FriendFinder Networks, publisher of Penthouse Magazine, and owner of a number of adult websites, has filed for chapter 11 bankruptcy protection. If approved by the bankruptcy court, the deal worked out with note holders, would reduce the company’s debt by $300 million dollars. Shareholders, as is most often the case in bankruptcy protection will likely receive nothing. Revenue at FriendFinders social networking sites were hardest hit, falling 17.6%. Chief Financial Officer, Ezra Shashoua 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.
In U.S. Bankruptcy Court papers, FriendFinder said 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 debt holders, who will own the company when it exits bankruptcy if the plan receives creditor and court approval.
Ultimately however, there’s one main reason why the company has failed; free sex is widely available on line. Pay sex sites are unnecessary. All print adult titles, known as sophisticates have also taken a hard hit due to the internet and will unfortunately never recover. One doesn’t need to pay for the content and more importantly, one need not enter any personal information. If the petition is acceptable to the court, and creditors, FriendFinder will need to completely change how the company is operating. The preponderance of adult websites makes it absolutely necessary that the sites differentiates themselves from their competition. But if one was a betting man, he would have to believe that regardless of any changes, FriendFinders will ultimately close down its operations.