UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

|X|   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2008

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                  For the transition period from _____ to _____

                        Commission file number 001-14790

                            Playboy Enterprises, Inc.
             (Exact name of registrant as specified in its charter)

                Delaware                               36-4249478
        (State of incorporation)         (I.R.S. Employer Identification Number)

       680 North Lake Shore Drive
               Chicago, IL                               60611
(Address of principal executive offices)              (Zip Code)

       Registrant's telephone number, including area code: (312) 751-8000

--------------------------------------------------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
Yes |X| No |_|

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer, or a smaller reporting company. See
the definitions of "large accelerated  filer,"  "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

<TABLE>
<S>                            <C>                     <C>                          <C>
 Large accelerated filer |_|   Accelerated filer |X|    Non-accelerated filer |_|   Smaller reporting company |_|
                                                       (Do not check if a smaller
                                                           reporting company)
</TABLE>

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes |_| No |X|

At October 31,  2008,  there were  4,864,102  shares of Class A common stock and
28,471,855 shares of Class B common stock outstanding.

<PAGE>

FORWARD-LOOKING STATEMENTS

      This Quarterly Report on Form 10-Q contains "forward-looking  statements,"
including statements in Part I, Item 2. "Management's Discussion and Analysis of
Financial  Condition and Results of  Operations," as to  expectations,  beliefs,
plans,  objectives and future financial performance,  and assumptions underlying
or  concerning  the  foregoing.  We use words  such as "may,"  "will,"  "would,"
"could," "should," "believes,"  "estimates," "projects," "potential," "expects,"
"plans,"  "anticipates,"  "intends,"  "continues" and other similar terminology.
These forward-looking  statements involve known and unknown risks, uncertainties
and other factors, which could cause our actual results, performance or outcomes
to differ  materially  from those  expressed  or implied in the  forward-looking
statements.  We  want  to  caution  you  not  to  place  undue  reliance  on any
forward-looking  statements.  We undertake no obligation to publicly  update any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.

      The  following  are some of the  important  factors  that could  cause our
actual  results,  performance  or  outcomes  to  differ  materially  from  those
discussed in the forward-looking statements:

(1)   Foreign,  national,  state and local  government  regulations,  actions or
      initiatives, including:
      (a)   attempts to limit or otherwise  regulate the sale,  distribution  or
            transmission   of   adult-oriented   materials,   including   print,
            television, video, Internet and wireless materials;
      (b)   limitations  on the  advertisement  of  tobacco,  alcohol  and other
            products which are important sources of advertising  revenue for us;
            or
      (c)   substantive  changes in postal  regulations which could increase our
            postage and distribution costs;
(2)   Risks  associated with our foreign sales and operations,  including market
      acceptance  and demand for our products and the products of our  licensees
      and partners;
(3)   Our  ability to manage the risk  associated  with our  exposure to foreign
      currency  exchange  rate  fluctuations;
(4)   Changes in general economic conditions,  consumer spending habits, viewing
      patterns,  fashion trends or the retail sales  environment  which, in each
      case,  could reduce demand for our programming and products and impact our
      advertising and licensing revenues;
(5)   Our ability to protect our trademarks,  copyrights and other  intellectual
      property;
(6)   Risks as a distributor of media content, including our becoming subject to
      claims for defamation, invasion of privacy, negligence,  copyright, patent
      or trademark infringement and other claims based on the nature and content
      of the materials we distribute;
(7)   The risk  our  outstanding  litigation  could  result  in  settlements  or
      judgments which are material to us;
(8)   Dilution from any potential  issuance of common stock or convertible  debt
      in connection with financings or acquisition activities;
(9)   Competition  for  advertisers  from  other  publications,  media or online
      providers or any decrease in spending by advertisers,  either generally or
      with respect to the adult male market;
(10)  Competition in the television,  men's magazine,  Internet,  wireless,  new
      electronic media and product licensing markets;
(11)  Attempts by consumers, distributors,  merchants or private advocacy groups
      to exclude our programming or other products from distribution;
(12)  Our  television,  Internet  and  wireless  businesses'  reliance  on third
      parties  for  technology  and  distribution,   and  any  changes  in  that
      technology,  distribution and/or unforeseen delays in implementation which
      might affect our financial results, plans and assumptions;
(13)  Risks  associated with losing access to transponders or technical  failure
      of transponders or other transmitting or playback equipment that is beyond
      our control;
(14)  Competition  for channel  space on linear  television  or  video-on-demand
      platforms;
(15)  Failure to maintain our  agreements  with multiple  system  operators,  or
      MSOs, and direct-to-home, or DTH, operators on favorable terms, as well as
      any decline in our access to, and  acceptance by, DTH and/or cable systems
      and the possible resulting deterioration in the terms, cancellation of fee
      arrangements,  pressure  on splits or adverse  changes in certain  minimum
      revenue amounts with operators of these systems;
(16)  Risks that we may not realize the expected increased sales and profits and
      other benefits from acquisitions;
(17)  Any charges or costs we incur in connection with restructuring measures we
      may undertake in the future;
(18)  Risks  associated  with the  financial  condition  of Claxson  Interactive
      Group, Inc., our Playboy TV-Latin America, LLC, joint venture partner;
(19)  Increases in paper, printing or postage costs;


                                       2
<PAGE>

(20)  Effects  of  the  national   consolidation  of  the  single-copy  magazine
      distribution  system and risks associated with the financial  stability of
      major magazine wholesalers;
(21)  Effects of the national consolidation of television distribution companies
      (e.g., cable MSOs, satellite platforms and telecommunications companies);
(22)  Risks  associated  with  the  viability  of our  subscription,  on-demand,
      e-commerce and ad-supported Internet models; and
(23)  Risks that adverse market and economic conditions may result in a decrease
      in the value of our  investments  in marketable  securities and risks that
      adverse  market  conditions  in the  securities  and  credit  markets  may
      significantly affect our ability to access the capital and credit markets.

      For a detailed  discussion  of these and other factors that may affect our
performance,  see Part I, Item 1A. "Risk  Factors" in our Annual  Report on Form
10-K for the fiscal year ended  December 31,  2007,  as updated by Part II, Item
1A. "Risk Factors" of this report.


