By Tom Hals and Sakthi Prasad
Sept 17 Maybe sex doesn't sell that well after
FriendFinder Networks Inc, publisher of Penthouse
magazine and numerous adult-entertainment websites, filed for
Chapter 11 bankruptcy on Tuesday.
The company, which sought to combine social networking and
sex, said it had struck a deal with noteholders that will reduce
its debt by $300 million if approved by the U.S. Bankruptcy
Court in Delaware.
Under the plan, one group of noteholders will take ownership
of the sex entertainment business, which traces its roots to the
late Penthouse publisher Bob Guccione. As is typical in
bankruptcy, shareholders will likely be left with nothing.
Control of the company would go to Andrew Conru and Lars
Mapstead, two noteholders who sold various social networking
websites to FriendFinder in 2007.
Through a network of thousands of websites, FriendFinder
provides live video, chat rooms, and photo and video sharing. It
also sought to tap the powers of social networking with websites
such as adultfriendfinder.com, which promoted casual sex, and
bigchurch.com, which aimed for spiritual connections.
The company and its affiliates comprise a global network of
more than 8,000 websites with 220 million members and 750,000
subscribers, according to court documents.
But while Facebook, LinkedIn and other
social sites have boomed, FriendFinder's limped. Its revenue in
the year ended June 30 totaled $293.70 million, down 10 percent
from the previous year.
Hardest hit was the company's social networking websites,
where revenue fell 17.6 percent, according to court filings.
Some of that drop was offset by a 7.8 percent rise in live
interactive video revenue.
Ezra Shashoua, the company's chief financial officer, blamed
the lower revenue on a drop in membership and increased
advertising costs for affiliates, according to court documents.
Shashoua also said credit card companies had refused to process
transactions for the company's Internet businesses. No reason
FriendFinder has not turned in a net profit since at least
2008, according to Thomson Reuters data.
The company was formed by Marc Bell and Daniel Staton in
2003 when they acquired out of bankruptcy the publisher of
Penthouse, Guccione's racier rival to Playboy. In 2007 the
company bought Various Inc and its dating websites from Conru
and Mapstead for $400 million.
A year later it filed with regulators to raise $460 million
in an initial public offering, but when it finally completed the
IPO in 2011, FriendFinder raised just $46 million.
In 2010 the company offered to buy rival Playboy Enterprises
Inc for $210 million. The deal fell through.
FriendFinder said in U.S. Bankruptcy Court papers it plans
to issue cash and new debt to holders of $234 million of
first-lien notes. It also plans to cancel about $330 million in
second-lien notes and issue new stock to those debtholders, who
will own the company when it exits bankruptcy if the plan
receives creditor and court approval.
FriendFinder said the plan was supported by 80 percent of
its noteholders but has not yet been put to a creditor vote.
Bell and Staton, who resigned their executive positions with
the company last year, each agreed to a $500,000 cash payment to
end their consulting agreements with the company, according to
Earlier this year, LodgeNet Interactive, which provided
adult films and video games to hotels and their guests, filed
for bankruptcy, partly due to Internet competition.
The FriendFinder case is PMGI Holdings Inc, Case No.
13-12404, U.S. Bankruptcy Court, District of Delaware.