Private Media Group Reports On Q3 2008 results And comments on the business going forward

11 November, 2008 - Barcelona

Private Media Group Inc.(NASDAQ: PRVT) a worldwide leader in premium-quality adult entertainment products today announced its results for the three months ending September 30, 2008.

 

For the three months ended September 30, 2008, we had net sales of EUR 4.6 million compared to net sales of EUR 7.5 million for the three months ended September 30, 2007, a decrease of EUR 2.9 million. DVD & Magazine sales decreased EUR 1.4 million to EUR 1.6 million in the period. The reduction in DVD & Magazine sales was primarily attributable to reorganization of our distribution and an industry wide decrease in DVD sales (see discussion below). Due to the comparatively weaker dollar and the restructuring of our web sites, Internet sales decreased by EUR 0.2 million to EUR 1.1 million. Broadcasting sales decreased EUR 1.0 million to EUR 1.5 million as a result of the absence of sales of EUR 1.0 million from a non-recurring title licensing deal for German speaking Europe in 2007. Wireless sales decreased EUR 0.3 million to EUR 0.4 million in the period as a result of a re-organization of content delivery structure. The re-organization was completed in the fall of 2008. Going forward, we expect Internet, wireless and Broadcasting sales, in particular, to increase (see discussion under Outlook below).

 

In the three months ended September 30, 2008, we realized a gross profit of EUR 1.2 million compared to EUR 3.5 million for the three months ended September 30, 2007. The decrease in gross profit of EUR 2.3 million was primarily the result of the decrease in sales discussed above, which was offset by a decrease in cost of sales of EUR 0.6 million. In particular the absence of sales of EUR 1.0 million from a non-recurring title licensing deal for German speaking Europe in 2007, which carried almost no cost, had an impact on the decrease in gross profit.

 

The Company reported a loss of EUR 1.0 million for the three months ended September 30, 2008, compared to a net income of EUR 0.5 million for the three months ended September 30, 2007. We attribute the change in net income in the period primarily to the decrease in gross profit offset by a reduction of selling, general and administrative expenses of EUR 0.5 million and an increase in income tax benefit of EUR 0.3 million.

 

Commenting on some important factors relating to the business going forward, Private Media Group, Inc., CFO, Johan Gillborg stated: “Going forward, we expect significant growth on our new media platforms: Internet, broadcasting and wireless. During the nine-month period ending September 30, 2008, our new media platforms were responsible for 62% percent of our revenues. Following is a discussion highlighting some of the important factors of our business going forward.

 

We are successfully implementing our new media strategy for IPTV and to date we have contracted with 35 major platform operators in 18 countries in Europe. Currently we have gained 75% coverage of European IPTV market(i) and across all platforms, quarter by quarter, sales are growing continuously in line with the general growth of the market. Going forward, we expect to increase our market coverage in this rapidly expanding market, which compared to traditional pay-TV generates substantially higher sales per subscriber at a considerably better margin and subsequently this will contribute significantly to operating profit going forward.

 

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. In Q1 2008, Playboy TV Latin America increased the distribution significantly in Brazil, Argentina and Central America and we expect to see the impact of this going forward.

 

During 2008, we have also noted a new emerging market for our content, the DTT (Digital Terrestrial Television) market. Faced with the imminent closure of analog TV services, a growing number of Western Europeans are opting for DTT as a replacement. Market analysis(ii) forecasts DTT to be the primary TV Service in 44% of Western European Households by 2012. In July we made an agreement with Glamour Plus, the first nationwide adult pay-DTT channel in Italy and we expect to make additional deals across the EU on this new platform.

 

With respect to mobile content, we believe this market is still in its infancy. Currently the distribution of Private content is available to over 900 million handsets in 36 countries via 85 operators. In 2008, we have been optimizing our content delivery network of aggregators in order to secure a more aggressive long-term growth. This has created periods of gap in distribution with several operators during, but in the fall of this year this process was completed and consequently we expect sales to increase significantly going forward.

 

The markets of Asia and the Americas are still underexploited by us and therefore represent a significant growth potential. In addition, Mobile TV, increased penetration of 3G handsets and the implementation of age verification systems offer additional significant growth potential with both current and future operators in 2008 and beyond(iii).

 

In the fourth quarter of 2008, we are launching 50 Internet niche sites aimed at diversifying our offering and increasing the proliferation of our content on the web alongside our flagship site, www.private.com. The niche sites form an important new network, delivering our content categorized according to genre and theme. The plan is to grow this network around three core sites to a total of over 100 niche sites in operation by the end of the first quarter of 2009. The sites are targeted to satisfy a variety of consumer interests with niche specific content sourced from our vast library and they are also offered to our affiliate network, www.privatecash.com. The niche site strategy is expected to generate significant incremental revenues and contribution to operating profit through substantially increasing shelf-space, traffic and conversion rates. In addition, it enables us to take advantage of additional up-selling and cross-selling opportunities. The new sites have been in development for over a year and are part of the ongoing evolution and growth of our global online diversification strategy.

 

As we further transition into global digital content delivery, DVD pricing and volume is being affected considerably and as a result the industry in general is experiencing a severe downturn in DVD sales. In view of the aforementioned, we continue to re-strategize our distribution of DVDs and Magazines to reduce any further negative impact of this downward DVD trend.” Mr. Gillborg concluded.

 

Financial Highlights

 

(In thousands of euro, except per share amounts)	Three months ended
	September 30,
	2007		2008
Net Sales	7,453		4,557
Net Income	457		(1,039)
Weighted average common and common equivalent shares outstanding:
Basic	53,148,166		53,580,494
Diluted	53,164,670		n/a
Earnings per share:
Basic	0.01		(0.02)
Diluted	0.01		(0.02)

NOTES TO THE EDITOR:

 

Footnotes

i      According to Global IPTV Forecasts made by MRG (Multimedia Research Group, Inc.), the number of global IPTV subscribers is estimated to grow from 13.5 million in 2007 to 92.8 million in 2012, a compound annual growth rate of 47 percent. Europe continues to be the biggest market for IPTV, with France significantly leading the growth projections through its principal telcos. The number of IPTV subscribers in Europe is forecasted to grow from approximately 6.4 million in 2007 to 36.4 million in 2012, a compound annual growth rate of 42 percent.

ii     According to the new research brief, “European DTT Services Snapshot” published by ABI Research, June 2008.

iii    Juniper Research estimates in its white paper Adult Content in the Palm of Your Hand (November 2007) that the global mobile adult content market will increase from US$1.7 billion in 2007 to just over US$4.6 billion by 2012.

 

About Private Media Group, Inc.

With its 40 year track record, NASDAQ listed Private Media Group is a brand-driven world leader in adult entertainment and distributes premium quality content globally via a wide range of platforms including more than 900 million mobile telephone handsets, IPTV, broadband Internet, television broadcasting, DVDs and magazines. Private Media Group owns the worldwide rights to its extensive archive of high-quality content, and also licenses its Private and "Silver Girls" trademarks internationally for a select range of luxury consumer products. Private is the world's preferred content provider of adult entertainment to consumers anywhere, at any time and across all distribution platforms and devices.

 

Disclaimer
This release contains, in addition to historical information, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company's current judgments of those issues. However, because those statements are forward-looking and apply to future events, they are subject to such risks and uncertainties, which could lead to results materially different than anticipated by the Company.

 

 

For further information please contact:

Johan Gillborg

Chief Financial Officer

Private Media Group
Tel +34 93 620 80 90
johan.gillborg@private.com

 

SOURCE: Private Media Group