Penthouse (magazine)

Penthouse Magazine

The first U.S. issue of Penthouse, September 1969
Chief Executive officer	Marc H. Bell[1]
Categories	Men's
Frequency	Monthly
Publisher	FriendFinder Networks
First issue	1965
Company	Penthouse
Country	United Kingdom
Language	English
Website	www.penthousemagazine.com
ISSN	0090-2020

Penthouse, a men's magazine founded by Bob Guccione, combines urban lifestyle articles and soft-core pornographic pictorials that, in the 1990s, evolved into hardcore. Penthouse is owned by FriendFinder Network. formerly known as General Media, Inc. whose parent company was Penthouse International Inc. prior to chapter 11 restructuring. Although Guccione is American, the magazine was founded in 1965 in the United Kingdom, but beginning in September 1969 was sold in the United States as well. At the height of his success, Guccione was considered to be one of the richest men in the United States. He was once listed in the Forbes 400 ranking of wealthiest people (982^[2]). An April 2002 New York Times article reported Guccione as saying that Penthouse grossed $3.5 billion to $4 billion over the 30-year life of the company, with net income of almost half a billion dollars.^[3]

Contents 1 Innovations 2 Move from softcore to hardcore pictorials and back 3 Financial history 3.1 Bankruptcy 3.2 Hedge-funds role 3.3 Acquisitions 3.4 Initial Public Offerings 3.5 Penthouse Mobile and Penthouse HDTV for cell phones 4 Controversies 4.1 Lawsuit over La Costa Spa & Resort article 4.2 Traci Lords 5 International versions 6 Auto Racing 7 See also 8 References 9 External links

Innovations

For many years, Penthouse fell between Playboy and Hustler in its explicitness and general attitude toward sexual depictions, with Playboy being visually softer and less focused on female genitals and with Hustler going for a raunchier look and content often consisting of toilet humor. Almost from the start, Penthouse pictorials showed female genitalia and pubic hair when this was considered by many to be obscene.

Up until 1973, the depiction of female genitalia offered fuzzy portrayals of the pudenda, without the inner labia parted, after which sharper views of the vulva were shown.

Simulated sex, but not penetration or male genitalia, followed; then, several years later, male genitalia, including erections, could be seen. In addition, Penthouse attempted to maintain some level of reading content, although usually of a more sexually oriented nature than Playboy.

During the 1970s and 80's and into the early 90's Penthouse was often regarded as the main rival against Playboy in terms of circulation and popularity. (There were a few times during the 70's and 80's where Penthouse was even ahead of Playboy for subscriptions and sales.)

Move from softcore to hardcore pictorials and back

In 1998 Penthouse decided to change its format and began featuring sexually explicit pictures (i.e., actual oral, vaginal, and anal penetration), beginning with photos from the famed Stolen Honeymoon sex tape featuring Pamela Anderson and Tommy Lee. It also began to regularly feature pictorials of female models urinating, which, until then, had been considered a defining limit of illegal obscenity as distinguished from legal pornography.

A different approach to restoring sales was attempted by the UK version of the magazine in 1997. Under the editorship of Tom Hilditch, the magazine was rebranded as PH.UK and relaunched as middle-shelf "adult magazine for grown-ups". Fashion photographers (such as Corinne Day of The Face magazine) were hired to produce images that merged sex and fashion. The magazine's editorial content included celebrity interviews and tackled issues of sexual politics. The experiment attracted a great deal of press interest but failed to generate a significant increase in sales. PH.UK closed in late 1998.

The new owners (see below) significantly softened the content of the magazine starting with the January 2005 issue. Penthouse no longer showed male genitalia, real or simulated male-female sex, or any form of explicit hardcore content. (It does still feature female-female simulated sex, at least on occasion.) While this change allowed the return of a limited number of mainstream advertisers to the magazine, it has not significantly raised the number of subscribers; total circulation is still below 350,000.^[4] (Many insiders feel that the softening of content may have hurt the magazine.)

Financial history

Penthouse’s parent company became General Media Inc in 1993 in connection with the company going public in December 21, 1993, in an $85 million United States Securities and Exchange Commission (SEC) registered bond offering. Jefferies and Company led the junk bond offering (Jefferies is a leading middle-market investment bank listed on the New York Stock Exchange). The main buyer of the bonds was the $40 billion MacKay Shields division of the venerable $143 billion New York Life insurance company.

