Technology is increasingly becoming less of an issue, but taboos and (in many cases) legal issues remain significant challenges worldwide. Even in markets like the US - home of some the most explicit porn in the world - cellcos have been reluctant to go anywhere near adult content due to pressure from anti-porn activist groups. The negative association with anything sexual and fear of a conservative customer backlash are a big enough worry that several large operators scheduled to attend a Mobile Adult Content Conference in Miami earlier this year reportedly dropped out at the last minute over fears that attendance was tantamount to condoning such content, according to BWCS.

Even in markets where mobile adult content is more socially acceptable, that doesn't mean anything goes - and that's as true for operators as well as polite society, says Andy Kleitsch, CEO of adult mobile video distributor Wireless Content Solutions (wContent).

"Every operator has a different comfort level," he says. "Some might want the full explicit version, but for others non-nude bikini models is as far as they're willing to go."

Between operator comfort levels and local regulations, content is frequently edited, either by the producer, the distributor or the aggregator, to suit all possible market and operator requirements.

For example, says Kleitsch, "We have a 'Fun & Sun' section where the models are clothed to some degree but definitely non-nude. We can also edit the content we license to conform to local regulations."

The downside, he says, is that this has to be done at the specifications of each individual operator. "That raises our operating costs, but fortunately we're a technology company first, so we have the in-house tools to optimize the process."

Helpfully, there is a set of standardized guidelines to rate different content - the Wireless Content Standards Rating Matrix developed by "late night" mobile media publisher Waat Media.

"We're focused on how to do this responsibly," says Waat Media CEO Ian Aaron. "We want to make sure we follow the appropriate standard for the market, make sure the carrier is comfortable with the content and that there's age verification."

Indeed, age verification is widely seen as the single most important element that will make or break adult content as a revenue generator for cellcos. No one wants to make headlines as the company whose porn section is being viewed with ease by minors. Content producers don't want it either, knowing full well that their credibility and future growth are at stake. One content company executive who spoke to Wireless Asia anonymously complained that early implementations of AVS by operators in Europe were "horrible" and that "we've lost sales as a result of bad AVS systems."

Consequently, mobile players have been making efforts to create guidelines for others to follow. European operators have their own code of practice for adult content, while in the US the CTIA has been developing a similar code (as well as a content rating system) for North America. In March this year, Singapore's three cellcos - M1, SingTel and StarHub - launched a voluntary code to self-regulate mobile content with an emphasis on preventing underage access.

However, age verification isn't the only security challenge that mobile adult players face. A Gartner report from October 2005 pointed out that mobile adult content will come with many of the same perils and threats found on the fixed-line Net - namely Net scams that use porn as a lure to bilk surfers out of their cash - and operators had better be prepared.

Martijn Broersma, director of The Mobile (owner of the Mobile Babes content brand), agrees. "The mobile Internet is going the same way as the fixed-line Net. There are a lot of gold-diggers out there who will use adult content to make money fast, doing things like hijacking connections onto IDD lines," he says. "We'll see the mobile equivalent of that kind of fraud, and that's going to hurt the entire business."

One of the striking things about the new interest in mobile adult content is that there's little public proof of its ability as a revenue generator.

Certainly there are a growing number of optimistic projections from the handful of analyst firms that have tackled the question of mobile porn revenues. Strategy Analytics reported last year that mobile adult content earned $400 million in revenues in 2004. Juniper Research estimates that mobile adult revenues will top $2.1 billion by 2009.

Verifying such numbers is a chore, however, especially when it comes to how much of that is actually going to mobile operators. Adult content revenues are typically shared across the value chain, with the producer, distributor, aggregator and cellco each taking a cut. The percentages vary widely.

Private Media's Clausen says his company splits 50/50 with aggregators. Maria Llorens, sales area manager for Electronic Group Interactive, which operates mobile adult brand SexNavigator and its fixed-line counterpart, Sex-Explorer.com, says EGI's revenue sharing arrangements with operators "ranges between 16% and 35% maximum."

The trick is that, porn being the uncomfortable topic it is in polite company, cellcos with Playboy and other adult content on their decks are loathe to break down the revenues or even disclose how many subscribers are clicking the bunny icon.

Adult content producers are predictably less shy about promoting the big-revenue potential of their offerings, though some are more forthcoming than others.

WContent's Kleitsch wouldn't give specifics on his company's earnings, but said that the company, which began operating in 2004, "was cash-flow positive in its second month."

Mobile adult content player Cherrysauce - whose managing director Julia Dimambro has been one of the most actively outspoken cheerleaders for mobile porn - is more keen to tout revenue percentage growth rates (350% year-on-year for 2005, the company announced last month, "without owing a penny or needing any investment") than the actual revenues themselves. 3OOOH Mobile Entertainment regularly tosses out claims from "industry insiders" that up to 40% of all premium mobile commerce at present is for adult services.

Even listed companies that publicly announce financial results, like Playboy - which has been supplying mobile content to cellcos like Hutchison Whampoa's 3 since 2003 - aren't giving many details, often due to their mobile offerings being too new and scarce to have generated anything worth breaking down. In December 2005, however, Playboy chairman and CEO Christie Hefner said during a CSFB media event that the company was seeing "double digit growth in wireless internationally," and would start breaking down mobile content numbers in earnings releases "soon".

