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May 16, 2006 12:29am
Private 1st Qtr Results
Source: Private Media Group, Inc.
by: Company Press Release

(BARCELONA, SPAIN) -- Private Media Group Inc. (NASDAQ: PRVT) a worldwide leader in premium-quality adult entertainment products, services and mobile and Internet content, today announced its results for the three-month period ending March 31, 2006.

The Company reported a decrease in sales of 1.0 million euro, to 6.4 million euro for the three-month period ended March 31, 2006. The Company reported a net loss of 0.5 million euro for the three- month period compared to a net profit of 0.7 million euro for the same period last year. The decrease in profit was primarily due to the fact that in the comparative period for last year the Company had a 1.3 million euro gain on sale of building.

DVD sales decreased 0.5 million euro, or 12%, to 3.6 million euro. The decrease in DVD sales was primarily attributable to a reduction in points of sales carrying our DVD products. The reduction of points of sale occurred during 2005 as a result of the Company's decrease in releases of new movie productions. Currently, and going forward, the Company is back to releasing the optimal level of new movie productions and subsequently, during 2006, the Company expects to see points of sale return to pre-2005 levels. Magazine sales decreased 0.7 million euro, or 57% to 0.5 million euro as a result of lower quantities sold through certain retail channels during the three-month period. Internet sales remained at 1.0 million euro.

New Media sales: Broadcasting increased 0.1 million euro to 0.9 million euro as a result of an increase in Video-on-Demand sales offset by a temporary decrease in channel licensing sales due to the switchover to new channel licensing partners. Wireless increased 0.3 million euro to 0.4 million euro. The increase in Wireless sales was primarily due to our content availability with additional operators.

Going forward, the Company expects DVD, Internet, wireless and Broadcasting sales to increase (see discussion under Outlook below).

For the three months ended March 31, 2006, the Company achieved a gross profit of 2.8 million euro, or 44% of net sales, compared to 3.0 million euro, or 40% of net sales for the same period last year. The increase in gross profit as a percentage of sales was primarily the result of improved gross margin on DVDs and Magazines and proportionally higher high margin sales from Internet, Wireless and Broadcasting platforms. Going forward, we expect gross profit as a percentage of sales to continue to increase (see discussion under Outlook below).

Selling, general and administrative expenses were 3.4 million euro for the period compared to 3.5 million euro year-on-year, a decrease of 0.1 million euro, or 14%.

Operating profit. The Company reported an operating loss of 0.6 million euro for the three months ended March 31, 2006 compared to an operating profit of 0.7 million euro for the same period last year. The decrease in operating profit was primarily due to the fact that in the comparative period for last year the Company had a 1.3 million euro gain on sale of building.

Commenting on some important factors relating to the business going forward, Private Media Group, Inc., CFO, Johan Gillborg stated: "In May 2006, the Company entered into a five-year Pay-TV content licensing agreement for the territory of German Speaking Europe with Erotic Media Ag. Under the terms of the agreement, Private Media Group will receive 6 million euro, including 3 million euro in 2006 and 1.5 million euro in 2007, in exchange for Erotic Media's immediate and future access to a specified quantity of titles in Private's content library. The agreement is highly profitable and the Company expects it to make a substantial contribution to operating profit already in the second quarter of 2006.

"In November 2005, we signed a five-year agreement with Playboy TV International to merge our two adult pay-TV channels, Private Gold and Spice Platinum in Europe thereby consolidating market leadership in the region. The new channel is called Private Spice and was launched in April 2006. There is little overlap between the two channels and subsequently the new channel will significantly increase the distribution in the region. We expect this new channel to start having an impact on profits during the second half of 2006.

"In the third quarter of 2005, we reached an agreement with a member of the Portland Television Group of companies for the launch of a new Private channel in the UK. This refreshing and dynamic new channel will be launched this month replacing the Private Blue channel, which has been aired in the UK since 2000. The new channel will primarily be available as a pay-per-view channel via the BSkyB Digital Satellite platform. The BSkyB platform currently carries more than 7.4 million subscribers. We expect this new channel to start having an impact on profits during the second half of 2006.

