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Stuart Lawley navigates Bear?s Club Drive in his midnight sapphire Rolls-Royce Phantom Coup?, a $464,000, 3-ton, 12-cylinder land yacht so well-engineered that ensconced in its butter-soft leather, one barely senses motion at all. Lawley docks gently at a French-style ch?teau adjacent to the 15th fairway of a luxuriant tropical Florida golf course designed by ?the Golden Bear,? Jack Nicklaus. Celine Dion owns a place nearby, Lawley mentions. Michael Jordan is building on two lots just around the bend. Lawley?s one-story, five-bedroom, 9,300 square-foot stone manse has a perfectly green lawn made of plastic. ?AstroTurf,? he confirms. ?I rather like it.? The previous owner, an auto parts heiress, has moved to a larger spread elsewhere in the development. She was eager to sell, Lawley says. He offered $3.8 million, all cash, take it or leave it. She took it. There?s a catch, however: In early June, the homeowners? association delayed the closing because some members were uneasy about Lawley?s occupation. ?The neighbors are worried that a ?big-time pornographer? is moving in,? Lawley says. ?Bollocks!?
The son of a municipal bus driver, Lawley grew up in Britain?s industrial West Midlands. By the time he was 37, he had made two decent-size fortunes selling fax machines and creating business-to-business websites. In 2000 he moved to the Bahamas to work on his golf swing and sidestep a $40 million tax bill. He does not consider himself a pornographer. ?Until I invested in ICM Registry in 2003,? he explains, ?I was like any other normal bloke. I had looked, furtively, at dirty websites maybe three or four or five times.?
These days, he owns ICM, a 12-person business in Palm Beach Gardens, Fla., that operates the top-level domain name ?.xxx,? an alternative to ?.com.? The domain is designed specifically to showcase pornography. On a wall of Lawley?s office on PGA Boulevard, the framed item bearing his company logo is an oversize cerulean-colored condom. ICM?s spokesmodel, the curvaceous Nina Mercedez, markets herself online as ?THE HOTTEST LATINA in the XXX industry.? So, let?s be adult about it, in the words of ICM?s slogan, and stipulate that Lawley is in the porn business.
Assume you want to charge customers for videos and live webcam conversation featuring male-to-female transvestites. You could come up with a catchy name and buy an address ending in .com from GoDaddy or another website retailer. If you did, VeriSign (VRSN), a separate company based in Reston, Va., that operates the digital infrastructure for .com sites, would get a cut of your fee. In online argot, VeriSign is a ?registry.? Lawley?s ICM is also a registry, and its .xxx sites are available via GoDaddy, too. As for the transvestite porn site, it?s called shemales.xxx, and it?s already been taken.
Since ICM went active last fall, online shingles have been hung for, among others, orgy.xxx, bollywood.xxx, and german-sex-portal.xxx. For several years, Mercedez, a former Miss Nude Universe, has run a cluster of .com sites. Lately she has also leased space at ninamercedez.xxx. If a potential fan Googles ?Mercedes,? or ?Mercedez,? ?they?ll probably get cars or car parts,? she notes. If they want to see Nina Mercedez having sex, and they search for her name and .xxx, ?they know they?re going to get porn.? Mercedez has built enough of a following that she shows up fairly high in search results anyway, but the ability to quickly find the porn you?re looking for is, in a nutshell, what the investment bankers would call Lawley?s value proposition.
Within the virtual realm made up of ?top-level domains??.com, .net, .org, .gov, .edu, and so forth?Lawley portrays .xxx as a responsibly run red-light district. Go there if you want wall-to-wall copulation of a decidedly unsentimental strain; stay away if you do not. The days of ?Ding, dong, pizza delivery man ?? porn with a goofy plot and two principals are fading. Much of what?s online now is Web-quick, more revolting than titillating, and involves a level of brutality one dearly hopes is feigned.
Not to worry, says Lawley. It?s all just fantasy for consenting adults. Parents can use free browser settings or commercially available software to block all .xxx sites. What?s more, he promises that on his domain, legitimate customers can indulge carnally without fear of credit-card fraud, viruses, or inadvertent encounters with illegal child porn. As part of the purchase price of a .xxx site, Lawley includes daily scans by the Internet security firm McAfee (INTC), ensuring that the sites are protected from scammers using porn as bait to steal personal information.
