1. SF BUSINESS TIMES | APRIL 7-13, 2006 sanfrancisco.bizjournals.com TheNews 49
A $60 billion construction tab would end up costing
roughly $10 billion in financing charges and another $60
billion in interest, if the entire amount were financed and
the interest rate were 5 percent, said Richard Gianello,
president of Oakland-based HFS Consultants, a health-
care finance specialist. “This results in total costs of
approximately $130 billion.”
However, Gianello added, most lenders would require
some equity in the deal, which would reduce the total
amount being borrowed. And some hospitals or systems
would prefer to kick in some of the capital up front.
Previous estimates by the California Hospital
Association and Rand Corp. have not included inter-
est and other fees associated with borrowing the huge
amounts of money involved. This means they drasti-
cally understated the true costs of seismic upgrades or
replacements required by Senate Bill 1953, which the
Legislature enacted in 1994.
Even without the financing expenses, critics argue the
legislature didn’t make a serious attempt to understand
those costs, which have ballooned massively since the
mid-1990s.
“To our knowledge,
there is no existing study
that includes the costs
of financing into the
estimates for complying
with the seismic man-
date.” said Jan Emerson,
a spokeswoman for the
Sacramento-based hospi-
tal association, which rep-
resents virtually all of the
state’s roughly 430 acute-
care hospitals. “Our best
guess right now is that the seismic requirement will cost
more than $50 billion, without financing costs.”
A few large systems, such as Kaiser Permanente and
Sutter Health in Northern California, have the financial
clout to obtain low interest rates and, in some cases, the
financial reserves to fund some projects. Many hospi-
tals don’t have that luxury. And even Kaiser, Sutter and
UCSF Medical Center, to name some recent examples,
are delaying or reconsidering some rebuild or retrofit
projects due to steeply escalating costs.
Whatever the eventual cost, Jones said, it ultimately
will be presented to the state’s employers through cost-
shifting by hospitals. Federal and state programs like
Medicare and Medi-Cal will not pick up the seismic-
related costs and there’s nowhere else for hospitals to
turn. “The private sector is going to be solely respon-
sible,” she said. “This unfunded mandate will be funded
— by employers and the private sector.”
Interest rates are typically around 6 percent, but Jones
estimated they could be as high as 11 or 12 percent for
hospitals with weak finances and expensive projects.
Lisa Zuckerman, a San Francisco-based director and
health-care analyst for Standard & Poor’s, said an ana-
lyst would need complete data from every borrower to
come up with a comprehensive estimate, since each indi-
vidual facility’s finance charges are based on its credit-
worthiness, but she agreed that interest charges would
significantly inflate the total cost of state-mandated
seismic work. “It’s difficult to pin it down,” Zuckerman
said, “but it does raise the cost quite a bit.”
Emerson noted that Rand is working on a new study
on the cost of complying with the seismic mandate, fol-
lowing up on its 2002 estimate that placed the tab, not
counting financing costs, at as much as $41.7 billion.
The new study is expected to be complete this summer.
In addition to financing costs, the new estimate will
factor in rapidly rising construction expenses.
Those have shot up like the national debt, due to
a huge construction boom in China, the impact of
Hurricane Katrina and other natural disasters, and
competition for materials, labor and construction
expertise.
Costs to replace or add a single Bay Area hospital
bed have roughly doubled from $1 million per bed in the
earlier Rand study to an estimated $2.1 million or more
today, according to health-care architects and hospital
executives.
Chris Rauber covers health care for the San Francisco Business
Times. ■
get a recently completed documentary aired on cable
television and make its content available on DVDs,
iPods and cell phones.
To support its expanding roster of projects, the
45-person firm plans to hire about 15 employees this
year, including a marketing vice president, human
resources manager and, eventually, a COO. Self-fund-
ed and profitable, Kink brought in about $18 million
in revenue in 2005, roughly 35 percent more than the
previous year. The company expects to continue that
growth rate in 2006.
Despite San Francisco’s reputation as a crossroads
for sexual freedom and technological innovation, the
city’s porn production industry is quite small. Most
studios are small shops that keep such a low profile
they don’t even know one another. The exception is
the gay porn niche, which includes successful studios
such as Falcon and NakedSword.com. Aside from the
gay sites, Kink, which is primarily geared toward het-
erosexual viewers, is probably the largest producer of
porn in the city.
Kink makes its money by selling downloadable and
streaming videos for a $25 to $40 monthly fee. Each
of the company’s nine web sites focuses on a particu-
lar genre, such as dominance and submission, water
bondage and nude wrestling. A company webmaster is
responsible for producing all the videos on his or her
site — choosing the models and scenes, providing the
final edit and monitoring viewer feedback from online
forums. Each webmaster — there are six — earns a
commission from the web site’s sales, stirring some
to compete fiercely with other sites in their niche cat-
egory.
