Porn Company IPO May Raise Eyebrows Along With Cash
Vivid Entertainment Group, which has built itself into the dominant player in the adult video business, has its eyes set on a new conquest: Wall Street.
The Van Nuys-based company plans to go public by the end of the year in a bid to raise cash to buy companies and content. The IPO will also fund investments in Internet broadband technology, a new production division and marketing, President Bill Asher said Friday.
Asher said Vivid is in the process of talking to underwriters. The company is now privately held by David James and Steven Hirsch, who founded Vivid in 1984.
“I think there will be some very well-known entities investing with us,” Asher said. “It’s got the upside potential of a ‘dot-com’ with the stability of a diverse and profitable company.”
Industry experts say Vivid is one of the world’s leading producers of adult content and distributes its products via home video, DVD, the Internet and television. It also owns the Hot Network, considered the largest hard core adult television network in the country.
But getting institutional investors to put their money in a company that sells explicit sexual images may be troublesome, said David Leibowitz, a managing director at Burnham Securities Inc. in New York.
“There are any number of portfolio managers whose charter precludes them from purchasing so-called sin stock,” said Leibowitz, who follows some adult companies. “If the numbers are strong enough, one suspects that shareholders can be found, depending at what price it will be trading at down the road.
“Clearly,” he added, “there will be added burden on management to make their numbers.”
Indeed, Los Angeles Mayor Richard Riordan has said he is embarrassed by the city’s dominance in the porn industry, and women’s groups have long decried the treatment of women as sex objects.
But though some might be turned off by investing in a company profiting from sex, Asher stressed that Vivid had an attractive combination to lure potential investors.
The industry is hoping the increasing availability of pornography through the Internet and broadband will boost demand by eliminating the potential embarrassment customers face by having to buy videotapes and discs at retail stores.
“Our assumption is that five years from now there will be a huge market for adult content through the Internet directly to the consumer,” Asher said. “It’s our belief that Vivid can capture the majority of that marketplace.”
Asher said the company was profitable in all of its divisions, including home video, DVD-interactive, television, international licensing and the Internet, Asher said.
Vivid said it had $60 million in revenue in 1999, up substantially from $32 million in 1998.
Vivid officials would not comment on any interest among investment houses, large stock funds or other companies, though they said they would not take their stock public without confidence that such investors would support the stock.
“The biggest fear for larger funds that invested in a stock like Vivid is that individual investors might shy away from it,” Asher said. “But with changed attitudes, investors are looking at the bottom line.”
Other adult companies--including New Frontier Media Inc. of Boulder, Colo., LodgeNet Entertainment Corp. of Sioux Falls, S.D., Playboy Enterprises and Rick’s Cabaret--have tried skin-related stock offerings.
Rick’s Cabaret, for example, went public at $6. It is now at $2, though it did get as high as $11.50 at one point.
Asher said a main focus of the company’s stock offering will be to raise money for broadband investments.
“With broadband we want the same distribution potential as Disney, NBC or Fox. In addition, broadband is very important to the adult providers, as it allows us to deliver content so it’s viewed in the privacy of one’s own home.”
Adult video sales and rentals hit $4.1 billion in 1998, down a touch from $4.2 billion in 1997, partly because porn content shifted to the Internet, cable TV and digital versatile discs. X-rated material is among the fastest-growing areas on the Internet, with $1 billion in sales, according to Forrester Research Inc., a Cambridge, Mass.-based Internet tracking company.
Vivid has been a consistent porn pioneer, recognized within the industry as the first company to sign a contract star, the first to specialize in plot-driven sex films, the first, even, to encourage its women stars to wear little gold necklaces with the company name.
