Hot Money: the Darth Vader of porn | FT

So warning time we're two journalists from the financial times and for six months we were set free to pursue one question who controls the porn industry there's some content that really won't be suitable for kids and only when strictly necessary.

We've used recordings of investment bankers in the wild i want to take you back in time to 2012 to winter evening in las vegas the porn industry had convened for one of its flagship conferences.

It's like davos but for porn models computer geeks moguls they were all there gathered together in a flashy music arena where motley crew had its presidency that year it was the most packed i'd ever seen one.

Of those kino speeches everybody was sitting there talking like i don't know i don't know what he's going to say car crash like type of thing like we have to see this to see what happens sarah jane anderson sat in the hall not waiting for a rock band but for a speech sarah jane had been working in the.

Online adult world since the 90s she was on the business and marketing side of things it was a close-knit community sarah jane talks about it like an eccentric family but they were on hard times sitting beside her that night were a bunch of porn executives all from big.

Companies all facing the same dilemma what was the point of making new content when your content was being plundered there's no way to stop because trucking so as much as i said content is king the real king is traffic and the tube sites had a swallowed up all the traffic.

More people were looking at online porn than ever but they weren't paying for it profits had evaporated it was beyond the panic stage producers were desperate they watched their best movies get ripped and streamed online for free by a faceless enemy the tube sites but finally at that conference they would see their problem in the flesh.

They were going to meet the man behind the biggest tube sites and as the lights came up everyone began to hum they actually sang underneath their breath the death march from star wars when he came out the lord vader of porn was a man called fabian tillman the german software.

Engineer who bought x-tube roughly four years before this conference the one who started buying tube sites as a step towards adult industry domination when he came on stage he made an impression before saying a word he's wearing a hoodie very zuckerberg and then he sat on the table and crossed.

His legs pompous i just remember a whole row just laughing at that out of ridiculousness it was his public debut babyface fabian at just 33 was basically there to introduce himself to an industry that he had conquered in just four years i wanted to talk a bit about myself.

Since i know that many of you do not really know who i am where i come from and such and i thought it's better if uh people know more and and then should make it obvious that i'm not that evil person that so many people think i am in my row it was just like okay then especially in the digital world a lot of.

Those people people are faceless nicknames so i think he got some credit for showing up and taking the heat a little bit but i still think it was pretty much haha i own you i'm patricia nelson he's alex barker from pushkin industries in the financial times this is hot money.

act one the disruptor how did fabian do it he was good at coding but so a lot of people in the adult industry the thing that marked him out was money he was good with money in a business.

That was starved of finance he was the guy in the hoodie who convinced wall street to bankroll his vision to take control of the adult industry the guy who managed to get even the most prestigious of banks and investors to buy in to look away from the problems what they.

Saw as a sin industry and raise more money than anyone thought possible fabian was like mercury let me tell you what it was like trying to get an interview with him he got in touch with me then he went dark then he said yes then he ghosted me i watched in his social media feeds as.

He found love and traveled the world i saw meerkats cambodian temples speed boats he even posted pics from her london art gallery on the same saturday that i was there i know he didn't respond to me when i reached out then after more than a year of trying he finally gave us a date we traveled to.

Cologne in germany and went to his no-frills office above a 1980s shopping arcade and a nightclub called vanity as we waited surrounded by merch from his clubs piled up in the corners i still had this uneasy feeling would he actually answer our questions would he even show up and then.

There he was uh my name is fabian i hate saying any english i don't like it uh my name is fabian tulman and i'm an investor i guess his family is german but he grew up in brussels and still lives there just down the road from where i used to live.

Actually on the other side of a royal hunting forest the tillman's were a well-to-do family and like many people in this business a teenage fabian basically stumbled into porn partly for laughs but also to get ahead i was a programmer i looked online where i could do fun projects in an easy way as a young person without many.

Connections not being in la or or san francisco or something i stumbled over porn people basically online at chat rooms and started working for them he helped build something called nats a tracking program for affiliate marketing that took off in the adult business it's still around today.

