Are you sort of a symbol of the new executive that is now controlling things in adult entertainment?

I think I am kind of a symbol of where this industry is going. It is an industry that has opportunity for people like me, so of course I moved over here.

Where is the industry going?

The adult industry is going to be more accessible to the consumer. It's always been very popular. People want it, but yet it was hard to get it to them. People didn't want to go to the back of the video stores and to the little theaters that people had to go to. Now, with television and computers, etc., it's accessible.

Let me take you back to the first days when you walked into this business. How long does it take before the product becomes to you more like just a "product." I mean, to most people out there this is pretty spectacular stuff--

Not very long. One thing about the adult entertainment side of the business as opposed to mainstream is it really isn't any different from a manufacturing company or any other company. These companies now are large enough and complex enough that as the president of a company, what you're doing is handling PR and marketing and distribution and manufacturing costs and budgeting and all the things that you would do at any other company.

So I'm actually not at the set of any movies. There's many layers between myself and all these different portions of the business. I think that's true of a lot of the larger companies in our industry. So, as the person who runs the company, it's very easy. It's really no different than what I was doing before.

How do you explain it to your mom and dad? I mean, personally, how do you sort of deal with that?

Well, in my case, I had dinner with my parents and my sister and I said, "This is what I'm going to do, and the reason I'm going to do it is it's a legitimate business, it's product that people want, it is great growth opportunity, it is all the things you look for in a job. And if you remove the words adult entertainment, or remove the word adult and just make it entertainment, this is a very noble business."

And you have to explain that to your parents. And my parents, fortunately, are wonderful, supportive people who said, "Look, you've obviously thought about this, you're comfortable with this, and if you're comfortable with it, we are, too."

I don't think my dad would have said that.

Your dad might, your mom might not have, and don't tell your grandmother.

How big is this industry, and how do we know?

The numbers that have been bandied around are somewhere between $4 [billion] and $10 billion, generally. And I know that portions of the estimate of $4 billion are low. Ten billion is probably high, but it depends on, also, what you group into the adult industry. Technically [it's not just] videos and DVDs and television and Internet, but it also includes everything from strip clubs to magazines. I would say that with any definition, it's about $4 billion. ... I would say that it's probably less than $10 billion right now.

The key, though, is the growth factor. If you look at what was there three years ago, it's probably half of what it is now. Where will it be three years from now as distribution access grows?

And all of a sudden you have Internet and broadband, and once video can be seen over the Internet without the choppiness, that's when you're going to see it grow by five times in a year. Particularly when you add in what's happening internationally. Right now when we talk about this number, we're talking about domestic number, predominantly. The rest of the world is taking off in terms of entertainment, in terms of accessibility, in terms of technology. And that's going to be a huge growth area for businesses like my own.

Why is it doing so well?

Well, it's relatively recession-proof. I mean, people want it. As a matter of fact, it's entertainment that, if you can see it in your home, it's cheaper than going out and taking a huge family to the movies or going to the ballpark. It's not really an expensive proposition, for adult entertainment again is just distribution. Can I get the product to the consumer? You know, it used to be that someone would have to rent a video in the store, and before that it was a movie theater. Now, as television comes into the home, the privacy of your own home, there's no embarrassment factor, there's no issue with privacy. The Internet is a personal technology and that's very well suited to adult entertainment.

Who buys it, and what do they want?

Well, not all adult programming is created equal. Definitely there are niches in this industry like with anything else.

Who do we appeal to? A large portion is couples, there's women, there's men, I mean, that is our area. And it's really more, like I said, the mainstream. There are people out there who are clearly targeting young males. There are those out there who are clearly targeting women, more romance, more storytelling, there are those who are targeting older people, older men specifically.

So there's not really one specific group that buys or watches adult content, but clearly what we are seeing is the younger group--

Young people meaning what age group?

The biggest growth areas are the twenties to thirties, younger people who grew up in a period of time, whether it be the '60s and the '70s, whether it be in the era of Bill Clinton and the things that we all got used to watching on the news with Monica Lewinsky. You have people who are very, very comfortable with adult content. If they don't want to watch it, that's a personal choice. A lot of them, if they choose to watch it, aren't uncomfortable with it at all.

What is Vivid, and what does it consist of?

The company Vivid is really based on the production of movies. In the past, the leaders in the "adult" field were Playboy, Penthouse magazines, print operations, if you would. What's happened over time is that people's taste has turned more toward the moving picture, as you well know. Also print magazines are more expensive to print, to mail, etc. There's really been a shift in the adult industry towards the video side of the business.

