the US, and 70 percent between 18 and 40. "And if you ask them," said Amber, a performer who had just wandered out from the bedroom, "they're all tall, dark, and handsome. Every one."
Amber gets to ask because ClubLove has a phone connection that allows customers to call in on an 800 number while watching on live video. Each cubicle is equipped with a boom mike and a speaker box, so viewers and performers alike can hear everything in the room — including anyone who calls in.
"It's really disconcerting," said Laura, hugging her knees to her chest as she sat on a mat on the bare wood floor. "Suddenly, the phone will pop on and a man will say hello, and when another one pops on it's like two kids tugging on your arm. A lot of them are very clear about what they want to see and what they want you to say. You get guys who want to see your ass — but I actually get more requests from guys to wave at them than to show my ass."
Wave at them?
"Yeah. It's really important for them to know it's live."
The ClubLove Girls have their regulars: the New York insurance man who checks in every night before leaving the office and going home to his wife, the Southern gent who's too courtly to ask for anything naughty but has no problem logging on several times a day. Many send email, which is answered by customer-service employees, and some even send gifts, like the Italian attorney's self-published book of short stories I saw floating around IEG's downtown headquarters. "They're smart and well behaved," said Laura. "And unlike phone sex, our guys say thank you when they're done. Believe me, it's much appreciated."
Even so, the work can be challenging. One day, a girl named Lisa had a bunch of guys on the phone in the bedroom when one of them had a technical problem. Another viewer tried to help him, and before long they all forgot about Lisa and lapsed into computer talk — "what kind of system they had, my modem is faster than your modem, you know how guys get," Amber recalled. "There were seven or eight minutes when Lisa was doing nothing."
"The worst part of it," Mehren put in, "was that Lisa's a Mac person, and they all had PCs and they were dogging Macs. But Lisa was very good — she just let them talk. It was like this computer nerd's—"
"Fantasy," Amber sniffed.
MARA MEHREN MAY REGARD HER BOSS AS A PUSSYCAT, but it's an opinion few others seem to share. He's certainly controversial within the phone-sex industry: though no one would talk on the record, several of his fellow entrepreneurs are said to be furious over business relationships gone sour. One industry leader recalls finding Warshavsky laid out on the floor at the Century Plaza Hotel and Tower in Los Angeles during an audiotext trade show — punched unconscious, he was told, by an irate colleague.
"Seth is probably the most hated person in the business," says a partner in AlleyKatz, which IEG supplies with live video and other services. "I think it's mostly jealousy."
Even among his own workers, Warshavsky can arouse extreme emotions. In a recent six-month period, for example, he went through two different project managers. "He's a tough guy to work for," admits Derek Newman, IEG's staff counsel, a 26-year-old Pepperdine Law grad. "He stresses people out. He's very intense. He doesn't stop and ask how your day is. He's not a people person. But he's got a big heart." Newman tells a story about how Warshavsky uncomplainingly let his customer-service chief bring her infant to the office for months on end. "He's very generous," Newman concludes. "But he's not the most human person."
Or the most connected. Siblings? He's an only child. Parents? His father, a cable-system salesman, and his mother, the assistant to an insurance executive, moved to Seattle from Queens when Seth was 7. Newman, who considers himself Warshavsky's closest friend, asked to meet them for years. But Warshavsky never talked about them and rarely saw them, and whenever Newman brought it up, he made an excuse. Finally, he and Warshavsky ran into the couple on the street. "They seemed normal enough to me," Newman recalls.
Warshavsky does have some hobbies, but they all seem to involve speed. When he was banned from the road, he bought a powerboat that could do 70 mph on Puget Sound. "He's very scary when he's in that boat," Newman confides. Two months ago Warshavsky got his license back, a prospect that truly filled his friend with dread. Mostly, however, he works — 10 to 12 hours a day, seven days a week. "He's the most driven person I've ever come in contact with," Newman concludes.
Over dinner at Nishino, a pristine Japanese restaurant in an upscale Seattle minimall, I asked Warshavsky whether he was surprised at his success. He seemed more surprised at the question. "It all happened so rapidly, I never really looked at it," he said. "I like to think about what I'm doing next."
