Private Media Reports 1st Quarter Results, Hints at New Plans

BARCELONA, Spain — Private Media Group Inc. announced its 2010 first-quarter financial results today.

The company reported a net sales increase of about $700,000 as a result of increased Internet sales offset by a decrease in sales of DVDs and magazines.

Gross profit was $2.4 million, or 32 percent of net sales, compared to $2.7 million or 39 percent of net sales for the 2009 period.

The decrease in gross profit both in money and as a percentage of sales was primarily the result of the costs for rebuilding of the Private.com membership site including accelerated amortization of the old site that is being "decommissioned" this month and the acquisition of Gamelink and Sureflix.

Private also reported a net loss of $1.5 million compared to $900,000 for 2009. The company said the increase was primarily the result of a difference in income tax benefits.

In contrast to the first quarter 2010 loss, the company reported $1.7 million in net cash provided by operating activities for the same period.

An operating loss of $1.3 million was compared to 2009’s loss of $1.7 million. The reduced operating loss was the result of reduced selling, general and administrative expenses offset by reduced gross profit.

Internet sales increased about $1.1 million to $4.8 million, which represents an increase of 30 percent compared to the same period last year. The company said the increase in Internet sales was the result of acquisitions last year.

Broadcasting and wireless sales remained flat at $1.1 million and about $600,000 respectively.

Sales, general and administrative expenses were $3.8 million for the quarter compared to $4.4 million for 2009 that represents a 13 percent decrease.

Private CFO Johan Gillborg said, "We have made substantial progress moving to a digital business model with the acquisitions of the online businesses GameLink and Sureflix and significant new media distribution deals. We are now a leading adult content provider on the Internet and on all major digital platforms in Europe. Going forward, we project our biggest gains to be achieved through Internet, broadcasting and mobile.”

The company highlighted some of its ongoing plans including rebuilding Private with a more aggressive affiliate program.

“During the second half of 2010, we expect to start benefiting from the restructuring and reduce costs while increasing sales as we implement and launch new initiatives, such as fully combining our Internet assets, outsourcing major parts of our non-online operations and launching our new Internet platforms,” Gillborg said.

“We have restructured our departments with resources highly skilled in affiliate traffic development and shifted our emphasis from account management towards sales," he said. "We have also developed solutions for critical new markets: gay, international and mobile.”

A company statement said that the new Private membership site will be launched this month and feature a number of proprietary sites along with a white label version.

“The new platform is forecasted to improve conversion rates and receive considerably more traffic compared to our existing membership platform," Gillborg said. "In addition, the new platform has been built to be substantially less labor intensive to operate compared to the existing one. Following the rollout of the new membership platform, we will launch a new video-on-demand platform following the same concept. Both of the new platforms will be available in localized versions with respect to language and payment options.”

The company also has plans for maximizing its content on the Gamelink mobile platforms. Private said the Gamelink mobile he platform has been optimized to work with Apple devices including the iPhone, iPod, the iPad as well as Android devices.

“All content is available for future viewing in the customer's virtual media center, stored in the company's 'cloud,'" Gillborg said. "In addition to streaming, consumers can choose to download their movies or purchase DVDs and novelties from the globally accessible platform.

"A white label version of the mobile platform is available and is being marketed to adult studios and affiliates worldwide. Our objective is to become the main provider of an off-portal mobile platform solution to all major content providers in our industry.

"In contrast to Private's existing mobile content business, which is based on an on-portal model going through content aggregators and carriers, this new business is off-portal and provides substantially improved margins as content is sold directly by Private to the consumer."

Private said it will continue to improve on its video-on-demand offerings via IPTV and said to date it has contracted with 38 major platform operators in 24 countries in Europe as the leading supplier of adult content. Claiming 75 percent of the European IPTV market.

“The introduction of IPTV in Europe has challenged the Cable TV industry and subsequently cable operators are rapidly upgrading their systems to provide the same functionality as IPTV. Last year we contracted with two leading cable operators in Western Europe and going forward we expect to add further Cable/VOD platforms to our portfolio,” Gillborg said.

“In relation to Private branded TV channels carrying our content in Europe and Latin America our partners — Playboy TV Latin America and Playboy TV International — continue to improve distribution. During 2009, Playboy TV Latin America increased its distribution significantly and we expect to see positive impact from this going forward," Gillborg said.