Going Legit
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Going Legit
OnlyFans and the diverging paths of success in the Fringes
We’re here with another installment of IF:Then, a weekly(ish) newsletter about legal strategy at the intersection of law and technology. To get this magnificent content to grace your inbox each week, go ahead and subscribe below:
Did you hear the news? OnlyFans — the subscription service for content creators best known for creators featuring pornography and nudity — is banning “sexually explicit” content from its platform because a nebulous boogeyman of banks, or processors, or something or another is making them. They “had no choice.” Oh wait, what’s that? I’m hearing people are mad online? Well that’s not really going to matter because they of course had no —
Good thing they secured those assurances. This story spawned a multi-day take economy on twitter, sparked some really solid reporting, featured several potentially inconsistent corporate statements, and is pointed at an IF:Then speciality — “high-risk” payments! What’s not to love?
Pornography and sex work exists on the “Fringes,” alongside other fuddy-duddy offending industries like cannabis, gambling, and cryptocurrency. In this post we’ll talk about businesses that have succeeded on the Fringes, their efforts at “Going Legit.” We’re headed for life in the big city! Takes lie ahead!!
Living in the Fringes is exciting. It gives you space to play and room to breathe because you’re living in a world that most are not even willing to enter. It’s also lucrative. Folks living in the mainstream are leaving money on the table. They follow the path that is in front of them, while you are creating the path. At least that’s what you tell yourself. No guts no glory! No risk it no biscuit! Other rhyming and/or alliterative idioms!
Of course, the Fringes exist for a reason. A business in the Fringes might be on the cusp of or even outside of the law. It might exist beyond what society has deemed socially acceptable. Or it might just be something new and confusing. Almost always, those in the Fringes are threatening to someone or something in the mainstream. Perhaps you’re a potential disruptor, or maybe they just don’t like what you stand for. A business in the Fringes rife with legal and regulatory obstacles, but that’s why you’re there. The obstacles are the opportunity.
With some combination of execution, timing, and luck, those in the Fringes can find great success. But the interesting quirk with success in the Fringe is that it oftentimes creates two diverging paths that lead to a similar destination: “Going Legit.”
The first diverging path is borne out of Reaction. Outsized success in the Fringes leads to outsized scrutiny. As you gain traction in your community, eventually those outside of it will take notice. Once word about your success hits the New York Times, the Wall Street Journal, or Facebook, parents are asking their kids if they’ve heard about “penguin NFTs” and you’ve officially gone mainstream. And when you’ve gone mainstream you’ve officially become a threat to the law, the establishment, or the morality police. At that point, Going Legit is a reaction to shots volleyed against you, or in anticipation of what’s coming.
The second diverging path is borne out of Ambition. Over yonder in the mainstream exists a wider audience, more customers, a larger user base. The allure of transitioning from a large slice to a bigger pie. Maybe you want to tap into the tools and access afforded to those in the mainstream. Maybe over time you’ve grown weary of constantly running an obstacle course. Perhaps you crave mainstream recognition and respect. Or this could have been the plan from the start.
In either scenario, Going Legit is an entirely new challenge to those in the Fringes, and many will fail to make the transition. Your use case may not be legally, socially or conveniently acceptable enough to succeed with the masses.
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Fighting for Survival: Reaction
Societal and technological advancements often get their start in the Fringes. Napster took advantage of the early days of broadband internet, MP3 players, and CD burners, and kicked off the p2p file sharing wave, changing the way media is distributed forever. The company was ridiculously successful in its brief existence despite a fervent resistance campaign from the RIAA. A leak of their song “I Disappear” from the soundtrack of Mission: Impossible II led to Metallica filing a much publicized lawsuit against the company (Dr. Dre also later filed suit).
All said, Napster was willing to fight for its platform and users in court, and did, but eventually settled the lawsuits. One of their first steps to Going Legit was banning me and 334,999 of my fellow users from the platform at Metallica’s request. (Apparently enjoying No Leaf Clover was my crime, which . . . fair.)
Napster actually gave some form of copyright policing a shot, as did its eventual acquirer Rhapsody, but it didn’t take. And why would it have? Plenty of services filled the void, and illegal file-sharing was just getting started. Imesh, Limewire, Kazaa, i2hub all had their time in the sun before BitTorrent kicked it up a notch, and the world of pirating movies took off. A “legal” version of Napster was (and is!!) a product without a market.
Meanwhile, back in the music world, Napster left a permanent mark, and eventually Apple brought MP3s fully into the mainstream with iTunes and the iPod. Now, buying music isn’t even a thing anymore! What a world.
Taking the reaction path is a tough one, and I struggle to think of too many successful examples. BitTorrent itself certainly tried it multiple times, before it sold off to crypto-millionaire and professional groan-inducer Justin Sun. Most of the time the reaction is too late, or you’re forced to hamstring your own service.
A path we’re seeing play out in real time is being laid out for cryptocurrency exchange Binance. I wrote about the early stages of their struggles with regulators in Compliance is a Negotiation, and in less than two months since that piece, the company has been squeezed by several more jurisdictions, has reportedly had trouble fundraising, and lost its US CEO, former regulator Brian Brooks. The company is now taking measures of its own to go legit, including imposing KYC requirements on all users and cutting its leverage limit to 20x, down from 100. Binance became the largest cryptocurrency exchange in large part because of the lack of regulation it imposed on its users, but it looks like they’re now steering into the skid.