Role models? He looked at me blankly. "Mainly, I set goals for myself," he said. "Financial goals, new areas to get into. Every goal I've set for myself, I've achieved."
Well, there had been one role model, he admitted: Ian Eisenberg. Though only a few years older than Warshavsky, Eisenberg was already established in the phone-sex business, thanks to his father. "I was always fascinated by him," Warshavsky said. "I always wanted to try to reach his level." When he started out, Warshavsky asked Eisenberg for advice. Eisenberg wasn't in the habit of giving pointers to would-be competitors, but this kid seemed so innocent that he invited him over and coached him through the business.
A few years later, the two were suing each other. By that time, Warshavsky's little phone-sex operation had snowballed into a multimillion-dollar enterprise that rivaled Eisenberg's in scope and ambition. From 50 calls a day, he'd gone to 200, and then to 500. He'd opened his own service bureau — a fulfillment operation in the San Fernando Valley called Telecom Development Company that supplied sex and psychics to handle his own calls and, for a fee, other people's as well. Then, realizing that he could run calls through Canada and bill customers $3.99 a minute in long distance charges that cost about one-tenth of that, he opened an operation in Vancouver. Eventually he went in with two partners and formed a company called WKP Inc. to build his own long distance network.
Along the way, Warshavsky and Eisenberg became involved in a joint effort to develop software that would automate their calls. The software worked beautifully — but then, according to Derek Newman, Warshavsky became convinced that Eisenberg was going to use it as a Trojan horse to bring down his entire operation. He had his hard drives mirrored; shortly afterward, Newman maintains, a programmer dialed into Warshavsky's system, ostensibly to install an upgrade, and wiped out everything. Warshavsky phoned Eisenberg to announce triumphantly that he'd mirrored his drives. After Warshavsky sued Eisenberg for damages, Eisenberg countersued on the grounds that Warshavsky hadn't codeveloped the software at all but was merely entitled to beta test it.
Eisenberg — who declined to comment for this article — won an injunction forcing Warshavsky to develop his own software. Then the FCC advisory pushed them both out of the 10XXX long distance business and into 800 and 900 numbers, which cut revenues considerably.
A few months later, when Warshavsky had his live video operation up, he applied to the Internet the business model that prevailed in phone sex — the idea of establishing a service bureau to handle not just his own business, but others' as well. Just as he'd pitched his service bureau to would-be phone-sex tycoons ("You don't want to run your own lines, you want to run your lines through me — then all you'll have to do is sit back and let the money come in!"), now he could sign up small-time entrepreneurs who'd created their own X-rated Web sites. Guys like Kizzy and Cheese, the Hollywood duo behind AlleyKatz.
Kizzy and Cheese — they prefer not to use their real names — live and work in a rambling house in the lush, bougainvillea-strewn landscape of the Hollywood Hills, a few blocks above the Mondrian Hotel and the perpetual hubbub of the Sunset Strip. They got started in January 1995 after Kizzy, who's 30, convinced Cheese, 28, to go in with him on a porn stars' fan club run via mail order and the Web.
Until then, both had rattled around the lower echelons of showbiz. Cheese was a trainee/assistant at Intertalent, a once-hot Hollywood talent agency, before going to GoldenVoice, the concert promoter for Lollapalooza and other events. Kizzy wrote screenplays and hung with agent friends, whom he sometimes helped out with little adventures — like the midnight move in which several people from International Creative Management absconded with their Rolodexes and PCs to form an upstart agency called Endeavor. Kizzy's idea, which he got while dating a makeup artist who worked on porn shoots, was to form a fan club with four of the top female stars in adult films. Just as Planet Hollywood uses its association with Arnold Schwarzenegger and Sly Stallone to sell burgers, AlleyKatz would use Ashlyn Gere and her pals to sell porn. It sounded good, but it was slow getting off the ground: in the first year, the pair often found themselves stumbling down to the mailbox in hopes of finding a $25 check so they could buy lunch.