The collateral for the bonds was primarily the registered trademarks of the company and other intellectual property, since the “Penthouse” brand is a worldwide recognized brand and would be difficult and expensive to recreate.

In 1997, Cerberus Capital Management began acquiring the General Media bonds in the open market. Cerberus is one of the largest hedge funds in the United States, with a reported $18 billion under management.

In an effort to raise cash and to reduce debt, Penthouse sold its portfolio of several automotive magazine titles in 1999 for $33 million cash to Peterson Automotive, the national automotive-publishing group. While these titles were successful, it is widely reported that the science and health magazines Omni and Longevity cost Penthouse almost $100 million, contributing to its eventual financial troubles.

Guccione and his trust remained the sole shareholder of General Media, according to SEC filings, despite the bondholder obligations. In October 2002, he agreed to take on his first minority shareholders in 37 years. Affiliates of Jason Galanis and Charles Samel acquired 15% of the company, according to SEC filings (affiliates later acquiring 100% in November 2003, according to filings). In October, 2002, General Media became a wholly owned subsidiary of Penthouse International (f/k/a American Pulp).^[5][6]

In May 2007, the SEC settled a suit brought against Galanis and Samel for alleged fraud and financial misreporting. In the settlement, no guilt was admitted, while the settlement resolves the SEC's accusations that General Media used an unauthorized electronic signature of Bob Guccione, the magazine's former chief executive officer, to meet Sarbanes-Oxley-law certification requirements in its 2003 first-quarter report.^[7]

Bankruptcy

Per SEC filings, General Media defaulted on a [$1.3 million] payment on its $50 million in outstanding bonds. As a result, the bondholders had a right to take control of the company unless General Media sought protection under the federal bankruptcy laws.^[8]

On August 12, 2003, General Media, the parent company of the magazine, filed for Chapter 11 bankruptcy protection. Immediately upon filing, Cerberus Capital management entered into a $5 million debtor-in-possession credit line with General Media to provide General Media working capital.^[9][10] In October 2003, it was announced that Penthouse magazine was being put up for sale as part of a deal with its creditors. On November 13, 2004, Guccione resigned as Chairman and CEO of Penthouse International, the parent of General Media.

General Media later filed a plan of reorganization that ceded control to the bondholders, but then withdrew this plan and filed a new plan that would have resulted in the equity holders maintaining control of the company.^[8] Also, the parties acquired the Guccione mansion from the foreclosing lenders and reached agreement with Guccione to lease him the home for $1 per year for the rest of his life.^[11]

Given the enormous recognition for the Penthouse brand, financier Marc H. Bell, a high-net-worth South-Florida real-estate developer and founder of the Globix Corporation, a once-public Internet-hosting company, formed a partnership for the acquisition, called it PET Capital Partners (as in, "pet of the month")^[12] then led his team in amassing 89 percent of the magazine's $50 million in bond obligations. "We didn't buy the company, we bought the debt," says Bell.

The bankruptcy challenges between the bondholders and the shareholders continued through four official plans of reorganization and substantial litigation. Ultimately, the bondholder plan of PET Capital Partner group was confirmed by the Court. However, the plan could not close without the settlement of the outstanding litigation between the parties.

On September 28, 2004, the Molina parties agreed to dismiss their claims and consent to the transaction. According to SEC filings, simultaneously Care Concepts paid PET Capital Partners $16.45 million^[13] in cash for 39.3% of Penthouse Media Group.^[14] Penthouse International paid an additional $1,000,000. Molina released his claims in consideration for return of a $10 million promissory note due to PET Capital Partners.

On October 4, 2004, General Media emerged from bankruptcy and was renamed the Penthouse Media Group. It is now owned by three investors: Bell, Daniel Staton, a South-Florida investor with diverse investment properties, ranging from Broadway shows (e.g. Jersey Boys, Hairspray, and August: Osage County)^[15] to Build-a-Bear stores, and a member of the board of directors of Public Storage, Inc., (NYSE: PSA), and Absolute Capital Management, run by Florian Homm, a German hedge-fund manager, who lives on the Spanish island of Majorca. Bell was reportedly solicited for capital by an officer of General Media but elected to buy the bonds and attempt to foreclose.^[16] Bell was quoted in South Florida CEO Magazine in June 2004 as saying "They were in bankruptcy, their bonds were trading for pennies and nobody wanted the company," says Bell. "It was going to be liquidated and we figured it was a great buy.