Life at the Next Level: Ambition
Most of the examples that immediately come to mind for me in terms of ambition comes from television shows, like Stringer Bell’s fateful foray into real estate, or extremely minor Sopranos character Eugene Pontecorvo who randomly got a whole episode about him wanting to move to Florida. The real world contexts are probably not all cautionary tales, but those tend to be the most memorable.
Speaking of cautionary tales, cannabis retailer MedMen — self-styled as the Apple Store of Weed — set out to be a standard-bearer for the mainstreaming of the entire cannabis industry. While the reckless spending that led to the company’s initial downfall went in many directions, they put a lot of marketing dollars into their “New Normal” campaign, famously capped by a snazzy short from “Her” director Spike Jonze.
Of course, the founders of MedMen who were then running the show were absurd bro caricatures and obvious culture-vultures to anyone in the industry. Cannabis can and will become mainstream, but being dragged there to line those guys’ pockets is not the vibe. Even Trey Parker and Matt Stone of South Park felt the need to call them out for their lack of Tegridy. Today, MedMen is essentially a private equity exercise in corporate restructuring, and there’s enough money behind it that it will probably survive, but they can largely forget about being leaders in “the New Normal.”
When you’re trying to win over hearts and minds, both the message and messenger matter. Going Legit by alienating your audience, your customers, or your peers has a real cost to it and can ensure you lose footing before you even get started. Or it can simply serve as a distraction from serving your base.
OnlyFans: Where Reaction Meets Ambition
This brings us back to OnlyFans, the impetus for this discussion. Unique in that it is the only platform in this discussion simultaneously fueled by and held back by its core constituency. An existential crisis in corporate form. OnlyFans has almost certainly faced countless obstacles maintaining a payments and banking infrastructure for its business since its inception. Frankly . . . that is their business. But their current messaging around the recent ban and un-ban of sexually explicit content doesn’t strike me as entirely credible.
Prior to this news cycle, it was well-reported OnlyFans has been angling to become a more mainstream platform. Celebrities like Cardi B, Bella Thorne, Tyga, Amber Rose and Blac Chyna had joined the site and made millions. The site’s marketing has oftentimes centered around fitness influencers and makeup artists.
Bloomberg reported on their mainstream desires back in June while covering OnlyFans’ desired fundraise.
“The startup, which is profitable, is working with an adviser to solicit interest from investors, said one of the people, who asked not to be identified because the discussions are private. The idea is to find backers who can help it become more of a mainstream media platform and lessen its reputation for porn.
Though OnlyFans has roots in adult entertainment, the site wants to be a place where a broad range of celebrities and athletes can connect with fans. It’s also looking to attract more advertisers, some of which may be wary of its porn ties.”
And to be fair creating and maintaining a general veneer of a generalized platform is a good strategy for a business in the Fringes. But it’s clear the specter of OnlyFans leaving adult creators in the lurch has hung over the site for some time.
Certainly, with a reputation as a pornography platform, OnlyFans would have a limited set of investors to pitch — ask your favorite VC if they have a vice clause. But OnlyFans CEO Tim Stokely specifically denied that fundraising played a role in the decisions. Instead, he made some hand-wavy comments about Metro Bank closing OnlyFans’ corporate account in 2019, and cited JPMorgan Chase of all banks and their unwillingness to support sex workers. Any cannabis retailer can tell you far more interesting stories about getting dropped from banks, blocked by processors, denied by landlords. Just working at a cannabis company can get your mortgage application declined. OnlyFans getting a few wires rejected by BNY Mellon doesn’t feel out of the ordinary. It feels for like a generalized list and a shrug. 🤷🏿♂️
We obviously don’t know the whole story. But we do know that OnlyFans wants us to think this transition is reactive. That they are fighting for survival because the man won’t let them service their core audience. And there is a small part of that message that must be true. But we also know that OnlyFans has ambitions of Going Legit. They’ve seen what can happen when celebrities like Bella Thorne or Tyga join the platform. It’s simply a bigger pond. And as long as they are serving their core customer, they cannot play in it effectively. Staying in the Fringes has costs:
They will need to put resources into payment and banking redundancies.
They will need to think through exploring crypto and DeFi payment options.
They will need to spend money into political lobbying fighting anti-pornography groups.
And they will need to put significant resources into compliance.
Or, they can use Chase and Stripe and not have to fight off the advocacy groups going after PornHub. You can start to see the appeal in Going Legit.
The obstacles are the opportunity, but now that OnlyFans has a recognizable brand and a massive network, it sees a potentially bigger opportunity at the same time as a chance to leave those obstacles behind. Wouldn’t it be nice to just use Stripe and Citibank? They simply needed to navigate inevitable backlash of abandoning the creators that helped them build that brand and network. Welp, that day is not today. They’ve lost a significant amount of trust. Even Tyga has abandoned them to start a competitor.
Going Legit is like starting a business anew, and most startups fail. Escaping the Fringes is just as hard of work as achieving success within it. But for those still there, the option remains to take the non-diverging path, building the best business you can effectively, morally, and legally. Thus is life in the Fringes. If that’s where you’re building, shoot a message to us at IF:Then. We were born in the Fringes, molded by them, and we’re here to help.
Until next week friends - David Ikenna Adams
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