I adore my best friend–seriously. Without this person, I wouldn’t be able to function or speak as honestly as I do nowadays. But sometimes, on occasion, I’m surprised by the degree of passion expressed when they opine about topics that most of the self-described “normies” that have populated my world would consider off-limits, and certainly to the degree and with the conclusions they express.
Take, for example, all of the noise about Tik Tok and their alleged potential to being spying on its users, supposedly providing Chinese government with valuable information about anyone who uses it; indeed, potentially having cameras already installed on devices to send images and locations to them. Not only is my best friend nonetheless a user, and far more proficiently than I, but they confess they are well aware of all of that, and offer that almost anyone who has interacted online with ANY social media, regardless of its origin, are already in the same boat.
And when I consider the shipping labels and the primary language of the brochures of several items I have recently ordered via Instagram via Amazon points–knockoffs of headphones and portable vacuums I actually needed to replace ones that had broken beyond repair–it’s an awful lot of Mandarin characters, and the videos they used to catch my attention clearly featuring Asian actors.
So I guess I’ll begin by saying yo, Yao and hi, Xi. How’s the spring treating you and the pandas I actually want to see healthy?
Sure, Tik Tok has emerged as the social platform of choice for Gen Z and younger, so much so that their CEO was able to confidently face the geriatric fearmongers in Congress with the support of a whole lot of them who are earning substantial incomes from it in the US of A and basically say “bring it on!”. And I’m sure he, or someone in his camp, already knew about this whopper that recently caught my attention that should put all of that handwringing into context. Per Evan Armstrong of Every.com:
It’s always weird to go viral, but it’s especially bizarre to do so for a thread about Pornhub.
On March 20th, I tweeted out: “I’m like 99% sure Pornhub’s acquisition is a scam.” My thread went supernova hot with over a million views. Instantly I was inundated with potential sources who claimed to have the inside scoop about the deal and DMs calling me an idiot. I’ve had a lot of conversations with all of the above in the weeks since.
Now Evan Armstrong may be young and inflammatory, but at least per his LinkedIn, he seems extremely credible. He’s a 2017 graduate of BYU with a degree in sociology and business strategy, and is working on a masters at Johns Hopkins. He also happens to be a director at Tidemark, a $575M growth equity firm, when he’s not writing. So, at least my standards for credibility have been met.
So here are his hypotheses:
Although I don’t have a definitive explanation of this weird deal, I decided to share my theories and the context I’ve learned here. I’ll also explain why the purchase of Pornhub’s parent company should be attracting more media attention and analysis:
- This transaction raises a ton of questions and is deeply, deeply weird
- There are three possible financing scenarios for this buyout, all of which are troubling
- Given Pornhub’s reach, regulators should be paying closer attention
It is tempting to ignore this transaction because the business is some pervy corner of the internet. But I would argue that Pornhub (and by proxy its parent company MindGeek) is one of the most important websites in the world. Pornhub had over 2B visits last year and 100M+ daily active users. Visitor’s average time on site is 9 minutes and 54 seconds. Meaning that in 2022, a grand total of ~38,026.51 years of time was spent at this URL.
I first encountered the realities of how significant adult content is to the internet when I became a subscriber to Comscore in the late ’90s, when it was establishing itself as the first mover ahead of Nielsen in the measurement of online audience to advertisers and content providers. I represented the interest of FOX’s kids’ networks, and our task was to market to people over 13 (due to COPPA restrictions) but yet have content that would appeal to our core boys 6-11 audience–not an easy task. Since moms tend to monitor children’s internet usage disproportionately, networks like Nickeoldeon and The Disney Channel had a distinct advantage. But by sheer osmosis we were making headway, so I was asked to dig deep into the minuitiae of rankings from the reports we ordered. For an upfront presentation, I produced a puff piece that touted our momentum but was instructed by Comscore to provide an appendix with the actual rankings. Our competitors were among the Top 100; we were, in reality, somewhere in the bottom 500 of the Top 1000. In between us were an awful lot of .xxx and clearly adult domains. Their traffic, of course, was heavily influenced by pop-ups and redirects that would potentially infect computers that accessed the content. So we were literally being screwed out any chance for a credible presentation. We instead opted to direct our chairman to pose as a milkman and deliver breakfast to our buyers instead.