In August 2005, PET Capital Partners completed a financing with each of Post Advisory, Canyon Capital, and Satellite for $40 million. According to SEC-filed documents dated August 31, 2005, signed by Marc Bell as President, Jefferies and Company represented Penthouse in the private placement of new debt. According to the filing, payments were made to directors and officers of $14,502,901 and “payments to others” were $11,710,965.38, leaving the company with working capital of $11,441,218.59.

Hedge-funds role

Because of the established brand, Guccione was attractive to leading institutional investors, including the country's largest fund investors. Beginning in 1997, Cerberus Capital Management acquired interests in the bonds of Guccione’s General Media, Inc. In addition, Elliot Associates was a lender to Guccione personally and held a $17 million mortgage on his mansion. Later after Guccione sought protection in bankruptcy, a European hedge fund called Absolute Capital Management—based in Majorca, Spain, and London—acquired the bonds from Cerberus. Absolute is a publicly traded hedge fund with $2.1 billion under management. Guccione was able to pay Elliot Associates with money from Galanis and Laurus Funds. As part of the bankruptcy restructuring, shareholders of Penthouse arranged additional institutional financing in order to fund a competing plan or reorganization that would preserve their interests as shareholders. Post Advisory Group, a $9.0 billion hedge fund owned by the insurance company Principal Financial Group, formally committed in writing on March 4, 2004 to $30 million to General Media, along with $38 million pledged from the Molina family.^[8] Though Post Advisory did not fund the above plan, since it was not confirmed by the Court, after reorganization bankruptcy was completed, Post Advisory Group, Canyon Capital, and Satellite^[17] collectively invested $40 million into the reorganized General Media, now called Penthouse Media Group. Today, the three hedge funds own a first mortgage on all of the assets of Penthouse. Laurus has reportedly sold the mansion for $59 million in late 2006. Galanis reportedly introduced and structured the initial Post Advisory transaction, the Laurus/Alexandre transaction and the Molina investment in order to restructure the company and preserve the common stock. Cerberus first acquired Guccione's debt in 1997^[18] when the hedge fund purchased personally guaranteed debt owed by Guccione in connection with his ill-fated Atlantic City casino venture that cost him an estimated $140 million. Guccione eventually borrowed the money from Elliot and others to pay Cerberus in full, but went further in debt as a result.

Notwithstanding the Penthouse/Guccione financial issues, General Media had had a positive cash flow for the prior 10 years, according to filings made with the SEC. However, as it paid over $8 million in interest on the bonds and $4.5 million to pay Guccione's living expenses,^[19] salary, and upkeep on his mansion, the company became cash-strapped.

Acquisitions

In December 2007, PMGI announced the purchase of Various, Inc. for $500 million.^[20] Various operates a stable of social networking sites, including AdultFriendFinder. Penthouse Media Group was later renamed FriendFinder Networks.

On 15 July 2010, FriendFinder Networks Inc. offered $210 million for Playboy Enterprises, Inc. (the company is valued at $185 million), though Hugh Hefner, who already owns 70 percent of voting stock, does not want to sell.^[21]

Initial Public Offerings

In the First Quarter of 2008, shortly after renaming itself FriendFinder Networks, the company announced plans for an initial public offering of stock to raise equity capital ^[22]. According to the S-1 document the company filed in December 2008, of the company's $691 million in financial liabilities, $411 million had been reclassified from long-term to short-term because of the company's "failure to comply with certain covenants and restrictions in the agreements governing our 2005 Notes and 2006 Notes and our subsidiary's First Lien Senior Secured Notes, Second Lien Subordinated Secured Notes and Subordinated Convertible Notes and for which waivers had not been obtained." Therefore, FriendFinder Networks had $420.1 million that was immediately due and only $43.3 million in cash on hand. This fact contributed to FFN seeking to go public to ameliorate its short-term debt load. However, this plan never came to fruition with the offering never reaching the market.

