Explaining Southern California's economy

Runaway porn: What economic difference would it make to LA?

condoms

Photo by Robert Elyov via Flickr Creative Commons

Will these innocuous tubes of latex drive the porn business out of L.A.? Does it matter?

The passage of Measure B last week means that the condom will now become, by a law, a fixture in adult movies. Predictably, this has set off a frenzy of speculation about the porn industry picking up and leaving its longtime L.A. boogie-nights home and heading for the prophylactic-free jungle rooms of Las Vegas - or even, the L.A. Times suggests, Budapest, Hungary, the San Fernando Valley of Mitteleuropa. 

The LAT got into the numbers:

Adult entertainment boomed after the advent of home video in the 1980s. A decade ago, local economists estimated that the porn industry in the San Fernando Valley generated 10,000 to 20,000 jobs a year and had $4 billion in annual sales.

But declining DVD sales and the availability of free content on the Internet have hammered the local industry. The number of porn producers in L.A. has fallen to about 300, down from approximately 500 at its peak seven years ago, Helmy said.

Although porn production accounts for fewer than 5% of all film permits in Los Angeles County, the industry is an important player in the region's entertainment economy.

Industry estimates figure that about 5,000 adult films are shot each year in the county's warehouses and private homes.

Last year, I took a stab at assessing the cryptic economics of porn. I used as a basis a 2001 analysis by Forbes that backed up the LAT's $4 billion annual sales figure. But I'd seen the industry valued at around $12 billion in 2007. I decided that the porn business — the entire U.S. porn business, not just the SoCal part — should be a worth a lot more in 2011 than it appears  to be if you run some back-of-the-envelope calculations:

Forbes did the math and placed the industry's total worth at "$2.6 billion to $3.9 billion." The Internet slice was assessed at $1 billion. By 2006, that had grown to $2.84 billion (not Forbes' data, though). I'm going to assume that it's above $3 billion by now; that would increase the upper end of the Forbes number to $7 billion. It's possible that pay-per-view, $128 million in 2001, is up to $1 billion by 2011, so that gets us close to $8 bil. Increases in other categories — magazines and video — might add another $2-$3 billion, getting us close to $12 billion. But that's being optimistic and also assuming that porn is recovering from the recession.

So what I conclude here is that the adult entertainment industry is only now achieving its alleged 2001 numbers, or slightly exceeding them. If it were truly a $10 billion industry in 2001, it should be…What? A $30 billion industry today, just in the U.S.?

Bottom line: The global entertainment industry is worth something like $2 trillion (So Cal's slice adds up to about $800 billion). That means that if we're generous and grant that the porn business hasn't been thoroughly disrupted by the Internet and is worth $10 billion, it amounts to 0.5 percent of the entire entertainment industry. You'd obviously have to adjust those figures downward to figure out just how much L.A. would lose if the business bolted for condomless pastures, but the answer in any case would be: Not much.

The LAT reports that enforcing Measure B would cost $300,000 a year. That really isn't all that much, if you grant that the porn industry is worth $4-10 billion and assume that much of that money is generated in the L.A. area. Even so, not having to spend it would probably be acceptable to many Angelenos. And it's not as if the exit of the porn industry in reaction to Measure B would signal a wholesale exodus of the entertainment industry from Southern California. 

So if porn wants to split town...well, that's the industry's decision. But economically, it wouldn't be a huge loss.

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.

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