What we do is we produce approximately 80 movies a year, full-length feature movies. We distribute those movies on video, VHS, DVD. We have Internet sites. Up until recently we had television channels domestically and internationally. Our international business is growing in 30-some countries with all its new products. So we're really just like a studio. What does Paramount do? They produce content, they distribute it through all the different platforms.

Internet sites?

We have a number of Internet sites. In the adult industry it's not odd to have quite a few Internet sites, with everything from different fetishes, aimed at different markets, if you will. How important is it to us? It's approximately 25-30 percent of our business right now. The key is, it's the growth area, it's the thing that's taking off. I mean, obviously what people want to see, through the Internet or on TV, is quality moving pictures. Right now, as you know, even with a high-speed modem, they're still somewhat choppy and have a tendency to drop off. So, in the next few years, as video can be streamed better, that's when you're really going to see that business take off.

There was a lot of talk a year or so ago that Vivid was going to go public.

About a year ago we were looking at going public. And there was quite a lot of interest. One of the reasons we did it was we wanted to see the feedback from, primarily, the financial institutions. We'd also met with underwriters, we'd had a lot discussions, we tried to get a sense of whether or not an adult company at this time could go public, whether or not we could draw the kind of investment that we needed to draw, whether or not it would be more of a niche kind of a public offering.

We certainly didn't want to do what others have done in the past, which was simply to merge the companies into already-public companies. We wanted to roll it out. We wanted to be very public about it; this is what we do, those who are comfortable with it, invest in us if you believe in us. If you don't feel comfortable with our product, fine, we certainly understand.

As a matter of fact, what we found was that some investors liked the idea that maybe other investors weren't going to get into this marketplace. Maybe they could get a good price, maybe we could buy up more stock. So we had an incredible response. Of course, what happens, as everyone knows, is that the IPO market, the bottom fell out.

Now, granted, those were mostly dotcoms who weren't really producing any kind of profits, whereas all of our businesses do indeed create profits. They've all been profitable for a number of years and we have good solid margins.

So our numbers were what the investment community was really interested in. They liked the fact that we had a business that was really producing profits, tied to technology but not reliant on technology, that we had a base in the video and DVD and television business with huge growth potential internationally and on the Internet side.

So the only reason we haven't gone public is simply the marketplace.

Is the investment community ready to jump on board?

Some are, some aren't. And the nice thing about it is we've been able to sit down with all of them. Nobody has turned down a meeting with us, but they'll also be very frank and say, "This is not where we want to go right now. This is not the image that we want to be associated with." Others are very, very excited about it. And it really is on a case-by-case basis.

The political situation in Washington, with a more conservative administration, does that affect the way Wall Street might view getting involved in something like this?

... As adult content goes we are very mainstream, and in a sense we're not the people that really have something to worry about within their administration. I don't know who are the folks necessarily that the administration would be looking at, if they look at anyone, but it's never been sensed that it would be us.

What does it mean that this industry has gone mainstream? Is Vivid mainstream? And what does that mean?

Vivid is mainstream in that there's a large percentage of the population who enjoy our product, who are comfortable with it, who want the distributors to distribute our product, whether it be cable systems, whether it be video stores and DVD stores, etc. There's a lot of people now who are looking for this content and who are buying this content. I mean, in the old days there was the perception that it was old men in raincoats. And certainly now if you look at the demographics of our buyers, this is a broad spectrum of the United States.

Let's talk about cable/satellite distribution. You've sold your domestic TV operations. ...

We've sold our domestic television operations to Playboy. On the foreign side -- which is one of the growth areas -- we are still launching new television networks overseas, we are selling content, as I said, in about 30 countries. So for us, what we've really been able to do is monetize, get our money for the domestic side of the business so that we can now invest that money in the international side and on the Internet side.

Which you think is the growth area anyway.

Correct.

And what was the variety, basically, that you offered them on the TV channels?

What we offered on the TV side was, it could be as simple as a more-edited version of films, literally meaning that it was more the plot, the sensuality, rather than the sexuality. We wouldn't show graphic content, you know, meaning explicit content. And then we had over movies that we'd literally, you know, we showed almost the version that you would see in the video store that contained anything that people wanted to see.

Before you sold to Playboy, how many households were you getting into? Do you have all the numbers for that, roughly?

Our three networks, at the time when we sold them, were in around 40 million households. ...

Is there any way to judge how many of those households would then use the service?

