Adware, shady marketing pays: Penthouse buys AdultFriendFinder and sister sites

Penthouse Media Group has acquired Various Inc., a company that operates a stable of adult-oriented social networking sites such as AdultFriendFinder, Gradfinder and others.

The New York Times reports:

While the influx of free and low-cost video has hurt the sale of pornographic videos, the chief executive of the Penthouse Media Group remains so bullish on the sex-related entertainment industry that he is investing $500 million in a group of social networking sites.

Marc H. Bell, chief executive of Penthouse Media, said the company had acquired Various Inc. and its subsidiaries as part of a plan to expand its reach. Various operates more than 25 networking sites and says it has a member base of more than 260 million consumers, about 1.2 million of them paying subscribers.

The combined revenue of both companies is projected to be $340 million in 2007.

But there are other takeaways from this deal:

• Advertising in spyware pays;
• Shady marketing tactics pay;
• Fake MySpace pages pay.

Various settled with the Federal Trade Commission on Dec. 6 for pelting consumers with pornographic pop-up ads.  The FTC said in its statement:

According to the FTC, AdultFriendFinder.com, which touts itself as “The World’s Largest Sex & Swingers Personal Community,” and its affiliates use pop-up ads to drive traffic to its Web sites. Some of the ads have included graphic depictions of sexual behavior, exposing consumers, including children, to sexually explicit images. Such ads were displayed to consumers who were searching online using terms such as “flowers,” “travel,” and “vacations.” In some cases, defendant’s sexually explicit ads were distributed using spyware and adware.

The agency alleged that the practice of displaying graphic pop-up ads without consumer consent was unfair, and violated the FTC Act.

Meanwhile, AdultFriendFinder ads were regulars in spyware applications.

Under the FTC settlement, Various is barred from displaying sexually explicity ads to consumers unless they are actively seeking it out. The company also has to end relationships with affiliates that don't comply with the order. The FTC is now monitoring Various.

Alex Eckelberry on Sunbelt Software's blog said he "can only hope that Penthouse understands what it’s getting into, including the fact that it’s unknown whether or not the AFF’s high growth can continue with the FTC’s oversight on its practices."

In other words, Various' growth is largely attributed to shady practices. Various obviously knows this and looked to sell. Not a bad deal--unless you're Penthouse.