Private Media Group Reports on First Quarter 2010 Results and Comments on the Business Going Forward

BARCELONA, Spain, May 26 /PRNewswire-FirstCall/ -- Private Media Group, Inc. (Nasdaq: PRVT) a worldwide leader in premium-quality adult entertainment products today announced its results for the three-month period ended March 31, 2010.

For the three months ended March 31, 2010, we had net sales of EUR 6.4 million compared to net sales of EUR 5.8 million for the three months ended March 31, 2009, an increase of EUR 0.6 million. The increase was the result of increased Internet sales offset by a decrease in sales of DVD & magazines. Internet sales increased EUR 0.9 million to EUR 3.9 million, which represents an increase of 30% compared to the same period last year. The increase in Internet sales was the result of our acquisitions last year. Discounting the EUR 1.7 million in impact from the acquisitions, sales from our prior Internet business decreased EUR 0.8 million. The decrease in the prior Internet business was the result of a complete reorganization of this business as a result of the rebuilding of the Private websites. DVD & magazine sales decreased EUR 0.4 million, or 26%, to EUR 1.0 million. The reduction in DVD & magazine sales was primarily attributable to an industry wide decrease in DVD sales. Broadcasting and wireless sales stayed flat at EUR 0.9 million and EUR 0.5 million, respectively. Going forward, we expect Internet, wireless and broadcasting sales to increase, see discussion below.

Our cost of sales was EUR 4.3 million for the three months ended March 31, 2010 compared to EUR 3.6 million for the three months ended March 31, 2009, an increase of EUR 0.8 million, or 21%. Included in cost of sales is Internet, broadcasting and wireless, printing, processing and duplication and amortization of library. Internet cost was EUR 2.4 million for the three months ended March 31, 2010 compared to EUR 1.4 million for the three months ended March 31, 2009. Internet cost as a percentage of related sales in the period was 62% compared to 47% in the same period last year. The increase of EUR 1.0 million was primarily the result of the acquisition of GameLink and Sureflix. In addition, we are rebuilding our private. com membership site and as a result of this we have incurred increased costs, including accelerated amortization of the old site which is being decommissioned in May 2010. Broadcasting and wireless cost was EUR 0.1 million for the three months ended March 31, 2010 compared to EUR 0.1 million for the three months ended March 31, 2009. Broadcasting and wireless cost as a percentage of related sales in the period was 6% compared to 6% in the same period last year. Printing, processing and duplication cost was EUR 0.5 million for the three months ended March 31, 2010 compared to EUR 0.6 million for the three months ended March 31, 2009, a decrease of EUR 0.1 million, or 24%. The decrease was primarily a reflection of the decrease in sales. Printing, processing and duplication cost as a percentage of DVD & magazine sales was 47% for the three months ended March 31, 2010 compared to 45% in the same period last year. Amortization of library was EUR 1.3 million for the three months ended March 31, 2010 compared to EUR 1.4 million for the three months ended March 31, 2009, which represents a decrease of EUR 0.1 million. Amortization of library does not vary with sales since it reflects the amortization of our investments in content which has been available for sale for a period of three to five years.

In the three months ended March 31, 2010, we realized a gross profit of EUR 2.0 million, or 32% of net sales compared to EUR 2.2 million, or 39% of net sales for the three months ended March 31, 2009. The decrease in gross profit both in money and as a percentage of sales was primarily the result the rebuilding of our private. com membership site and as a result of this we have incurred increased costs, including accelerated amortization of the old site which is being decommissioned in May 2010.

Our selling, general and administrative expenses were EUR 3.1 million for the three months ended March 31, 2010 compared to EUR 3.6 million for the three months ended March 31, 2009, a decrease of EUR 0.5 million, or 13%. Discounting the EUR 0.8 million in impact from our acquisitions last year, the company reduced selling, general and administrative expenses by EUR 1.3 million.

We reported an operating loss of EUR 1.1 million for the three months ended March 31, 2010 compared to an operating loss of EUR 1.4 million for the three months ended March 31, 2009. The reduced operating loss was the result of reduced selling, general and administrative expenses offset by reduced gross profit.

We reported a net loss of EUR 1.2 million for the three months ended March 31, 2010, compared to EUR 0.8 million for the three months ended March 31, 2009. The increase of EUR 0.4 million was primarily the result of a difference in income tax benefit of EUR 0.6 million.

In contrast to the first quarter 2010 loss, the Company reported EUR 1.4 million in net cash provided by operating activities for the same period.

Commenting on some important factors relating to the business going forward, Private Media Group, Inc., CFO, Johan Gillborg stated: "We have made substantial progress moving to a digital business model with the acquisitions of the online businesses GameLink and Sureflix and significant new media distribution deals. We are now a leading adult content provider on the Internet and on all major digital platforms in Europe. Going forward, we project our biggest gains to be achieved through: Internet, broadcasting and mobile. Following is a discussion highlighting some of the important factors of our business going forward:

Last year, we faced several organizational challenges as a result of the acquisitions and integration of the online businesses GameLink and Sureflix into the group. Parallel with the integration, we have been rebuilding our signature property, private. com, and restructuring our affiliate programs in all properties to compete aggressively for affiliate traffic. In addition, we have restructured our departments with resources highly skilled in affiliate traffic development and shifted our emphasis from account management towards sales. We have also 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. All the aforementioned processes have had impact both in terms of lost sales and additional selling, general and administrative expenses. 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.

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 new formats and applications to be launched this year. In May this year we are launching our new private. com membership platform which we have been building since mid 2009. The new platform will feature a number of proprietary sites and it will also be available as a white label version which we expect will attract adult content providers and affiliates worldwide. The new platform is forecasted to improve conversion rates and receive considerably more traffic compared to our existing membership platform. In addition, the new platform has been built to be substantially less labor intensive to operate compared to the existing one. Following the rollout of the new membership platform, we will launch 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 is an extension of GameLink's leading Video-on-Demand e-commerce platform, allowing 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, 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.

We are continuing to implement our new 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. Currently we have gained more than 75% coverage of the European IPTV market and across all platforms. 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.

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. During the 2009, Playboy TV Latin America increased its distribution significantly and we expect to see positive impact from this going forward," Mr. Gillborg concluded.

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