With this software he could see where traffic was flowing and what pawn customers actually paid for when fabian peaked behind the curtains of these businesses he had the best view in porn land it was interesting how how exaggerated everybody was talking.

About how great they were which they really weren't or at least not as grand as they made it look fabian thought he could do a better job the first business he bought was a small german porn site he didn't really have a plan some friends were selling and he could just about get the money together but then i started to look at other.

Things and let's see what else is possible to buy and that's when you realize more and more how the industry worked and how what's there and what isn't and so the buying spree began it started with a few more porn sites in germany a webcams business then x-tube you know the site run by curtis the.

Subpoena king the guy we talked to in the previous episode at the ft we cover this kind of investor driven buying spree all the time it's called a roll up basically seeing value in a sector raising money and buying up as many companies as possible money's been cheap for quite a while so plenty of deeply unimpressive buyout.

Groups managed to do it but fabian he was doing it in porn hardcore porn just after the financial crash in 2008 that's no small feat there wasn't much money around and with all those free videos flooding the web everyone thought the porn industry was doomed i don't know if i.

Had if i really in the beginning at least realized how big this could become it was a game in some shape or form you know to look at all these companies to be the one of the few people that uh is actually willing to buy anything because everybody else was like what the why are you buying this this will all.

Die in two months things got more serious when a company called mansif approached him the canadian engineering students who were behind this company had founded sites like pornhub and browsers these were already big brands i was lucky they knew about me and they just.

Took the chance and came to me but they were talking to four other people at the same time and i just decided okay this is going to be really expensive i have absolutely no clue how to pay for this but let's just chat with them and let's try.

He flew to montreal a few days before christmas in 2009 his wife didn't mind him staying there at least for a few days but fabian was so keen to get the deal done he was stuck there for three months the thing about mansef was it bridged old and new.

Dead production studios and sites like brazzers where he had to pay to get access the traditional way of selling porn online but they'd also cracked how to make money from free tube sites they could either sell ad space to other pornographers or just channel the viewers to their own.

Pay sites the trick was to just get a tiny percentage of all that traffic to actually pay for porn really it was uncomparable the amount of money that this team could make with traffic was unheard of in this industry before it was impressive.

Fabian loved the business the trouble was he didn't have the money to pay for it he bought his first sites with support from a few backers whom he paid back the next stage though was much harder and that's when the financial acrobatics began when compared to the rest of the.

Industry this turned out to be fabian's real superpower people think of him as the german tech guy but he actually brought financial engineering to online porn he conjured up magic money for a business that no mainstream investor.

Wanted to touch to make his offer for mansif he siphoned cash from other companies used an asset he wasn't allowed to use staggered payments massaged payment dates every trick in the book and just to be clear some were definitely in the gray zone of.

What's legal i mean what you were doing when you were buying man it's almost like you want to buy a restaurant and you're going to do it with like four different credit cards overlapping yeah let's just figure out a way to do it and then fix it later you know and if it doesn't fix then i i'm like before the deal so who cares.

It worked fabian bought manceff then bundled together all his sites x-tube and pornhub and brazzers and my dirty hobby in germany and gave his company a new name it turned out to be one of the most infamous and ridiculous in porn man win.

Fabian swears it wasn't intentional but you might remember back in our first episode what the performer stoya thought of fabian's company when it bought the pawn studio she was working for and i was like oh i am now tied to a company that is literally named man win.

This is awful fabian thought to himself as an opportunistic buyer he was making waves everyone in the industry was talking about this rookie turned kingpin and he started to think maybe i could build an empire then came the day when the ceo of playboy tapped fabian on the shoulder.

And asked for a private chat part of the legendary bunny brand was for sale would fabian be interested he was but there was one big hitch fabian's deal with mansef the one that created manwin turned on a big promise because he didn't have the money the payments to buy the company were spread.

Over a few years and right at the end fabian agreed to make balloon payment a big lump sum and if he failed to deliver the old owners of the company would just get it back so he simply had to pay the fabian still had no idea how to get.

That much money on his own and so he thought he might as well try to do the impossible he would go to wall street act 2 the money game.

