Private Media Net Sales Down in Third Quarter Results

BARCELONA, Spain—Private Media Group, which announced last week that it has been suspended from trading on NASDAQ, today released third-quarter results stating that for the three months that ended September 30, the company had net sales of 4.8 million Euros compared to net sales of 5.9 million Euros for the same quarter in 2010, a decrease of 1.1 million Euros, or 19 percent. Internet sales decreased 0.6 million Euros to 3.1 million Euros, which represents a decrease of 16 percent compared to the same period last year. The company added the reduction in internet sales was primarily attributable to a decrease in sales from its North American websites as a result of foreign exchange rate changes and a reduction in sales from its gay content division. Broadcasting sales decreased 0.1 million Euros to 0.8 million Euros, a decrease of 15 percent compared to 2010, caused primarily by fewer newly released titles being broadcast in 2011. Wireless sales decreased 0.1 million Euros to 0.3 million Euros, a decrease of 16 percent year over year. The decrease was attributed to the migration from on-portal sales to off-portal sales from Smartphone users. DVD and magazine sales also decreased: 0.3 million Euros, or 38 percent, to half a million Euros. The reduction was caused by an industrywide decrease in DVD sales in the period. Gross profit for the period was reported to be 1.5 million Euros, down from 2.1 million Euros for the same period last year. The decrease as a percentage of sales was said to be the result of reduced sales and the impact of amortization of library and websites, which does not vary with sales. Expenses were also reported to be down, however, with selling, general and administrative expenses pegged at 2.7 million Euros for the three months that ended September 30, 2011, compared to 4.6 million Euros for the same period last year, a decrease of 1.9 million Euros, or 42 percent. The decrease was reported to be the result of reduced payroll, expenses and depreciation by 0.9 million, 0.8 million and 0.2 million Euros, respectively. Operating losses were down, as well, from 2.5 million Euros in 2010 to 1.2 million in 2011, the result of reduced selling, general and administrative expenses offset by reduced gross profit. All told, the company reported a net loss of 1.3 million Euros for the three months that ended September 30, 2011, compared to a net loss of 2.6 million Euros for the three months that ended September 30, 2010. Looking forward, CFO Johan Gillborg stated, “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 going forward. Currently we are reformatting and migrating all content on the GameLink VOD platform to a Content Delivery Network (CDN) and we expect this to enhance the user experience substantially and therefore improve both conversion and retention rates in general, but particularly in eastern North America and in Europe. This is a paramount initiative which is expected to increase sales significantly and also make it possible to expand our cooperation with affiliates worldwide. In addition, this initiative is crucial for the development and distribution of apps which will enable consumer access from the growing market of SMART TVs. The completion of the CDN initiative is expected to take place before the end of 2011.” The company also plans to significantly increase the number of new titles it releases, which it says will have a positive impact on broadcasting and DVD and magazine sales. “During 2011, the DVD market for adult content has continued to shrink, with sales for our physical products declining by 37 percent,” added Gillborg. “However, the DVD has by no means disappeared, even in this competitive landscape. The content providers who manage to survive the current market climate will control the DVD market going forward.”