                                       3
<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                                    FORM 10-Q

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                       Page
                                                                                       ----
                                     PART I
                              FINANCIAL INFORMATION

<S>      <C>                                                                           <C>
Item 1.  Financial Statements

            Consolidated  Statements  of  Operations  and  Comprehensive  Income
            (Loss)  for  the  Quarters   Ended   September  30,  2008  and  2007
            (Unaudited)                                                                 5

            Consolidated  Statements  of  Operations  and  Comprehensive  Income
            (Loss)  for the  Nine  Months  Ended  September  30,  2008  and 2007
            (Unaudited)                                                                 6

            Consolidated  Balance Sheets at September 30, 2008  (Unaudited)  and
            December 31, 2007                                                           7

            Condensed Consolidated  Statements of Cash Flows for the Nine Months
            Ended September 30, 2008 and 2007 (Unaudited)                               8

            Notes to Condensed Consolidated Financial Statements (Unaudited)            9

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations                                                                 18

Item 3.  Quantitative and Qualitative Disclosures About Market Risk                    24

Item 4.  Controls and Procedures                                                       24

                                   PART II
                              OTHER INFORMATION

Item 1.  Legal Proceedings                                                             25

Item 1A. Risk Factors                                                                  26

Item 6.  Exhibits                                                                      27
</TABLE>


                                       4
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                            PLAYBOY ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND COMPREHENSIVE INCOME (LOSS)
                 for the Quarters Ended September 30 (Unaudited)
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                   2008                  2007
-------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                   <C>
Net revenues                                                                $    70,342           $    82,858
-------------------------------------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                                                (56,153)              (62,550
   Selling and administrative expenses                                          (10,649)              (16,171
   Restructuring expense                                                         (2,203)                    -
   Impairment charge on assets held for sale                                         45                     -
   Provisions for reserves                                                       (4,121)                    -
-------------------------------------------------------------------------------------------------------------
Total costs and expenses                                                        (73,081)              (78,721)
-------------------------------------------------------------------------------------------------------------
Operating income (loss)                                                          (2,739)                4,137
-------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                                201                   568
   Interest expense                                                              (1,103)               (1,170)
   Amortization of deferred financing fees                                          (89)                 (134)
   Other, net                                                                       (90)                  163
-------------------------------------------------------------------------------------------------------------
Total nonoperating expense                                                       (1,081)                 (573)
--------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                                (3,820)                3,564
Income tax expense                                                               (1,330)                 (969)
-------------------------------------------------------------------------------------------------------------
Net income (loss)                                                           $    (5,150)          $     2,595
=============================================================================================================

Other comprehensive income (loss)
   Unrealized gain (loss) on marketable securities                                 (586)                  148
   Unrealized loss on derivatives                                                     -                  (131)
   Foreign currency translation gain (loss)                                      (1,100)                   83
-------------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss)                                          (1,686)                  100
-------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)                                                 $    (6,836)          $     2,695
=============================================================================================================

Weighted average number of common shares outstanding
   Basic                                                                         33,317                33,251
=============================================================================================================
   Diluted                                                                       33,317                33,301
=============================================================================================================

Basic and diluted earnings (loss) per common share                          $     (0.15)          $      0.08
=============================================================================================================
</TABLE>

The accompanying  Notes to Condensed  Consolidated  Financial  Statements are an
integral part of these statements.


                                       5
<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND COMPREHENSIVE INCOME (LOSS)
               for the Nine Months Ended September 30 (Unaudited)
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                 2008                  2007
-----------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                   <C>
Net revenues                                                              $   222,256           $   253,925
-----------------------------------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                                             (180,034)             (198,010)
   Selling and administrative expenses                                        (38,876)              (43,930)
   Restructuring expense                                                       (2,761)                 (110)
   Impairment charge on assets held for sale                                      (58)                    -
   Provisions for reserves                                                     (4,121)                    -
-----------------------------------------------------------------------------------------------------------
Total costs and expenses                                                     (225,850)             (242,050)
-----------------------------------------------------------------------------------------------------------
Operating income (loss)                                                        (3,594)               11,875
-----------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                              857                 1,666
   Interest expense                                                            (3,359)               (3,736)
   Amortization of deferred financing fees                                       (267)                 (402)
   Other, net                                                                    (432)                 (144)
-----------------------------------------------------------------------------------------------------------
Total nonoperating expense                                                     (3,201)               (2,616)
-----------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                              (6,795)                9,259
Income tax expense                                                             (3,598)               (3,279)
-----------------------------------------------------------------------------------------------------------
Net income (loss)                                                         $   (10,393)          $     5,980
===========================================================================================================

Other comprehensive income (loss)
   Unrealized gain (loss) on marketable securities                             (1,128)                  301
   Unrealized gain (loss) on derivatives                                           78                   (95)
   Foreign currency translation loss                                             (918)                 (202)
-----------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss)                                        (1,968)                    4
-----------------------------------------------------------------------------------------------------------
Comprehensive income (loss)                                               $   (12,361)          $     5,984
===========================================================================================================

Weighted average number of common shares outstanding
   Basic                                                                       33,297                33,241
===========================================================================================================
   Diluted                                                                     33,297                33,281
===========================================================================================================

Basic and diluted earnings (loss) per common share                        $     (0.31)          $      0.18
===========================================================================================================
</TABLE>

The accompanying  Notes to Condensed  Consolidated  Financial  Statements are an
integral part of these statements.


                                       6
<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                             (Unaudited)
                                                                               Sept. 30,              Dec. 31,
                                                                                    2008                  2007
--------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                   <C>
Assets
Cash and cash equivalents                                                    $    25,449           $    20,603
Marketable securities and short-term investments                                   2,467                12,952
Receivables, net of allowance for doubtful accounts of
   $3,992 and $3,627, respectively                                                45,302                51,139
Receivables from related parties                                                   3,034                 1,704
Inventories                                                                        9,236                11,363
Deferred subscription acquisition costs                                            8,683                 8,686
Deferred tax asset                                                                 1,320                 1,320
Assets held for sale                                                                   -                 4,706
Prepaid expenses and other current assets                                          8,509                13,402
--------------------------------------------------------------------------------------------------------------
   Total current assets                                                          104,000               125,875
--------------------------------------------------------------------------------------------------------------
Long-term investments                                                              5,948                 6,556
Property and equipment, net                                                       18,697                14,665
Long-term receivables, net of allowance for doubtful accounts of
   $2,795 and $0, respectively                                                         -                 2,795
Programming costs, net                                                            54,573                54,926
Goodwill                                                                         133,595               133,570
Trademarks                                                                        66,314                65,437
Distribution agreements, net of accumulated amortization
   of $5,795 and $4,803, respectively                                             27,345                28,337
Deferred tax asset                                                                 1,206                 1,206
Other noncurrent assets                                                            9,801                11,789
--------------------------------------------------------------------------------------------------------------
Total assets                                                                 $   421,479           $   445,156
==============================================================================================================

Liabilities
Acquisition liabilities                                                      $     2,728           $     2,134
Accounts payable                                                                  28,610                37,842
Accrued salaries, wages and employee benefits                                      7,616                 8,304
Deferred revenues                                                                 42,471                43,955
Deferred tax liability                                                             1,490                 1,490
Other liabilities and accrued expenses                                            13,189                14,269
--------------------------------------------------------------------------------------------------------------
   Total current liabilities                                                      96,104               107,994
--------------------------------------------------------------------------------------------------------------
Financing obligations                                                            115,000               115,000
Acquisition liabilities                                                            5,540                 7,936
Deferred tax liability                                                            19,898                18,604
Other noncurrent liabilities                                                      24,716                24,305
--------------------------------------------------------------------------------------------------------------
   Total liabilities                                                             261,258               273,839
--------------------------------------------------------------------------------------------------------------