Well, what we know is not necessarily which households -- again, privacy is a very big factor in our industry, and even we chose not to know, you know, who exactly had it. What we did know was how many times. This was all pay-per-view, so that meant that if somebody wanted to watch a movie they could tune in, turn it on, watch a movie or watch two movies in a row, then it would turn off again.

So we did know what's called a buy rate, which is for every million homes you're in, in any given month we'll know how many times someone bought a movie. Generally our buy rates for the networks were between 10-20 percent, meaning that if there's a million homes in a given month, for every million homes you'll do a hundred thousand, hundred thousand plus buys.

So 40 million homes you were in and the profit was?

I won't go through all the details of our contract. But that 10 percent buy rate [in] 40 million homes would equate to approximately four million movie buys per month.

How does it work with hotels?

Hotels have what's called video on demand. They have the ability to take a movie, and they literally take the VCR tapes, so you distribute VCR tapes just like the packages that you put into your VCR at home. They put them into racks of VCRs in the basement of the hotel, so that when somebody wants to watch an adult movie, they click on the first movie on the list, let's say, and that VCR kicks on and plays it, and it's just like you're watching it in your own home.

We would go to the major chains of hotels, or actually the in-room entertainment people who took care of the major chains, and we would cut a deal with them to sell them a title. Generally they would pay you a flat rate, although some pay you a percentage of what they took in. They literally would pay for the cost of producing the costs of the VCR tapes and shipping them to the various hotels, and that would be how it would work.

Do you have any sort of read off of how many hotel rooms and what percentage of hotel room clientele were using them?

Well, the usage is much higher, obviously, in a hotel room than it is in the home, partly because the people in hotel rooms particularly, you know, the business traveler quite often are there by themselves, they've got time to kill, so for them it's a wonderful entertainment opportunity. Just sitting in your hotel room, there's not a lot to do. So the odds are that it would be three to five times as much per person per month in terms of sales.

So if you're in 100,000 hotel rooms, was there a mathematical questions of how many hits you'd get for--

Well, the buy rate again, the buy rate on television was like 10 percent, maybe it would be closer to 50 percent on hotel rooms. I mean, in any given month, in 100,000 hotel rooms, you might have 50,000 buys.

So it was a profitable endeavor.

For the in-room entertainment companies it is. Their job is to come in and create extra revenue for themselves and the hotel to operate entertainment in the room. Right now that's just simply the VCR tapes, if you will. Eventually that technology will improve and ultimately you're going to have interactive programming through your computer which you'll be able to hook up in a hotel room.

And some money is coming to the hotels for providing this service.

The hotels do well. Again, though, if you're paying $100 for the room, certainly what you are on average spending on, and the portion they get for the adult movie is going to be very small compared to $100. The hotel may take a dollar or two from the average consumer. So percentage-wise it's very small, but it's an important revenue source.

Does the same situation work with cable and satellite providers? When they send it into the home, do they get a better percentage on adult video than they do on Hollywood fare?

On the television side, television operators, meaning cable companies and satellite companies, take approximately 80-plus percent of the adult dollar that gets spent by the consumer.

Which is pretty large.

It's a very good margin for them. On the mainstream side they're probably only get about 50 percent. And again, coupling with that the fact that adult sells for about three times as much per movie to the consumer, they obviously are very reliant on the adult income. Very important to them.

An obvious question: Why are they interested in providing this material at this time?

The reason that cable systems and satellite systems offer our content and offer our networks is simply a purely business decision. I think in the past there was always a concern about being the first one to offer anything more explicit, anything that might draw attention. There was always that very vocal minority, and I believe it's a small minority, who think that cable systems and satellite systems should censor what they give the consumer.

Even though satellite and cable systems know that consumers want to see this, even though it sells very, very well, there's always been a sense from those companies that they don't want to rock the boat. They don't want to be the first one to offer the consumer what they want for fear that somebody may be out protesting them, may have a picket line in front of their company the next day.

What they found out over time is that because of the changing attitudes in the country, that when they offer this product, more explicit adult product, that it sells very well, people are very happy with it, they get phone calls of congratulations and thank you's. They don't get the protests that they've expected in the past. Or, when they have gotten the protests, it's been a very, very small group. ...

How difficult is it for the mainstream folk, at this point, to provide this product?

I think it is always going to be difficult for large corporations to distribute adult content. To a certain extent it's sad that's still the situation and will always be the situation, but there will always be a group of people who believe that they should have the right to dictate to others what they can or cannot watch.

When AT&T came on board and sort of carried your channels, when that decision was made, how important was that to the industry?

It had no impact on our business, because people within the industry already knew. The other people who might have been able to help us by distributing our product, they already knew about those other companies distributing. They already knew how well our product was selling.

