Adult content has long been a big draw, and one of the most profitable, in the world of digital media, but a recent move by PayPal is a sign of how one part of that business may be facing some problems up ahead.

Smashwords, an e-book distributor that competes with Amazon, has sent out a letter to the authors, publishers and literary agents that it works with to tell them that PayPal is requiring Smashwords to remove all erotica content on its platform that contains references to bestiality, rape and incest – otherwise it will stop doing business with Smashwords altogether. The changes are due to take effect on Tuesday, Feb. 28.

Regardless of whether you are a reader of such material or not, the move by PayPal raises questions of whether a middle-man payments company should be calling these kinds of shots over content, which some might even go so far as to call censorship – and also of the power of those payments companies when they decide to do so.

The letter – written by Mark Coker, founder of Smashwords – has been posted on Smashwords’ own site, and gives a fuller explanation of what is going on: it all stems from an “ultimatum” that PayPal issued to Smashwords on Feb. 18: “PayPal gave us only a few days to achieve compliance otherwise they threatened to deactivate our PayPal services.”

Coker says that other e-book retailers have also been served with the same orders, but he does not name them. He also says that PayPal has been helpful with working out exactly what kind of content falls foul of the new rules, but that “gray areas remain.” (For example incest also includes “pseudo-incest.”) One other area that PayPal named, related to underage children, is already prohibited on Smashwords, Coker notes.

He also points out that this latest order is part of a bigger push by PayPal to start “aggressively enforcing a prohibition against online retailers selling certain types of ‘obscene’ content.”

It’s not a decision that Coker and Smashwords – or perhaps other platforms – are taking lightly. “It is with some reluctance that I have made the decision to prohibit incest-themed erotica at Smashwords,” he writes of that particular new no-no.

“Regardless of your opinion on incest, it’s a slippery slope when we allow others to control what we think and write. Fiction is fantasy… A reader should have the right to feel moved however they desire to be moved,” he writes. “We do not want to see PayPal clamp down further against erotica. We think our authors should be allowed to publish erotica. Erotica, despite the attacks it faces from moralists, is a category worthy of protection.”

But Coker is realistic, too, about the power that PayPal wields at Smashwords — and by extension the role it likely plays elsewhere, too:

“You might wonder if Smashwords should simply switch to a different payment provider. It’s not so easy. PayPal is designed into the wiring of the Smashwords platform. They run the credit card processing for our retail store, and they’re how we pay our authors and publishers. PayPal is also an extremely popular, trusted payment option for our customers. It is not feasible for us to simply switch to another provider, should such a suitable provider even exist, especially with so few days notice.”

We have contacted PayPal for comment and would like to hear from other publishers who may be affected by these changes.

(Photo: TimoOK, Flickr)