Shareholders' equity
Common stock, $0.01 par value
   Class A voting - 7,500,000 shares authorized; 4,864,102 issued                     49                    49
   Class B nonvoting - 75,000,000 shares authorized;
       28,842,988 and 28,784,079 issued, respectively                                288                   288
Capital in excess of par value                                                   231,098               229,833
Accumulated deficit                                                              (63,159)              (52,766)
Treasury stock, at cost - 381,971 shares                                          (5,000)               (5,000)
Accumulated other comprehensive loss                                              (3,055)               (1,087)
--------------------------------------------------------------------------------------------------------------
   Total shareholders' equity                                                    160,221               171,317
--------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                   $   421,479           $   445,156
==============================================================================================================
</TABLE>

The accompanying  Notes to Condensed  Consolidated  Financial  Statements are an
integral part of these statements.


                                       7
<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
               for the Nine Months Ended September 30 (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                  2008                  2007
------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                   <C>
Cash flows from operating activities
Net income (loss)                                                          $   (10,393)          $     5,980
Adjustments to reconcile net income (loss) to net cash provided by
  operating activities:
   Depreciation of property and equipment                                        3,407                 3,501
   Amortization of intangible assets                                             1,693                 1,746
   Amortization of investments in entertainment programming                     24,339                25,462
   Amortization of deferred financing fees                                         267                   402
   Stock-based compensation                                                      1,031                 1,103
   Impairment charge on assets held for sale                                       103                     -
   Provisions for reserves                                                       4,121                     -
   Deferred income taxes                                                         1,294                 1,257
   Net change in operating assets and liabilities                               (1,498)               12,605
   Investments in entertainment programming                                    (21,201)              (26,671)
   Litigation settlement                                                             -                (1,800)
   Other, net                                                                   (2,390)                  (69)
------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                          773                23,516
------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Payments for acquisitions                                                          (60)                 (105)
Purchases of investments                                                          (723)               (9,828)
Proceeds from sales of investments                                              10,589                     -
Additions to assets held for sale                                               (6,920)                    -
Proceeds from assets held for sale                                              12,000                     -
Additions to property and equipment                                             (7,801)               (6,643)
------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities                             7,085               (16,576)
------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Payments of deferred financing fees                                                  -                  (123)
Payments of acquisition liabilities                                             (2,450)               (7,919)
Proceeds from stock-based compensation                                              95                   121
------------------------------------------------------------------------------------------------------------
Net cash used for financing activities                                          (2,355)               (7,921)
------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents                      (657)                  436
------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                             4,846                  (545)
Cash and cash equivalents at beginning of period                                20,603                26,748
------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                 $    25,449           $    26,203
============================================================================================================
</TABLE>

The accompanying  Notes to Condensed  Consolidated  Financial  Statements are an
integral part of these statements.


                                       8
<PAGE>

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(A)   BASIS OF PREPARATION

      The  financial  information  included  in these  financial  statements  is
unaudited but, in the opinion of management,  reflects all normal  recurring and
other  adjustments  necessary  for a fair  presentation  of the  results for the
interim  periods.  The  interim  results  of  operations  and cash flows are not
necessarily  indicative  of those  results  and cash flows for the entire  year.
These  financial  statements  should be read in  conjunction  with the financial
statements and notes to the financial  statements contained in our Annual Report
on Form 10-K for the fiscal  year  ended  December  31,  2007.  Certain  amounts
reported for the prior periods have been  reclassified to conform to the current
year's presentation.

(B)   RECENTLY ISSUED ACCOUNTING STANDARDS

      In May 2008, the Financial Accounting Standards Board, or the FASB, issued
Statement of Financial  Accounting Standards No. 162, The Hierarchy of Generally
Accepted Accounting  Principles,  or Statement 162. Statement 162 identifies the
sources of accounting  principles and the framework for selecting the principles
to be used in the  preparation  of financial  statements  that are  presented in
conformity with generally accepted accounting principles.  Statement 162 becomes
effective 60 days following the Securities and Exchange Commission's approval of
the Public Company Accounting  Oversight Board amendments to AU Section 411, The
Meaning of Present  Fairly in  Conformity  With  Generally  Accepted  Accounting
Principles.  We do not expect the adoption of Statement 162 to impact our future
results of operations or financial condition.

      In May 2008, the FASB issued Staff  Position No. APB 14-1,  Accounting for
Convertible  Debt  Instruments  That  May Be  Settled  in Cash  upon  Conversion
(Including  Partial Cash  Settlement),  or FSP APB 14-1.  FSP APB 14-1 specifies
that issuers of convertible  debt  instruments  that may be settled in cash upon
conversion should separately  account for the liability and equity components in
a manner that will reflect the entity's  nonconvertible debt borrowing rate when
interest cost is recognized in subsequent  periods. We are required to adopt FSP
APB 14-1 at the beginning of 2009 and apply FSP APB 14-1  retrospectively to all
periods  presented.  We are currently  evaluating the impact of adopting FSP APB
14-1 on our results of operations and financial condition.

      In April 2008, the FASB issued Staff Position No. FAS 142-3, Determination
of the Useful Life of Intangible  Assets, or FSP FAS 142-3. FSP FAS 142-3 amends
the  factors  that  should be  considered  in  developing  renewal or  extension
assumptions  used to determine the useful life of a recognized  intangible asset
under Statement of Financial  Accounting  Standards No. 142,  Goodwill and Other
Intangible  Assets.  We are  required to adopt FSP FAS 142-3  prospectively  for
intangible  assets  acquired  on or after  January  1, 2009.  Intangible  assets
acquired  prior to January 1, 2009 are not  affected by the  adoption of FSP FAS
142-3.

      In March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161,  Disclosures  about  Derivative  Instruments and Hedging  Activities-an
amendment of FASB  Statement No. 133, or Statement  161.  Statement 161 requires
enhanced  disclosures  about how and why an entity uses derivative  instruments,
how  derivative  instruments  and related  hedged items are  accounted for under
Statement of Financial  Accounting  Standards No. 133, Accounting for Derivative
Instruments and Hedging  Activities,  and its related  interpretations,  and how
derivative  instruments  and related  hedged items affect an entity's  financial
position,  financial  performance  and  cash  flows.  We are  required  to adopt
Statement  161 at the  beginning  of  2009.  Since  Statement  161  impacts  our
disclosure  but not our  accounting  treatment for  derivative  instruments  and
related hedged items,  our adoption of Statement 161 will not impact our results
of operations or financial condition.

