News last week that a Canadian private equity firm has acquired MindGeek, the parent company of Pornhub, the adult entertainment industry’s largest streaming site, caught many by surprise. After all, adult entertainment is not generally seen as a common investment vehicle for a PE firm.
But Solomon Friedman, co-founding partner of Ethical Capital Partners (ECP), tells Fortune the firm sees big potential in the space—and even more in the technology that powers them.
With its acquisition of MindGeek, ECP not only gains control of Pornhub, but several other sites including RedTube and YouPorn, as well as a number of film production companies.
Cumulatively, those holdings make it one of the biggest players in an industry whose market size in 2022 was estimated at just under $52 billion.
Terms of ECP’s buyout of the company were not disclosed.
“When a potential MindGeek acquisition became available, we took an open-minded, unbiased look at it,” says Friedman.
“What we found absolutely blew our minds. We found a company that had created the best-in-class online trust and safety automation tools. … We’re of the belief that these tools must be shared with the larger internet.”
The tools, he says, are designed to verify the identity of the people in videos, as well as their age and consent to posting, using both human and automated checks.
They also create digital fingerprints to flag pre-existing content to combat piracy and have a portal designed to help law enforcement officials collect necessary data.
“We see enormous value beyond the adult industry for those tools,” he says. “We see enormous value in the online trust and safety tool.
I have no doubt that people are going to be hearing more about that and its applications well beyond adult. We feel we have a responsibility to develop those tools beyond their current uses.”
Legal battles
Despite Friedman’s praise of MindGeek’s technology, the company has been the subject of several lawsuits from people who accused it of knowingly releasing sexually explicit videos of them without their consent.
(One case, representing 50 people, was settled in October 2021.) MindGeek is still the target of several lawsuits that allege Pornhub has distributed child pornography and nonconsensual sex videos. (MindGeek has said those allegations lack merit.)
Friedman said he was unable to comment on ongoing litigation, but says ECP is “committed to just outcomes. It will take time, of course, but that is our commitment.”
The new owners are also assembling an advisory board made up of academics who have studied the business of porn to prevent future problems as well as sponsoring an upcoming series of roundtables with adult performers and content creators to destigmatize the adult entertainment industry.
The company also plans to build stronger relationships with law enforcement, Friedman says, to combat wrongdoing.
“We don’t need more yes people,” he said. “We know we’re the leaders in the space. To me, what was missing were real formal pathways to ensure what we do is done in collaboration with the people who matter most in this industry.”
Mainstreaming porn
While ECP sees value in the technology behind Pornhub and other MindGeek properties, it’s not discounting the substantial revenues in the content itself.
Friedman notes that just a few years ago, cannabis was a taboo subject in Canada and much of the U.S., but has since become one that is openly discussed.
The private equity firm believes adult entertainment is on the cusp of that same sort of mainstreaming.
“We’re of the view that there’s real potential for adult audiences,” he says. “Adults need a place on the internet. And the opportunity for creating those spaces and ensuring those are safe and stigma-free has real potential.”
MindGeek, of course, has competition looking to do the same thing. OnlyFans saw subscribers spend $4.8 billion on the site in 2021, with a blend of both adult performers and other content creators, such as Cardi B and former Disney star Bella Thorne, along with musicians and fitness instructors.
And just as Pornhub shifted the paradigm of the porn world, making big studios largely irrelevant, OnlyFans (and LiveCam sites) have moved it once again, giving content creators more power in how their clips are distributed—and connecting them directly with fans.
Cautious optimism from the industry
The porn world has heard a lot of the assurances ECP is making before, so news of the acquisition is being met with some caution by performers and studios. While they’re a bit dubious, based on MindGeek’s history, they’re hopeful for change.
“Content creators had been begging Pornhub for years to update their terms of service to only allow verified uploaders, which would have solved a large percentage of Pornhub’s content moderation concerns, but MindGeek execs ignored us,” said performer Meana Wolf.
“I’m cautiously optimistic that the new ownership will offer more transparency and partnership with performers. Hopefully, in time, that coalition will regain the trust of payment processors and restore the lost revenue stream that Pornhub’s VOD platform provided.”
Reuben Johnson, co-founder of Fly Media Productions, agrees, adding that while ECP might have grand ambitions, it will fall on the shoulders of the yet-to-be-named leaders of MindGeek to delivery on the vision.
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“I’m eagerly looking forward to hearing more about the replacement CEO and COO positions and how ECP plans to make use of the technology that MindGeek has developed,” he says, asking whether they could use AI tooling to combat illegal material.
“Will they leverage their existing content creators as part of the internal advisory board to tackle some of the challenges Pornhub has faced?
This is an opportunity to build and learn from a diverse group of experienced and respected voices in the industry while also bringing new perspectives and personalities to the table.”
source: finance.yahoo.com/news/co-founder-canadian-private-equity
