Urls! Urls! Urls!

In many ways, Seth Warshavsky is a typical Internet publisher.

He’s spent hundreds of thousands of dollars on a Web site, and even more on computer servers and high-speed phone lines to make it easy for people to log on. He subscribes to a Web audit service and pays bounties to other sites that send customers his way.

Even Warshavsky’s age--23--isn’t remarkable in an industry teeming with whiz kids.

But Warshavsky is anything but average. Whereas most Web publishers are still running in the red, Warshavsky claims his company, Seattle-based Internet Entertainment Group, is making a killing, registering solid profit on revenue that could top $20 million this year.

The product Warshavsky sells isn’t run-of-the-mill, either. It’s sex.

Internet Entertainment Group operates one of the larger sex businesses on the Internet, running at least a dozen Web sites with names like Club Love, Girls Girls Girls and Sex Fantasy that sell subscriptions, digital photos, adult videos and other merchandise. IEG is best known as one of the country’s biggest proprietors of video phone sex, a kind of virtual strip show where customers pay up to $10 a minute to talk to a stripper over their computer and watch a live video feed as she or he performs.

Warshavsky is just one of a legion of porn entrepreneurs who’ve flocked to the Web in the last two years, creating a burgeoning online industry in the process. Today there are hundreds, if not thousands, of Web sites selling video phone sex, live chats, video feeds from strip clubs, digital images, online magazines, fan newsletters and paraphernalia.

The rapid development of this industry was a big factor in Congress’ passage last year of the Communications Decency Act, which aims to sharply restrict the dissemination of “indecent� material over the Internet. The U.S. Supreme Court on Wednesday will hear arguments in the widely watched legal challenge to the new law, which, critics say, amounts to an unconstitutional restriction on free speech.

Whereas supporters of the act say it is necessary to keep pornography out of the hands of children, online sex entrepreneurs say they are interested in adult, paying customers--typically men 18 to 50 who are taking to online porn for the same reasons they first turned to adult videotapes and CD-ROMs: privacy and the chance to try something new.

“The issue of privacy is huge,� said Alison Grippo, author of the just-published book “NetLove� (Wolff New Media).

“The online sex industry’s promise is you don’t have to be Pee-wee Herman . . . and we’re in the age of AIDS. The Web sites are amazing safe sex,� Grippo said.

Though major magazines such as Playboy, Penthouse and Hustler have a solid online presence, most adult Web sites are run by small businesses, the proverbial Internet start-ups operating out of a spare bedroom or garage. Many are offshoots of companies with ties to traditional sex businesses, including producers of adult videos, phone sex operators, strip club owners, escort services and women and men who’ve worked as porn stars or strippers.

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Not surprisingly, many adult Web sites are based in Southern California, long the heart of the U.S. porn business, though others hail from cities such as Seattle, Las Vegas and Chicago.

Online sex has been around since the infancy of computer bulletin boards in the early 1980s, when enterprising individuals discovered people would pay to download dirty pictures and exchange bawdy talk on electronic message boards.

With the emergence of the Internet, online porn shifted to Usenet newsgroups, which didn’t charge people for swapping comments and exchanging files. Porn proliferated, giving rise to hundreds of newsgroups offering sexually explicit binary files and other erotica.

A now-infamous Time magazine cover story from July 1995 reported that researchers at Carnegie Mellon University in Pittsburgh found that an inordinately high percentage of all images downloaded from newsgroups and bulletin boards were obscene. Although the article and the methodology used by researcher Martin Rimm were subsequently discredited, the incident fed into the emerging debate over Net porn.

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Despite the controversy, the attractions of the Internet sex business are obvious: It’s easy to get into, it’s a proven market, and it’s only going to grow as technology improves and more people get online. Overhead is minimal--mainly computer gear, programming and phone lines. Companies that offer video phone sex also pay for videoconferencing equipment, performers and office space, or contract with a service bureau such as IEG.

The payback can be phenomenal. Adult Web sites such as Cyber Erotica, IEG’s Club Love, Virtual Dreams and Pleasuregirls claim to attract thousands of visitors a day, a portion of whom become paid subscribers and spend hundreds of dollars a month on video phone sex and other goods and services.

“We have customers who spend $150 a month up to $6,000. That’s 20 hours month. They fall in love,� said Barbara Bailey, owner of Pleasuregirls and 11 other video phone sex Web sites.

Still, it’s difficult to say exactly how large the business is. Dollar for dollar, it’s tiny compared with the estimated $8 billion Americans spent offline on adult videos, cable programming, live peep shows and sex magazines in 1996.

For the same 12 months, Forrester Research estimated that online sales of adult merchandise in the United States reached $51.5 million, or about 10% of all consumer goods sold over the Internet during 1996. But that number doesn’t include revenue from subscriptions or per-minute video phone sex charges, which account for the majority of many online sex companies’ sales.

Industry insiders believe revenues will be closer to $150 million to $200 million in 1997, but even those are best guesses, as few analysts track the industry and most players are private and don’t disclose financial information.

IEG is one of the exceptions. Warshavsky, who helped start a phone sex business when he was 17, has sunk close to $2 million into his online operation, which includes 13 Silicon Graphics computer servers and multiple high-speed T3 connections to the Net.

The company has 59 employees, including 32 male and female strippers for its video phone sex business, which provides the service for at least 20 other Web sites, including Penthouse and Vivid Video, a major adult video producer based in Van Nuys.