"He got in touch and said, 'You guys come on board,'" recalled Kizzy, sitting in gym shorts and a T-shirt at a dining table on the top floor of their hillside house. Cheese was still in his boxer shorts, though it was past noon. "He had all these services we didn't have — live video, pay-per-view. He added us to his big picture, so now all our lookers can see everything." It's paid off: with three sites on the Web — AlleyKatz, Erotivision, and the new gay site, Steel-City — the two stand to gross, by Kizzy's figures, some $2 million this year. Last summer they sold half their business to a pair of Beverly Hills real-estate developers for $1 million and put the money into a gaming Web site called Sportsbook, which will offer baccarat and roulette and take bets on sporting events from their new base in Aruba.
For Warshavsky, AlleyKatz was an easy sell. He had a tougher time marketing his services to General Media Inc., which publishes Penthouse. But last spring, after calling on GMI for more than a year, he signed a five-year exclusive to supply the PenthouseLive site with live video.
Warshavsky sees this as a step toward the larger goal of securing mainstream distribution for his X-rated content. But a visit to GMI's New York offices, in a Park Avenue tower across from the headquarters of Chase Manhattan Bank, suggested that executives there may view things differently.
"One thing we're putting together that's very exciting," said Steve Becker, a rotund figure in black jeans and T-shirt, "is the ability to offer turnkey adult Web sites for entrepreneurs with the Net in their blood." What IEG is doing now, with SeXXXvision and the like? "Yes, but in a substantially more effective way, because in addition to the product, we'll provide an unparalleled level of marketing support." And future joint ventures with Warshavsky? "We'll talk to anybody," Becker replied evenly.
A gnomelike individual with a salt-and-pepper beard and ponytail, Becker brings to the business a messianic fervor, or at least a smoother patter than Warshavsky's. "We're talking about creating not just a site, but an organism!" he exclaimed. "We see ourselves evolving into a 24-hour multichannel interactive broadcast facility that will include user-generated channels created on the fly, so you can create your own live, interactive channel by clicking on a button, just like a chat room on AOL today. The consumers are the content! It's a very exciting time to be alive — like three weeks after Gutenberg invented the printing press."
When he wasn't spouting Renaissance, Becker talked about the Penthouse sites in terms that recalled the earliest days of the online experience. "We want to be not just a place people visit, but a community they participate in," he said. "But different from the AOL vision of community — one driven by human needs, by the need to see and be seen. We intend to be a joyous nexus in the lives of our users — and there's money in that."
Meanwhile, Warshavsky has been looking for new areas to get into on the Web. His philosophy resembles that of Penthouse founder Bob Guccione: start with sex and then go mainstream. He's even hoping to float an initial public offering in the next four to six months. "Our goal is not only to be an adult content provider," he says. "We want to be the Viacom of new media."
Last summer IEG launched its first nonsex site, the Psychic Zone, in partnership with Quintel Entertainment, the New York company behind the Psychic Readers Network, a 900-number service with celebrity endorsements from the likes of Billy Dee Williams. The content may be different, but the setup is much like ClubLove's: a subscription fee gives you access to such offerings as indecipherable Russian tea-leaf readings ("Will I get rich today?" "The leaves reveal an image of dry wood") and a Love and Romance message board, while for an extra $49.95 you get a half hour with a psychic on live video. Although psychics have long been a mainstay of audiotext, IEG's is apparently the first interactive psychic Web site. "But the demographics of psychic telephone lines are low-income black people who don't have computers," Warshavsky says, "so this should be interesting to see."
Another site IEG was readying for launch, and one that might well prove useful to extreme fans of ClubLove and other X-rated Web sites, is Formlawyer.com — the online bankruptcy site, created in partnership with Tele-Lawyer, a Huntington Beach, California, firm that offers legal advice via audiotext. For $79 (no subscription fee on this one), users can go through the entire filing process online. There's more in the works — a joint venture with International Cel Art Marketing, a Maryland firm, to set up a site for selling art, and an interactive music site that will sell records and offer concert and band info. "The next step is diversification into every level of entertainment possible," says Newman. "There should come a time when people think 'entertainment on the Internet' and say, 'IEG.'"
