Episode 2: The Darth Vader of Porn

It's like dovls, but for porn models, computer geeks, moguls. They were all there, gathered together in a flashy music arena where Mottley Crewe had its presidency that year. It was the most packed I've ever seen one of those keynote speeches. Everybody's sitting there talking like I don't know, I don't know. He's going to say, who are a 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 nineties. 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 of 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 their

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 for Star Wars. When he came out, Don't Don't, Don't. The Lord Vader of Pawn was a man called Fabian Tillman, the German software engineer who bore XTube 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 a word, he's wearing a hoodie Verry Zuckerberg, and then he sat on the table and crossed his legs pompous. I just remember my whole road just laughing at that out of ridiculousness. It was his public debut. Baby faced Fabian, at just thirty three, 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 where where I come from and such, and I thought it's a better if people know more, and then should make it obvious that I'm not that evil person that so many people think I am, that my role 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 in taking the heat a little bit, but I still think it was pretty much I own you I'm Patrician Wilson. He's Alex Parker from Pushkin Industries and The Financial Times. This is Hot Money, Act one, the Disruptor. How did Fabian do it? He was good at coding, but so are lots 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 mere cats, campollion temples, bead boats. He even posted picks 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 nineteen eighties

shopping arcade in a nightclub called Vanity. As we waited, surrounded by merch from his clubs piled up at the corners, I still had this uneasy feeling would he actually answer our questions? Would he even show up? And then there he was. My name is Fabian. I hate the same enemy English. I don't like it. My name is Fabian Tuman,

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 Tillmans were well to do family, and like many people in this business, a teenage Fabian basically stumbled into pawn 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 any connections, not being in La or what San Francisco or something, I stumbled over our porn people basically online. The chat wools started working for them. He helped build something called NATS, a tracking program for afiliate 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 porn customers actually paid for. When Fabian peaked behind the curtains of these businesses, he had the best view in pawn land. It was interesting how how I 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 is what's there and what isn't And so the buying spree began. It started with a few more porn sites in Germany, a webcam's business, then x Tube, you know the side run by Curtis, the Subpeanut King the

guy would talk to. In the previous episode the Ft, we cover this kind of investor driven buying spreebe 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 has been cheap for quite a while, so plenty of deeply unimpressive buy out groups managed to do it. But Fabian he was doing it in porn, hardcore porn just after the financial crash in two thousand

and eight. 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 is actually willing to buy anything, because everybody else was like, what the way are you buying this?

This will die in two months. Things got more serious when a company called Mansef approached him. The Canadian engineering students who were behind this company had founded sites like Pornhoub 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 two thousand and nine. 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 abridged old and new that had production studios and sites like Browsers 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 that 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 from mansef, 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 manse 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 on the way to do it and then fix it later, you know, And if it doesn't fix then I am like before the deal, so who cares?

It worked? Fabian bought Mansef, then bundled together all his sites x Tube and porn Hub and Browsers 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 squears it wasn't intentional, but might remember back in our first episode what the performer Stawyer 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 man Win, 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 a 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 two, the money Game. Fabian reckon if Wall Street would fund cigarettes, fossil fuels, and even the global arms trade, surely no one would think that pawn was worse. He went to one of his financial advisors, a group called Raymond Shadow Grant Thornton. It's part of one of the world's biggest accounting firms. I went to Hamoshable and told them, listen, you know these numbers, you've seen them. Why can't we not get that?

This is ridiculous. There must be away 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 advice has 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 one hundred million that would have allowed Fabian to cover what he owed and help him buy the playboy business. We had a meeting in Chicago, term sheet everything we celebrated in the evening, had dinner with them. Sitting at that dinner, Fabian thought he'd pulled it off. He found the magic money pot.

It didn't last long. The next morning the owner said that I'm not signing, but because he talked to his wife. So it looked very, very easy and good in the very beginning, and when this happened, Romishrouble realized all this is difficult. So to recap. Fabian Tillman, in his early thirties, was on his way to wrestle control over the porn industry that had been smashed to bits by two sides, 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'd committed to payment schedule that he just could not afford. He needed to borrow otherwise. He was toasted. But at the same time, no lenders wanted to touch porn. By now we're in the summer of twenty and ten, Fabian had a small army of advices.

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 advices called an old contact in New York. It was the banking equivalent of sending up the signal, and the man that answered was called Rick Rosenbloom. I'm a special situations investment banker, which is a mouthful, but it's a fancy way of saying 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. Ricks 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 are 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 peering 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 for low, but the potential rewards were huge. Something like this had never been done for corn. 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 moneymaker can have something like twenty percent. Fabian's business had a margin of

about fifty percent. Very two dollars of revenue his porn sites generated more than one dollar was clean operating profit. Now that will get any investors heart pounding. Yeah, 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 amount of money like one. In this world, five or ten million is just not worth people's time. And if you

bring a business, would it roughly fifty percent margin? That is likely to get a few ears 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 capital, would be highly profitable. And I'm ken to keep shaking trees, turning over rocks until I'm out. I probably went to forty

