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Is Penthouse IPO a Bust?

Baltimore— [todaysfinancialnews.com]: Why buy the cow if you can get the porn for free?

Playboy Enterprises Inc. (NYSE: PLA) just posted a net loss of $145.7 million for the fourth quarter of 2008. Management is looking for a new CEO—and reportedly is “open to discussion” about an outright sale of the company. It’s share price is down to just above $1.50 today, from over nine bucks a year ago.

Its traditional competitor for the hairy palms of adolescent boys and car mechanics, FriendFinder Networks (formerly Penthouse Media Group, has been floating the idea of an IPO for a good year now. I titillated with the story last March: Top U.S. IPOs: The upcoming Penthouse IPO looks like a dud!

Of the two, FriendFinder Networks—which owns the domains FriendFinder.com, AdultFriendFinder.com, Amigos.com, and AsiaFriendFinder.com, as well as the by now living fossil Penthouse—looks like the better pick of the two.

But while the Internet in its present form owes much to the technical pioneering of the porn industry—online video was not developed to bring Whoopie Goldberg and her golden girls gone wild on The View to your monitor!—the adult entertainment industry is running into the same problems as your average academic publisher, newspaper, or music artist:

Free content syndication kills the need to buy.

FriendFinder filed its IPO papers on Dec 23, 2008, for a $460 million offering. Its underwriter is listed as Renaissance Securities (Cyprus) Limited, a Moscow-based investment bank. But it has made no move to actually launch an offering… and has otherwise not issued a single press release since December last year. On anything!

Looking at Moscow’s financial situation, and investment banking in general, I am not surprised.

Given current market conditions, a decaying business model, and a competition whose business looks as long in the tooth as the venerable Hef himself, I doubt that we’ll see a Penthouse IPO this year.

And if we do, the initial upward trajectory may be steep… but you should call a doctor if it lasts longer than four hours.

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