Inevitably, however, there will be a few hiccups along the way. Warshavsky wandered out of his office one afternoon, having just hung up the phone, with a what-do-I-do-now? look on his face. "One of our psychics is a transsexual," he announced to no one in particular. "She says we can't put her in the same space as all the other girls because she can't handle the energy." He struggled to wrap his mind around the problem. "It's going to interfere with her psychic vibes — is that what it is?"
IT WAS A MONDAY EVENING, AND WARSHAVSKY, as usual, was on his ever-present cell phone. "Wanna see something really awful and disgusting?" he was asking. "Fisting! I found it through Yahoo! They show all sorts of stuff. They ask, 'Are you 18? Yes or No' — but anybody can go in there. It's awful!"
One thing all the big Web-sex players agree on is the need to keep the sites free of kids. When the Communications Decency Act was struck down, Warshavsky even wrote an op-ed piece for The Houston Chronicle, urging Congress to pass "constitutionally sound legislation" that would prevent minors from accessing adult sites and yet doesn't infringe on free speech. It's not surprising he'd want to keep kids out, given legal penalties that make them the cyberporn equivalent of jailbait. But even without the legal complications, as an executive at Ted Liebowitz's Worldwide Media Group points out, "it's not profitable luring minors."
The ideal Web-sex consumer is over 18, with surging hormones, the latest technology, and plenty of free time and disposable income — in other words, a college student. Interestingly, Naughty Linx reports that hits on its site drop 22 percent every June and pick up again in September.
Happily for Warshavsky and his competitors, the technology for screening out minors and the technology for collecting money are the same. Credit cards, which aren't supposed to be issued to anyone under 18, were even acknowledged by the CDA as an acceptable screening device. (Kids can get their hands on their parents' cards, but that's the parents' problem.) So the dozens of big-time sex-site operators who charge a subscription fee are better protected than the thousands of hobbyists who put up a site for their own amusement — most of whom are also liable for copyright infringement, since their online galleries are usually made up of photos they scan in from magazines or pirate from other Web sites.
Even without the CDA, there's a limit to what most professionally run Web sites in the US will show. Like other publications, they have to meet the Supreme Court's obscenity test, which means they must abide by contemporary community standards, cannot appeal to a prurient interest in sex, and must show some serious scientific, literary, artistic, or political merit (the SLAPS test). Like cable providers, most commercial Web sites interpret the law to mean no hardcore material — genital penetration, for instance. Even ClubLove's Hardcore Gallery is not, in the technical sense, hardcore. Such material isn't hard to find on sites based outside the US, especially from the Netherlands, but one of the few major US sites that seems willing to risk it is Amateur Hardcore, run by a Florida company called WebPower.
"We feel that at some point there will be legal action taken against a US-based site that shows hardcore material," says Steven Hirsch of Vivid Video, which supplies softcore films to the Playboy Channel in addition to producing hardcore sex videos and assorted new-media products. "We're a high-profile company. We'll have to see what happens with some of the people who take that shot."
Meanwhile, the Internet is shaping up as the medium that could finally make local pornography standards obsolete. Last June, a federal judge overturned New York State's version of the CDA, ruling that state censorship threatens to paralyze development of the Net and violates the Constitution, which gives Congress alone the power to regulate interstate commerce. "It's very exciting," says Derek Newman, who studied under Whitewater prosecutor Kenneth Starr at Pepperdine. But it's the only part of his job Newman would say he does find exciting.
Clean-cut and proper in a pinstripe suit, blue eyes flashing beneath a shock of coal-black hair, Newman brings to Net sex the straight-arrow look and bearing of the consummate Young Republican. "What we're doing is providing entertainment that is protected by the First Amendment," he says. "We're adhering to capitalist principles and a strict construction of the Constitution. I don't see a problem with people doing business just to make money — that's what business is. But what I get off on is the philosophy behind the business rather than the product itself. I'm not really at all involved in the product. I don't know if I'd like to be, either."
And Warshavsky? I didn't see him as someone whose real interest was sex. Newman concurs. "Power is big with him," he says. "Money is big with him. The two run hand in hand."
