Three of the major third party billing companies for adult Web sites just announced staggering new regulations being imposed on the third party billing system by VISA. Requiring all adult Webmasters to pay high fees to keep accepting VISA is just one of the new rules; perhaps more important is a shift in the power structure that could make it very simple for politically motivated groups to shut down Web sites of their choosing without the burden of a costly legal battle.Three of the major third party billing companies for adult Web sites just announced staggering new regulations being imposed on the third party billing system by VISA. Requiring all adult Webmasters to pay high fees to keep accepting VISA is just one of the new rules; perhaps more important is a shift in the power structure that could make it very simple for politically motivated groups to shut down Web sites of their choosing without the burden of a costly legal battle.

When I got into the online porn business in 1\’\’7, the Internet was a brand new toy for most Americans, and it was full of promise in terms of leveling the paying field for smaller, less financially blessed interests. What do I mean by that? Well, an individual with a computer and a Web hosting account had a chance of being heard by a large audience, where as before the Internet any individual wanting to get a message out to thousands would probably have to buy expensive advertising that most people couldn’t afford. The ability to get your message out to thousands of people created a unique opportunity for online entrepreneurs; for a rather modest fee one could start an online business that could grow into a sizable (if unsteady) monthly income.

Think about it: how many real world businesses could you get started for $100 and see monthly returns in the thousands in just a few months? None that I know of – getting into the adult porn industry in 1\’\’7 was a good business opportunity to say the least, and like all good business opportunities in America, the window of time to get in on it cheaply will have an end.

Slowly but surely over the past few years changes have occurred that have made it difficult to stay profitable while selling porn online. Once free search engines like Yahoo and Lycos have since transitioned to pay-for-inclusion models, while other free search engines like Infoseek and Excite went out of business. So much for getting your message out there cheaply. General competition is at an all-time high, with more porn sites in existence today than ever before. And to put the icing on the cake, VISA and other credit card companies have been slowly bleeding the industry dry like some crooked mobster hitting up the neighborhood stores for “protection” money.

A BRIEF HISTORY OF ONLINE PORN

There are some that will say our industry brought the wrath of the credit card companies down on itself; I reject that claim. There’s no denying that some Webmasters have abused the system in all kinds of unethical and creative ways, but holding the entire industry accountable for the actions of one group is akin to keeping the entire class after school because one person chewed gum during the teacher’s lesson. I know that I personally never engaged in any deceptive or unfair practices regarding Web site billing, and I know quite a few Webmasters who acted likewise over the past four or five years. Why should we be made to pay because some Webmaster not connected to us engaged in fraud or deceptive billing practices? Why not simply target the fraudulent activity itself and spare those of us who have done it right from the start? Well, because there’s money to be swiped!

The first major blow to the online adult industry came a few years back when American Express pulled out of the industry completely. Claiming that chargeback rates were just too high and thus were too burdensome to justify the costs of allowing porn site membership charges, Amex cut us off and hasn’t looked back since. Now American Express only amounted to a very small percentage of all charges made online for adult sites – maybe 15% at best – so their departure wasn’t a staggering blow. But it did send a message to Webmasters not to take credit card processing for granted; if Amex could disappear then couldn’t MasterCard or VISA also follow suit? It was enough of a concern to warrant kissing VISA’s ass, especially for the third party billing companies who had their entire business model at stake.

Rather than prohibit adult charges or even try to come up with creative ways to reduce chargebacks through better security, VISA decided that it would be better to become a kind of “silent partner” in pornography by charging exuberantly high fines for “excessive” chargeback rates. The kicker is that these fines were so large, and the acceptable chargeback rate so small, that it became virtually impossible for any adult porn site to have their own merchant account and still stay in business. That meant that the burden fell in third party processors like ccBill, iBill, Epoch and others to find creative ways to keep chargebacks as low as possible or risk losing their merchant accounts too. Oh, did I mention that the acceptable chargeback rate was set much lower for porn sites than it was for any other type of business? Why would one rate be acceptable for the clothing industry, for example, but unacceptable for porn? Probably because you can kick us around and screw us over and nobody cares – we’re only a pack of unethical, dirty pornographers after all, not legitimate business owners.

Make no mistake, without third party billing companies and the technologies they have created for us, the adult Internet would look very different than what it looks like today. To keep chargebacks low, third party billing companies developed what we like to call “scrubbing” filters. These filters error on the side of caution and refuse to charge orders to any credit card that sets off a red flag. That means that all kinds of attempted orders that in the past were processed are now denied – and a lot of the orders being denied are legitimate orders that just happened to set off a flag for what could be a variety of reasons. Scrubbing filters reduced chargebacks significantly, but also reduced revenues even further for all adult Webmasters.

VISA LOWERS THE BIG BOOM

Just when Webmasters got used to scrubbing and started to stabilize a bit, VISA announced new regulations that affect third party billing companies. What should by now come as no surprise to any adult Webmaster is that: we all will be required to pay VISA more money if we want to keep accepting VISA cards on our sites. By November 15th anyone who uses a third party billing company like ccBill, iBill or Epoch will be forced to shell out $750 to keep their account – the bulk of that goes straight to VISA. But did you really think VISA would let you get away with a one-time payment? Ha! In addition to your initial charge, all account holders will be charged a further $375 every year, again mostly payable to VISA.