      In  December  2007,  the FASB issued  Statement  of  Financial  Accounting
Standards  No.  160,   Noncontrolling   Interests  in   Consolidated   Financial
Statements-an amendment of ARB No. 51, or Statement 160. Statement 160 clarifies
that a noncontrolling  interest (previously referred to as minority interest) in
a subsidiary is an ownership  interest in a  consolidated  entity that should be
reported as a component of equity in the consolidated  financial statements.  It
also requires  consolidated  net income to include the amounts  attributable  to
both the  parent  and the  noncontrolling  interest.  We are  required  to adopt
Statement 160 at the beginning of 2009. We are currently  evaluating the impact,
if any,  of  adopting  Statement  160 on our future  results of  operations  and
financial condition.


                                       9
<PAGE>

      In  December  2007,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 141 (revised 2007),  Business  Combinations,  or Statement 141(R).
Statement   141(R)  retains  the   fundamental   requirements  of  the  original
pronouncement  requiring  that the  purchase  method  be used  for all  business
combinations.  Statement  141(R) defines the acquirer as the entity that obtains
control of one or more businesses in the business  combination,  establishes the
acquisition date as the date that the acquirer achieves control and requires the
acquirer  to  recognize  the  assets  acquired,   liabilities  assumed  and  any
noncontrolling  interest  at  their  fair  values  as of the  acquisition  date.
Statement  141(R) also requires,  among other things,  that  acquisition-related
costs be recognized  separately from the  acquisition.  We are required to adopt
Statement 141(R) prospectively for business  combinations on or after January 1,
2009.  Assets and  liabilities  that arose from business  combinations  prior to
January 1, 2009 are not affected by the adoption of Statement 141(R).

      In September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 158,  Employers'  Accounting for Defined Benefit Pension and Other
Postretirement  Plans-an  amendment  of FASB  Statements  No. 87, 88,  106,  and
132(R),  or Statement 158.  Statement 158 requires an entity to (a) recognize in
its  statement of  financial  position an asset or an  obligation  for a defined
benefit  postretirement  plan's  funded  status,  (b) measure a defined  benefit
postretirement plan's assets and obligations that determine its funded status as
of the end of the employer's fiscal year and (c) recognize changes in the funded
status of a defined benefit  postretirement plan in comprehensive  income in the
years in which the  changes  occur.  We  adopted  the  recognition  and  related
disclosure  provisions  of  Statement  158  effective  December  31,  2006.  The
measurement  date  provision of  Statement  158 is effective at the end of 2008.
Since we use a December 31  measurement  date,  this  provision of Statement 158
will not have an  impact  on our  future  results  of  operations  or  financial
condition.

      In September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 157, Fair Value  Measurements,  or Statement  157,  which provides
enhanced  guidance for using fair value to measure  assets and  liabilities.  We
adopted  Statement 157 on January 1, 2008, as required for our financial  assets
and liabilities.  However, FASB Staff Position FAS 157-2, Effective Date of FASB
Statement No. 157,  delayed the effective date of Statement 157 to the beginning
of 2009 for all nonfinancial  assets and liabilities,  except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least  annually).  We do not expect the adoption of Statement  157 for
our  nonfinancial  assets and  liabilities  to have a significant  impact on our
future results of operations or financial condition.

(C)   SALE OF ASSETS

      In April 2008, we completed the sale of assets  related to our Los Angeles
production  facility to Broadcast  Facilities,  Inc., or BFI, for $12.0 million.
Our use of the facility for  productions had  significantly  decreased since its
inception,  and  we  believe  that  linear  networks  and  our  need  for  their
transmission  capacity will decrease over the next several years.  We recorded a
$0.1 million unfavorable adjustment in the nine-month period ended September 30,
2008, related to the $1.5 million charge on assets held for sale recorded in the
prior year.

      In connection with the sale of these assets,  we entered into an agreement
to sublet the  entirety  of the leased  production  facility to BFI for a period
equal to the remaining term of our lease. BFI assumed all of our liabilities and
obligations  under the  existing  facility  lease as a part of the  sublease and
provided  a letter of  credit  in the  amount  of $5.0  million  to  secure  the
performance of its obligations under the sublease.

      Also in connection  with the sale of these assets,  we assigned our rights
and  obligations  under our domestic  transponder  agreements to BFI and entered
into a services agreement under which BFI is providing us with certain satellite
transmission  and other  related  services  (including  compression,  uplink and
playback)  for  our  standard  definition  cable  channels.  If we  launch  high
definition  cable channels during the term of the services  agreement,  BFI will
also provide such services for these  channels.  We also have a dedicated  radio
studio and office space at the BFI facility.  The agreement includes other terms
and conditions  which are standard for an agreement of this nature and continues
for an initial term of five years, after which we may renew the agreement for an
additional three years on substantially the same terms and conditions.

(D)   RESTRUCTURING EXPENSE

      In the third  quarter of 2008, we developed a  restructuring  plan that is
expected  to result  in lower  overhead  costs.  As a result  of this  plan,  we
recorded a charge of $2.3 million  related to costs  associated with a workforce


                                       10
<PAGE>

reduction of 55  employees,  most of whose jobs will be eliminated in the fourth
quarter of 2008. We also eliminated  approximately  25 open positions.  Payments
under  this  plan  will  begin  in the  fourth  quarter  of  2008  and  will  be
substantially  completed by the end of 2009 with some payments  continuing  into
2010.

      In 2007, we  implemented a plan to outsource  our  e-commerce  and catalog
businesses,  to sell the assets related to our Los Angeles  production  facility
and to eliminate  office space obtained in the  acquisition of Club Jenna,  Inc.
and related companies, or Club Jenna. As a result of this restructuring plan, we
recorded  a reserve  of $0.4  million  for  costs  associated  with a  workforce
reduction of 28  employees.  During the  nine-month  period ended  September 30,
2008, as part of this  restructuring  plan, we recorded an additional reserve of
$0.6 million for contract termination fees and expenses.

      Total  costs  of   approximately   $13.5  million  for  our  prior  years'
restructuring  plans were paid through September 30, 2008, $1.0 million of which
was paid during the nine-month period ended September 30, 2008.

      The  following   table  sets  forth  the  activity  and  balances  of  our
restructuring  reserves,  which are  included  in "Accrued  salaries,  wages and
employee   benefits"  and  "Other  liabilities  and  accrued  expenses"  on  our
Consolidated Balance Sheets (in thousands):

                                                     Consolidation
                                                     of Facilities
                                         Workforce             and
                                         Reduction      Operations        Total
-------------------------------------------------------------------------------
Balance at December 31, 2006            $      430      $      268   $      698
Reserve recorded                               429               -          429
Adjustments to previous estimates               43             (27)          16
Cash payments                                 (473)           (127)        (600)
-------------------------------------------------------------------------------
Balance at December 31, 2007                   429             114          543
Reserve recorded                             2,255               -        2,255
Additional reserve recorded                    150             445          595
Adjustments to previous estimates              (48)            (41)         (89)
Cash payments                                 (506)           (518)      (1,024)
-------------------------------------------------------------------------------
Balance at September 30, 2008           $    2,280      $        -   $    2,280
===============================================================================

(E)   PROVISIONS FOR RESERVES

      In the third quarter of 2008, we recorded provisions of $2.9 million for a
receivable and $1.2 million for archival material.