Next year, ICM plans to introduce a proprietary micropayment system. This service, Lawley promises, will help blue-chip pornographers fight back against the proliferation of free and pirated smut online. ?We?re going to do for adult what Apple (AAPL) did for the music business with the iTunes store,? he predicts. Consumers who have become conditioned to grainy, poorly shot giveaways, Lawley says, will get reacclimated to paying for higher-quality hard core. Price, quantity, and specificity are key. Rather than the traditional model?$24.99 upfront for all-access monthly memberships?porn consumers will shell out 99? apiece for short clips of niche material (akin to buying a favorite song, not the whole album). Perhaps more compelling, people seeking porn on their mobile devices will have a convenient way to purchase a quickie on the run.
With more than 220,000 sites signed up so far, Lawley now presides, in his view, over a clean, well-lighted virtual mall. Site owners pay $60 a year for a typical .xxx domain, compared with less than $10 for a .com. ICM Registry auctioned ?premium? names for much more. The aforementioned shemales.xxx went for $200,000; fetish.xxx, for $300,000; gay.xxx, for $500,000. In the last three months of 2011, its first active quarter, the tiny company took in $25 million.
While the proportion of the Internet devoted to porn has been exaggerated by conservative activists and marketers of parental-filtering programs, there is still room for ICM to grow. The most comprehensive study of .com porn, conducted by neuroscientists Ogi Ogas and Sai Gaddam for their 2011 book, A Billion Wicked Thoughts, showed that a modest 4.2 percent of the world?s million most popular websites were sex-related. A more impressive 13 percent of Web searches seek erotic content, the authors found. Lawley?s hope is that an increasing share of those searches will flow toward .xxx.
His ambition has provoked mixed reactions in the southern California precincts known as Porn Valley. Some stalwarts there accuse him of running a protection racket: bullying businesses, adult and otherwise, to shield their intellectual property by defensively purchasing .xxx names. ?That?s blackmail,? says Christian Mann, general manager of Evil Angel, a production house in Van Nuys responsible for such works as Don?t Make Me Beg #4. ICM?s business plan, he adds, ?is shocking. It?s scandalous.? Still, the Web affiliate that runs Evil Angel sites evilangel.com and buttman.com bought the .xxx equivalents, fearing that cybersquatters would get there first.
Manwin Licensing, a Luxembourg-based owner of hard-core digital real estate, has sued ICM in federal court in Los Angeles for ?monopolistic conduct? and ?price gouging,? allegations ICM denies. As early as April 2006, Hustler founder Larry Flynt wrote in an open letter that the .xxx domain ?is an inherently dangerous idea with no real purpose.? He warned that its creation would encourage lawmakers in Washington and other capitals to mandate .xxx as an exclusive corral for adult material. ?Only if it becomes a tool of censorship,? he added, ?will it achieve its goal of preventing access to adult content by minors.? Lawley says that he does not necessarily favor stricter government regulation; on the other hand, he admits that curbs along the lines Flynt suggested could bolster ICM?s bottom line.
The resistance to Lawley, whatever its merits, has the ring of desperation. ICM arrived at a moment of crisis for commercial porn. After enabling several boom years, the Internet has brought many smut marketers to their knees. Rampant freebies on ?tube? sites have reduced global porn revenue by 50 percent since 2007, to less than $10 billion, including about $5 billion generated in the U.S. Those are rough guesses by Diane Duke, executive director of the industry?s trade group, the coyly named Free Speech Coalition. Speaking privately, some porn executives say the coalition?s revenue estimates are optimistic. In a field dominated by privately held companies, no provable statistics exist.
Setting aside moral judgments and potential social harms?we?ll get to those?it?s remarkable that Lawley is making any money at all. Especially since he had to fight for seven years, spending millions of his own dollars, to get permission for .xxx from the Internet Corporation for Assigned Names and Numbers (ICANN), a nonprofit regulatory body. His persistence in the face of hostile lobbying by competitors, religious conservatives, and the U.S. government suggests that if the stubborn British entrepreneur claims to have a money-spinning solution for the Great Porn Depression, he should not be underestimated.
In 2003, when Lawley began eyeing porn as a business opportunity, the industry was enjoying a giddy digital surge. The founding fathers of modern erectile entertainment?beginning with Hugh Hefner and Playboy in 1953, followed by Bob Guccione and the bawdier Penthouse, and Flynt and the proudly vulgar Hustler?nudged blue material out of backstreet bookstores and into the commercial mainstream. In the 1980s porn provided proof of concept for how to profit from home video, as VHS tapes allowed consumers to abandon peep emporiums for the living room couch. Porn sold next-generation DVDs and in the late ?90s quickly capitalized on the Internet, becoming one of the Net?s first killer commercial apps. Porn then encouraged Internet service providers and cable networks to invest in increased bandwidth and higher-quality streaming video.
