PayPal restored sexy social network Zivity’s account tonight after a weeklong battle over whether the website violates its policy. Zivity bills itself as “Hotness. In Person” where “76,102 people just like you rub elbows with models, photographers, and video artists.” But early Thanksgiving morning, PayPal decided it didn’t want to rub elbows with Zivity anymore after four years of doing business together.

According to Zivity CEO and Editor-in-Chief Cyan Banister, Zivity asked PayPal if the content of the website would be an issue before they signed up with the payment processor. After a review by PayPal, Banister says she was told there were “no issues”. PayPal became the engine behind a majority of Zivity’s subscription payments.

Then over the holiday, Zivity got an email from PayPal saying “after a recent review of your account activity, it has been determined that you are in violation of PayPal’s Acceptable Use Policy” and the account has been “permanently limited.” That meant PayPal could hold the funds in the account up to 180 days. Zivity was ordered to remove all references to PayPal from their website.

According to PayPal’s Acceptable Use Policy cited in the email, PayPal may not be used to send or receive payments for certain sexually oriented materials or services or for items that could be considered obscene. So, what was acceptable for four years suddenly became a violation. What those “certain” materials are or what could be considered obscene is unclear.

Since Zivity’s photos are non-exclusive, some of the same images on Zivity appear on flickr and OneModelPlace, both of which use PayPal to process payments.

Banister says she called and emailed PayPal for a week to appeal the decision. She even had a potential inside connection. Zivity’s Co-founder and Chairman, and Cyan’s husband, is Scott Banister. He is named as a co-inventor on the original PayPal patent for its email payment system as well as being an early PayPal board member and investor. But Cyan and Scott’s connections had long left PayPal, and they got nowhere.

After getting the original email, she removed PayPal from her site.

Earlier today, a story about Zivity’s blocked account ran on the local NBC Bay Area TV station. PayPal told NBC:

“We cannot comment on specifics of Zivity.com’s account due to our privacy policy. However, we can confirm that PayPal does not allow our services to be used for the sale of adult-oriented digital materials. This is clearly stated in PayPal’s Acceptable Use Policy.”

Soon after the NBC segment appeared (coincidence or not?), Zivity got an email saying their account had been restored. PayPal did a further review and determined “the account is currently not in violation of our Acceptable Use Policy.” No explanation was given for what, if anything, had changed. PayPal apologized for any inconvenience and pointed to the same vague Acceptable Use Policy for any further questions.

So for now, Zivity can come back to PayPal. I asked Cyan if she was considering a switch to a new payment provider. She says she will look at alternatives, but “my members love, use, and want PayPal” and she doesn’t want to take the service away from them.

TechCrunch contacted PayPal for comment tonight, but has not received a reply.

Disclosure: Cyan Banister is a contributing writer to TechCrunch and hosts the show Speaking Of.. on TechCrunch TV.

Zivity is a great site for women and photographers who aren’t afraid to get a little racy to express themselves and potentially be discovered. That said, they obviously don’t have the reach of something like Playboy. But thanks to a new partnership between the two, interested women can potentially get the best of both worlds.

Playboy will host a series of contests on Zivity, the winners of which will get to appear on Playboy.com. The Playboy community will choose themes for each of these contests. Here are some of the ones already being thrown out there: “Hottest Super Heroes,” “Show Your Lady Gaga,” “Suits and Stockings,” “Glistening Lips,” “Babes in Boots,” “Downy Hairs,” “Girls with Glasses” — you get the idea.

The winners for each contest will be chosen by the Playboy community (starting late September/early October), and Zivity teases that certain models are likely to get scouted to appear in Playboy magazine or other Playboy ventures as well.

Women who are interested simply need to sign up for a Zivity account and start making some custom photo shoots for the contests. Models have to be 19 years old, while the photographers have to be 18. Zivity and Playboy are looking for professional-amateur to professional level photography for the contest and pictures have to have been shot with DSLR cameras.

Playboy has been struggling of late as the move online continues to eat away at the core ad sales at the magazine. There is even some talk that founder Hugh Hefner may attempt to buy back all the shares and take it private once again. But while the business may be struggling, the brand remains huge, so this is a big win for Zivity and their community.