                                       11
<PAGE>

(F)   EARNINGS (LOSS) PER COMMON SHARE

      The  following  table sets  forth the  computations  of basic and  diluted
earnings (loss) per share, or EPS (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                             Quarters Ended            Nine Months Ended
                                                              September 30,              September 30,
                                                         -----------------------    -----------------------
                                                               2008         2007          2008         2007
-----------------------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>           <C>          <C>
Numerator:
For basic and diluted EPS - net income (loss)            $   (5,150)  $    2,595    $  (10,393)  $    5,980
===========================================================================================================

Denominator:
For basic EPS - weighted average shares                      33,317       33,251        33,297       33,241
Effect of dilutive potential common shares:
   Employee stock options and other                               -           50             -           40
-----------------------------------------------------------------------------------------------------------
     Dilutive potential common shares                             -           50             -           40
-----------------------------------------------------------------------------------------------------------
For diluted EPS - weighted average shares                    33,317       33,301        33,297       33,281
===========================================================================================================

Basic and diluted earnings (loss) per common share       $    (0.15)  $     0.08    $    (0.31)  $     0.18
===========================================================================================================
</TABLE>

      The following table sets forth the number of shares related to outstanding
options  to  purchase  our  Class B common  stock,  or  Class B  stock,  and the
potential  number  of shares of Class B stock  contingently  issuable  under our
3.00%  convertible  senior  subordinated  notes due 2025, or convertible  notes.
These  shares  were not  included  in the  computations  of diluted  EPS for the
quarters and  nine-month  periods  ended  September  30, 2008 and 2007, as their
inclusion would have been antidilutive (in thousands):

                                  Quarters Ended            Nine Months Ended
                                   September 30,              September 30,
                              -----------------------    -----------------------
                                   2008          2007         2008          2007
--------------------------------------------------------------------------------
Stock options                     3,638         3,058        3,629         3,163
Convertible notes                 6,758         6,758        6,758         6,758
--------------------------------------------------------------------------------
Total                            10,396         9,816       10,387         9,921
================================================================================

(G)   INVENTORIES

      In January  2008,  we signed an  agreement  to  outsource  our Playboy and
BUNNYshop  e-commerce  and catalog  businesses  to eFashion  Solutions,  LLC, or
eFashion. As part of this agreement,  we sold all remaining inventory related to
these businesses to eFashion.

      The following table sets forth inventories,  which are stated at the lower
of cost (specific cost and average cost) or fair value (in thousands):

                                                         Sept. 30,      Dec. 31,
                                                              2008          2007
--------------------------------------------------------------------------------
Paper                                                  $     3,504   $     2,948
Editorial and other prepublication costs                     5,626         5,518
Merchandise finished goods                                     106         2,897
--------------------------------------------------------------------------------
Total                                                  $     9,236   $    11,363
================================================================================

(H)   INCOME TAXES

      Our income tax provision  consists  primarily of foreign income tax, which
relates  to  our  international  television  networks  and  withholding  tax  on
licensing income,  for which we do not receive a current U.S. income tax benefit
due to our net  operating  loss,  or NOL,  position  in the U.S.  Our income tax
provision also includes  deferred  federal and state income taxes related to the
amortization of goodwill for tax and other indefinite-lived  intangibles,


                                       12
<PAGE>

which  cannot  be offset  against  deferred  tax  assets  due to the  indefinite
reversal period of the related deferred tax liabilities.

      We utilize the  liability  method of  accounting  for income  taxes as set
forth in FASB Statement of Financial  Accounting  Standards No. 109,  Accounting
for Income  Taxes.  We record net  deferred  tax assets to the extent we believe
these   assets  will  more  likely  than  not  be   realized.   In  making  such
determination,  we  consider  all  available  positive  and  negative  evidence,
including  scheduled  reversals of deferred tax  liabilities,  projected  future
taxable income, tax planning strategies and recent financial  performance.  As a
result of our cumulative  losses in the U.S. and certain foreign  jurisdictions,
we have concluded that a full  valuation  allowance  should be recorded for such
jurisdictions.

      At  September  30, 2008 and December 31,  2007,  we had  unrecognized  tax
benefits of $8.0  million and do not expect this amount to change  significantly
over the next 12 months.  Due to the impact of deferred  income tax  accounting,
the  disallowance  of these benefits  would not affect our effective  income tax
rate nor would it accelerate  the payment of cash to the taxing  authority to an
earlier period.

      Our continuing  practice is to recognize interest and/or penalties related
to income tax matters in income tax expense.

      We file U.S., state and foreign income tax returns in  jurisdictions  with
varying  statutes of  limitations.  The 2004  through  2007 tax years  generally
remain  subject to  examination  by federal and most state tax  authorities.  In
addition, for all tax years prior to 2004 generating an NOL, tax authorities can
adjust the NOL amount.  In our  international  tax  jurisdictions,  numerous tax
years remain subject to examination  by tax  authorities,  including tax returns
for 2002 and subsequent years.

(I)   FAIR VALUE MEASUREMENT

      As discussed in Note (B), Recently Issued Accounting Standards, we adopted
Statement 157 on January 1, 2008 for our financial assets and  liabilities.  Our
financial  assets  primarily  relate to marketable  securities and  investments,
while financial liabilities primarily relate to derivative  instruments to hedge
the  variability  of  forecasted  cash  receipts  related  to  royalty  payments
denominated in yen and euro.

      We utilize  the market  approach to measure  fair value for our  financial
assets and  liabilities.  The market  approach  uses  prices and other  relevant
information  generated by market transactions  involving identical or comparable
assets or liabilities.

      Statement 157 includes a fair value hierarchy that is intended to increase
consistency  and   comparability   in  fair  value   measurements   and  related
disclosures.  The fair value  hierarchy is based on observable  or  unobservable
inputs to valuation  techniques that are used to measure fair value.  Observable
inputs reflect  assumptions market participants would use in pricing an asset or
liability  based  on  market  data  obtained  from  independent   sources  while
unobservable  inputs  reflect a reporting  entity's  pricing  based upon its own
market assumptions. The fair value hierarchy consists of three levels: Level 1 -
Inputs are quoted prices in active markets for identical  assets or liabilities;
Level 2 - Inputs  are quoted  prices for  similar  assets or  liabilities  in an
active  market,  quoted prices for identical or similar assets or liabilities in
markets that are not active, inputs other than quoted prices that are observable
and   market-corroborated   inputs,   which  are  derived  principally  from  or
corroborated  by observable  market data;  and Level 3 - Inputs that are derived
from  valuation  techniques  in which  one or more  significant  inputs or value
drivers are unobservable.


