[first_pr]

Internet businesses are often started with a simple idea:
1. Get traffic
2. Maintain traffic for some period of time.
3. Sell the domain, or sell advertising.

When the free porn sites started, many of them failed. You're looking at tens of dollars a month to start a site that is mostly text, but hundreds to reasonably stream video. You're going to need at least a grand to stream high quality video if you have real traffic (thousands of hits per day).

Fortunately, that is the only ongoing expense. These sites don't spend a lot on getting logos done. The programming would actually be rather simple - I'm confident I could write a basic porn tube site with a search and related videos and upload and categories within an afternoon.

Your revenue then is from advertising. I know a guy personally that ran a "funny video" type site for a number of years, and the revenue is not insignificant. For about $1500 in hosting per month, he was taking up to $6000 in advertising revenue. The big payers are sites that have members sign up and pay monthly fees. You'll notice livejasmine pops up when you visit any number of porn or non-porn sites. For that privilege of being automatically popped up on a website, they will pay several hundred dollars per month (depends on the traffic of course.) Adult friend finder was a big player a few years ago, paying to be on a page, paying for click throughs, and paying bigtime for the few clickthroughs that purchased a membership. Online casinos and poker sites were great for a while too (I don't know if they still are) sharing a large percentage of the profit they took from any click-through that signed up.

You're right in asking why someone on a free porn site already would go sign up on a paid porn site. That's why all the best paying advertisers are "dating" sites or the webcam sites (livejasmine). People aren't willing to pay to just watch more porn, which is already free, they're paying to go to the next step of interaction. If you've ever had livejasmin pop up you'll be blown away by the quality of the cameras... somehow they are pumping out live, smooth, high resolution, hi fidelity sound, to multiple viewers at once. I first assumed it was a recording when I first saw it popunder another website and heard a girl talking, but then I typed something in the box and was amazed that it really was a live webcam at that quality. It seems that the only activity people feels that justifies the expense of such high quality communication is to talk to naked chicks. Anyway, back to "interaction", the dating sites you'll see advertised on these places often aren't exactly dating sites. More likely, they're escort sites disguised as dating sites. Anything that looks like "swinger dating" or "rich guy poor girl dating" is basically an escort site.

You may or may not know... escort advertising is not a bad revenue stream. It basically used to fund craigslist. (Ever wonder how they made it so far with no ads on the site?) I don't think there would be a craigslist today if they didn't have that revenue source to grow with. They've since removed the escort category and just charge for job and apartment ads.

As for categorization - that's an easy one. The uploader of the video can select categories or tags. These can also be pulled from the title or filename of the video. Some sites will also ask users to categories videos they see, rate them, report them if illegal, etc.

Content is user-submitted, which allows the site to stay out of the direct fire of copyright law. This is good for the sites, since most content is copyrighted, just taken from paid sites or DVDs and such. Some paid sites take advantage of this and will themselves upload videos watermarked with their url.

Free porn sites actually predate the WWW. Back when we had bulletin boards more than half of the public ones were just porn and downloadable "sexy" games. So you'd get a blocky picture of a naked chick (probably scanned from penthouse) in 16 colors if you waited long enough. Unlike the free tube sites today, the BBS sites were completely run at a loss, with people just doing it for notoriety (ie teenagers wanting to be badasses.)

So I don't think the porn sites are subsidized at all. If anything, they are one of the few business models on the net that is self-sufficient (many other sites are run at a loss because they are of use to the parent company.) Content and categorization are free, programming is trivial, and the hosting can be offset by advertising.