They’re taking nominations for who users want to see without their clothes on (topless for now). Once the list is set they’ll start going down the list to see who’s brave enough to say yes: “We’ll start with the top choice and work our way down until someone is brave enough to say yes! We’ll pay for the photo shoot by one of our top photographers, so the Zivity Dude will look *fantastic*.”

Who do you want to see shirtless? Twitter the name out with the hashtag #zividude and your vote will be counted. Early favorites include Kevin Rose, Chris Saad, Loren Feldman (although his wife is making the push), Jim Fishef and Sean Percival.

Let me know how it all turns out. And be on the lookout for Ashton Kutcher to try to steal the show. That guy will do anything for a little press. In fact, maybe Kutcher and Kevin Rose can do a dual bromance photoshoot?

Cofounder Cyan Banister takes the CEO spot at Zivity, which will continue to publish adult content. She also keeps Zivity-related software and other assets, two other employees and a portion of the $4 million or so that the company still has in bank.

Former Zivity CEO Jon Elvekrog will now become the CEO of Top Fans, and the remaining 7 employees will join him.

The original founding team of Zivity and the angel investors in their first round of financing are now the sole shareholders of Zivity. Venture funds BlueRun Ventures and The Founders Fund, who invested $7 million in Zivity in March 2008, will transfer their ownership to Top Fans.

The net effect of the transaction is to split assets, people and ownership between the two entities, with no overlap. The companies will now pursue separate strategies.

Earlier this year Zivity launched the Top Fans product as a separate strategy for growth. The product lets fans create celebrity “fan pages,” and then add content, such as images, video, and news, to those pages.

It’s been clear that the exec team and investors started to have diverging opinions on the future of the company since that launch. The founding team still believe strongly in the original vision. The newer execs and investors were pushing for the fan pages. The exodus of the founders was the likely outcome, but investors and senior employees worked to split the companies to pursue their separate destinies instead.

Frankly, I’m amazed they pulled this off without litigation. Hats off to everyone, particularly the investors who consented to this. They likely could have killed the deal, retained all the remaining venture capital in Top Fans and forced the founders out. That didn’t happen.

Pop culture’s obsession with celebrities is evolving along with technology. Ashton Kutcher reached 1 million Twitter followers and Oprah is now part of the Twitterati. And there is never enough news or information about celebrities to satiate the thirst of fans; they want more and more insight into celebrities’ lives, especially online. The startup that created Zivity, the adult social network and media site which debuted at TechCrunch40, is hoping to create the next-generation of digital fan clubs with its new site, TopFans.com. The site lets fans create celebrity “fan pages,” and then add content, such as images, video, and news, to the fan page. And the celebrities can also interact with their pages by adding their own content, commenting on content and interacting with fans.

The pages themselves are similar in theory to a MySpace page or Facebook pages for celebrities, but Top Fans hopes to differentiate itself in several ways. First, celebrities can directly import their Twitter feeds into their Top Fans pages. Like on a Facebook fan page, there is the ability to import RSS feeds into an activity stream. But Top Fans’ technology also crawls the web for news and images of the celebrity that will be imported into the main news feed on the page. Fans can also contribute comments and content to the site feed. The pages include a Digg-like button next to each piece of content that allows fans to vote whether they like the content or don’t like it. The highest rated content goes to the top of the feed. And unlike Facebook, where celebrities often have an “official” page and unofficial pages that have been created by fans, Top Fans ensures celebrities that they only have one centralized page with no duplicates. Pages can be created by fans or the celebrities themselves.

Fans are also rewarded when they contribute content to a Top Fans site, thus having the ability to differentiate themselves from other less-passionate fans. Fans are ranked, according to how much content they have contributed, which also gives celebrities a way to see who their biggest fans are. This feature can be especially attractive to a fan of a celebrity with hundreds of thousands of followers, who wants to stand out as one of the most loyal of all the fans.

Currently, Top Fans is launching with just “teen idols” and “professional baseball celebrities” (which amounts to 5,000 fan pages) but the end-game is to include Hollywood, internet celebrities, politicians, musicians, bands, etc. TopFans also also created profiles for the Top 1000 Twitterers, ranked by number of followers. This list includes Shaquille ONeal, John Mayer, Chris Sacca,, Ashton Kutcher and TechCrunch’s own Michael Arrington.

