For the time being, Hirsch put those questions aside and focused on the business challenge: How, exactly, would you monetize this site? All the features were free, and, as Jones admitted, the advertising revenue was meager—about $120,000 a month. Jones said he wasn’t too interested in figuring that out himself. He planned to grow the audience as large as possible and then “exit” to an established company with the resources and know-how to parlay the traffic into revenue. Not that he’s expecting the $1.65 billion Google paid for YouTube or even the $580 million Rupert Murdoch coughed up for MySpace. Jones told Hirsch he’d be willing to part with YouPorn for $20 million. Hirsch said he’d be in touch.

“It doesn’t make any sense!” Hirsch tells me a month later. It’s a hazy afternoon in June, and he is sitting behind his oak-slab desk, his eyes flickering between a pair of flat-screen monitors, one tuned to Bloomberg News and the other showing a YouPorn clip featuring a gaggle of naked women and an oxygen mask. “They’re giving porn away. You can’t make money on this.”

A compact, well-exercised man of 46, Hirsch is one of the biggest names in the $12 billion adult-entertainment business. The very picture of a respectable, down-to-earth smut peddler, he lives with his wife and two young children in a gated community in a quiet suburb in California’s San Fernando Valley, the industry’s global capital. He’s proudly sober, eschewing the rollicking parties of the sex business for quiet passions, such as his prehistoric-amber collection.

Hirsch’s life in the industry started early. In 1970s Cleveland, his father left a career as a stockbroker, says Hirsch, to sell stag films for Reuben Sturman, the porn pioneer who eventually went to jail for tax evasion. Hirsch went to work for Sturman during high school, and Sturman nurtured the young man into a sort of porn prodigy. In 1984, when Hirsch was 23, he co-founded Vivid with the then-novel idea of signing actresses to exclusive contracts and marketing them like Old Hollywood stars. He was just in time for the dawn of the VCR, and Vivid grew quickly. It has been the largest producer of adult videos in the world for more than a decade now, in part because Hirsch borrowed heavily from the Hollywood studios he can see from his office window: expensive sets, big names (most famously Jenna Jameson), and slick packaging. By porn-industry standards, his films are expensive. He says they typically cost $50,000 to $300,000 to produce and $20,000 to market and distribute; they sell for about $25 on DVD. The company makes approximately 60 movies a year and posts roughly $100 million in annual revenue.

But lately, success hasn’t come easily for Vivid and its upmarket rivals. Three years ago, 80 percent of Vivid’s income came from DVD sales. Today, Hirsch puts that number at about 30 percent, with the rest coming from a fragmented range of sources: subscriptions to Vivid.com, pay-per-view TV, internet video-on-demand, merchandising, and mobile-phone deals. Domestic DVD sales are down 35 percent this year alone. His revenue is flat, he says, but that’s mainly because he’s been cutting costs. Within five years, he claims, DVD sales will be close to zero.

Vivid’s situation is grim but not unusual. DVD woes plague the entire Valley, from multimillion-dollar corporate operations to backroom bottom-feeders: Total sales fell 11 percent in 2006, to an estimated $3.8 billion, according to Adult Video News, the industry’s leading trade publication. Hirsch’s company shares the high end of the market with about 20 other studios that each claim more than $20 million in annual revenues. Outside of those are at least 100 small producers who bring in $500,000 to $5 million a year, estimates Paul Fishbein, president of Adult Video News. These companies shoot on shoestring budgets of $10,000 or less (sometimes much less) per film. “Those rinky-dink companies are struggling to get 1,000 to 1,200 DVDs out at $8 to $10 wholesale,” says Fishbein. “That barely pays for the cost of a cheap production.”

And the decline of DVDs will only accelerate. “You’re going to see a precipitous drop now,” Fishbein says. “Hopefully for producers here in the Valley, that will be offset by internet sales. Hopefully.”