BARCELONA PRNewswire-FirstCall/ — Private Media Group, Inc.(Nasdaq: PRVT) a worldwide leader in premium-quality adult entertainment products today announced its results for the three months ended June 30, 2009.

Net sales. For the three months ended June 30, 2009, we had net sales of EUR 6.2 million compared to net sales of EUR 5.2 million for the three months ended June 30, 2008, an increase of EUR 1.0 million, or 19%. The increase was the result of increased Internet sales offset by decreases in sales of DVD & Magazines and broadcasting. Internet sales increased EUR 2.4 million to EUR 3.4 million, which represents an increase of 232% compared to the same period last year.

The increase in Internet sales was the result of the acquisition of GameLink. DVD & Magazine sales decreased EUR 0.7 million, or 37%, to EUR 1.2 million. The reduction in DVD & Magazine sales was primarily attributable to an industry wide decrease in DVD sales (see discussion under Outlook below). Broadcasting sales decreased EUR 0.7 million, or 39%, to EUR 1.1 million primarily as a result of a decrease in title sales, offset by increases in TV-channel sales and video on demand sales via IPTV. Wireless sales remained at EUR 0.4 million in the period.

Going forward, we expect Internet, wireless and Broadcasting sales to increase.

Our cost of sales was EUR 4.0 million for the three months ended June 30, 2009 compared to EUR 3.6 million for the three months ended June 30, 2008, an increase of EUR 0.5 million, or 13%. Included in cost of sales is Internet, broadcasting and wireless cost. printing, processing and duplication and amortization of library. Internet cost was EUR 1.8 million for the three months ended June 30, 2009 compared to EUR 0.3 million for the three months ended June 30, 2008. Internet cost as a percentage of related sales in the period was 54% compared to 28% in the same period last year.

The increase of EUR 1.6 million was primarily the result of the acquisition of GameLink. Broadcasting and wireless cost was EUR 0.1 million for the three months ended June 30, 2009 compared to EUR 0.4 million for the three months ended June 30, 2008. Broadcasting and wireless cost as a percentage of related sales in the period was 5% compared to 19% in the same period last year. The decrease of EUR 0.3 million was primarily the result of lower wireless and broadcasting cost as result of more cost efficient content delivery. Printing, processing and duplication cost was EUR 0.5 million for the three months ended June 30, 2009 compared to EUR 1.3 million for the three months ended June 30, 2008, a decrease of EUR 0.7 million, or 58%. Printing, processing and duplication cost as a percentage of DVD & Magazine sales was 45% for the three months ended June 30, 2009 compared to 66% in the same period last year. Amortization of library was EUR 1.6 million for the three months ended June 30, 2009 compared to EUR 1.5 million for the three months ended June 30, 2008, which represents an increase of EUR 0.1 million. Amortization of library does not vary with sales since it reflects the amortization of our investments in content which has been available for sale for a period of three to five years.

In the three months ended June 30, 2009, we realized a gross profit of EUR 2.1 million, or 35% of net sales compared to EUR 1.6 million, or 31% of net sales for the three months ended June 30, 2008. The increase in gross profit was the result of the acquisition of GameLink.

Our selling, general and administrative expenses were EUR 4.4 million for the three months ended June 30, 2009 compared to EUR 2.9 million for the three months ended June 30, 2008, an increase of EUR 1.5 million, or 53%. The increase was the result of the acquisition of GameLink which added EUR 1.4 million and bad debt provision, which increased by EUR 0.1 million.

We reported a loss of EUR 1.6 million for the three months ended June 30, 2009, compared to EUR 0.8 million for the three months ended June 30, 2008.

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 in Europe, and as they continue to build out and get larger, we project significant growth in both sales and net income. Specifically, we project the biggest gains to be achieved through: Internet, broadcasting and wireless. During the three-month period ending March 31, 2009, these platforms were responsible for 80% 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 Game Link 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 GameLink.com website. The site’s installed user base represents over one million domestic and international customers and it serves over 100,000 users daily. Including 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 is highly flexible, customizable and scalable designed to support multiple retail strategies and products simultaneously. Additionally, through its related companies, GameLink offers third-party and white-label ecommerce solutions and development. For the year ended 2008 GameLink and its affiliates reported net sales of USD 16.4 million.

The acquisition of GameLink is a significant development that will substantially contribute to our growth, while creating economies of scale. We have been establishing our digital strategy for the last year, and concluded that the combination of Private with a major online retailer and accomplished platform developer is the approach to achieving our goals in the rapidly changing business landscape. 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 expect to announce a variety of compelling new initiatives during 2009, including additional strategic acquisitions of Internet businesses.

We are successfully implementing our new media strategy for growth of VOD (Video-on-Demand) via IPTV and to date we have contracted with 38 major platform operators in 24 countries in Europe, as the leading supplier of adult content. Currently we have gained more than 75% coverage of the European IPTV market(1) and across all platforms, quarter by quarter, sales are growing continuously in line with the general growth of the market, or faster. 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.

Furthermore, the introduction of IPTV in Europe has challenged the Cable-TV industry and subsequently cable operators are rapidly upgrading their systems to provide the same functionality as IPTV. Recently we have contracted with two leading cable operators in Western Europe and going forward we expect to add further Cable/VOD platforms to our portfolio.

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. During the past twelve months, Playboy TV Latin America increased the distribution significantly in Brazil, Argentina and Central America and we expect to see positive impact from this going forward.

With respect to mobile content, Private content is available to 1.2 billion handsets via 104 mobile network operators in 45 countries. In the end of 2008, we started optimizing our content delivery network of aggregators in order to secure a more aggressive long-term growth. Now this process is completed and consequently we expect sales to increase significantly going forward. Additionally, we are implementing a new off-portal strategy in 2009 to capitalize on the expected transition and growth with this new consumer access to mobile content.

The markets of Asia and the North America are still underexploited by us and therefore represent a significant growth potential. In addition, Mobile TV, increased penetration of smart-phones and the implementation of age verification systems offer additional significant growth potential with both current and future operators in 2009 and beyond(2).

As we further transition into global digital content delivery, DVD pricing and volume is being affected considerably and as a result the industry in general is experiencing a severe downturn in DVD sales. In view of the aforementioned, we continue to re-strategize our distribution of DVDs and Magazines to reduce any further negative impact of this downward DVD trend.” Mr. Gillborg concluded.