One potentially problematic issue for Top Fans is how to control the enormous amount of questionable content that’s on the web about celebrities, such as content that is taken by the paparazzi or speculative gossip about celebrities. Celebrities would most certainly not want this sort of content on a fan page. Top Fans CEO Jon Elvekrog says that all questionable news is flagged but said that many celebrities have the feeling that “any press is good press.” I’m not so sure that’s the case, considering the growing amount of lawsuits that celebrities are filing against publications that print misinformation.

Top Fans is run by Top Fans Inc., which also owns Zivity. Zivity’s adult site has been able to raise $8 million in funding from top Silicon Valley entrepreneurs and investors and received widespread press since its launch at TechCrunch40, especially after its co-founder, Cyan Banister, bared all on the site.

Zivity, the adult social network and media site that describes itself as a “community-powered showcase of female beauty”, has laid off 1/3 of its staff, cutting back from 22 employees to 14. (Again, 1/3 seems to be the magic number – Jive and Seesmic have both laid off about a third of their staff in the last week).

Zivity is in a unique position as one of the only venture capital backed sites with “adult” content (i.e. nudity), and has raised a total of $8 million. Earlier this year the site scored Napster co-founder Jordan Ritter as its CTO.

Co-founder Cyan Banister says that cuts were made across the board, and that the layoffs are a preventative measure that will ensure the company’s sustainability over the next few years as it has become much more difficult to raise further rounds of financing in the current economic climate. The site is still in private beta, and Banister expects that it will go public in the first quarter of 2009.

Note: Not fully safe for work. And in fact a lot of you may be flat out offended.

Zivity continues to roll after their launch last September at TechCrunch40. They’ve raised a total of $8 million now over two rounds of financing and have successfully created a site that combines adult content with social networking. And the mainstream press is beginning to become as fascinated with Zivity as we have been since we first heard about them last August.

Zivity remains invite only and has about 12,000 members, 70 models and 30 photographers. 30,000 people are on the waiting list to get in.

The company will announce a new $7 million round of financing in a deal led by both BlueRun Ventures and Founders Fund. The company has now raised a total of $8 million. The social networking experience that these VCs add is substantial. Founders Fund is an early Facebook investor. Both are investors in Slide.

John Malloy of BlueRun Ventures and Luke Nosek of Founders Fund join Zivity co-founders Scott Banister, Cyan Banister (who also models for the site) and Jeffrey Wescott on the company’s board of directors.

The site allows both amateur and professional models and photographers to show their stuff. Users vote on those that they like, which channel real dollars to the talent. The more votes, the more money. The basic site is free, but users must pay to vote. About 40% of gross revenue is given directly to the talent. With a recent redesign, the site is focused much more on social networking – users and talent have profile pages and can add each other as friends. They’ve even added a news feed feature that shows who is adding who as friends, and which models users have voted for.

Zivity remains in private beta (and will likely stay there until early 2009), although current users are given invitations to give to their friends. That means that most people joining the site today already know someone who’s using it, and can add them as a friend. In my “testing” of the site I noticed that the current users seem active in voting and friending. My guess is that building the community slowly but focusing on active users is a good way to go. And besides, anyone that really wants in can get an invitation on InviteShare.

The service, which distributes payments to models and photographers based on user voting, is still in private beta. Today, though, they are giving away a bunch of accounts to TechCrunch readers – just be one of the first 1,000 people to email techcrunch@zivity.com and you’re in.

Zivity will also be giving invitations to users to give to friends shortly, so we’ve added them to InviteShare. If you don’t get an account via the email above, add yourself there and someone will invite you as soon as the feature is turned on.

Zivity launched at TechCrunch40 last Fall, and co-founder Cyan Banister is becoming somewhat famous since she isn’t just an employee – she also models for the site.

I wrote two weeks ago that Zivity founder Cyan Banister was not just an executive at her adult-focused photography startup, she was beginning to model for it as well. At the time, though, she was still partially clothed.

Now, she’s starting to go “full monty.” She appears topless in five photos included in a new set titled “When in Paris.” I’ve included one (censored) image above.

