Private Media Group Reports on Third Quarter Results and Comments on the Business Going Forward

BARCELONA, Spain, Dec. 1, 2010 /PRNewswire-FirstCall/ -- Private Media Group, Inc. (Nasdaq: PRVT) a worldwide leader in premium-quality adult entertainment products today announced its results for the three and nine-month periods ended September 30, 2010.

Highlights for the three months ended September 30, 2010 compared to the three months ended September 30, 2009.

We had net sales of EUR 5.9 million compared to net sales of EUR 5.8 million for the same period last year, an increase of EUR 0.1 million. The increase was the result of increased Internet sales offset by decreases in sales of DVD & Magazines and Broadcasting. Internet sales increased EUR 0.8 million to EUR 3.7 million, which represents an increase of 29% compared to the same period last year. The increase in Internet sales was the result of our acquisitions last year. Discounting EUR 0.9 million in impact from the SureFlix acquisition, Internet Sales decreased EUR 0.1 million. DVD & Magazine sales decreased EUR 0.6 million, or 41%, to EUR 0.9 million. The reduction in DVD & Magazine sales was primarily attributable to an industry wide decrease in DVD sales. Broadcasting sales decreased EUR 0.1 million, or 6%, to EUR 0.9 million. Wireless sales stayed flat at EUR 0.4 million. Going forward, we expect Internet, wireless and Broadcasting sales to increase, see discussion below.

We realized a gross profit of EUR 2.1 million, or 35% of net sales compared to EUR 2.2 million, or 38% of net sales for same period last year. The decrease in gross profit was primarily the result of less gross profit from DVD & Magazine sales offset by increased gross profit from Internet and Broadcasting sales and reduced amortization of library.

Our selling, general and administrative expenses were EUR 4.6 million compared to EUR 3.6 million for the same period last year, an increase of EUR 0.9 million, or 26%. Discounting EUR 0.5 million in impact from the SureFlix acquisition last year, the company increased selling, general and administrative expenses by EUR 0.4 million, which were primarily related to severance expense for laying off employees. Going forward, the expected annualized reduction in payroll as a result of employee layoffs during the third quarter in Barcelona, Toronto and San Francisco is EUR 1.8 million.

We reported an operating loss of EUR 2.5 million compared to an operating loss of EUR 1.5 million for the same period last year. The EUR 1.0 million increase in operating loss was the result of increased selling, general and administrative expenses and reduced gross profit.

We reported a net loss of EUR 2.6 million compared to EUR 1.2 million in net loss for the same period last year.

Highlights for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009.

We had net sales of EUR 18.3 million compared to net sales of EUR 17.7 million for the same period last year, an increase of EUR 0.5 million. The increase was the result of increased Internet sales offset by decreases in sales of DVD & Magazines and Wireless. Internet sales increased EUR 2.1 million to EUR 11.4 million, which represents an increase of 23% compared to the same period last year. The increase in Internet sales was the result of our acquisitions last year. Discounting EUR 3.2 million in impact from acquisitions, Internet Sales decreased EUR 1.1 million as a result of the rebuilding and migration of business from our old private. com website to our new one. Broadcasting sales remained flat at EUR 3.0 million. Wireless sales decreased EUR 0.1 million, or 9%, to EUR 1.2 million. DVD & Magazine sales decreased EUR 1.4 million, or 35%, to EUR 2.6 million. The reduction in DVD & Magazine sales was primarily attributable to an industry wide decrease in DVD sales. Going forward, we expect Internet, wireless and Broadcasting sales to increase see discussion below.

We realized a gross profit of EUR 6.2 million, or 34% of net sales compared to EUR 6.5 million, or 37% of net sales for the same period last year. The decrease in gross profit both in money and as a percentage of sales was primarily the result of the accelerated amortization of our old private.com membership site which was replaced in May 2010 and reduced DVD & Magazine sales offset by reduced amortization of library.

Our selling, general and administrative expenses were EUR 11.1 million compared to EUR 11.6 million for the same period last year, a decrease of EUR 0.5 million, or 5%. Discounting the EUR 1.8 million in impact from our acquisitions last year and non-recurring severance expense of EUR 0.4 million in September 2010, the company reduced selling, general and administrative expenses by EUR 2.8 million. Going forward, the expected annualized reduction in payroll as a result employee layoffs during the third quarter in Barcelona, Toronto and San Francisco is EUR 1.8 million.