IEG Web sites charge a one-time $9.95 subscription fee and $1.49 to $2 per minute for video phone sex. The company has 54,000 paid subscribers who spend an average of $12.77 a month. Warshavsky says revenue could more than double this year, from $7 million in 1996. Profits should improve as well, though he won’t disclose specifics.

“1996 wasn’t great because we were in a growth mode. Our margins are better now,� he said.

Playboy has operated a free Web site since 1995, attracting upward of 200,000 visitors a day on special occasions such as Valentine’s Day. The site supports itself and turns a small profit--executives won’t say how much--through ads from sponsors such as Sauza tequila, Pacific Bell, DuPont and CUC International. But Playboy executives take pains to distinguish the site from other adult fare.

“It’s a mainstream magazine that happens to have pinups,� said Eileen Kent, Playboy Enterprises’ new-media vice president.

“Yes, the guy might come to see the Playmate, but while he’s there we hope to induce him to stick around to read the interviews, and we find they pretty much do that.�

After a few false starts, Playboy expects to launch a subscription Web site later this month.

The site, which will cost a minimum $6.95 a month, will include archives of Playboy interviews, a 3-D art gallery, photos of more than 500 former current and former Playmates and an online version of the Playboy catalog.

To avoid possible trouble with the law, most adult Web sites claim to be decidedly soft-core, steering clear of anything resembling pedophilia, bestiality or the sex acts depicted in hard-core porn.

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As further insurance, many sites subscribe to age-verification services such as Adult Check and Porno Pass that require would-be customers to produce a valid credit card as proof they are over 18 and to pay a nominal membership fee before they can visit the sites. Still, many sites offer preview pages with explicit pictures that are accessible to anyone who promises he or she is 18.

Many publishers claim they approve of Internet “filtering� software that parents can use to block access to sex sites, and of self-rating systems such as SafeSurf and RSACi, which allow Web sites to rate themselves according to content or age appropriateness.

“There’s always going to be censorship, by ourselves or other organizations,� said David James, partner at Vivid Video, which is building several Web sites and also sells adult CD-ROMs and digital versatile discs. “By putting it in categories, people who want to make use of us will.�

As might be expected, most do not support the decency act.

“There has been a lot of abuse out there and that needs to be cleaned up,� said Fay Sharp, an adult CD-ROM distributor who started the Adultdex trade show in 1995 after Comdex, the annual computer expo, kicked out adult products. “Most adult producers would be behind cleaning up child porn, as long as the laws don’t walk over freedom of choice.�

In catering to a predominately heterosexual male clientele, the industry offers conflicting images of women, on one hand providing site after site of partially clad or nude women in suggestive poses that some argue are degrading if not downright obscene. At the same time, the Web has allowed some of those women to become successful entrepreneurs by marketing their own physical assets.

At their worst, some video phone sex operations treat performers like “stripper cattle,� requiring them to perform grueling eight-hour shifts and in some cases offering few or no employee benefits, according to “Laura Victoria,� the alias of a sometime phone sex operator and online sex columnist for the Web magazine. Illegal drug use and eating disorders are common, Victoria said.

At the other end of the spectrum is Danni Asche, a 29-year-old former stripper who discovered the Internet in 1995 and built her own Web site, Danni’s Hard Drive, to market her fan club, pictures, CD-ROMs and other merchandise.

Today, Asche’s Marina del Rey company has nine employees--most of them women--and 15,000 subscribers who pay $9.95 a month. Asche, who appears bare-breasted throughout the Web site, expects to be “very profitable� on revenue of $2 million in 1997, but won’t discuss details.

“Everyone told me I should build a Web site,� Asche said. “About the same time my husband installed a new modem in our computer and showed me his company’s Web site. The lightbulb went off.�

Video phone sex has flourished--Yahoo lists more than 300 Web sites that offer it--despite what many consider to be marginal technology. The kind of PC-based teleconferencing that video phone sex operators offer is often awkward to use, and the picture quality is only as good as a 28.8-kilobits-per-second modem will allow.

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Most systems require customers to download special software from their Web sites, then log off the Internet and dial into a separate private network.

“A Web site isn’t a very marketable tool until such time modems become fast enough to provide for video on demand,� said Vivid Video’s James, who nonetheless runs several Web sites. “When that happens, hotels and motels will change how they receive adult programming. That’s when the industry will really take off.�

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About This Series

The Supreme Court on Wednesday will hear arguments in a landmark lawsuit over the Communications Decency Act, a law passed last year that would sharply limit “indecent� communication over the Internet computer network. A four-part series that began Sunday examines some of the issues.

* Sunday: When Congress passed the CDA in February 1996, it was immediately challenged as an unconstitutional restriction on free speech. The federal courts so far have agreed, barring enforcement of the law. Civil libertarians say nothing less than the future of the Internet is at stake, while CDA supporters say they’re only trying to protect children.

* Today: The CDA is mainly aimed at online pornography, which supporters of the law say is ubiquitous on the Internet and far too accessible to children. What is the true scope and scale of the Internet sex business? Who are the people involved?

* Tuesday: Critics of the CDA say parents worried about what their children are seeing online can use filtering software that blocks access to certain Internet sites. And many in the business support a movie-type rating system for the World Wide Web. But filters and ratings are now creating controversies of their own.

* Wednesday: The effort to regulate the Internet underscores one of the most fascinating and difficult aspects of the new medium: It threatens to render traditional notions of legal jurisdiction meaningless. How can a state, or even a country, control a global information network? And if it can’t, is the nation-state itself obsolete?