Shocking? Somewhat. But as I said before, at least she’s eating her own dog food by modeling for the site. She doesn’t just do this to promote the site, though. It’s also a form of self expression. In an email she says “I don’t take my clothes off just to promote Zivity. I also do it for the model community and for myself. I want to change how people view nudity and beauty in the same way major television shows opened our minds about other issues…I really enjoy being on Zivity and being nude and sexy in photographs is enjoyable! I look at my photos and I smile. That’s my body. I can do what I want with it. It is beautiful. Nobody can take that away from me.”

“I started Zivity because I believe in empowerment business models that enable people to be entrepreneurial,” she added.

Whatever the reasons, people like her pictures. She’s currently no. 8 on the list of top models. Banister is also doing other photo sets that are being added to Flickr. See the NOT SAFE FOR WORK images here and here as examples.

Zivity has a unique business model that pays models and photographers directly based on the number of user votes they receive. The more votes, the higher they go on the leaderboard and the more money they make. About 40% of gross revenue is given directly to the talent. They first launched at the TechCrunch40 Conference last Fall. The company raised $1 million in seed funding in August 2007.

Zivity is still in private beta and slowly adding the 20,000 or so people on the waiting list.

But that isn’t the end of the controversy. The site, which we first covered in August, allows models to upload photos to the site and gain followers. As people vote for models, real dollars flow to the model and photographers who were involved in the shoot. And one of those models is co-founder Cyan Banister. She’s uploaded one set of photos for the beta period, without nudity. Next week, she says she’ll add another set that includes topless photos, and may go completely nude in the future.

Banister says that a few years ago she would not have even considered taking her clothes off for a camera. But she isn’t new to getting attention for her looks. In 2000, when she was just 22, she won the “Sexiest Geek Alive” award. When starting Zivity, though, she knew she had to, as she puts it, “eat her own dog food.” For most founders that just means actually using their own product. But for Cyan, it also means taking off her clothes and modeling for Zivity.

So how popular is she with users? The beta has just 500 users so far. Cyan has gathered 25 votes, putting her on the leaderboard of the most popular models. But she’s still well behind the no. 1 model, “Pearl,” who has 117 votes.

Expect more news on Zivity in the next several weeks. They are expanding their beta users (this will be a popular one for our readers), and will soon let in more of the 20,000 people who have signed up to get a look at the site.

Lots of founders say they’re willing to eat their own dog food to support their startup. But how many will shed their clothes?

Zivity was also one of the 100 startups nominated for the Crunchies Startup Awards in January.

FlowPlay

FlowPlay is a virtual world community built around browser-based casual games. Users play casual games as their own created anime-like avatar, earning virtual goods for their character including clothing, refrigerators and other virtual store items. The site wants to provide the option to play casual games or interact with people in the virtual world (or both).

Animation virtual world product, anime style 2.5D visuals

strong privacy features to protect the kiddies

similar to Hobbo Hotel, Cyworld, Club Penguin, but with casual games emphasis.

Pitched a girls…well it appears to be, you can win dresses and stuff.

Unfortunately the time was used to show a demo video, not the best use of their time on stage. Will appeal to kids.

Metaplace

Areae’s Metaplace platform aims to revolutionize the virtual worlds space with a platform that will provide an open, easy-to-use interface which will allow users to create virtual worlds that can run anywhere. Metaplace-created virtual worlds will allow user to play games, socialize, create content and conduct commerce. Metaplace-created virtual worlds can be embedded into external sites, including Facebook, MySpace or a blog. Virtual worlds in the Metaplace network can be easily linked together.

Virtual world product, market still growing.

Virtual worlds are like AOL in 94, walled gardens etc, not a good thing according to them.

Has Facebook, MySpace widget, blog widgets, 30k embed.

Generic virtual world platform, can have Sim’s style games, shooters, even an Amazon store front.

Virtual world can also import XML: content, services etc can be imported.

Users can set up their own world from scratch, each world communicates with each other.

“virtual worlds for everyone”

Woome

WooMe brings speed dating online and extends it to let users meet new people live in speed sessions that are “fast, fun and free.” WooMe doesn’t require long forms or lengthy profile descriptions, users simply find a session that interests them and meet five people in five minutes. Users can also create their own session based on their interests and can invite people they want to get a know or friends.