"This is a high-margin product that's in demand," Warshavsky says with a shrug of resignation. "People want to pay top dollar for it." But for himself? "I don't mix business with pleasure. The women at the Arcade — that doesn't excite me. When we first saw that commercial" — the phone-sex infomercial on cable TV that started him in the business — "it was like, 'Hey, not only will we make a fortune, but we'll meet tons of women!' That lasted about a week. It's just so normal for me now."
As it is for everyone at IEG. The place is full of well-socialized young people, some hip, some square, who spend their days surrounded by raw sexual imagery but then go home and use their sex organs to make babies. Rod Collen, whose first child was born this fall, admits to feeling threatened when he started at IEG and was put to work designing the gay site. "I thought they were playing a joke on me," he says. "I almost felt like walking out. But once you're in an area like this, you see adult film stars come in — they're real people, they're nice. It doesn't feel like you're walking into an adult film shop anymore. Sometimes it even feels like work."
"I think everybody who enters the adult industry probably has reservations," says IEG's project manager, 30-year-old David Hopkins, a computer-industry vet who also had his first child this fall. "But I don't have any problems with the industry, and I was faced with the option of looking myself in the eye and saying 'hypocrite,' or simply viewing it as another job."
There are a few people in the business — most of them women — who actually do view the Net as a way to challenge sexual norms. "It's a new language of sexuality," declared Madeleine Altmann, a 34-year-old video artist who's a partner in the Babes4U Web site.
A slim woman with sandy brown hair in a pageboy cut, Altmann was sitting in a grungy lower Manhattan loft in white riding pants, one boot on a coffee table, as her "babes" stripped in cubicles a few feet away. "With video/phone sex, you can ask somebody to do kinky things, but it's still completely anonymous. Something like this has never existed before in our history. I'd love to tie up a man, to see his balls tied up — but I'm not going to, because, as an American I'm uncomfortable talking about sexuality." I couldn't see that stopping her, but it seemed unwise to interrupt. "Now I'm able to act out my fantasy with another human being, but I don't have to go to some weird place, ask somebody to come to my house, and put myself in a compromising situation. Suddenly, on the Net, this is not a fantasy anymore."
HOW IS THE WEB CHANGING SEX? There's little question that with its anonymity factor, the Internet will revolutionize the sex industry just as the VCR did 20 years ago. In the 1980s the adult cinema, long a First Amendment battleground, simply withered and died; the corner video store may well do likewise, once people can watch other people having sex without ever having to show their faces. But will the illusion of privacy afforded by the Web merely encourage people to retreat deeper into their closets? "The VCR has gone a long way to legitimize consumption of adult material," says Christophe Pettus of Blowfish. "And yet if everyone who rented adult videotapes was as vocal as the people who own guns, you could not get elected to public office in the United States without talking about how often you whack off to porn."
This is the paradox of sex in America: economically paramount, politically toxic. Politicians in their jeremiads against porn on the Net may vastly overstate its pervasiveness , but they're right about the essential threat. The Internet has become the new frontier where raw capitalism shoots it out with the puritanical impulse, the twin faces of American Calvinism dogging one another as they have for centuries.
In Warshavsky's glowing electronic pornocopia ($9.95 per month, MasterCard and Visa accepted) lies the central contradiction of the American psyche, the commandment to work hard and prosper ramming up against the injunction to choke off earthly pleasure. If there's anything revolutionary about all this, it's what would-be censors fear — that sex is everywhere on the Net. Now that, as Pettus puts it, "everyone's kid has put up a porn page," how can it be roped off into a perv zone? For the populace at large as for the folks at IEG, sex threatens to become simply normal.
But Warshavsky is no revolutionary. Being a good capitalist, he doesn't care what the Net does for sexuality, just what it does for him. It's a medium to be exploited, just as he exploited telephony and others exploited video and print.
Attitudes? "I don't think they'll change," he says. "It may replace dirty magazines or peep shows, but that's about it. I mean, you can't fall in love with a computer" — he screws up his face for a moment's reflection — "I don't think." ■
Frank Rose is the author of The Agency: William Morris and the Hidden History of Show Business. He wrote about AOL in "Keyword: Context" in Wired 4.12.