You raise a lot of interesting points. Here's my perspective as a small content provider.
Sites with exclusive content do better than sites which simply buy CD's full of stuff and put it up. You can create your own exclusive content or you can buy it from sources like me, but contrary to what you say, many surfers are tired of seeing the same old shit everywhere they go. If you promise stuff that's new and exciting and can't be had anywhere else, you will still get sign-ups. I do a fair amount of exclusive work for a handful of fairly successful small sites, and this is what they tell me.
Competing with Cybererotica or Kara's Adult Playground is a formula for failure. You can't compete with a site that has 10 million photos, 1 hundred thousand video clips, etc., etc. Instead, work a niche.
The business is not declining. However, the less sharp site operators are finding it harder and harder to make a buck. The days of XPics are over. (Some of you newbies probably don't even know what I'm talking about
: 3 or 4 years ago, any drooling idiot could put up a site with some XPics banners, take some basic steps to get traffic, and make at least a few hundred bucks a week. Things have changed since then, and making money requires a lot more shrewdness and effort today.)
In my tour for my own pay site, GirlsDotCom.com, I give away a LOT of free content. However, it is downsized to 440x so as to make it very unattractive to porn collectors, and every pic has my URL on it, in case they do upload the pics to the newsgroups (which I encourage, by the way, since uploading them myself could cause me some headaches).
My membership consists of people who like my photographic style. Sure, a few take advantage of my trial, download a bunch of pics, and quit, but quite a few stay on.
With broadband, video is becoming more important. My exclusive content customers are asking for more and more video all the time. I now have three video cameras: a Hi8, a Digital8, and a MiniDV camera to accommodate my customers' needs and deliver it in whatever format they prefer or can deal with (of course any of them are easily converted to VHS).
Speaking of broadband, here is a REAL problem: Webmasters pay for bandwidth on a metered basis, whereas most surfers surf on a fixed fee basis that hasn't changed in about six or seven years. Anyone see a problem developing here?
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Producer of truly original teen/young woman-oriented adult content at
Wonders of the Unseen World