PRIVATE MEDIA GROUP REPORTS ANNUAL RESULTS FOR 2006 –OPERATING PROFIT UP 1.0 MILLION EURO ($1.3 MILLION) AND COMBINED BROADCASTING & WIRELESS SALES UP 119% TO 10 MILLION EURO YEAR ON YEAR

BARCELONA, Spain, April 3, 2007/PR Newswire/ -- Private Media Group Inc.(NASDAQ: PRVT) a worldwide leader in premium-quality adult entertainment products announced today its results for the twelve months ending December 31, 2006.

3 April, 2007 - Barcelona

Sales increased 1.4 million euro to 29.2 million euro for the twelve-month period ended December 31, 2006, compared to 2005. Income from continuing operations increased 1.0 million euro to 1.1 million euro year on year. The increase was primarily due to increased operating profit as a result of increased high margin new media sales.

 

New Media sales: Broadcasting increased 125% to 8.1 million euro primarily as a result of our increased strategic focus on new media content distribution. Wireless increased 96% to 2.0 million euro. The increase in wireless sales was primarily the result of our content going live with significantly more international carriers. Internet sales increased 4% to 4.3 million euro. The total increase in New Media sales was 5.7 million euro, or 65%, and reached 14.3 million euro, representing 49% of total net sales. Going forward, the Company expects Internet, wireless and broadcasting sales to increase significantly, given the rapid growth of these platforms and our leadership role in the adult entertainment category, (see comment on the business going forward below).

 

DVD sales decreased by 16% to 12.6 million euro due to an industry wide reduction in average sales price and magazine sales decreased 39% to 2.3 million euro as a result of lower quantities sold through certain retail channels during the period. 

 

For the twelve months ended December 31, 2006, the Company achieved an increase in gross profit of 1.9 million euro to 15.1 million euro, or 52% of net sales, compared to 13.2 million euro, or 47% of net sales year on year. The increase in gross profit as a percentage of sales was primarily the result of increased high margin sales from Internet, wireless and broadcasting.

 

The Company reported an operating profit of 1.0 million euro for the year ended December 31, 2006 compared to no operating profit in 2005. The increase in operating profit of 1.0 million euro was the result of increased gross profit of 1.9 million euro and a reduction in selling, general and administrative expenses of 0.4 million euro, which was offset by the absence of the non-recurring gain on sale of building of 1.3 million euro in 2005.

 

Commenting on some important factors relating to the business going forward, Private Media Group, Inc., CFO, Johan Gillborg stated: “During the twelve months ending December 31, 2006, the combined increase in broadcasting, wireless and Internet sales was 65%, compared to the same period last year and the combined sales represented 49% of total sales. We expect aggressive growth in this area going forward and subsequently it will significantly affect the overall growth and operating profit of the Company’s business.

 

During 2006 we have seen evidence of a new source of significant future profits in the IPTV based True Video on Demand “TVOD”(i) market in Europe. Revenues from our initial distributors on this type of platform have increased steadily in line with subscriber growth.

 

In response to the development and rollout of IPTV and cable based TVOD, the Company is aggressively targeting all major TVOD platforms and we are currently in the process of contracting with several platforms. As of December 2006, we had contracted with 9 platforms and during the first six months of 2007 we expect to add a total of nine new TVOD platforms, including three in Germany, two in France and one each in the Netherlands, Belgium and Spain. By the end of 2007, the Company expects to reach a subscription base of at least 16 million TVOD enabled subscribers on a minimum of 28 new platforms: Western Europe (17), North America (7), the Far East (3) and Australia (1). We have reason to believe that our revenue from TVOD platforms will grow in line with the addition of platforms and their subscriber growth and consequently we expect a significant contribution to operating profit going forward.

 

In order to increase growth and profitability in broadcasting, we have restructured our trademark and content licensing business with respect to the operation and distribution of Private branded TV channels carrying our content in Europe and Latin America. The restructuring included finding new partners in these markets and subsequently we entered into agreements with Playboy TV Latin America, The Portland Television Group and Playboy TV International. During the switchover phase we were not fully operational in these markets and the third quarter of 2006 was the first full quarter since the end of 2005 in which all Private branded TV channels were in place. With the restructuring completed, we expect revenues and operating profit to grow going forward.

 

An additional feature of the restructuring discussed above is the release back to the Company of previously exclusive content rights held by third parties. Subsequently, in May 2006, the Company entered into a five-year Pay-TV content licensing agreement with Erotic Media AG for the territory of German Speaking Europe. Under the terms of the agreement, the Company is receiving 6 million euro during the licensing period in return for the access to a certain number of titles in its library. The agreement is highly profitable and it is making a substantial contribution to operating profit. During 2006 the Company recorded EUR 4.0 million in sales and EUR 0.5 million in marketing expense from this agreement. The Company expects to be able to do additional deals based on the same concept going forward.

 

As of December 2006, Private content was available to over 544 million handsets in 31 countries via 62 operators, of which 35 operators went live during 2006. The Company is scheduled to go live with 12 additional operators in the first quarter 2007 and is expecting to grow steadily with at least 10 additional operators each quarter during 2007. Asia and the Americas are currently underexploited and therefore represent a significant growth potential to the Company. More distribution channels, advanced technology development, and the implementation of age verification systems offers us further significant growth potential in 2007 and beyond(ii).

 

Traffic to our sites has been growing steadily during 2006 and the number of unique visits has grown by 24% to 10.8 million compared to 2005. Driving the growth in traffic is the development of our affiliate program Private Cash. Furthermore, in February 2007, we launched the new private.com website. The key objective of the design of the new website is to increase conversion rates by more effectively marketing our products.

 

In the second quarter of 2006, we contracted with a third-party in order to employ DivX technology on our sites. DivX is among the world's most popular video technologies and has been downloaded over 200 million times. DivX enables consumers to both stream and/or download to own and play highly-compressed, high-quality video content on their PCs and TV sets. Since August 2006, visitors to the “Private-to-Own” section of our online shop can download to own videos and we expect this new feature to generate growth going forward.” Mr. Gillborg concluded.

 

Financial Highlights

 

(In thousands of euro, except per share amounts)	Twelve months ended
	December 31,
	2006		2005
Net Sales	29,197		27,771
Income from continuing operations	1,130		64
Loss from discontinued operations	(651)		(14)
Net Income	479		50
Weighted average common and common equivalent shares outstanding:
Basic	52,858,131		51,720,180
Diluted	53,483,094		53,155,311
Earnings per share from continuing operations:
Basic	0.02		0.00
Diluted	0.02		0.00
Earnings (loss) per share from discontinued operations:
Basic	(0.01)		0.00
Diluted	(0.01)		0.00
Earnings per share:

For further information please contact:

Johan Gillborg

Chief Financial Officer

Private Media Group
Tel +34 93 590 70 70
johan.gillborg@private.com