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August 12, 2005 12:00am
Private Reports Break-Even 1st Half '05
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 Internet content, today announced its results for the first six months of 2005.

The company

The Company reported a decrease in sales of 4.7 million euro, to 14.5 million euro for the six months ended June 30, 2005. Net income was 0.0 million euro for the period, compared to 1.9 million euro for the same period last year.

DVD sales decreased 2.0 million euro, or 19%, to 8.3 million euro. The decrease in DVD sales was primarily due to two factors: one month's loss of sales of new releases equal to approximately 1.0 million euro as a result of our DVD duplicator/supplier suffering a logistics and delivery breakdown in February 2005, and the effect from outsourcing arrangements in the US where the Company now report sales net of agent's commission. Although the outsourcing in the US has a negative effect on sales, the Company expects the restructuring to increase operating profit in 2005 when compared to 2004. In this period the negative impact of reporting US sales net of agent's commission was 1.0 million euro.

Video sales decreased 1.0 million euro, or 83%, to 0.2 million euro when compared to the same period in 2004. The decrease in sales was the result of a general industry decrease in video Video sales due to the consumer migration from video to DVD.

Magazine sales decreased 0.5 million euro, or 18% to 2.2 million euro as a result of lower quantities sold during the six month period, in line with the Company's expectations. Internet sales decreased 0.6 million euro, or 22%, to 2.0 million euro, a direct result of the closing down of the third party payment processor for US transactions. Subsequently, the Company temporarily transferred its US transactions to its payment processor for the European market and a decrease in volume was noted. As of July 2005 the Company has a new payment processor for US online transactions. In addition to the reorganization of US payments, the Company has also been experiencing lower conversion rates as result of new securer, but less user-friendly, payment processes for credit cards, e.g. Verified by Visa. It is the Company's belief that conversion rates will revert to prior levels as consumers get used to the new payment processes. Broadcasting sales decreased 0.7 million euro, or 28%, to 1.8 million euro as a result of lower content licensing sales in the period.

In the first six months of the year the Company realized a gross profit of 5.8 million euro, or 40% of net sales compared to 10.9 million euro, or 57% of net sales for the same period last year. The decrease in gross profit as a percentage of sales was primarily the result of lower turn-over of high-margin products e.g., Internet and Broadcasting, and the effect of the amortization of the Company's library which does not vary with sales. Selling, general and administrative expenses were 7.1 million euro for the period compared to 9.0 million euro year on year, a decrease of 1.8 million euro, or 21%. The decrease is primarily the result of reductions in bad debt expense and depreciation, and the outsourcing of distribution in the United States, offset by non-recurring expenses of 0.5 million euro relating to a weekly publication which was launched and discontinued during the period. The Company expects selling, general and administrative expenses to continue to remain lower in each of the remaining quarters for 2005.

During the period the remaining part of the real estate property in Barcelona, Spain was sold at a profit of 1.3 million euro. The consideration under the agreement was 6.9 million euro, of which 3.4 million had been received as of June 2005. The balance of the consideration due, amounting to 3.5 million euro, will be received no later than November 2005. Part of the remaining proceeds from the sale will be used to repay the outstanding balance of 1.3 million euro on the loan related to the building.

Operating profit. The Company reported an operating profit of 0.0 million euro for the six months ended June 30, 2005 compared to 1.9 million euro for the same period last year. The decrease is the result of lower gross profit offset by reduced selling, general and administrative expenses and gain on sale of building.

Commenting on some important factors relating to the business going forward, Private Media Group, Inc., CFO, Johan Gillborg stated: "During the first half of 2005 we increased our investment in our library of photographs and videos by 124% compared to the same period in 2004 and subsequently we will release 139% more new proprietary movie titles in the second half of 2005 compared to 20041. We expect the increase of new movie releases in the second half of 2005 to result in increased DVD sales. We also foresee margins on DVD sales to improve since additional new releases available for sale increases the average sales price per unit.

"In addition to the increase of proprietary movie titles available for sale, we will also consolidate the distribution of third party DVD content from Pure Play Media and Tera Patrick's TeraVision in Europe during the second half of 2005. This third party content distribution requires no investment from us and positively complements our proprietary content and we expect this to increase DVD sales and contribute to gross profit.

"We expect magazine sales to remain steady at second quarter levels for the remainder of the year. With Internet, however high-margin business, we have contracted with a third-party to increase profitable traffic to our sites through a program that commenced in May. It includes 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 quarter the number of unique visits to our main sites increased by 47% compared to the same quarter last year and for the month of July 2005, the increase was 75% compared to the same month 2004. Historically, we have not carried out any of the above activities and going forward we expect the SEO and affiliate program to increase Internet sales from both memberships and our online shop.

"In the Broadcast arena, and in the second quarter of the year we signed an agreement with Playboy TV Latin America for the operation and distribution of Private branded TV channels in Latin America. We are thereby significantly increasing our broadcasting presence in this region and can expect to start seeing an impact on our revenues in the last quarter of 2005.

"Included within Broadcasting are our sales of mobile content. In the second quarter, we created a dedicated mobile content department headed up by Tim Clausen, an industry expert having that has amassed a unique understanding of this dynamic sector with a leading International operator. This step has brought us firmly into a new dimension gaining increased carriage with both national and international mobile carriers, and we are currently in the process of expanding our business in this market via several new contracts which 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.

"We are currently unable to determine what our potential revenue will be from the marketing of our content to the mobile industry. But, we believe that adult content, as it has done with other new technologies, will help to drive the sale of content on mobile devices2. Since the costs and expenses associated with this business area are minimal, any increase in revenue will directly affect our bottom line. We expect to see an impact on our revenues from mobile content agreements recently signed coupled with the continued successful efforts of the dedicated department as of the fourth quarter of 2005", Mr. Gillborg concluded.

Financial Highlights

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

Alejandra Moore Mayorga
Tel +34 91 531 23 88

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