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West Australian article

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    AdultShop sags on card woes

    By Neale Prior



    THE porn party could be over for AdultShop.com after a plunge in cash flow because of problems with credit-card processing for its online entertainment operations.

    The Perth-based company last night backed away from a bullish forecast profit for the December half of $11.6 million and instead projected a loss as well as a fall in its cash reserves.

    It said in a statement its online erotic entertainment division had recorded exceptional growth in the June half. But this growth had caused an increase in credit-card processing costs, including levies for rejected transactions.

    "If this had remained unchecked, the long-term viability of the online adult entertainment business could have been jeopardised," it said.

    The company said it had made a move in the past fortnight to outsource its billing operation in order to protect the long-term integrity and profitability of the online erotic entertainment business.

    In May, The West Australian published details of an Amsterdam-based credit-card billing operation that was linked to AdultShop.com's pornography operation and which gave various warnings to people considering disputing a credit-card billing.

    The plbill.com site included a warning that an invoice would be sent that included the date and time the site was accessed and examples of files downloaded.

    Internet pornography operations sign up subscribers using credit cards to so-called memberships giving them access to various forms of online entertainment. Pornography purveyors pay third parties for directing new members to their sites.

    AdultShop.com said last night it was implementing a more stringent membership validation process as part of its new billing system.

    This had substantially reduced the membership database but it was in the process of renewed growth.

    The reduction in the membership database had a direct effect on revenues for the current half, it said. Costs would fall but by a smaller proportion because it would take some time to alter the cost structure, particularly membership acquisition.

    Last night's announcement halts spectacular growth since AdultShop.com finalised a deal at the end of the 2000-01 financial year to buy the Today's Success online pornography operations from two Queensland internet entrepreneurs.

    The apparent success of that acquisition was confirmed in May when the company flagged profits of $5.63 million for the 2001-02 financial year and $11.62 million for the December half. The 2001-02 forecasts were surpassed yesterday when the company disclosed cash holdings of $17.49 million at June 30, and a full year profit of $5.72 million on turnover of $117.26 million.
 
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