Fabian reckoned if wall street would fund cigarettes fossil fuels and even the global arms trade surely no one would think that porn was worse he went to one of his financial advisors a group called raymond shabo grant thornton it's part of one of the world's biggest accounting firms i went to.

Chabot and told them listen you know these numbers you've seen them why can we not get that this is ridiculous there must be a way to get that even just one year just one x leverage that's it let's try and they're like yeah it should be simple so his advisors got busy making a slide.

Deck bankers love slides meanwhile fabian got busy running his new porn sites the ones he bought without really having the money to pay for them before long the bankers thought they'd found the lender someone who didn't mind porn someone who would let them borrow almost.

100 million that would have allowed fabian to cover what he owed and help him buy the playboy business we had a meeting in chicago a term sheet everything we celebrated in the evening had dinner with them sitting at that dinner fabian thought he'd pulled it off.

He'd found the magic money pot it didn't last long the next morning the owner said i'm not signing because he talked to his wife so it looked very very easy and good in the very beginning and when this happened.

Ramon chabot realized oh this is difficult so to recap fabian tillman in his early 30s was on his way to wrestle control over the porn industry that had been smashed to bits by tube sites many which were run by him.

He'd promised a bunch of pornographers money to take over their companies these businesses were profitable but he thought he could do even better but to buy them he committed to a payment schedule that he just could not afford he needed to borrow otherwise he was toast.

But at the same time no lenders wanted to touch porn by now we're in the summer of 2010. fabian had a small army of advisors they're all on ridiculously high commissions millions of dollars if they could get the deal done but they were getting nowhere.

In desperation one of the advisors called an old contact in new york it was the banking equivalent of sending up the bat signal and the man that answered was called rick rosenblum i'm a special situations investment banker which is a mouthful but it's a fancy way of saying.

I uh i find capital for people firms ventures that don't fit in a typical box i'm essentially a finance specialist for alternative investments and misfit toys of the capital world rick's firm is fuel break capital it's a sort of marriage broker in the world of finance a matchmaker for the.

Untouchables maverick companies that need money but can't get it through the normal channels maybe they're they're a so-called sin industry maybe they're out of favor industry maybe they're what a lot of people call headline risk headline risk isn't a fancy financial.

Term by the way it actually means the risk of an investor appearing in a newspaper headline you see finance people don't like bad headlines about their investments and porn it's made for bad headlines for rick it was a lottery ticket assignment.

The chances of success were low but the potential rewards were huge something like this had never been done for porn but rick could see there was something about fabian's business once i dug into it and realized how profitable it was i mean you can't take the content out but if you just ignored the content it.

Was an incredibly profitable technology company let's just unpack what very profitable tech company means a grocer might have a margin about two percent a real money maker can have something like 20 fabian's business had a margin of about fifty percent for every two dollars of revenue his porn sites generated more.

Than one dollar was clean operating profit now that will get any investors heart pounding you know it's a home run there's no bell curve for that with rick's experience in new york's world of alternative finance he knew it tended to be easier to borrow large amounts of money like 100 million.

In this world 5 or 10 million is just not worth people's time and if you bring a business with a roughly 50 margin that is likely to get a few years to perk up but for porn rick was starting to realize what fabian had learned the hard way.

On wall street porn was dirtier than guns cigarettes and gambling i knew it was complicated i knew it wasn't going to be easy but i knew that if i could find the cap it would be highly profitable i'm going to keep shaking trees turning over rocks until i'm out i probably went to 40 or 50 firms i got my door.

Slammed in my face almost every time but then fate intervenes it's another historic moment for the pawn industry and where else would it be but las vegas it's always in sin city at a conference rick ran into a guy called jason kolodny co-founder of a fledgling investment firm called colbeck.

Capital they hit it off he asked me kind of the deals i did and i told him hey i've got this great deal but it's got a lot of hair on it it's got a lot of uh noise around it and you know he said tell me more kolodny like his co-founder was a former goldman sachs banker kolbek was interested.

Tempted even but very wary this would be one of their first big deals and they just weren't too keen on porn not sure about how well the industry was run but mainly they just wanted to make sure that fabian's company was financially sound took me probably.