There’s more. Third party billing companies will now be forced to provide detailed information to VISA about your revenues. Before, only the third party billing company knew how much an individual Webmaster was making, but now VISA will know that too… information they will no doubt use against the more profitable Webmasters. If at any time VISA decides that they don’t like what an individual Webmaster is doing, they now have the power to cancel that one Webmaster directly. Oh, they’ll keep his or her money if they do that, similar to how Yahoo keeps your $600 if they reject your submission.

VISA TAKING THE POWER BACK

Some of you may have heard about how the Attorney General of Michigan recently ordered several third party processors to stop billing for certain Web sites on a list she supplied because, she claimed, the sites MIGHT include child porn. No evidence of wrongdoing on the part of the sites was ever presented by the Attorney General, and most of the sites she listed were known sites that did not contain any child porn at all. Most of the third party processors refused this demand and continued to process for their clients in the face of possible legal charges by the Attorney General. Now we find that this power to keep processing will be stripped from the third party processors, and VISA itself will be able to terminate an individual for whatever reason they see fit. If a politician tells VISA to terminate a certain Web site in exchange for political favors, does anyone really think VISA will think twice before cutting that business off? Even more important than the money that is now being required of Webmasters: what you’re starting to see is a serious shift in power in favor of opponents of pornography. They now have a way to shut you down without the burden of an expensive court proceeding, and there’s very little that you can do to stop them if you’re chosen. Anyone who thinks a Webmaster could simply try another charge processor if they’re shut down needs to think again… once VISA blacklists you, you won’t be able to collect money through ANY of the charge processors. You’re simply out of business. Period. And the sad part is that I have no doubt adult Webmasters all over will be saying how this is a good thing. Whenever we get raped in the ass there’s always a line of Webmasters ready to shout that they like it. It goes something like this:

VISA: “Who’s your daddy, bitch?”

WEBMASTERS: “You are! You’re my daddy!”

Don’t believe it… this is entirely a BAD thing.

A KICK IN THE ASS FOR SMALL WEBMASTERS

“But small Webmasters have always been contributors to the adult Internet, and what’s more is that I see no reason why they shouldn’t be allowed a fair opportunity to learn the game and grow. Small Webmasters also buy hosting services, content and software from the various adult Webmaster vendors. Their departure will hurt.”

As significant as this power shift is, the money issue shouldn’t be ignored either. A small Webmaster only making a couple hundred dollars per month will now be faced with the prospect of giving away most of his or her profits to VISA if the aim is to keep processing VISA orders. Again, some people will think this is a good thing… less competition, fewer small mouths to feed in the industry, and more money for the big players. But small Webmasters have always been contributors to the adult Internet, and what’s more is that I see no reason why they shouldn’t be allowed a fair opportunity to learn the game and grow. Small Webmasters also buy hosting services, content and software from the various adult Webmaster vendors. Their departure will hurt. So if you’re a small Webmaster facing this new challenge, what are your options?

GRIN AND BEAR IT

One option is to simply grin and bear it. Pay VISA their money and jump through their hoops. If your pay site is making more than $500 per month then this is probably your best option. VISA is your latest business partner, congratulations!

STOP PROCESSSING VISA

You can keep your third party processor account without bribing VISA (geesh, it’s almost like something out of The Godfather) by simply removing VISA as an option on your Web site. Unfortunately about 60% of all charges are VISA transactions, so you’ll be cutting down your sales by more than half. You’ll still be able to accept MasterCard, JBC and online checks. If you go this route you might want to erect a message to your surfers explaining why you are no longer accepting VISA.

AGE VERIFICATION SYSTEMS

Operators of small pay sites might consider simply changing their Web site into an AVS site. With an AVS site, instead of processing credit card membership orders directly you sell age verification system passwords and get paid a commission on sales from the AVS company. This is slightly less secure than operating a pay site since you don’t keep your own user password file, and it opens you up to higher bandwidth bills if abuse occurs, but you will essentially be letting the AVS company take credit card payments for you. Some AVS programs, like Adult Check Gold, even have recurring monthly billing options so that you get paid every month a user stays a member of that AVS program.

WHAT ABOUT PAYPAL?

I tried to get in touch with PayPal to see if the new VISA regulations would affect them, but alas it was impossible to get in touch with anyone who could (or was willing to) answer my questions. It might be possible to collect VISA payments via PayPal, since PayPal is essentially just a way to send money over the Internet. Keep your eyes peeled for more information about this possible route.

THE ROAD AHEAD

I think it’s clear that there is some kind of carefully orchestrated squeeze being put on the online adult industry. Perhaps VISA merely wants more of our revenues. Perhaps conservative politicians like Ashcroft are working behind the scenes to find new and creative ways to put the big hurt to online porn. Perhaps it’s a little bit of all these things. Whatever the cause, it’s clear that the effects are starting to surface. Pretty soon your chances of success in this industry will have much more to do with your initial capital than ever it has in the past. Creativity will take a backseat to funding, much as it does outside of cyberspace in the “real” world. I wish I could tell you to fight back, but I think we’re just witnessing the eventual result of any lucrative industry. Do what you can to stay afloat for as long as possible, because quite frankly working as an adult Webmaster is far more enjoyable than most other job options. In other words, enjoy it while it lasts!

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Connor Young is Editor-in-Chief of The ADULTWEBMASTER Magazine.