So, yep, I do believe Armstrong’s numbers and the significance of all of what else he posits to be something to actually care about:
Anything that aggregates this much attention matters. It will spawn content ecosystems devoted to monetizing the audience in whatever way is most profitable. An AI recommendation algorithm will tailor the experience for each user, trapping them in webs of personalized content. Money, power, influence, all of it flows downhill from this amount of eyeballs. And when there is this much influence, served across hundreds of millions of users, we often see bad actors and harmful repercussions. .
Because of the adult nature of Pornhub, the consequences from this aggregation are extreme. Pornhub monetized videos of women being raped. The site was a hotbed of human trafficking. It hosted child pornography. It’s true that any website that allows users to share content—Facebook, Reddit, Twitter, Dropbox, literally anything with a button that says “upload”—have to deal with users sharing this type of content. But MindGeek seems to be particularly susceptible to these issues.
Whoever owns this website will not only have a direct influence over the state of sex trafficking globally but will also hold the emails, credit card numbers, and most private browsing habits of tens of millions of people. So, this deal matters beyond mere intellectual curiosity.
On March 16th, Pornhub announced it had been bought by—get this—“Ethical Capital Partners.” It’s like the Medellin Cartel getting bought by “Totally Not Crime LLC.” It’s like the Medellin Cartel getting bought by “Totally Not Crime LLC.”
When you take a look at the employees of ECP, the transaction gets even weirder. According to their LinkedIn profiles, only one employee has ever worked in finance before. None of them have worked in technology. None of them have publicly worked at ECP itself for longer than six months. The fund’s leader Rocco Meliambro supposedly made his money in the cannabis industry.
The firm’s advisors are also unconventional. Some are sex work academics, some are more typical board members. One advisor brags about how she can crush watermelons with her thighs. (An impressive talent but one that has a tenuous link to ensuring child safety on the world’s second largest porn website.)
Not only are the employees and advisors involved baffling, but the fund isn’t registered in U.S. or Canadian investment registration databases. Canada doesn’t require private equity funds to register, but many funds still do for the sake of transparency. Ethical Capital Partners did register as a business in Ontario in 2021, so it technically exists, but it’s unclear where the money came from. Again, this isn’t illegal. But it matters when the asset you are buying is Pornhub because — as we’ve covered — its policies impact sex trafficking globally. In all of their early interviews they refuse to disclose the source of their funds when asked about it.
Now to the corporate layer:
In 2020, MindGeek had $482M in revenue and $186M in EBITDA. Then, a string of bad press reminded everyone there was a bunch of evil stuff on the site, and so Visa and Mastercard cut them out of their network. Effectively, this stopped them from being able to receive payments from porn site users via credit cards. Simultaneously, OnlyFans took off like a rocket attracting many of the top creators in porn and stealing market share from MindGeek.
This takes us to the 2021 bid. Some of ECP’s current employees tried to buy MindGeek through a firm called Bruinen Investment Inc. (Their website is down but you can see proof in the great wayback machine here of Bruinen’s and ECP staff similarities). Bruinen’s offer for the site was $475M. The Globe reported that Bruinen could unfreeze the Visa and Mastercard relationships and return the website to its former glory. All of this sounds good, but Brunien failed at the finish line by being unable to raise sufficient capital.
Fast forward to 2023 and the business has become even more bleak. In addition to directly blocking credit card transactions on the site, Visa and Mastercard cut ties with an advertising network that was helping fund Pornhub. OnlyFans is now doing over a billion dollars in revenue. AI deepfakes and Generative AI means that anyone can create custom porn for themselves. The most popular of these sites receives 17M visits a month. To put the nail in the coffin, Netflix made a documentary about how Pornhub was the worst.
Pornhub was being boxed in from all sides. It was time to reset. The ECP transaction was announced one day after the Netflix documentary aired.
So then, who DOES control all of this traffic and information now? Armstrong, the self-described non-investigative journalist, did his best imitation of Matt Taibbi and reported the following:
With ECP’s unwillingness to disclose, you know, like, anything about the transaction, I gathered up as much info as I could. I wanted to generate some hypotheses for what’s happening here. In other words: How did cannabis entrepreneurs with no finance or technology experience buy MindGeek?
There are three paths they could’ve taken to finance the deal:
Seller financing: This is when a buyer will do a down payment and then pay for the rest of the acquisition over time with cash flows from the business. Sometimes you’ll have a bank help to facilitate the debt. (This would not happen in the case of Pornhub because of ethics concerns.)
- Likelihood: Very low. With MindGeek’s existing business issues and vaguely criminal nature, my guess is that Pornhub’s sellers wanted to get out as quickly as possible.
