BARCELONA, Spain — Private Media Group Inc.(Nasdaq: PRVT), a worldwide leader in premium-quality adult entertainment products today announced its results for the year ended December 31, 2008.
For the year ended December 31, 2008, net sales were EUR 19.7 million compared to net sales of EUR 25.0 million for the year ended December 31, 2007, a decrease of EUR 5.3 million. DVD & Magazine sales decreased EUR 3.2 million to EUR 7.7 million in the period. The reduction in DVD & Magazine sales was primarily attributable to reorganization of our distribution and an industry wide decrease in DVD sales (see comment on our business going forward below). Due to the comparatively weaker dollar and the restructuring of our web sites, Internet sales decreased by EUR 0.2 million to EUR 4.4 million. Broadcasting sales decreased EUR 1.3 million to EUR 5.8 million as a result of the absence of EUR 2.25 million from a non-recurring title TV-licensing deal for German speaking Europe in 2007, offset primarily by an increase in video on demand sales via IPTV. Wireless sales decreased EUR 0.6 million to EUR 2.0 million in the period as a result of favorable re-positioning of content distribution. The re-organization was completed in the fall of 2008.
Going forward, we expect Internet, broadcasting and wireless sales to increase (see comment on our business going forward below). In particular, we expect Internet sales to increase significantly as a result of the acquisition of the eCommerce company GameLink, who for 2008 reported USD 16.4 million in net sales.
For the year ending December 31, 2008, we realized a gross profit of EUR 6.2 million compared to EUR 12.7 million for 2007. The decrease in gross profit of EUR 6.5 million was primarily the result of a EUR 4.5 million decrease in contribution to gross profit from DVD & Magazine sales and a EUR 2.5 million decrease in contribution to gross profit from Internet, Broadcasting and Wireless sales, offset by the decrease in amortization of library of EUR 0.5 million. As we are transitioning from traditional media to new media, our gross profit in 2008 has been impacted significantly. For the year of 2009, excluding the positive impact from the GameLink acquisition, we expect gross profit to improve by EUR 4.2 million as high-margin new media sales increases.
With respect to selling, general and administrative expenses, we reported a decrease of EUR 0.5 million to EUR 13.1 million in the year. For the twelve months ending 2009, excluding the impact from the GameLink acquisition, we expect to reduce selling, general and administrative expenses by EUR 2.6 million.
The Company reported a loss of EUR 5.2 million for the year ended December 31, 2008, compared to a loss of EUR 0.4 million for 2007. We attribute the change in net income in the period primarily to the decrease in gross profit offset by the reduction of selling, general and administrative expenses and an increase in income tax benefit of EUR 1.3 million.
In contrast to the 2008 loss, the Company reported EUR 5.2 million in net cash provided by operating activities for the same period.
Commenting on some important factors relating to the business going forward, Private Media Group, Inc., CFO, Johan Gillborg stated: “We have been transitioning our business model from linear to digital content production and distribution over the last 18 months and this has affected our margins. As DVD and magazines sales have rapidly declined, we have made great progress moving to digital business with significant new media distribution deals and the monetization of our expansive library of content. We are now a leading adult content provider on all major digital platforms, and as they continue to build out and get larger, we project aggressive growth in both sales and net income. Specifically, we project the biggest gains to be achieved through: Internet, broadcasting and wireless. During the twelve-month period ending December 31, 2008, these platforms were responsible for 61% percent of our sales. Following is a discussion highlighting some of the important factors of our business going forward.
On January 20, 2009 we expanded our Internet operations through the acquisition of GameLink LLC and its affiliates, companies engaged in digital distribution of adult content over the Internet and eCommerce development. GameLink is a leading US adult entertainment VOD and eCommerce platform through its www.gamelink .com website. The site’s installed user base represents over one million domestic and international customers and it serves over 10,000 users daily. Including more than 70,000 video titles, GameLink has the largest library of digital and physical adult media and novelties in the United States. The Company offers VOD in multiple media formats including streaming and downloads to computers and iPhones. GameLink’s infrastructure is the most robust in the industry and it is highly flexible, customizable and scalable, designed to support multiple retail strategies simultaneously. Additionally, through its related companies, GameLink offers third-party and white-label ecommerce solutions and development.
The acquisition of GameLink is a significant development that will substantially contribute to our growth, while creating economies of scale. As part of our digital strategy we have concluded that the combination of Private with a major online retailer and accomplished platform developer is the best approach to achieving our goals. The combined content assets of Private and core competencies of GameLink offer a compelling new business model. We will be expanding our joint Internet strategies globally with new formats and applications to be launched in 2009. Additionally, we will be developing improved interactive functionality for new media platforms such as IPTV and mobile, and maximizing our content monetization with the existing vast Private library as well as aggregation of select international studios offering a wide range of content and genres for all platform needs. With this expanded digital strategic focus we will be announcing a variety of compelling new initiatives during 2009. As from the first quarter of 2009, we will be consolidating 100% of GameLink’s financials with Private’s. For the year ended 2008, GameLink and its affiliates reported net sales of USD 16.4 million.
Furthermore, we are successfully implementing our new media strategy for IPTV growth and to date we have contracted with 36 major platform operators in 18 countries in Europe, as the leading supplier of adult content. Currently we have gained more than 75% coverage of the European IPTV market(i) and across all platforms, quarter by quarter, sales are growing continuously in line with the general growth of the market. Going forward, we expect to increase our market coverage in this rapidly expanding market, which compared to traditional pay-TV generates substantially higher sales per subscriber at a considerably better margin and subsequently this will contribute significantly to operating profit going forward.
In relation to Private branded TV channels carrying our content in Europe and Latin America our partners Playboy TV Latin America and Playboy TV International continue to improve distribution. In Q1 2008, Playboy TV Latin America increased the distribution significantly in Brazil, Argentina and Central America and we expect to see the positive impact of this going forward.
During 2008, we have successfully entered a new and important emerging market for our content, DTT (Digital Terrestrial Television). Faced with the imminent closure of analog TV services, a growing number of Western Europeans are opting for DTT as a replacement. Market analysis(ii) forecasts DTT to be the primary TV Service in 44% of Western European Households by 2012. In July we made a significant agreement with Glamour Plus, the first nationwide adult pay-DTT channel in Italy and we expect to continue to regularly make similar deals across the EU on this new platform.