                                       13
<PAGE>

      The  following  table sets  forth our  financial  assets  and  liabilities
measured  at fair value on a  recurring  basis and the basis of  measurement  at
September 30, 2008 (in thousands):

<TABLE>
<CAPTION>
                                                            Quoted Prices in                              Significant
                                                          Active Markets for   Significant Other         Unobservable
                                         Total Fair Value   Identical Assets   Observable Inputs               Inputs
                                              Measurement          (Level 1)            (Level 2)           (Level 3)
---------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                <C>                  <C>                 <C>
Marketable securities and investments      $        8,415     $        5,948       $        2,467(1)   $            -
Derivative assets                                       5                  -                    5                   -
Derivative liabilities                     $          (44)    $            -       $          (44)     $            -
---------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   At December 31, 2007,  we had $6.9 million in an enhanced  cash  portfolio
      included in  "Marketable  securities and  short-term  investments"  on our
      Consolidated   Balance  Sheet.  Due  to  adverse  market  conditions,   we
      determined    that   the   market   value   of   this    investment    was
      other-than-temporarily impaired, and during the fiscal year ended December
      31,  2007,  we  recorded a charge of $0.1  million in "Other,  net" on our
      Consolidated Statements of Operations. Through September 30, 2008, we have
      received  eight   distributions  from  the  investment,   which  is  being
      liquidated,  at an  average  net asset  value of  97.85%,  resulting  in a
      cumulative  realized  loss of $0.1  million.  At September  30, 2008,  our
      remaining balance in this investment was $2.5 million.

(J)   CONTINGENCIES

      We acquired Club Jenna in 2006, for which we paid $7.7 million at closing,
$1.6 million in 2007 and $1.7  million in 2008 with  additional  purchase  price
payments of $2.3  million and $4.3  million due in 2009 and 2010,  respectively.
Pursuant to the  acquisition  agreement,  we are also  obligated  to make future
contingent  earnout payments based primarily on sales of existing content of the
acquired  business over a 10-year period and on content produced by the acquired
business during the five-year  period after the closing of the  acquisition.  If
the  required  performance  benchmarks  are  achieved,  any  contingent  earnout
payments will be recorded as additional purchase price. No earnout payments have
been made through September 30, 2008.

      In 2005,  we  acquired  an  affiliate  network of  websites.  We paid $8.0
million at closing  and $2.0  million in each of 2006 and 2007.  Pursuant to the
acquisition  agreement,  we are also obligated to make future contingent earnout
payments over the five-year period  commencing  January 1, 2005, based primarily
on  the  financial  performance  of  the  acquired  business.  If  the  required
performance  benchmarks are achieved,  any contingent  earnout  payments will be
recorded as additional purchase price and/or compensation  expense.  During each
nine-month  period ended September 30, 2008 and 2007,  earnout  payments of $0.1
million were made and recorded as additional purchase price.

      In 2002,  a $4.4 million  verdict was entered  against us by a state trial
court in Texas in a lawsuit with a former publishing licensee. We terminated the
license in 1998 due to the licensee's failure to pay royalties and other amounts
due us  under  the  license  agreement.  We  posted  a bond  in  the  amount  of
approximately $9.4 million, which represented the amount of the judgment,  costs
and estimated pre- and post-judgment  interest.  We appealed and the Texas State
Appellate Court reversed the judgment by the trial court,  rendered judgment for
us on the majority of plaintiffs' claims and remanded the remaining claims for a
new trial.  We filed a petition  for review  with the Texas  Supreme  Court.  On
January 25, 2008,  the Texas  Supreme  Court denied our petition for review.  On
February  8, 2008,  we filed a petition  for  rehearing  with the Texas  Supreme
Court. On May 16, 2008, the Texas Supreme Court denied our motion for rehearing.
The posted bond has been canceled and the remaining claims will be retried.  We,
on advice of legal  counsel,  believe  that it is not  probable  that a material
judgment  against us will be obtained and have not recorded a liability for this
case in accordance with FASB Statement of Financial  Accounting Standards No. 5,
Accounting for Contingencies.

(K)   BENEFIT PLANS

      We  maintain a practice  of paying a  separation  allowance,  which is not
funded,  under our salary  continuation  policy to employees  with at least five
years of continuous service who voluntarily terminate employment with us and are
at age 60 or thereafter. We made cash payments under this policy of $0.2 million
and $0.5 million  during the


                                       14
<PAGE>

quarter and nine-month period ended September 30, 2008,  respectively,  and $0.2
million  and $0.4  million  during  the  quarter  and  nine-month  period  ended
September 30, 2007, respectively.

(L)   STOCK-BASED COMPENSATION

      The following table sets forth stock-based compensation expense related to
stock  options,  restricted  stock units,  other equity  awards and our employee
stock purchase plan, or ESPP (in thousands):

                                  Quarters Ended            Nine Months Ended
                                   September 30,              September 30,
                              -----------------------    -----------------------
                                    2008         2007          2008         2007
--------------------------------------------------------------------------------
Stock options                 $      413   $      481    $    1,257   $      646
Restricted stock units               117          208          (385)         295
Other equity awards                   46           49           142          141
ESPP                                   5            6            17           21
--------------------------------------------------------------------------------
Total                         $      581   $      744    $    1,031   $    1,103
================================================================================

      FASB Statement of Financial  Accounting  Standards No. 123 (revised 2004),
Share-Based  Payment,  or Statement  123(R),  requires  that the total amount of
compensation  expense  recognized  reflect the number of stock-based awards that
actually vest as of the completion of their respective vesting periods. Upon the
vesting of certain  stock-based  awards, we adjust our stock-based  compensation
expense to reflect actual versus  estimated  forfeitures.  During the nine-month
periods ended September 30, 2008 and 2007, we recorded an unfavorable adjustment
of $0.2 million and a favorable  adjustment  of $1.0 million,  respectively,  to
reflect actual forfeitures for vested stock option grants.

Stock Options

      Upon  adoption  of  Statement  123(R),  we began  estimating  the value of
options on the date of grant using the Lattice  Binomial  model,  or the Lattice
model.  The Lattice model  requires  extensive  analysis of actual  exercise and
cancellation  data and  includes  a number of  complex  assumptions  related  to
expected  volatility,  risk-free  interest rate,  expected  dividends and option
exercises and cancellations.

