Former Penthouse editor Mark Healy recalls a heated conversation last spring with his then boss, Penthouse Media Group Chief Executive Marc Bell, who was angry about a magazine item that tweaked a celebrity. "What's this damned Howard Stern story doing in here?!" fumed Bell. Healy considered the piece innocuous. Bell thought it was inflammatory enough to anger Stern, who frequently hosts Penthouse Pets on his radio show. Healy later quit because of Bell's meddling.
Bell, 40, has given Penthouse, for decades one of the most explicit men's magazines, a "softer focus," as he puts it. The cover shot is more conservative than most images in Sports Illustrated's swimsuit issue. Bell has spent $8 million on the redo after buying Penthouse and related properties out of bankruptcy for $52 million four years ago. The gussying up is mainly for Wall Street. Bell hopes Penthouse Media Group will raise $250 million in stock in an initial offering, perhaps in the summer.
There's a lot of airbrushing under way. Penthouse is the tame front for a racy collection of 27 social-networking Web sites that Bell and Daniel Staton, company chairman, bought late last year for $500 million in cash and stock. The sites, previously owned by a Palo Alto, Calif. company that carried the plain-brown-wrapper name Various, turned Penthouse Media Group into the world's largest adult entertainment company.
The biggest site by far is the very X-rated AdultFriendFinder. With 22 million active members, the site is a Match.com for people who want to find bedmates. There's nothing subtle here, especially in the photography members send in. Special-interest groups include folks who like orgies in central New York state and some people interested in Buffalo sex, apparently a reference to the city, not the animal. There are listings from around the world. Kazakhstan has 2,644 swingers.
Fees from 1.2 million paying members of this site, who shell out an average $25 a month for full access, brought in $285 million last year, or 85% of the total from all the social networking sites Penthouse Media Group acquired. Last month AdultFriendFinder got 8 million unique visitors, who lingered an average 16 minutes on the site, says Nielsen Online. Playboy.com attracted only 1.3 million unique visitors, who dropped by for just more than 5 minutes.
Penthouse Media Group's recently acquired sites, which also include Passion.com and BigChurch.com, a site for Christians who want prayer mates, have a total of 45 million active members. Bell plans to use the money from a stock offering to make more acquisitions and to pay off part of the company's $400 million in debt. With Staton, he owns 60% of Penthouse Media Group.
Penthouse, the magazine, with only 12 pages of ads in the 150-page March issue, will never be a powerhouse alone. But will Penthouse Media Group, as a public entity, excite investors? Playboy Enterprises is struggling. At $8 its stock, adjusted for all capital changes, is trading for less than half its price when it went public 37 years ago.
But Bell is full of ideas for brand extensions of the sort that never worked too well for Playboy. He plans to sell X-rated mobile applications for cell phones that will allow users, who pay up to $10 a month, to watch videoclips of Penthouse Pets. The company has a line of 20 Penthouse-branded accessories (like a French maid's outfit) that will be sold through the magazine, as well as Penthouse.com and a few boutiques. Visitors to Penthouse's Web site, which is more salacious than the magazine, can pay $20 a month to watch streaming videos with titles that include Cheek Freaks 4. Bell recently signed a deal with New Frontier Media to make Penthouse Video On Demand available on tv in 59 million homes.
Bell plans to let Penthouse magazine, its Web outlets and other ventures market one another. Penthouse Pets make guest appearances in nine Penthouse Executive Clubs, which bring in $4 million in licensing fees a year. Ads in Penthouse magazine tout AdultFriendFinder. Members of that site will soon be able to subscribe to an online version of the magazine, which will be delivered as a pdf file, for $1 a month. All the cross-fertilization is exciting to some. "This is fabulous for business," says Edward Norwick, restaurant manager of the Penthouse Executive Club in Manhattan, as scantily clad women gyrate on a stage nearby.
Things certainly look more promising than they did when Bell and Staton bought the magazine in 2004. Penthouse made Bob Guccione, who created the magazine in 1965, a rich man for a while. Around 1990, when the magazine's circulation peaked at 5 million, Guccione lived in a 27-room midtown Manhattan mansion that was filled with valuable art and pretty women. When called upon for business meetings, Guccione often arrived with his shirt unbuttoned to the waist and, occasionally, wearing a necklace adorned with a miniature replica of his genitals, plated in gold. But Guccione, 77, lost millions of dollars in ventures that included a casino. As more men started turning to the Web for porn in the late 1990s, Guccione made the magazine raunchier, alienating advertisers and readers. By 2003 Guccione's Penthouse was losing $6 million a year and its circulation was only 320,000. Unable to keep up payments to his lender, Guccione abandoned his Manhattan lair--later bought by Wall Street financier Philip Falcone for $49 million--and lost his magazine. He now lives in Englewood Cliffs, N.J., in a house once owned by his late first wife. "We are fixing problems from the past," says Bell. "These are things Guccione should have done 20 years ago."
Bell never expected to find himself in the sex business. But don't call it "porn," a four-letter word to him. "We can't be seen as guys sitting around with gold pinky rings," he snaps.
Bell clearly gets his kicks from more mainstream pursuits. Previously he built Web-hosting giant Globix in the late 1990s. When the tech bubble burst, Bell watched Globix, which once had a bigger market cap than Apple, sink into bankruptcy. By luck or smarts, he had sold a third of his stake in the company for $130 million before the crash. Since then Bell and Staton have raised some $1 billion to buy stakes in 450 companies. They also dabble in real estate and the theater. They co-produced with others the Tony Award-winning Broadway hits Hairspray and The Producers.
At Penthouse Media Group there are more business publications than girlie magazines in Bell's office, where six computer screens track the performance of the companies in which Bell and Staton own stakes. Next to each listing is a colored bar showing each stock's up-to-the-minute price. Soon, Bell hopes, Penthouse Media Group will have a place on the screen and its bar will glow green. "Sex," he says, smiling, "is recession-proof."