Penthouse
Michelle Ramos on the cover of the September 2006 issue[1] Michelle Ramos on the cover of the September 2006 issue[1]
President, Publishing	Diane Silberstein[3]
Categories	Men's
Frequency	Monthly
Publisher	Penthouse Media Group
First issue	1965
Company	Penthouse
Country	United Kingdom
Language	English
Website	[1]
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 Penthouse Media Group, Inc. 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 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 (1982-$400 million net worth^[4]). According to an April 2002 New York Times article that quoted Guccione saying 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.^[5]

Innovations

For many years, Penthouse fell between Playboy and Hustler in terms of 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 1974, the depiction of female genitalia offered a fuzzy portayals 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.

Move from softcore to hardcore pictorials

In 1998 Penthouse decided to change its format and began featuring sexually explicit pictures (i.e., actual oral, vaginal and anal penetration). 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 imagery 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 genitalia, real or simulated sex, or other hardcore content. 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.^[6]

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 the United States Securities and Exchange Commission (SEC) registered bond offering. Jefferies and Company lead 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 auto publishing group. While these titles were successful, it is widely reported that 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).^[7][8]

In May 2007, the SEC settled a suit brought against Galanis and Samel for alleged fraud and financial mis-reporting. 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^[9].

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.^[10]

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.^[11][12] 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.^[13] 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.^[14]

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")^[15] 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^[16] in cash for 39.3% of Penthouse Media Group.^[17] 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 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 Mallorca. Bell was reportedly solicited for capital by an officer of General Media, but elected to buy the bonds and attempt to foreclose.^[18] 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 Mallorca 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 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.^[19] 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^[20] 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 debt in 1997^[21] 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 been cash flow positive 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,^[22] salary and upkeep on his mansion, the company became cash strapped.

Controversies

Vanessa Lynn Williams

The September 1984 issue of Penthouse was the second largest selling issue of any magazine in history (5.3 million copies), outdone only by the November 1972 of Playboy, which sold 7.1 million copies . This issue featured photos of Vanessa Lynn Williams, who was the previous Miss America, from early in her modeling career. Williams posed for the series of black and white photos with another female model, engaged in simulated lesbian acts, and appeared on the cover with movie actor George Burns.

Traci Lords

Although Williams' pictures generated the most publicity at the time, the issue would later become even more 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 fifteen when she posed for Penthouse. As a result, the issue is illegal to own with centerfold intact because it fell under the laws against child pornography.

International versions

Current as of April 2006

• Australian 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 currently 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.

See also

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

References

External links

• em>Penthouse Media Group web site
• Official Penthouse web site
• em>Penthouse Magazine web site