      The following table sets forth the assumptions used for the Lattice model:

<TABLE>
<CAPTION>
                                            Quarters Ended                         Nine Months Ended
                                             September 30,                           September 30,
                                    -------------------------------        --------------------------------
                                              2008             2007                  2008              2007
-----------------------------------------------------------------------------------------------------------
<S>                                            <C>              <C>          <C>               <C>
Expected volatility                            N/A              N/A              31% - 41%         25% - 41%
Weighted average volatility                    N/A              N/A                    35%               34%
Risk-free interest rate                        N/A              N/A          1.95% - 5.10%     4.67% - 5.04%
Expected dividends                             N/A              N/A                     -                 -
-----------------------------------------------------------------------------------------------------------
</TABLE>

      The expected life of stock options  represents the weighted average period
the stock options are expected to remain  outstanding and is a derived output of
the Lattice model.  The expected life of stock options is impacted by all of the
underlying  assumptions and calibration of the Lattice model.  The Lattice model
assumes that exercise  behavior is a function of the option's  contractual term,
vesting  schedule and the extent to which the option's  intrinsic  value exceeds
the exercise price.

      No stock options were granted during the quarters ended September 30, 2008
and 2007.  During the  nine-month  period ended  September  30, 2008, we granted
171,000 stock options,  exercisable for shares of our Class B stock,  which vest
over a three-year  period from the grant date and expire 10 years from the grant
date.  During the nine-month period ended September 30, 2007, we granted 160,000
stock options.  The weighted  average  expected life for options granted was 6.7
years during the current year  nine-month  period and 6.3 years during the prior
year nine-month  period.  The weighted  average fair value per share for options
granted was $2.45 during the current year nine-month period and $4.64 during the
prior year nine-month period.


                                       15
<PAGE>

      The  following  table sets forth the  activity  and  balances of our stock
options for the nine-month period ended September 30, 2008:

                                                                       Weighted
                                                                        Average
                                                       Number of       Exercise
                                                           Shares         Price
-------------------------------------------------------------------------------
Outstanding at December 31, 2007                        3,546,250    $    15.60
Granted                                                   171,000          5.72
Canceled                                                  (86,500)        14.06
-----------------------------------------------------------------
Outstanding at September 30, 2008                       3,630,750    $    15.17
===============================================================================

Restricted Stock Units

      No restricted stock units were granted during the quarters ended September
30, 2008 and 2007. In May 2008, we awarded 270,625 restricted stock units, which
provide for the issuance of our Class B stock if certain  performance  goals are
met. Pursuant to the requirements of Statement 123(R), we have measured the fair
value expense to be recognized  through the third quarter of 2008 based upon the
September 30, 2008 closing  price of our Class B stock,  resulting in expense of
$0.1 million.  During the nine-month period ended September 30, 2007, we granted
250,625  restricted  stock units,  which provide for the issuance of our Class B
stock if two-year cumulative  operating income target thresholds are met. During
the prior year nine-month period, the weighted average grant-date fair value for
restricted stock units was $10.61.  In the nine-month period ended September 30,
2008, we determined that it was unlikely that the minimum  threshold  associated
with the 2007 grant would be met.  Therefore,  in the  nine-month  period  ended
September 30, 2008, we reversed $0.5 million of stock-based compensation expense
that was recorded in 2007 related to this restricted stock unit grant.

      The following table sets forth the activity and balances of our restricted
stock units for the nine-month period ended September 30, 2008:

                                                                        Weighted
                                                                         Average
                                                     Number of        Grant-Date
                                                        Shares        Fair Value
--------------------------------------------------------------------------------
Outstanding at December 31, 2007                       433,875       $     11.73
Granted                                                270,625              3.94
Canceled                                               (17,000)            11.64
--------------------------------------------------------------
Outstanding at September 30, 2008                      687,500       $      8.67
================================================================================


                                       16
<PAGE>

(M)   SEGMENT INFORMATION

      The following table sets forth financial information by reportable segment
(in thousands):

<TABLE>
<CAPTION>
                                                         Quarters Ended            Nine Months Ended
                                                          September 30,              September 30,
                                                     -----------------------   ------------------------
                                                           2008         2007         2008          2007
-------------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>          <C>           <C>
Net revenues
Entertainment                                        $   38,256   $   49,579   $  127,312    $  152,275
Publishing                                               21,725       23,115       62,445        69,118
Licensing                                                10,361       10,164       32,499        32,532
-------------------------------------------------------------------------------------------------------
Total                                                $   70,342   $   82,858   $  222,256    $  253,925
=======================================================================================================
Income (loss) before income taxes
Entertainment                                        $    2,781   $    7,188   $    7,290    $   18,793
Publishing                                               (1,289)      (1,490)      (6,411)       (6,159)
Licensing                                                 6,635        6,340       19,359        19,540
Corporate Administration and Promotion                   (4,587)      (7,901)     (16,892)      (20,189)
Restructuring expense                                    (2,203)           -       (2,761)         (110)
Impairment charge on assets held for sale                    45            -          (58)            -
Provisions for reserves                                  (4,121)           -       (4,121)            -
Investment income                                           201          568          857         1,666
Interest expense                                         (1,103)      (1,170)      (3,359)       (3,736)
Amortization of deferred financing fees                     (89)        (134)        (267)         (402)
Other, net                                                  (90)         163         (432)         (144)
-------------------------------------------------------------------------------------------------------
Total                                                $   (3,820)  $    3,564   $   (6,795)   $    9,259
=======================================================================================================

<CAPTION>

                                                                                 Sept.30,       Dec. 31,
                                                                                     2008          2007
-------------------------------------------------------------------------------------------------------
<S>                                                                            <C>           <C>
Identifiable assets
Entertainment                                                                  $  281,774    $  287,940
Publishing                                                                         31,420        35,320
Licensing                                                                           9,294        11,560
Corporate Administration and Promotion                                             98,991       110,336
-------------------------------------------------------------------------------------------------------
Total                                                                          $  421,479    $  445,156
=======================================================================================================
</TABLE>


                                       17
<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      This  discussion   should  be  read  in  conjunction  with  the  Condensed
Consolidated  Financial  Statements  and  accompanying  notes  in Item 1 of this
Quarterly  Report on Form 10-Q and with our  Annual  Report on Form 10-K for the
fiscal year ended December 31, 2007.