- Outcome: Business would need to be rapidly improved, with a huge priority on improving credit card relationships. Would see an underinvestment in content moderation as excess cash flows would go towards previous owners to pay off the remaining purchase price.
All in-house capital: In this case ECP partners would have enough capital to buy it on their own. No outside capital owners would be involved.
- Likelihood: Very, very low. Seeing as the previous purchase price was $485M, I don’t think anyone on the team has that kind of personal capital to risk.
- Outcome: Ironically, this would be the best outcome for society! We would know exactly who is responsible and they would be able to treat the company as a long-term asset, worthy of investment.
Outside investors: ECP partners would put up a small amount of capital (typically it is 1-10% of the deal size) and rely on outside partners for the rest.
- Likelihood: Very, very likely.
- Outcome: Unfortunately, this is probably the worst scenario. Depending on how the outcome is structured, investors in the deal may have access to data, rights, or privileges. None of this would need to be publicly disclosed.
If the most likely scenario is true (ECP bought MindGeek with third party capital), then who backed the deal? It’s important to know who invested, because they’ll have a big stake in what happens to Pornhub moving forward, including whether the content is sourced or moderated ethically. Sources told me that Rocco went around last year pitching various wealthy Canadians (early Shopify employees and the like) to invest into the deal. This effort was unsuccessful.
ECP wouldn’t have had many other options for raising capital from traditional finance providers like Fund of Funds or hedge funds as most are forbidden by their LPs from investing in “sin stocks.” Typically this means products like nicotine or guns, but MindGeek would very much qualify.
That means the capital came from an extremely high net worth individual (like Elon or Bezos levels of rich) or more likely, from a foreign fund not bad by Western finance norms. I had one source who insisted that the capital came from Hong Kong but when I asked for more details he mostly insulted me for not being able to figure it out myself ¯\_(ツ)_/¯.
Foreign funds can be totally benign. But they can also be devious! There is a reason the SEC exists and American markets are considered some of the least fraudulent in the world.
Ultimately because we don’t know who financed ECP, it’s hard to know what the concerns are. Some of the questions that came up for me were: What if a fund with drastically different ethical frameworks bought it? Or, what if this bid is just a ploy for the current leaders of MindGeek to keep running the company behind a shell leadership front? How can we hold the real owners accountable to Pornhub actions or impacts without knowing who they are?
Now, to be sure, there’s an awful lot of dot-connecting that leads up to this, and there are certainly arguments that could be made that this is an awful lot of overreacting. Given Armstrong’s resume, it’s also possible to assume he’s a young urban progressive, as much of a generation and intellectual threat to today’s political elites as hippies and Yippies were to the Johnsons and Nixons of decades past.
I therefore wonder why indeed Congress wouldn’t want to know just a little bit more about these details, or at least allow Armstrong to come forth with this in a more public forum. I have taken the liberty of extrapolating the majority of his article from Every, with accredidation, for the benefit of you who may be too distracted or preoccupied to link to it. If any of this has caught your attention, rest assured he’s got more on this both fore and aft, and a lot of other good work on the site as well. Most definitely worth a follow. I kinda think Jim Jordan, Kevin McCarthy and, yes, even Hakeem Jeffries might be interested in learning a bit more.
Unless, of course, they may fear that somehow their IP addresses might somehow be revealed as among those that contributed to some of those 38 thousand years of time spent?
Let me help you out. In 2020, we were all isolated and distracted. I defy anyone to come forth who wasn’t in need of a little escape. As online video viewing exploded (pun intended), adult content was then as it was back in the 90s a leading category. One significant video aggegator grew its subscriptions fivefold and its revenue ten fold during the first months of the pandemic. If I gave you a choice of Netflix or OnlyFans, which would you choose?
Wrong, Tiger King zealots.
So yep, if you really want to look into whether or not you’re being surveilled, by Chinese, Russians, or even some weed-loving Canadians, I’d be e-mailing your favorite culture war-loving politico asking for Mr. Armstrong to get a bit more mainsream. Since we’re not having the FOX News trial just yet, and with an impending strike, we kind of need something to fill the potental entertainment void. Just like Pornhub and OnlyFans did when live sports went away.
I seem to think the potential of some outside entity invading our minds at a time when we’re on a site like PornHub–and, like it or not, millions of us are–is a lot more likely to have some impact then when we’re dancing or giving endless recipes for breakfast sausage casseroles.
I came to those conclusions. Don’t blame my best friend, either.
Until next time…