Check out our new advertisers www.cammansion.com and www.eruptionxl.com Follow AdultFYI at twitter@adultfyi1; Follow Gene Ross at twitter@GeneRoss3

from www.dailycamera.com – Porn is not recession-proof.

Like many other industries, the adult entertainment business did not exit the Great Recession unscathed, but, rather, it’s been hobbled by the events of the past four years.

Some estimate that the projected $10 billion industry — once thought to be largely impervious to economic downturns — has lost about 40 percent of its sales base. The reining in of consumer spending combined with Napster-like offerings of free adult content on the Internet contributed to the sharp decline, says an executive for industry trade news site XBIZ.

Locally, those trends played out in a 23 percent drop in revenue from 2007 to 2011 for Boulder’s New Frontier Media Inc., a firm that produces and distributes adult content.

“Most of their revenue came from hotels,” said Don Parret, executive director of publishing for the Los Angeles-based XBIZ. “Now with WiFi access, people can pick and choose what they want. It’s quite a challenge for that sector.

“That is one of the largest challenges facing the adult entertainment industry: the poaching and trading of porn online through BitTorrent networks.”

New Frontier’s potential challenges this year, however, appear to be deeper than the economy, technology and earnings.

Since March, the company has received multiple buyout bids and is in the midst of a legal battle stemming from a hostile takeover attempt by its largest investor, Longkloof Limited, a Channel Islands-based firm that owns nearly 16 percent of New Frontier.

New Frontier has been through this rodeo before. It has been the subject of a few investor-led lawsuits and acquisition proposals over the course of its nearly 25-year history.

How will New Frontier emerge from this situation? XBIZ’s Parret doesn’t want to venture a guess.

However, New Frontier has landed on the radar of Manwin, an adult entertainment media company that has garnered licensing rights for Playboy and acquired other companies in and outside L.A.’s “Porn Valley,” he said.

Manwin also put in an acquisition bid for New Frontier.

“There’s one company that’s taking the lion’s share of the adult market,” Parret said of Manwin.

Neither New Frontier nor its suitors would comment for this article.

It’s unclear when Longkloof’s courtship of New Frontier began, but it intensified in mid-January, New Frontier officials claimed in the lawsuit filed May 31 in U.S. District Court in Denver against Longkloof and its representatives.

According to New Frontier’s allegations — the majority of which Longkloof officials have denied — Longkloof’s acquisition efforts played out as follows:

Over a meal at a Brentwood, Calif., restaurant on Jan. 19 with New Frontier’s CEO and one of its directors, Longkloof financial adviser Adam Rothstein proposed a buyout of New Frontier. Noting plans to include other investors in the process, Rothstein requested the offer be exempted from the Boulder firm’s poison pill provision.

Rothstein gained a larger audience of New Frontier executives two days later in Las Vegas, where the Adult Video Network Awards Show took place at the Hard Rock Hotel & Casino. During dinner, according to New Frontier’s court filing, Rothstein discussed the acquisition proposal and what would become of New Frontier if it landed in Longkloof’s hands.

This included plans to create a “Newco,” take New Frontier private and combine its business with some of the assets from Longkloof’s South Africa-based parent Hosken Consolidated Investments Ltd., according to court records.

The talks progressed in the coming weeks with a board meeting presentation and the sending of a letter indicating plans to propose an acquisition.

When New Frontier’s board declined the offers, Rothstein left his pleas on at least two directors’ voice mails on Feb 23, according to New Frontier’s court filing.

“Uh, just got your letter,” Rothstein said in a voice mail left on Director Alan Isaacman’s phone. ” … there certainly was no intention for this thing to get, uh, heated or in the press, but it doesn’t look like there’s much of a way around it. Um, we’re going to try, but would like to talk to (directors) Walter (Timoshenko) and Hiram (Woo), yourself, and Melissa (Hubbard), et cetera.

“Um, apologize to your current partners for any embarrassment that the next couple of weeks is going to cause. Um, but I will, I’ll, I’m traveling around but I will, uh, I’ll do my best to reach out to you later.”

