Private Reports Second Quarter Financial Results

Bob Johnson
BARCELONA – Private Media Group, Inc. reported its financial results for the second quarter ending June 30.

The company logged net sales of $7.6 million and net income of $1.1 million that Private said is an improvement considering an overall market downturn in sales of DVDs, magazines and wireless sales and its restructuring efforts.

Gross profit was $2.5 million or 34 percent of net sales compared to $2.6 million or 35 percent of net sales.

Private said the decrease in gross profit both in money and as a percentage of sales was primarily the result of the accelerated amortization of Private.com's membership site, which was replaced in May 2010 and reduced DVD and magazine sales offset by reduced amortization of its library.

The drops were offset by increased Internet sales that rose $0.5 million to $4.8 million that represents an increase of 11 percent compared to the same period last year.

Wireless on-portal sales decreased $0.1 million, or 12 percent to $0.5 million. Private said that since May it has signed nine new wireless aggregator agreements in order to boost wireless performance.

Broadcasting stayed flat at $1.4 million.

Selling, general and administrative benefits were down to $4.3 million for the three months that ended June 30 compared to $5.5 million in 2009, a decrease of $1.2 million, or 23 percent. The company reduced selling, general and administrative expenses by $1.9 million.

Private also recorded a $3 million gain from change in fair value of contingent consideration payable as a result of the performance of acquisitions pf GameLink and Sureflix that it said have not reached the earn out targets set for 2009 and expectations for reaching future earn out targets have been adjusted accordingly. The poor performance of the two entities is expected to change under the new management of the company.

The company’s improved operating profit of $1.2 million compared to an operating loss of $2.7 million was the result of change in fair value of contingent consideration payable and reduced selling, general and administrative expenses offset by reduced gross profit.

The $3.1 million net income compared to a net loss of $2 million is the result of increased operating profit offset by no tax benefit in 2010, Private said.

Private Media Group CFO, Johan Gillborg said, "During 2009 and 2010, we have developed solutions for critical new markets: gay, international and mobile. Furthermore, as a response to decreased margins in the adult entertainment industry, we have reviewed, analyzed and continued to restructure the operations of the non-online part of the business in order to become more cost effective.”

He added, “ All the aforementioned processes have had impact both in terms of lost sales and additional selling, general and administrative expenses. Since June, we have reduced our workforce by 26 percent and we expect to continue to this process as we become more efficient and enjoy economies of scale from our acquisitions. 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 also said that the company’s digital strategy will include a combination of Private with major online retailers to boost sales.

He also said the combined content assets of Private and core competencies of GameLink and Sureflix offer a compelling new business model. “We will be expanding our joint Internet strategies globally with new formats and applications to be launched in 2010." The company also expects its new Private.com membership platform will attract adult content providers and affiliates worldwide.

Gillborg noted, “The new platform is forecast to improve conversion rates and receive considerably more traffic compared to our previous membership platform. In addition, the new platform has been built to be substantially less labor intensive to operate compared to the previous one. Following the roll out of the new membership platform, we are launching 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.”

Other plans include IPTV and improved mobile and maximizing content monetization with the existing Private library.

"We are continuing to implement our new media strategy for growth of VOD via IPTV and to date we have contracted with 38 major platform operators in 24 countries in Europe, as the leading supplier of adult content. Currently we have gained more than 75 percent coverage of the European IPTV market and across all platforms," Gillborg said.

He added, "Going forward, we expect to increase our market coverage in this expanding market. In addition, 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."

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