Overall, however, there aren’t many studios produc-
ing high-quality fetish pornog-
raphy, even in Los Angeles, the
epicenter of the porn universe, said Kink founder and
CEO Peter Acworth, a former computer programmer
at Barings Bank. Most fetish porn, he said, is made by
do-it-yourself couples or small independent shops.
And though companies in the $12.6 billion main-
stream porn industry make bondage-themed videos
such as Vivid Entertainment Group’s “Jenna loves
Pain,” most fetish enthusiasts find them contrived.
Fetish porn “is a narrow market, but it’s expand-
ing, and you can’t serve this market unless you
already have a fetish interest yourself,” said Mark
Burnley, owner of San Francisco web company,
Seriousbondage.com. “You can’t produce content
other people are into unless you really know what the
kink is.”
Personal interest
Acworth knows his kink.
U.K.-born Acworth started his first web site,
Hogtied.com, while studying for his Ph.D. in econom-
ics at Columbia University in New York. It became so
successful, he left his doctoral program and moved
his startup to San Francisco’s Marina district in 1997.
“Young mothers were pushing their prams around
and all of these screams were coming out of the
garage,” chuckled Tony Pirelli, Kink’s marketing
director, who uses a pseudonym to protect his
young child.
After moving Kink into successively larger spac-
es, Acworth now owns a 24,000-square-foot building
on Mission Street and rents additional space next
door. The cavernous building brims with dressing
and wardrobe rooms, a huge workshop, post-produc-
tion offices and elaborate sets, including a doctor’s
examination room, a horse stable and a massive stone-
walled dungeon.
The studio has applied for an entertainment license
to turn its billiard barroom set into a real club space
to host monthly parties, mostly fund raisers to benefit
nonprofits like the St. James Infirmary, a health clinic
for sex workers.
Pulling back the curtain
Kink, which in February changed its name from
CyberNet Entertainment, just completed “Behind
Kink,” a documentary about the making of its
extreme porn videos, revealing the careful plan-
ning and down-to-earth characters involved in the
productions.
“We wanted to demystify adult productions and
fetish,” Pirelli said. “A lot of people perceive BDSM
(bondage dominance sado-masochism) as being vio-
lent, abusive and disrespectful. It’s none of that.”
The company is selling its documentary in 15-min-
ute episodes for $4.99 each on BehindKink.com. It is
also peddling the work to Showtime and HBO with
hopes of making it into a TV program which would
appeal to a wider audience. It was, in fact, HBO’s
popular documentary series “Real Sex” that super-
charged Kink’s growth in 2002, when it featured the
company’s web site specializing in pleasure-giving
machines and robots.
Expanding its markets
Kink is also writing scripts for its first fea-
ture-length movie, which it plans to release on
DVD and then the web. It will be “a genuine
story that explores people who have these
fetishes” similar to the 2002 James Spader
movie “Secretary,” but with much more
sex, Acworth said. (Two mainstream mov-
ies involving bondage themes will hit the
theaters in the coming weeks — “The Notorious
Bettie Page” and “Kinky Boots.”)
The company will soon launch three new web
sites, one likely exploring interracial sex, to con-
tinue biting into the $2.5 billion Internet porn mar-
ket. The company pays a 50 percent commission to
web sites that promote and send viewers to Kink’s
properties. This affiliate program has driven the
current membership on its nine sites into the tens of
thousands.
Acworth said he’s taking his proven business
model to Amsterdam, where he is about to launch
a subsidiary whose web site will feature European
models and real locales such as medieval castles.
The company is also digitizing all of its mate-
rial, which it will repurpose for distribution on
DVDs, video-enabled iPods, and, in Europe, on
cell phones. Such content is blocked in the United
States. Acworth decided not to recode its content for
handheld game consoles because they’re aimed at
children.
Adrienne Sanders covers entertainment for
the San Francisco Business Times. ■
NO PAIN: Kink finds profitable
market with fetish enthusiasts
CONTINUED FROM PAGE 1
HOSPITALS: Seismic costs
could shift to state’s employers
CONTINUED FROM PAGE 1
Acworth started his first web site, Hogtied.com
while studying for his Ph.D. in economics at
Columbia University in New York. It became
so successful, he left his doctoral
program and moved his
startup to San Francisco’s
Marina district in 1997.
‘Our best guess
right now is that the
seismic requirement will
cost more than $50 billion,
without financing costs.’
Jan Emerson
California Hospital Association
KINK.COM
CEO/founder: Peter Acworth.
HQ: San Francisco.
Founded: 1997.
2005 revenue: $18 million.
Employees: 45.