On a voicemail left for director David Nicholas, Rothstein expressed that he was “deeply, deeply disappointed” and asked “if there was any common ground to move forward from.”

In Longkloof’s countersuit, officials denied most of New Frontier’s allegations other than agreeing that Rothstein attended the dinners. But Longkloof claimed the acquisition proposal was “consensual.”

The back-and-forth hit the public sphere after March 9, when Longkloof sent a letter to New Frontier’s board of directors that included a proposal to buy the remaining outstanding shares of the company for $1.35 per share.

Longkloof sent a letter to New Frontier’s board on March 9 proposing to buy the remaining outstanding shares for $1.35 per share. In that letter, Longkloof officials said they were concerned with the abilities of New Frontier’s board of directors and indicated plans to take “any and all actions available to us in order to ensure that we maximize stockholder value.”

“We can no longer tolerate this fatal combination of exorbitant board fees and unfettered self-interest,” officials wrote in the letter. “Although you dismissed our initial overture as a non-offer, we would not be surprised if this board found a way to further enrich itself at stockholder expense, given that our offer represents a clear threat to those exorbitant fees.”

Annual director compensation reached as high as $97,500 within the past five years, and fees received by at least one director were $400,000, Longkloof said in the letter.

An analysis by the Camera of proxy statements filed with the SEC during the past five years showed that the non-employee directors’ total compensation ranged from $87,500 to $95,000 in 2011; $87,500 to $97,500 in 2010; $80,000 to $96,875 in 2009; $71,250 to $132,276 in 2008; and $9,500 to $121,101 in 2007.

In 2007, Isaacman, director and a senior member of law firm Kaufman & Painter P.C., received a $400,000 payment from New Frontier for legal services provided, according to SEC filings.

As the legal scuffle continued with Longkloof, New Frontier’s dance card would grow even more crowded by the end of that month.

On March 22, Luxembourg-based Manwin Holding S.ar.l — which has positioned itself as a consolidator in the adult entertainment industry — put in a cash offer to acquire New Frontier for $1.50 per share.

Officials for Manwin said they were “highly impressed” with the Boulder firm, its board of directors, management team and operations. New Frontier was undervalued in the marketplace, Manwin officials said, noting the local company’s size and market capitalization.

Manwin was intrigued by the potential of combining New Frontier’s pay-per-view television business with its own and bolstering the content with its online assets, officials said in a news release about the buyout bid.

“Our recent experience with Playboy TV proves to us the value of TV as a distribution platform, and we have been seeking ways to foster additional business in that segment of the industry,” Fabian Thylmann, a Manwin managing partner, said in a prepared statement. “New Frontier Media’s business is a natural fit (that) should create synergies immediately benefiting both Manwin’s pay TV providers and their customers.”

New Frontier already formed a special committee to review Longkloof’s bid, but added a financial adviser to the fray to weigh “strategic alternatives” after Manwin’s bid.

While any further discussions with Manwin remained quiet — according to information publicly available — during the past three months, the tussle with Longkloof escalated.

New Frontier officials expressed concern that the hostile takeover attempt would meld into a potentially costly “proxy contest” as Longkloof and its affiliates sought to make four nominations to New Frontier’s six-person board.

Longkloof also upped its offer by nearly 30 percent to $1.75 per share for the 165-person New Frontier.

“We would like to move forward immediately and are ready to meet and start immediate negotiations to maximize value for all shareholders,” Longkloof officials wrote in a letter sent May 23 to New Frontier. “It is our belief that this offer is fair and in the best interest of the company and its shareholders, and that the shareholders will find such a proposal attractive if presented to them.”

By June, the battle moved from PRNewswire to the U.S. District Court in Colorado when New Frontier filed a complaint against Longkloof and its affiliates claiming they violated securities laws by not making certain disclosures in SEC filings. Additionally, New Frontier sought an injunction against Longkloof in acquiring additional shares until its alleged securities violations were rectified.

Longkloof denied the claims and countersued, claiming New Frontier’s “entrenched” board of directors breached their fiduciary duties by stymieing Longkloof’s chances to acquire the company and increase shareholder value.

A scheduling conference is on the books for August.