FriendFinder Networks Files for Bankruptcy

FriendFinder Networks
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Perhaps the rise of free Internet porn has come at a cost to some large companies. FriendFinder Networks Inc. (FFNTQ), publisher of Penthouse Magazine and a number of adult entertainment websites, has filed for Chapter 11 bankruptcy.

FriendFinder said that it has struck a deal with debt holders to reduce its debt by $300 million if accepted by the U.S. Bankruptcy court in Delaware. One note holder will get ownership of the sex entertainment business if the plan goes through.

The company built its network by buying and starting up social media, dating, and sex sites such as adultfriendfinder.com (for casual relationships), Amigos.com for Latin dating, and BigChurch.com (aimed at those more spiritual). Together the FriendFinder network includes 8,000 websites with 220 million members and 750,000 subscribers. But they haven't turned a profit since 2008.

FriendFinder Networks was originally formed in 2003 when founders Marc Bell and Daniel Staton purchased the publisher of Penthouse from bankruptcy. A year later they'd planned to launch an initial public offering with $460 million, but when the IPO was completed in 2011, they'd only managed to raise $46 million.

The company had also tried to purchase Playboy Enterprises in 2010, but the deal fell through.

The founders primarily blame the financial problems on the $400 million acquisition of Various, a network of dating sites that didn't generate the revenue expected, and the fact that credit card companies wouldn't process payments from sex website members. Others are looking at the bigger picture of the industry itself.

The question that perhaps the company's founders hadn't planned on was: who needs to pay a monthly fee to look for sex and porn when the Internet (and mobile apps) are rife with free options?

The question of the growing popularity of the mobile platform is one to consider as well. Dating app Tinder has exploded, and FriendFinder was rapidly trying to move its business into the mobile space since roughly 80% of its traffic was migrating from the desktop.

And what about Penthouse? Its flagship business has expanded into European broadcasting, a video business and does licensing deals as well, but surprisingly, the print edition of the magazine is still available even though it's struggling.

FriendFinder isn't the only casualty in the wake of free Internet porn. Earlier this year, LodgeNet Interactive, which provided adult films and video games to hotel guests, filed for bankruptcy, partly due to Internet competition.