Private's Move to Digital Distribution Leads to 2nd-Quarter Loss

"During the first quarter of 2008 restructuring plans were developed in response to the shift of the company's business model from traditional physical delivery of our content to digital new media distribution," Private CFO Johan Gillborg said.

"With respect to the reorganization of distribution of physical products, we have outsourced our DVD distribution in France to a third party and closed down our subsidiary. As a result we will make savings of 500,000 euro per year in overheads and we expect sales volumes to increase significantly. We are continuing to review our model for distribution of physical products and additional changes are expected."

Gillborg also said that the company would reduce its monthly releases, leading to an expected average saving of approximately 500,000 euro per quarter, starting in the second quarter of this year.

"We do not believe that the revised content strategy will have any impact on sales since our digital new media distribution is mainly dependent on our expansive library and not on new releases, unlike the traditional business. We also have renegotiated agreements with third parties relating to content acquisition and post-production cost."

The company also will stop publishing two magazines, replacing two cancelled publications with back catalog magazines.

"We do not believe this will have any material impact on sales since we distribute all our magazines together with back catalog DVDs and research has indicated that consumers are primarily interested in the DVDs," Gillborg said.

The company also is reviewing operations to take advantage of technological advances and potential outsourcing opportunities and eliminate duplicate functions. In the six months ending June 30, personnel — including employees and temporary agency employees — were reduced by 15 to 108.

"We expect to continue to focus on cost reductions and expect additional restructuring actions in the near term." Gillborg said.

Private Media Group is listed on Nasdaq and distributes adult content globally through DVDs, magazines, Internet, television broadcasting, IPTV/VOD and more than 900 million mobile telephones.