... We really have no desire to scream loudly from the top of the mountaintops to all of the people out there who might a problem with what we're doing that we've just signed up a large cable system or we've just signed up with a large company that you know or the DVD or the video side. So, in terms of mainstream press, it really does us no good to have those things out there in the mainstream press.

But, as a business decision or as a coup, it was pretty big-time, because it's not only the fact that it's another cable system, it was like millions and millions and millions of households.

Well, we've been very fortunate since we took over the TV network that we took over and we launched two more. About every six months we've been able to get another large, well-known distributor, to offer our content to their consumers. And with each one, I think that there is a little more credibility within the industry.

Is it a possibility, though, that with the more conservative administration and the directions that they seem to be going in, that the mainstream folk might be embarrassed out of the business?

When it comes to this administration or conservatives in general who may or may not be comfortable with what we're doing, the future actually is that it gets better and better for us. ...

What the future offers is a more secure environment to distribute adult content, where it only goes into homes that choose it, where it doesn't get in the hands of children, which is where none of us want it to be. And so I think when it comes to this administration or any administration in the future, what they're going to be looking for is for us to use technology to ensure that those who get adult content choose to have it and want it. I think that's where it's going in the future, that's why I think this industry has a very good future.

It would be very strange, in a lot of people's opinion, for a Republican administration to say that they want to come into your home and start to dictate, that the government should become more involved in your life and in your decision-making.

But who do you think they might go after?

Well, do they go after larger people who are more visible, like ourselves? Or will they go after the very large companies who distribute these? Will they go after the small companies that make product that is clearly more on the edge?

My guess is, I don't ultimately think that large companies are going to be attacked by the administration. I don't believe that a Republican administration or any administration thinks the American people want them coming into their bedroom and saying, "You can't watch this. You can watch this."

On the other hand, will they be able to go after the more fringe product? I think they might. ...

So, therefore, the Rob Blacks who are in the business, maybe that's where they start ... ?

Well, there's a concern certainly that those people who are making the fringe content would bring undue attention upon companies like Vivid or the major distributors. ... I believe in our judicial system, I believe in the First Amendment, and I'm comfortable with what I make. I don't think what someone else makes ever will impact whether or not what I'm making is defensible.

The so-called Cambria List. What was going through the minds of the industry and how were they sort of setting themselves up to protect themselves with this list?

Well, a lot was made about a list put out by probably the pre-eminent First Amendment attorney, Paul Cambria, who works for a number of the larger companies in the adult industry and is our First Amendment guru. He's the person that we trust to give us advice on what we should and shouldn't do.

He created not "a list." There was a lot of discussion about [whether] there was a list created, [whether] there was some kind of definitive, "This is what you do and you're OK; this is what you don't do, otherwise you'll get into trouble." Now, obviously, if a list was created like that and if Paul presented that to be legal or not legal, he'd certainly be doing an injustice to everyone, because there is no way to know what is legal or illegal when it comes to adult content.

Certainly what Paul did do and what we all did do, is that you meet on a regular basis, you talk on a regular basis to your counselor. You say to them, "What is the mood in different communities in this country? What is the mood in one state versus another state towards one type of adult content versus another?" And then you make a decision, and certainly we have always, always followed the advice of our attorneys in terms of what has been the approach in each area of this country in terms of prosecution, and we don't go anywhere close to that.

What's it like to be president of a multimillion dollar business, where no one knows what is allowable and what isn't?

Certainly when you start working in this industry it's something you have to get used to. In adult you literally sit down the first day and you call your attorney and you say, "Can I do this?" And the attorney gives you a half-an-hour dissertation about what's going on in Georgia versus Minnesota. And at the end of a half hour you realize you don't know anything more than you knew before, other than just kind of a general sense on where things were going.

Everything is gray. One of the things about that, though, for us, is that from a strictly business point of view it gives us a unique position. After awhile you know more about it than anyone else.

So on one hand it's very frustrating. On the other hand, I think it's one of the keys to Vivid being where it is, the fact that we have spent the time and we have spent the money and we have talked to experts to really understand what is and isn't appropriate as best we can.

What's your impression concerning the talk about a few people in Washington who have been involved in meetings with Ashcroft discussing the laws that are on the books. As far as they're concerned, the stuff that you produce, that Rob Black produces, the material that's on HBO, what's in Penthouse magazine, it's all illegal and all of it can be prosecuted.

