Social Networking Goes X-Rated

SAN FRANCISCO -- In what may be a record in the adult-entertainment industry, Penthouse magazine's publisher says it paid $500 million for a Silicon Valley company running one of the biggest sexually oriented social-networking websites.

The deal announced Wednesday for Palo Alto-based Various adds AdultFriendFinder to Penthouse's portfolio as it expands further into the fast-growing field of social networks led by MySpace and Facebook.

"That's where the money is," said Marc Bell, CEO of Penthouse Media Group.

The deal comes as the $13 billion adult-entertainment industry shifts more resources online amid rising competition and a plunge in sales and rentals of X-rated DVDs and related fare.

Penthouse hopes to prosper by gobbling up as many adult-focused companies as possible, Bell said, with an eye toward taking Penthouse public. He and his partner, Daniel Staton, bought Penthouse in 2004 in a bankruptcy court reorganization.

Experts on the adult industry said they could not recall a deal bigger than the one announced Wednesday. "Likely, it's a record," says Frederick Lane, author of Obscene Profits: The Entrepreneurs of Pornography in the Cyber Age. "It really underscores the shift from traditional media to new media."

With Various, Penthouse says it will have revenue of $340 million this year, making it the world's biggest adult-entertainment company. Lane said the deal is a further challenge to Playboy Enterprises, which Hugh Hefner founded in 1953.

Playboy said it is not concerned about the Penthouse deal because the companies are in different markets.

Now led by Hefner's daughter, CEO Christie Hefner, Playboy has diversified into non-sexual businesses including household products as humdrum as shower curtains, and PlayboyU, a new social network for college students. That site has no nudity, spokeswoman Martha Lindeman says. Playboy reported $330 million in revenue and $2.3 million in earnings for 2006.

Various was founded in 1996 by Andrew Conru, an entrepreneur with a doctorate in mechanical engineering design from Stanford University. It has about 300 employees and more than 25 online communities, including non-sexual dating sites for Spanish speakers, seniors and for Christians.

AdultFriendFinder says it's the biggest "sex and swinger personals community." It claims 260 million registered users and more than 1.2 million monthly subscribers. AdultFriendFinder subscribers pay up to $50 a month.

Last week, Various settled a Federal Trade Commission complaint that it "foisted sexually explicit online pop-up ads on unwitting consumers," the FTC said. Various did not admit violating federal law. It agreed to offer such ads only to consumers seeking them or agreeing to view them, the agency said.