In hard economic times, no one is surprised to hear about industries struggling with bankruptcies, unemployment and consumers deserting high quality products to buy poor quality, but cheaper merchandise. We just don’t expect the industry to be pornography.

Yet a roundup of recent news stories on the pornography sector of the economy demonstrates that that’s indeed what is happening. Laments porn star Stormy Daniels, “Porn and Starbucks --- we’re going down.” According to BusinessWeek (yes, THE BusinessWeek):

Companies say people were already spending less on naughty DVDs before the economy went sour, increasingly turning to pirated copies and YouTube-like Web sites that stream clips for free and undercut companies working to sell adult content.

And now, with consumers tightening spending as much as they can, those who work in the industry say paid pornography is the first thing to go…

Daniels, 29, said people have less money but don't want to compromise their viewing habits, and even people who previously held out to avoid supporting Internet piracy are finding it harder to justify spending for content.

"They just don't have any money, they have no choice but to download it," she said.

In the past, the pornography industry was viewed as recession proof, but no longer. Paul Fishbein, chairman of porn purveyor AVN Media reports:

Everybody I’m talking to says the business is down anywhere from 20 to 30 percent. That’s in line with the rest of the economy. People in the retail sector are down anywhere from 10 to 40 percent.

The primary problem for the industry is that consumers are willing to compromise on quality. Jack Kyser, an economist with the LA County Economic Development Corporation, who studies the industry that pumps more than $12 billion into the Southern California economy explains:

They are definitely struggling. They are subject to piracy like the mainstream industry is, and that siphons revenue away. Then there are a lot of amateurs in the online industry, which is growing rapidly, and they don’t charge for it.

The industry is really seeing a change in their business model.

Fischbein of AVN describes it as a “perfect storm.”

There’s too much stuff out there. The economy is bad. And there is a lot of free porn. So it’s a perfect storm that is affecting everybody’s business.

Hustler publisher Larry Flynt and Girls Gone Wild CEO Joe Francis have mused publicly (and presumably facetiously) about asking Congress for a $5 billion dollar bailout. There are some segments of the market that are holding firm.  Women’s studies professor Lynn Comella of of UNLV, who studies the industry says:

…[C]ertain segments of the industry are doing well, including retail novelty sellers that cater to women.

Comella said these businesses are having to work harder than ever before to maintain sales, but are still finding customers willing to spend $150 to $200 on high end sex toys.

The sense within the industry is that companies will have to focus on quality -- not quantity -- to survive in a bad economy, Comella said.

"The recession might force the cream of the crop to rise to the top. There's some people who believe that a cleaning out of the market might be a good thing for the industry," Comella said. "2009 might not be all that bad, but it's going to bring the issue of quality to the foreground."

For some customers, reputation is paramount. The Girls Gone Wild franchise is still on top, as CEO Francis reports with relief:

We offer reality product. We don’t do hardcore. We’re heavily advertised. There’s a comfort zone in choosing ‘Girls Gone Wild.’ We’re No. 1 in all categories.

While the bigger players in the porn industry may weather the storm, the small businesses may not survive. Rob Rotten, actor, director, producer and head of Punx Productions decries the “opportunists” who don’t care about quality. While Rotten is practically obsessed with quality: “I have my fingers in everything, including post production and box covers,” others are not so scrupulous:

Rotten believes the adult entertainment business has been hurt by opportunists who try to produce low-quality films and charge exorbitant sums in order to make a quick buck. “It’s a lot of low-budget gonzo stuff released into an oversaturated market,” he said. “I think the general public just got sick of paying $49.95 for a poorly edited, poorly shot, poorly made video.”

Yet Rotten is confident that quality will ultimately prevail:

The movies I put out and are affiliated with, we actually care about them. Even though it’s an adult movie, I try to make the best movie I can within my allotted budget.

There are some companies that are doing better now than they were three years ago, because they never let go of the quality aspect. They’re not just shipping wood.