or fifty firms. I got my door slammed in my face almost every time, but then fate intervenes. It's another historic moment for the porn industry. And where else would it be but Las Vegas. It's always in Sin City. At a conference, ran into a guy called Jason Klobney 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 them, Hey, I've got this great deal, but it's got a lot of hair on it, it's got a lot of noise around it, and you know, he said, tell me more. Cologny like his co founder was a former Goldman sax banker. Colbeck was interested, tempted, deepen, but very wary. This would be one of their first big deals and they just weren't too keen on porn. IM 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 Cologne. He 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 Colman Sex 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 one to write 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 twenty percent. 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 learned to porn companies, so if you managed to raise serious money, you take it. In porn land, even a man paying twenty two percent 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 three impossible dreams. So Fabian managed what nobody thought was possible, raise serious money to begin a roll up of the porn industry. But by god did he pay

for it. To understand why a twenty percent interest loan made sense for Fabian, you have to understand the alternative. There was only one really selling parts of the company. Fabian would have to give up control and share the profits paying twenty percent 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 loved this deal. They came from a banking sector and known as distressed finance, so most of the time they were backing companies and crisis corn was risky, but only to the reputation Fabian's business was humming, so they could use the same rights they would use for distressed asset for us it was great, much safer, right, same rates but safe, safe, I 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 on 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 one hundred million, and he struggled, but then as the process went on, that number crept up to one hundred and seventy million, and then by early two thousand and eleven, Fabian had raised

up to three hundred and sixty two million. So, like us, you're probably wondering how a pornographer struggling to raise one hundred million managed to walk away With Wren and 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 Fabians. Not long after Fabian's request for one hundred 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? Like, okay, sure, we'll make a wish list. And we made a wish list the next day and it came to two hundred something million or something that we estimated it would cost. And then they came to me and said, yeah, look, let's why are we talking about one hundred if you want

two hundred fifty? I don't understand. Well, don't we talking about two hundred and fifty? And I realized, okay, they are hungry and they want to do more. Because obviously the term sheet it was expensive as hell. It was crazy, really crazy, but it worked cash war 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 alone of three hundred and sixty two million dollars Jack Pop. Remember what Sarah Jane said when she

was in the crowd of that poorn conference. She was waiting for the man who embodied how the world of porn had changed those out to make money. We're no longer thinking about the most desirable pawn 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 upawn, probably the most popular tube site at the time. Fabian had finance, scale and

a proven recipe for running site. He thought he could make more money from traffic than anybody else, and with upawn he was right. Trucking the quadruple the profits of the science in two months. After two months, a be able of four climates as profitable considering that you buy it for peanuts, you know. In the end, it didn't take long until people started asking Fabian whereas it's all going, are you going to sell? Take the company public? People

asked me all the time. Also, the lenders asked me once I think, what's your excess strategy? I said, we make one hundred 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 pawn 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 preteen boys. I still struggle with how to explain that there is this vast well of pawn out there? How do I explain it to them? Ye, it's a good questions. I have a fourteen year old daughter right, for example, and she knows when 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, are there, but one is it so bad that it does? And tool You need to be sure that the kids understand how to put all of this in their red buckets or to speak, Just like they need to understand what in a Marvel movie is veal and what isn't, they need to understand that they're tool buckets. I wish it were as easy as that.

There are tens of millions of pawn 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 pawn in the fiction fantasy. Don't try this at home, bucket, But let's be clear. This isn't just about conversations with kids. Pawn 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. The Fabian not only left a mark on our world, but the industry he embodied the digital world wind 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 shift

flow of money, how it works. It shifted it in fifty different industries, and it took it important, that's it. And I just happened to be there when it was there for the taking. 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 the end change, it just doesn't. It was always a bad guy at the peak of this power.

Fabian reckons he controls sixty to seventy percent of all the 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 sides and then put behind the paywall. And I would have then turned off their websites completely, as in, closed off

the free content. Because changing one hundred and fifty million people's free content from day one to day tool to no longer being there makes them buy stuff. This does sound like a completely crazy plan. These days, pawn Have 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 the few would have been successful and this plan maybe we wouldn't have had tub sides today. Yes, basically, yes, that's what my plan was. Now, imagine YouTube would turn off today 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 famous master plan failed. But what stopped him? That's coming up next time on Hot Money. My bank said,

this person's thick. This is all thick. This person's exist who was paying his money. We cann't 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 him, 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 or reported by me Patrician Elson and me Alex Barker. Peter Sale is our lead producer and sound designer. Edith Russelo is our associate producer. Our editor is Karen Shakurji. Amanda Kwong is our engineer. Music compositioned by Pascal Wise, fact checking by Andrea Lopez Kusado. Our executive producers are Cheryl Brumley and Jacob Goldstein. Special thanks to Renee Kaplin and Ruler Kalov at The Financial Times and Mia Lobel, Lital Molad, Justine Lang, Julia Barton and

Jacob Weisberg at Pushkin Industries. Thank you to a similar Web for providing our web traffic data. If you liked this show, consider subscribing to pushkin Plus, offering bonus content and ad free listening across our network for four dollars ninety nine a month. Look for the Pushkin Plus channel on Apple Podcasts or at pushkin dot fm