"During the second quarter of 2005, we signed an agreement with Playboy TV Latin America for the operation and distribution of Private branded TV channels in Latin America. With this new agreement we are significantly increasing our broadcasting presence in this region and towards the end of 2006 we expect to start seeing an impact on our revenues from the region.

"During the second half of 2005 we have also seen evidence of an emerging new source of significant future profits in the True Video on Demand (TVOD1) market in Europe. Revenues from our first distributor on this type of platform have increased steadily during 2005 and the growth in our revenues has been in line with the subscriber growth on this new VOD platform. We have reason to believe that our revenue will continue to grow in line with the forecasted subscriber growth on this new VOD platform and subsequently we expect a contribution to operating profit of more than Eur 0.5 million for 2006 from this new distributor. Furthermore, we expect to contract additional TVOD platforms in Europe in the second half of 2006, however, we are currently unable to determine the future potential contribution to operating profit from these contracts.

"During the second quarter of 2005, we created a dedicated mobile content department headed up by Tim Clausen. This has enabled us to step solidly into a new era, gaining carriage with both national and international mobile operators, and we are currently in the process of expanding our business in this market via several new operators. This will enable us to leverage our unique range of content, our trademarks and our huge existing customer base to take our mobile presence in Europe to a truly market dominant position. In 2005, the revenues from this distribution channel increased 83% year on year, and sales in 2006, when compared to the same period in 2005, continue to show a healthy growth of 210%. The increase in revenues is related to our content being available with additional new mobile phone operators.

"As of December 31, 2005 Private's content was available to mobile consumers via 33 operators in 19 countries, 9 of which went live in the fourth quarter of 2005. During the first three months of 2006, the Company has gone live with 8 additional operators and has contracted to go do so with 14 additional over the upcoming months. The Company expects this trend to continue for the remainder of 2006. The creation of our dedicated mobile content department is expected to have a significant impact on revenues and operating profit in 2006.

"We are currently unable to determine what our potential revenue will be from the marketing of our content to the mobile adult content segment. However, we believe that adult content will help to drive the sale of content overall on mobile devices2, as it has done in the past with other new technologies.

"In the fourth quarter of 2005, Private opened a subsidiary in Hong Kong to respond to an ever-increasing local demand in Asia for the Private brand, including the licensing of content for broadcast TV, VOD online, IPTV and mobile as well as brand licensing for clubs and retail outlets. Immediate interest in Private is principally stemming from Korea, China, Japan and Hong Kong. The whole consumer culture in this region is ripe for superior adult-oriented products with a strong brand identity and we believe that sales from this region will start having an impact in the second quarter of 2006.

"With Internet, a high-margin business, we have contracted with a third-party to increase profitable traffic flows to our sites. It involves developing our sites from a Search Engine Optimization (SEO) perspective and creating an affiliate program for webmasters around the world, called Private Cash. During the second half of 2005 the number of unique visits to our main sites increased by 50% compared to the same quarter period in 2004 and for the first quarter of 2006 this trend continues. Historically, we have not carried out any of the above activities and going forward we expect the SEO and the affiliate program to increase Internet sales from both memberships and our online shop. In addition, the Company is opening up a localized custom made website for several countries in East Asia and the Company expects this business to positively impact sales.

"During 2005 we increased our investment in our library of photographs and videos by 69% compared to the same period in 2004 and subsequently we will release more new proprietary movie titles in 2006 compared to 20053. We expect the increase of new movie releases in 2006 to result in increased DVD sales. We do also expect margins on DVD sales to improve since additional new releases available for sale increases the average sales price per unit", Mr. Gillborg concluded.

[Financial Highlights Redacted]

About Private Media Group with its 40 year track record, Private is a leading global adult entertainment company that distributes its content over a wide range of media platforms, including narrow and broadband Internet, DVD and video, magazines, broadcasting and wireless technologies. It owns the worldwide rights to the largest archive of high quality adult content in the world, which it physically distributes in over 40 countries.

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

Angela Carson
Public and Investor Relations, Private Media Group
Tel: +34 93 590 70 70
e-mail: Press@Private.com

Alejandra Moore Mayorga
Tel +34 91 531 23 88
AMoore@GrupoAlbion.net
Private.com

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