As happened to other traditional media businesses, however, the Internet swiftly turned on pornography. First, DVD sales slackened. The Playboy and Penthouse franchises withered. In contrast, Hustler and more enterprising producers such as Evil Angel and Vivid thrived by diversifying online, at least for a while. Pretty soon the advent of free tube sites laid siege to even the more resilient smut-for-pay businesses.
Enter Lawley, pride of the British hinterlands. ?Queen Victoria named the area where I grew up the Black Country,? he says, a reference to the factory soot Her Majesty saw from the window of her royal rail car. Flushed of cheek and with thinning blond hair, Lawley, 49, speaks with a broad Midlands accent, not the pinky-in-the-air cadences of a London posh. He aced his exams and went off to Imperial College London. ?It?s the fourth-highest-rated school in the world,? he boasts, ?the M.I.T. of the U.K.? A local engineering firm gave young Lawley a scholarship with the understanding that he would return with a degree in mechanical engineering and go to work in the British auto industry. London?s fashionable Knightsbridge opened his eyes to other possibilities. ?I?m seeing people in Rolls-Royces and Ferraris,? he recalls, ?and I said to myself, ?Blimey, they?re not managers of some copper smelting plant outside of Birmingham.? ?
As a university student, he began selling burglar alarms door-to-door. An indefatigable extrovert, he sometimes took home ?1,000 a week. The entry-level engineering job would pay ?7,500 a year. Then, in 1985 he happened to see a demonstration of a Sharp facsimile machine. ? ?Bloody hell,? I thought, ?that?s fantastic. Every business in the U.K. will want one of those.? ? With his own savings and a ?2,000 loan from his mother, he founded Eurofax, a fax machine leasing company that by the end of the second year was generating annual revenue of ?1 million. During a recession in 1990 and 1991, Lawley bought out several struggling rivals. By 1997 he sold Eurofax for ?6.7 million, or about $10 million, and was kept on as chief executive officer by the new owners.
Lawley?s interest in fax machines diminished in direct proportion to his fascination with Maria Bartiromo?s breathless reports on CNBC about the Internet craze. In January 1999 he sold his shares in the fax empire and started a business-to-business website company. Ten months later, he raised ?7 million in an initial public offering. ?There was a heat for Internet stocks,? he says, with cheeky understatement. By March 2000, his new company, Oneview, employed 155 Web designers and 250 salesmen. Members of Parliament attended office ribbon cuttings.
Then, on a flight home from a winter?s vacation in Florida, Lawley concluded that the frenzied music was about to stop. ?Listening to Maria Bartiromo,? he recalls, ?there was just too much excitement.? He hurriedly arranged to sell the Web company the same week in March that the Nasdaq stock exchange peaked. Just before the spectacular tech crash, Oneview went for the equivalent of $204 million. Lawley owned 51 percent, pocketing about $100 million after expenses.
His accountants pointed out that if he switched legal residence before the end of the British tax year on April 5, 2000, he could avoid a 40 percent capital gains tax. ?Basically, I had two weeks to pack and get out,? he recalls. ?I took the last possible plane out of Gatwick for the Bahamas.? Thus the $40 million tax savings. He and his then-wife had had a son in 1999, and he fancied the idea of retiring early and raising the boy barefoot on the beach.
Caribbean life was relaxing, he learned, if a tad boring. ?America,? he says, ?struck me as very family-oriented.? He thought a move to Florida might get his mercantile juices flowing again, and, not coincidentally, the state has no personal income tax. He bought ?a big pile on the water? in the wealthy hamlet of Jupiter and transplanted the family to the U.S.
At a children?s Halloween parade in 2002, Lawley met another father who talked his ear off about ICANN, the nonprofit based in Marina del Rey, Calif., that oversees ?top-level domains? (TLDs) under a contract with the U.S. Department of Commerce. The other dad, an Internet consultant, explained that ICANN, seeking to encourage competition, planned to expand the number of TLDs. Lawley decided to have a look.
He discovered that two years earlier ICANN had declined to approve .xxx?and that it hadn?t definitively rejected the idea, either. The proposal for the all-porn domain came from ICM Registry, a startup owned by a Canadian investor. ?When I got into the research in 2003, I was stunned by the money to be made in the adult space,? Lawley says. ?Billions were being spent, probably more than ticket sales for all [U.S.] movies and sporting events combined. This had gone way beyond porn-spam e-mail and pop-up ads for penis enlargement.?
More: The New Republic of Porn - Businessweek