Four or five meetings to get them to really dig in jason kolodny said to me rick we tried to kill this deal so many times but every time we did another layer of diligence it checked out in fact it was probably i'm paraphrasing here but something like the cleanest.

Best run company we've ever diligenced that's quite a statement right yeah it was these guys came from goldman sachs and morgan stanley it's a pretty strong statement this wasn't their first barbecue eventually colbeck said yes like all of wall street they knew.

Bankrolling a hardcore porn company was dangerous but it was such a sound bet they couldn't resist they agreed to underwrite the deal and help raise the money and here's why they couldn't resist when all the loan costs were blended together the annual interest rate was more than 20.

Remember fabian's company wasn't that big in an era of cheap money this was breathtakingly expensive but somehow it made sense to fabian nobody lends to porn companies so if you manage to raise serious money you take it in porn land even a man paying 20 interest can become king.

You're looking at what a quarter of the company's revenue going out of the door in interest payments on the debt right roughly once again it's the money that enabled them to build the empire you're the largest player by a long shot you dictate a lot of what goes on in your.

Industry the porn industry had been broken by tube sites and fabian had just raised the money to assemble the giant conglomerate that would dominate global porn act 3 impossible dreams.

So fabian managed what nobody thought was possible raised serious money to begin a roll-up of the pawn industry but by god did he pay for it to understand why a 20 interest loan made sense for fabian you have to understand the alternative there was only one really.

Selling part of the company fabian would have to give up control and share the profits paying 20 interest it was worth it just to avoid that and that's extraordinary number i mean it's like usury yes yes yes then on the other side the lenders love this deal they came from a banking sector known as.

Distressed finance so most of the time they were backing companies in crisis porn was risky but only to their reputation fabian's business was humming so they could use the same weights they would use for the stressed asset for us it was great much safer right.

Same rate but safer for safer cash flow perfect they loved it and once fabian had the former goldman bankers on board the world of finance warmed to him a bank was hired to farm out the debt and find other lenders who wanted to join the syndicate jp morgan put up.

Money so did fortress a well-known new york buyout group even cornell university was involved at one stage cornell told us they had no idea what their fund manager had done and later sacked him when fabian started out he was trying to raise around 100 million.

And he struggled but then as the process went on that number crept up to 170 million and then by early 2011 fabian had raised up to 362 million so like us you're probably wondering how a pornographer struggling to raise 100 million managed to walk away with more.

Than triple that it was hard to find bankers who dared to invest in porn but once they were on board their appetite for business conquest turned out to be even larger than fabian's not long after fabian's request for 100 million was accepted he heard back from one of his financial.

Advisors they said do you have a wish list and i'm like what do you mean can you write us a list of what you would want to buy and how much this would cost i'm like okay sure we'll make a wishlist and we made a wishlist the next day and it came to 200 something million or something that.

We estimated it would cost and um then they came to me and said yeah look let's why are we talking about 100 if you want 250 i don't understand why don't we talk about 250 and i realized okay they are hungry and they want to do more because obviously the term sheet it was expensive as hell and it was crazy really crazy um.

But it worked casual wise so i didn't care and then i said okay look let's let's talk about a number you like more and that's how fabian landed a loan of 362 million dollars jackpot remember what sarah jane said when she was in the crowd of that pawn conference she was.

Waiting for the man who embodied how the world of porn had changed those out to make money were no longer thinking about the most desirable porn stars or where to shoot the next blockbuster fabian's game was all about internet traffic and with that extra money he started buying it all up he acquired upon probably the most.

Popular tube site at the time fabian had finance scale and a proven recipe for running sites he thought he could make more money from traffic than anybody else and with you porn he was right trucking they quadrupled the profits of this of the sites in two months after two months we were four times as.

Profitable considering that you buy it for peanuts you know in the end it didn't take long until people started asking fabian where is this all going are you going to sell take the company public people ask me all the time also the.

Lenders asked me once i think what's your exit strategy i said we make 100 something million a year why would i exit this for what reason there was the social impact too from creating this big tech conglomerate that pumped out free porn to the world fabian argues it had a positive effect that people became more tolerant of.