Furthermore, we recorded a EUR 2.4 million gain from change in fair value of contingent consideration payable as a result of the performance of GameLink and Sureflix. The two recently acquired companies have not reached the earnout targets set for 2009 and expectations for reaching future earnout targets have been adjusted accordingly.

We reported an operating loss of EUR 2.6 million compared to EUR 5.1 million for the same period last year. The EUR 2.5 million reduction in operating loss was the result of change in fair value of contingent consideration payable and reduced selling, general and administrative expenses, offset by reduced gross profit.

We reported a net loss of EUR 2.9 million compared to EUR 3.6 million in net loss for the same period last year.

We reported EUR 3.1 million in net cash provided by operating activities compared to EUR 3.3 million for the same period last year.

Commenting on some important factors relating to the business going forward, Private Media Group, Inc., CFO, Johan Gillborg stated: "During 2009 and 2010, We have developed Internet 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. Last year's acquisitions of GameLink and SureFlix have also presented a challenge in terms of integration. All the aforementioned processes have had impact both in terms of lost sales and additional selling, general and administrative expenses. However, as part of these processes, we have as of September reduced our workforce this year by 36% from 168 to 107 employees and we expect to continue this process as we become more efficient and enjoy economies of scale from the aforementioned acquisitions. During the end of 2010 and the beginning of 2011, 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 completing the launching of our new Internet platforms.

"As part of our digital strategy, we have established that the combination of Private with major online retailers and accomplished platform developers is the approach to achieving our goals in the rapidly changing business landscape. 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 additional formats and applications to be launched in 2011. In May this year we launched our new private.com membership platform which we have been building since mid 2009. The new platform features a number of proprietary sites and it is also available as a white label version, which we expect will attract adult content providers and affiliates worldwide. The new platform has already proved to have improved conversion rates and is forecasted to 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 rollout 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.

"Additionally, we will be developing improved interactive functionality for new media platforms such as IPTV and mobile, and maximizing our content monetization with the existing vast Private library as well as aggregation of select international studios offering a wide range of content and genres for all platform needs. In April this year, GameLink, launched a proprietary mobile solution enabling users to instantly stream over 15,000 movies. The platform is initially available on Smartphones such as the iPhone and Android phones at the url: www. gamelink. com. The mobile Internet platform allows consumers to purchase and consume content instantly. All content is available for future viewing in the customer's virtual media center, stored in the company's 'cloud'. The platform has been optimized to work with Apple devices including the iPhone, iPod, the iPad as well as Android devices. 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(1), 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. In August 2010, Sureflix launched a new mobile VOD platform based on the same principles as the GameLink mobile platform for its Maleflixxx network of hundreds of sites. The new mobile platform, Maleflixxx Mobile, allows consumers to view gay content on all mobile devices, including the iPad, iPod Touch, iPhone and Android handsets. With the Smartphone market growing rapidly(2), we expect to generate substantial growth from our mobile VOD initiatives going forward.

"We are continuing to implement our media strategy for growth of VOD (Video-on-Demand) 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. We have gained more than 75% coverage of the European IPTV market and going forward we expect to increase our market share 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," Mr. Gillborg concluded.

NOTES TO THE EDITOR:

Footnotes

(1) On-Portal, we are the most distributed adult brand in the world. Private content is available to 1.2 billion handsets via 104 mobile network operators in 45 countries.

(2) According to Parks Associates report of March, 2010, "Smartphone: King of Convergence": the number of Smartphone users is expected to quadruple, exceeding 1 billion worldwide by 2014.

About Private Media Group

Founded in 1965, NASDAQ listed Private Media Group is a brand-driven world leader in adult entertainment, operating a global content distribution network with a wide range of platforms including mobile telephone handsets via 104 network operators in 45 countries, digital TV via 38 platforms in 24 countries, 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.

Corporate site: prvt.com, consumer site: private. com

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.

SOURCE Private Media Group