Playboy's commitment to mobile - as well as other big publishing names like Hustler and Penthouse, the latter of which began making its push into mobile last year - is an affirmation of sorts, for no other reason that its publishing divisions are losing money as advertising and circulation dries up. According to its 2005 financial results, Playboy's biggest growth area is TV and online entertainment, while its publishing revenues are continuing to shrink.

Even so, the question for operators remains: are we talking significant revenue to make it worth the legal hassles and social ramifications to put this on my deck?

Not everyone is convinced that it is. Bengt Nordstrom, VP and chief strategy officer of inCode Wireless, says that mobile adult content is "overrated" as a new source of revenue for operators.

"There's a lot of hype about it, but it's not likely to be all that big a revenue source. If you go to the magazine rack in a book store, there'll be a certain shelf for adult magazines, but it's a small percentage of all the magazines for sale," Nordstrom told Wireless Asia. "It'll be the same for mobile content. It's difficult to believe that it's a must-have for operators."

And yet a number of operators have already decided that even an incremental increase in ARPU is better than flat or shrinking ARPU, and that the more diverse their deck, the better. Vodafone and "3" were high-profile early adopters of adult content, and in markets where they've launched it, many competitors have followed suit.

However, meeting that demand can be a challenge, thanks to the thorny issue (for cellcos, anyway) of marketing adult content. Many operators brave enough to take the plunge into adult content are still gun-shy about promoting it for fear of being branded pornographers. And content players have expressed frustration over operator inertia on the marketing front.

"You can't always use the usual channels. Placing an ad in a family newspaper could be a problem, for example," he says. Kleitsch says he knows of one customer in Taiwan, which he declined to name, that came up with the idea of promoting "Club Jenna" content by putting the ad on user's phone bill.

In a way, the operators are in a Catch-22 position when it comes to adult content distribution. Content providers rely on them to assess the needs of the local market and ensure conformity with local regulations, and yet operators are struggling with how to effectively promote the content without inflicting damage on their brands, which are arguably more valuable than whatever revenues they might earn from porn.

As a result, some content providers suspect the real future business case for mobile porn will be to drop the B2B model, target consumers directly and let cellcos serve as the pipe.

Cherrysauce's Dimambro is a major advocate of the direct-to-consumer (D2C) model, arguing on her W2Forum blog that while 2005 was a great year for mobile adult content, its potential is being held back by operators that are not focused on selling it. A D2C model that doesn't rely on getting a slot on the operator decks would leave the marketing to the people who understand the content and its consumers best. It would also mean less revenue to divide up, with content players having one less player to split revenues with while cellcos would make their money from the resulting traffic increases rather than from sharing subscription revenues.

Dimambro offers as evidence Cherrysauce's experience with direct customer feedback on design and content issues with its WAP portal. One thing the company learned from its customer feedback, she says, is that it was spending too much effort on offering content that generated little revenue.

"In the first version of the portal we had an equal split of softer glamour content and +18 adult content," Dimambro says. "But the softer content produced less than 20% of revenues. It doesn't make commercial sense to invest as much time and resources in these areas if our customers are more interested in +18 adult content."

Coming back to the D2C model, Dimambro says, the point is that the customer feedback was much more immediate than it would have been if Cherrysauce had had to wait months for a report from a cellco.

Another reason D2C could be the way to go is the growing number of phones with Web browsers. Such phones promise to boost data traffic revenues for cellcos no matter what kind of content is being accessed. As such, it could make more sense for cellcos to act as a pipe to adult content rather than a resource of it - especially when remembering that the same browsers are capable of accessing the tens of thousands of Web sites that offer lower-resolution hardcore images and video clips for free. That fact alone could make the proposition of selling adult video clips less convincing for cellcos.

Of course, it's a double-edged sword for content providers too, but that's been true in the fixed-line world for years. And Private Media's Clausen points out that while there's little content providers can do about competition from free content, big-name branding will always count for a lot - even in the adult content world.

"One good thing for us is that we have a fan base that frequents our chat rooms, buys all our movies, writes in and tell us how much they love the girls," Clausen says. "We have a brand, and like any brand, there are consumers who want the genuine article and some who don't care. You can buy a genuine Gucci bag or you can buy a knock-off."

One thing that can be safely said about porn consumers is that they know what they want. And what they want, according to adult content providers contacted by Wireless Asia, is video.

"Video is the big thing now, says Tim Clausen, director of wireless technologies at Private Media Group. "People don't really want still images. They want to see the action."

Andy Kleitsch, CEO of wContent, concurs. "The most popular content at the moment is the short one-minute video clips," he says. "Image galleries are now, I have to say, really just useful as a way to draw in customers. Things like wallpapers and images have diminished value."

Not everyone agrees with that assessment. Martijn Broersma, director of content company The Mobile, says that 95% of his company's income is from browsing images. However, he does admit that video is where the real money lies in mobile adult content in the near future.

"The thing with mobile data is that some operators simply don't want an adult icon on their deck. But mobile TV is changing that," Broersma says. "Vodafone wants to roll out mobile TV worldwide, and they're looking for every content category they can get, so that gives me an opportunity to sell."

"The screen is too small and not many people will watch any TV on their mobile phone for that long," he says. That's why Mobile Babes (The Mobile's adult content brand) is developing short-form content for mobile broadcasting.

"We're making mobile TV programs that are anywhere from two minutes to ten minutes, with bumper shots in between," Broersma says. "Operators are much more interested in that. If they can sell that, they can sell other stuff."

This is cache, read story here