Different sexual identities but even he recognizes there is another side to that we've spent a lot of time looking in this industry i've got two pre-teen boys i still struggle with how to explain that there is this vast well of porn out there.

How how do i explain it to them yeah it's a good question it's a i have a 14 year old daughter right for example um and she knows what i did and she knows how i'm involved in this and i told her personally and she kind of knew before but kind of didn't because obviously every single.

Person in class knows who i am every single one of them in my opinion it's more about the fact that yes all of this exists out there but one is it so bad that it does and two you need to be sure that.

The kids understand how to put all of this in the right bucket so to speak uh just like they need to understand what in a marvel movie is real and what isn't they need to understand it there too.

Hmm buckets i wish it were as easy as that there are tens of millions of porn videos online in no small part thanks to guys like fabian and when you're a teen and angsty and learning about your sexuality it's hard just to put porn in the fiction fantasy don't try this at home bucket but let's be clear this isn't just about.

Conversations with the kids porn is a big part of our culture now it will be freely available for generations to come we can't just compartmentalize the darker sides of the industry either fabian not only left a mark on our world but the industry he embodied the digital whirlwind that crashed through it pay.

Rates for producers and performers plummeted a lot of the traditional industry just went out of business fabian's name is still mud to many of them but his power it didn't come from inventing sites it came from buying them i cannot help it that technology changes.

Like the internet the shift flow of money how it works it shifted it in 50 different industries and it treated it in porn that's it and i just happened to be there when it was there for the ticking and i did it you know and i wasn't afraid that.

It might look weird or bad or whatever i guess someone has to be the bad guy right because it doesn't work without the bad guy in yet change it just doesn't it's always a bad guy at the peak of his power fabian reckons he controls 60 to 70 percent of all porn traffic we see it all the time.

Tech disruptors pumped up with cash from wall street that rapidly become giants and push out other companies because they can offer things on the cheap or in this case for free when we started reporting this podcast we set out to find who rules the porn world so.

Is it fabian tillman a decade ago the answer to that would have been yes after his roll up fabian truly was the darth vader of porn but he had some surprising ideas about how to use his power and control for one thing.

He says he actually never believed the tube side business model would last he has never said this publicly before but his grand plan was to buy all the tube sites and then put them behind the paywall and i would have then turned off the websites.

Completely as in closed off the free content because changing 150 million people's free content from day one today to to no longer being there makes them buy stuff this does sound like a completely crazy plan these days pornhub alone is hosting two billion visits a month it's hard to imagine anybody could just turn off the.

Tap of free pawn especially not the man who managed to convince wall street that it was a sure bet for quick and easy money so are you saying that if you would have been successful in this plan maybe we wouldn't have had tube sites today yes basically yes that's what my plan was now imagine youtube would turn.

Off today and and make it pay oh my god i don't know what would happen even at two bucks a month it would be interesting how many would do this a lot i think fabian's master plan failed but what stopped him that's coming up next time on hot money my bank said this person is.

Fake this is all fake this person doesn't exist who's paying us money we cannot find anything on him it is impossible that we cannot find anything on him we'll tell the story of how the wall street bankers who made fabian the kingpin of porn ended up knocking him down.

And that was the moment that a long-time rival had been waiting for a man who would never tell anyone what his plan was hot money is a production of the financial times and pushkin industries it was written and reported by me.

Patricia nielsen and me alex barker peter sale is our lead producer and sound designer edith russello is our associate producer our editor is karen shikerji amanda k wong is our engineer music composition by pascal wise fact checking by andrea lopez cousado our executive producers are cheryl brumley and jacob goldstein.

Special thanks to renee kaplan and rular khalif at the financial times and mia lobel lithal molad justine lang julia barton and jacob weisberg at pushkin industries thank you to similarweb for providing our web traffic data if you like this show consider subscribing to pushkin plus offering.

Bonus content and ad-free listening across our network for 4.99 a month look for the pushkin plus channel on apple podcasts or at pushkin.fm youHot Money: the Darth Vader of porn | FT

Leave a Comment

Your email address will not be published. Required fields are marked *