As of January 17, 2010, according to Crain's New York, FriendFinder Networks has a negative net worth equal to $118 million, $32 million in cash on hand and $650 million in liabilities. Additionally, the company has indicated that it lacks existing cash or cash from operations to repay a $44.5 million debt that comes due July 31. It has cautioned that, unless it can repay or restructure its obligation, it will face “a material deficiency in our short term liquidity.^[23]” With these shortfalls in mind, the company again announced an intention to make an initial public offering of stock, representing a 49% stake in the company, and plans to use the proceeds to pay down its debt, and become listed on the New York Stock Exchange. The contemplated public offering, which was scheduled to reach the market on January 27, 2010 was delayed by FFN.^[24]

On February 5, 2010, FFN announced its intention to indefinitely delay its contemplated IPO until such time as market conditions improve.^[25] The company's latest filing with the U.S. Securities and Exchange Commission ^[26] paints a tenuous picture of the company with statements like, "Our ability to keep pace with technological developments is uncertain," and "We have a history of significant operating losses and we may incur additional net losses in the future, which have had and may continue to have material consequences to our business," and "Because of our adult content, companies providing products and services on which we rely may refuse to do business with us," and "We have never generated significant revenue from internet advertising and may not be able to in the future and a failure to compete effectively against other internet advertising companies could result in lost customers or could adversely affect our business and results of operations." Based on the previously mentioned SEC filing, long-tenured, West Coast Editor for Barron's, Eric J. Savitz, wondered, "if the market conditions will ever improve enough to allow FriendFinder to go public."^[27]

Penthouse Mobile and Penthouse HDTV for cell phones

Since January 2003, Penthouse International has been working with FCC, DISA and various agencies as well as several academic universities to offer Penthouse HDTV on cell phones using regular the United States TV broadcaster and Internet Service Providers.

Controversies

Lawsuit over La Costa Spa & Resort article

In March, 1975, Penthouse published an article headlined "La Costa: The Hundred-Million-Dollar Resort with Criminal Clientele," written by Jeff Gerth and Lowell Bergman. The article indicated that the spa was developed by Mervyn Adelson and Irwin Molasky using loans from the Teamster's Pension Fund and that the resort was a playground for organized crime figures. The owners, along with two officials of the resort, Morris B. Moe Dalitz and Allard Roen, filed a libel lawsuit for $522 million against the magazine and the writers. In 1982, a jury absolved the magazine of any liability against the lawsuit from the owners. The plaintiffs appealed, but in December 1985, before a new trial could begin, the two sides settled. Penthouse issued a statement that they did not mean to imply that Adelson and Molaskey are or were members of organized crime. In turn the plaintiffs issued a statement lauding Penthouse publisher Guccione and his magazine for their "personal and professional awards."^[28]

Traci Lords

The September 1984 issue of Penthouse magazine would eventually become controversial because of its centerfold, Traci Lords. Lords posed nude for this issue at the beginning of her career as an adult film star. It was later revealed that Lords was underage throughout most of her career in pornography and was only 15 when she posed for Penthouse.

International versions

As of April 2006

• Australian edition - see specific article
• Bulgarian edition
• Dutch edition
• German edition
• Greek edition
• Hungarian edition
• New Zealand edition
• Russian Edition
• Spanish edition
• Thai edition
• Ukrainian Edition
• United Kingdom edition

Auto Racing

Penthouse sponsors the 1X car of driver Randy Hannagan in the World of Outlaws sprint car series. Much controversy from fans has surrounded the sponsorship with many claiming to outright boycott any event Hannagan is entered in. The sports sanction body, DIRT Motorsport however will not prevent Penthouse from their sponsorship role. There is a section of Penthouse's official site that can only be accessed through a link on Hannagan's website and when accessed offers a special discount for a one year subscription to the publication.

The magazine previously sponsored cars in the Formula One circuit from the late 1970s to the early 1980s. Teams included Hesketh Racing and RAM.

See also

• List of Penthouse Pets of the Month
• List of Penthouse Pets of the Year
• List of men's magazines
• Pubic Wars
• Hustler
• Playboy

References

External links

• Official Penthouse magazine web site
• Official Penthouse web site