When Sex Doesn't Sell: FriendFinder Networks Files for Bankruptcyby
Sometimes the sex business is rough and leaves an investor really sore–or wiped out, as in the Chapter 11 case of FriendFinder Networks, which owns Penthouse magazine and a string of adult entertainment websites. The company is best known for AdultFriendFinder.com, which enables people to arrange meetings for sex. The more than 40 sites in the brand network include BigChurch.com, a site for Christian singles; Amigos.com, a site for Latinos; and LesbianPersonals.com.
The company blames its debt–more than $544 million, most of it assumed from its $400 million purchase of Various, a network of dating sites, in 2007—for the financial woes. After buying Various, it merged its online properties with its Penthouse Media Group holdings to form FriendFinder Networks which, all told, had about 750,000 subscribers at the end of 2012.
But the company’s biggest problem may be just the obvious one: Who needs to pay $30 or more per month to scout for sex when the Internet is rife with free options, from Craigslist to various mobile apps?
FriendFinder lost $10.3 million in its last quarter, while new members and revenue per user both declined for its adult websites from the same period of 2012. It was delisted last month from the Nasdaq. FriendFinder says some of the decline is a result of focusing its efforts on flagship brands and developing a more reliable, long-term customer base that won’t “churn” as much. For the people still looking for quick and easy NSA hookups, the site is rapidly moving to a mobile platform, with roughly 80 percent of its traffic migrating from the desktop.
The company’s reorganization plan, filed on Sept. 17, envisions eliminating $300 million of debt, and returning control of most of FriendFinder’s business to Various co-founders Andrew Conru and Lars Mapstead, who sold the online assets to the Penthouse owners.
“It can’t live with the capital structure the way it is and it has to be fixed,” Chief Executive Officer Anthony Previte says of FriendFinder. “This leaves a very bright future for the company.”
The company went public in 2011, expecting to collect nearly $500 million because of the healthy revenues it was reporting from online subscriptions, video content sales, and various Penthouse licensing deals. The initial public offering raised less than $50 million, which Previte attributes to a prudish caution on the part of investors. “There’s incredible headline risk in this industry,” Previte says, citing both public opinion and the threat of regulatory intervention.
As for Penthouse, the storied magazine built in the 1970s and ’80s by Bob Guccione, the brand has developed a video business and expanded into European broadcasting. It also remains available as a print magazine, but it’s not entirely clear why, given the brutal economics of printing and distribution. “Why?” Previte said. “That’s a really good question.” The magazine is likely to morph into “a marketing tool not built for the masses” but rather printed only as part of Penthouse licensing deals for nightclubs and other properties, he predicted. None of those plans are immediate: Penthouse on paper will stick around, for now.