VentureBeat

Penthouse Media has bought the owner of the profligate porn site AdultFriendFinder, for $500 million.

VentureBeat has confirmed the acquisition, although it wasn’t announced. The deal closed last Thursday. The New York Times reported on deal too. Last month, we heard the company was negotiating to sell to Penthouse for between $500 million and $1 billion.

AdultFriendFinder is just the largest property of Various, the acquired entity. AdultFriendFinder offer an adult community for swingers, and a range of more than 25 smaller and less risque sites. It also does business under the name FriendFinder and claims to have more than 260 million total users, with 1.2 of them paying customers.

Among other sites, Various owns gradfinder.com and bigchurch.com

Penthouse is trying to expand online. Marc H. Bell, the company’s chief executive, said the strategy was to diversify from its print origins and serve a range of sex-related print, in video and online material to 18-to-34-year-old men.

Bell is part of a group of private investors called PET Capital Partners, that bought the financially bankrupt Penthouse magazine in 2004.

We previously reported how the company’s revenues and profits, while considerable, are offset by considerable risks in the sector, posed by things such as new business models (amateurs are submitting their own videos).

Penthouse is negotiating to buy AdultFriendFinder, a ubiquitous porn and sex dating site, for between $500 million and $1 billion, VentureBeat has learned.

We learned of the talks last Monday, and were trying to confirm, but Techcrunch beat us to it this weekend. Techcrunch has some of the details correct, according to what we’ve heard from a source close to the deal, including that AdultFriendFinder’s parent company, Various, has revenues of some $300 million.

However, while Techcrunch suggests that the price of the purchase is quite low relative to the revenue (a price of about 2 or 3 times the size of revenue is considered low in most industries), which is true, it fails to take into account the profit margins of the business and the future outlook, which explain the lower multiple.

Palo Alto, Calif.’s Various, which is the entity for sale, pays significant amounts of money to buy traffic all over the Web (if you visit some porn sites, you’ll click on pictures, and find yourself whisked way to AdultFriendFinder), not to mention other costs, and so its profit margins aren’t as large as you’d think. Second, the adult industry is not attractive to advertisers as many other sites. AdultFriendFinder is out on the crude side of the industry (it is borders on prostitution, featuring Web cams where you pay for the minute to watch sex acts, and it owns sites like Alt.com, featuring bondage and other more fringe sexual tastes). Finally, the future of the industry is open to question. User generated content, cheaper sex video production, and more interactive technologies all threaten to disrupt the industry. That’s why Penthouse is doing considerable diligence on Various, and that’s why you’re hearing about the large price range ($500million to $1 billion), depending on where Penthouse considers Various’ fortunes to be in say, a year from now. It may also be why Various has has been looking for an investment for at least a year now.

You’re seeing a range of other porn, or semi-porn companies grabbing attention lately, from Zivity on the lighter side (see our later coverage, too), where models get a cut of the site’s revenue, to Playboy’s foray on to college campuses with a new business strategy, Eroshare (a site for for photos), Swing.com and Pornotube (for video). All of these raises question about the health of AdultFriendFinder going forward.