Speed dating product.

Good presentation, talk to people quickly via webcam, both parties must agree to hookup

Zivity

Zivity offers a social networking platform focused on “sexy models and beautiful photography.” With a $10 subscription, members receive five votes that they can cast for models and photography they find appealing, with 80c out of every $1 vote cast being distributed to the model and photographer. There is no limit on the amount of money that a photographer or model can make; as long as a photo remains popular, models and photographers will share in ongoing royalties whilst retaining full ownership of the pictures.

Lots of warnings prior to this demo about it including porn…so far all we have is clothed model…false advertising perhaps?

User gen content makers aren’t making money, Zivity wants to change this…well at least for “sexy pics.”

Demo has PG rating…seriously, complete with the PG on the screen.

Ahhh…breasts. PG obviously different in the US to Australia

Kaltura

Kaltura is a collaborative Media startup that allows groups of users to do with video, audio, and animation what wiki platforms enable them to do with text. Think of it as YouTube meets Wikipedia. See our full post here.

Expert Panel: Caterina Fake likes Woome, Sarah Lacey hates it, says it’s not a stand alone company. Loic like Woome as well + likes Metaplace, says its trying to Second Life Facebook. Brad Garlinghouse likes the peoples choice Kaltura, hates Metaplace, says that the train has already left the platform, we already have Second Life.

Hammer likes Kaltura because he likes video, the creativity aspect is taking off.

Discussion about Zivity, Michael turns prudish and says there was too much nudity in the presentation. Sarah Lacey said the nudity was great and it was her favorite. Hammer thinks 16 year old girls will end up on the service, with a word demonstration..lots of laughter. Zivity says they are bound by laws about id, over 18 Hammer says haven’t they heard of fake id’s, gets a round of applause. Loic suggests there should be a merged service between Zivity and Woome.

Discussion about Zivity’s revenue distribution model, evlolves into a discussion as to whether it would be a challenge to Flickr. A: no, different market, but thinks the site will go really well, best model but Yahoo doesn’t endorse the content

Q to Metaplace: is this like Second Life? A: SL comparison isn’t valid, SL is not a generic platform

Sarah Lacey doesn’t like Flowplay, seems condescending to girls. Discussion about the model, Hammer suggests it’s a good model that will work well with 13 year old girls.

Q: Woome asked what will stop people holding up a card with their number on it via webcam, bypassing the revenue model A: If 10% game it, no problems, if 50% game it they’ll address it.

Q for Flowplay, are they developing more games, and opening up for 3rd party developers? A: they are licensing 3rd party games.

The potential payoff from a successful adult site is clearly too high for Silicon Valley to continue to ignore the space, though. And San Francisco-based Zivity is going to be the first experiment out the door. The founders say Zivity isn’t porn, but that certainly depends on how you define the term. The primary content of the site is naked female models.

The company’s founders include Scott Banister, a co-founder of the recently acquired IronPort, as well as other technology veterans. CEO Jeffrey Wescott led security software architecture and scalability at IronPort, and co-founder Cyan Banister was also an IronPort exec. They’ve raised $1 million in funding, although they aren’t yet disclosing any investors other than Banister. Rumor has it that a number of former paypal execs may have invested.

Like Suicide Girls, Zivity is a social network surrounding pictures of attractive women. Users can log in and join the network and view non-nude photos for free. If they want have the clothes taken off, it costs $10 per month.

Paying users get 5 votes per month to give away to models that they like. And every vote from a user is money in the pocket of the model and photographer – they get 80 cents per vote received. The default split is 60 cents to the model and 20 cents to the photographer, but that can be negotiated by models and photographers who’ve achieved a certain level of status in the system. This is where Zivity differs substantially from Suicide Girls, which pays its models a flat fee for their content.

The company is keeping the look and feel of the site under wraps for now, but did send me the screen shot I’ve included here. They also confirmed this is a Flash interface for viewing the photos, although the site itself is built on Rails.

Zivity is raising a second, larger round of financing now, and will launch later this year. Beta accounts are slowing being given out now.

Previous Adult/Porn coverage on TechCrunch – see PornoTube, Eroshare, Heatseak (porn browser), Socialporn and others.