Certainly we hear on a regular basis that there are people in Washington who think that what we do and what's on HBO or anything else, in their opinion, is illegal, it's obscene. Now, what we all know is that ultimately that's not up to Washington, it's up to juries, it's up to communities to decide what it is that they think is and isn't appropriate.

We have to be willing to risk sitting in a courthouse somewhere far away from where we live, being prosecuted, even though the majority of Americans would certainly feel that was inappropriate.

If they looked at our content, they would say, "My goodness, this is very appropriate." Certainly I would assume that what's on HBO most people don't think is obscene and should be outlawed. But that doesn't mean that you can't be prosecuted. That doesn't mean that somebody cannot bring a case against you.

So, even myself, or even somebody who works in my position at HBO, has to say to themselves, "Am I willing to defend this product? Am I willing to go to court? Am I willing to invoke my First Amendment rights and believe in the legal system?" And obviously there is no one, probably, who hasn't thought about that, who offers any kind of adult content and who hasn't made the decision that, "Yes, I will. I believe that I have an obligation, as a matter of fact, to say, 'I'm comfortable with what I do, therefore I will not back down. I will, if need be, defend it.'"

What's at stake?

I'm relatively new to this industry. There are people who have been here for 20 years and have gone through very, very difficult times back when they were prosecuting. A lot of people I know have spent time in jail. A lot of people have spent time in courthouses being prosecuted.

Those people, in effect, are heroes, they're heroes for all of us, because believe me, the average person would not want to find themselves in that position. Nobody wants to risk going to jail. But these are people who believe that somebody has to stand up and allow themselves to be prosecuted, and they've done it. And like I said, they have paid very extreme cases.

I don't think, again, that I'm taking a great risk. I'm a businessman. I have talked to attorneys. I am relatively conservative in terms of risk-taking. But every one of us in this industry obviously feels a certain obligation to the First Amendment.

Playboy, why did they buy back the networks from you and was it a smart move?

Recently Playboy bought our domestic television operations, and it was a deal that made tremendous sense for both companies.

For Playboy the reason they bought the networks was simply that the networks were making money, that they were very popular, that they were growing, that they offered them a chance to secure their position in the domestic television business, frankly at a relatively cheap price, based on where the industry was going. They made a decision a couple of years ago not to go into more explicit adult programming on television. They'd advertised themselves somewhat as a lifestyle brand.

And that was fine, but what happened was they started to get squeezed from both sides, the more explicit content on one side, and a lot more lifestyle magazines, etc., whether it was Maxim or Details or whoever it is. Ultimately the decision they had to make was where they were going to go. They decided they were going to go into this growth area. We, on the other hand, sold simply because of the fact that we were looking to new growth areas.

There's been extreme growth in the past 10 years in this industry. Tell us what's going to happen in the next ten years.

In the last 10 years what you've seen is extreme growth simply because of distribution channels' technologies. Ten years ago there was virtually no adult content on television other than, primarily, just the Playboy channel, which is very, very soft, and one channel, it wasn't widely distributed, compared to now. You didn't have Internet. DVD wasn't there.

What's going to happen in the next 10 years? We really have only scratched the surface right now. If you look at how many television homes are there in this world, or will there be, how many total homes are there, versus how many can get adult, we're still a very, very small percentage. The Internet has really obviously increased that, but again, the Internet is not the true experience of adult.

What happens 10 years from now when literally, if you believe that we'll have a wired world to some extent, and the number of homes is five to 10 times what it is now that are wired with the Internet, and if you can collect and if you can sell and you can distribute adult content to all of those homes, what is the total revenue? Right now domestically in this industry it is $4 billion to $10 billion. Where would it be worldwide 10 years from now?

Now, obviously everybody has an opinion, but I think that most people agree that that increase in distribution is going to offer a huge increase in revenues for our industry.

So the future is green lights and blue skies?

Well, I think like any industry it really depends on how you position yourself. It depends on what product you make. It depends on what consumers you target. And so whether or not it's blue skies and green lights for me is not necessarily the same as for someone else. But I do think the industry is going to see tremendous growth.

And finally, the Bush administration is looking for a very different future. Do you think they will indeed have some effect?

I don't think any one administration in any one country ultimately is going to impact what happens to adults long-term. Administrations come and go, [but] there are lots of countries, people in this world. There are always going to be people willing to produce and distribute adult content.

... How graphic it is and what exactly it is, that always changes, and it can ebb and flow. It can be the pendulum that we've seen over the last 40 years. But ultimately you're always going to have adult content, there will always be people who don't like it, people who do love it. And I ultimately do not believe that we should look to any one administration, one government, or any one individual and think that person or that administration is going to have profound impact on adult content.