RESULTS OF OPERATIONS (1)

      The  following  table sets forth our results of  operations  (in millions,
except per share amounts):

<TABLE>
<CAPTION>
                                                                     Quarters Ended            Nine Months Ended
                                                                      September 30,              September 30,
                                                                 -----------------------    -----------------------
                                                                       2008         2007          2008         2007
-------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>          <C>           <C>          <C>
Net revenues
Entertainment
   Domestic TV                                                   $     14.6   $     17.6    $     45.9   $     58.9
   International TV                                                    11.8         14.3          39.9         41.8
   Online/mobile                                                       10.9         15.4          37.7         45.9
   Other                                                                0.9          2.3           3.8          5.7
-------------------------------------------------------------------------------------------------------------------
   Total Entertainment                                                 38.2         49.6         127.3        152.3
-------------------------------------------------------------------------------------------------------------------
Publishing
   Domestic magazine                                                   16.9         18.3          49.8         56.4
   International magazine                                               2.0          1.9           6.0          5.6
   Special editions and other                                           2.9          2.9           6.7          7.1
-------------------------------------------------------------------------------------------------------------------
   Total Publishing                                                    21.8         23.1          62.5         69.1
-------------------------------------------------------------------------------------------------------------------
Licensing
   Consumer products                                                    9.4          8.7          26.6         24.9
   Location-based entertainment                                         0.7          0.9           2.9          2.7
   Marketing events                                                     0.2          0.4           2.7          3.0
   Other                                                                0.1          0.1           0.3          1.9
-------------------------------------------------------------------------------------------------------------------
   Total Licensing                                                     10.4         10.1          32.5         32.5
-------------------------------------------------------------------------------------------------------------------
Total net revenues                                               $     70.4   $     82.8    $    222.3   $    253.9
===================================================================================================================

Net income (loss)
Entertainment
   Before programming amortization and online content expenses   $     12.6   $     16.4    $     36.8   $     48.3
   Programming amortization and online content expenses                (9.8)        (9.2)        (29.5)       (29.5)
-------------------------------------------------------------------------------------------------------------------
   Total Entertainment                                                  2.8          7.2           7.3         18.8
-------------------------------------------------------------------------------------------------------------------
Publishing                                                             (1.3)        (1.4)         (6.4)        (6.1)
-------------------------------------------------------------------------------------------------------------------
Licensing                                                               6.7          6.3          19.4         19.5
-------------------------------------------------------------------------------------------------------------------
Corporate Administration and Promotion                                 (4.6)        (7.9)        (16.9)       (20.2)
-------------------------------------------------------------------------------------------------------------------
Segment income                                                          3.6          4.2           3.4         12.0
Restructuring expense                                                  (2.2)           -          (2.8)        (0.1)
Impairment charge on assets held for sale                                 -            -          (0.1)           -
Provisions for reserves                                                (4.1)           -          (4.1)           -
-------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                                (2.7)         4.2          (3.6)        11.9
-------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                    0.2          0.6           0.9          1.7
   Interest expense                                                    (1.1)        (1.2)         (3.4)        (3.7)
   Amortization of deferred financing fees                             (0.1)        (0.1)         (0.3)        (0.4)
   Other, net                                                          (0.1)         0.1          (0.4)        (0.2)
-------------------------------------------------------------------------------------------------------------------
Total nonoperating expense                                             (1.1)        (0.6)         (3.2)        (2.6)
-------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                      (3.8)         3.6          (6.8)         9.3
Income tax expense                                                     (1.4)        (1.0)         (3.6)        (3.3)
-------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                $     (5.2)  $      2.6    $    (10.4)  $      6.0
===================================================================================================================
</TABLE>

(1)   Certain amounts  reported for the prior periods have been  reclassified to
      conform to the current year's presentation.


                                       18
<PAGE>

CURRENT ECONOMIC CONDITIONS

      We have  previously  reported on the challenges  facing the media industry
and us, including increased competition for consumers' attention,  the migration
of advertisers to other  platforms and the higher costs of paper,  ink and other
expenses.  Since that time, we also have seen a steady weakening of the economy,
which has greatly  exacerbated  the  existing  challenges.  The  current  global
economic conditions  resulting from the recent disruption in credit markets pose
a risk to the  overall  economy  that could  continue  to impact  demand for our
products and services.  It is unclear the extent to which these  conditions will
persist and what overall  impact they will have on future  spending by consumers
and  advertisers  as compared to our  expectations.  Throughout the past several
quarters we have  adjusted  our  business  activities  to address  the  changing
economic  environment and industry challenges by developing a restructuring plan
to reduce  overhead costs,  outsourcing  our e-commerce and catalog  businesses,
exiting the DVD market in phases and focusing  our  distribution  strategies  on
digital.

      In  accordance  with  Financial   Accounting  Standards  Board,  or  FASB,
Statement  of  Financial  Accounting  Standards  No.  142,  Goodwill  and  Other
Intangible  Assets,  or Statement 142, we conduct annual  impairment  testing of
goodwill in October of each year, or in between  annual tests if events occur or
circumstances  change that would  indicate our goodwill is impaired.  The recent
adverse market and business  conditions  noted above are not interim  impairment
indicators of our goodwill.  However,  further declines in our operating results
and  prolonged  deterioration  of  economic  conditions  could  result in future
impairments of our long-lived assets including goodwill.

OVERVIEW

      Revenues  decreased  $12.4  million,  or 15%,  for the  quarter  and $31.6
million,  or 12%,  for the  nine-month  period  due to lower  revenues  from our
Entertainment and Publishing Groups.

      Segment income decreased $0.6 million for the quarter and $8.6 million for
the  nine-month  period  primarily  due to lower  income from our  Entertainment
Group, partially offset by lower Corporate Administration and Promotion expense.

      Operating results decreased $6.9 million for the quarter and $15.5 million
for the nine-month period. This was due to the lower segment income,  provisions
of $2.9 million for a receivable and $1.2 million for archival  material  during
the current year quarter and  nine-month  period and  restructuring  expenses of
$2.2  million for the current year quarter and $2.8 million for the current year
nine-month period.

      Net losses  were $5.2  million  and $10.4  million  for the  current  year
quarter  and  nine-month  period,  respectively,  compared to net income of $2.6
million and $6.0 million in the  respective  prior year periods.  The changes in
results were primarily due to the lower operating results  previously  discussed
and lower investment income.

ENTERTAINMENT GROUP

      The following  discussion focuses on the revenues and profit  contribution
before  programming  amortization  and online  content  expenses  of each of our
Entertainment Group businesses.

      Revenues from our domestic TV networks decreased $3.0 million, or 18%, for
the quarter and $13.0  million,  or 22%, for the nine-month  period,  and profit
contribution  decreased  $0.7  million for the quarter and $8.3  million for the
nine-month period.  Playboy TV monthly  subscription  revenues increased for the
quarter and nine-month period.  Pay-per-view revenues were lower for the quarter
and nine-month period,  reflecting the continued  migration from linear networks
to the more competitive  video-on-demand platform.  Results for the current year
quarter and the prior year nine-month  period  reflected  unfavorable  variances
related to previously estimated revenues. The sale of our Los Angeles production
facility assets in the prior quarter  resulted,  as expected,  in lower revenues
but increased profit contribution for the quarter and nine-month period.

      International TV revenues decreased $2.5 million,  or 17%, for the quarter
and  $1.9  million,  or 4%,  for  the  nine-month  period.  Profit  contribution
decreased  $2.2  million  for the quarter  and $1.1  million for the  nine-month
period. The quarter and nine-month period reflected lower revenues from our U.K.
networks and unfavorable


                                       19
<PAGE>

foreign  currency  exchange rate  fluctuations,  partially offset by lower costs
coupled with growth in our other European networks.

      Online/mobile revenues decreased $4.5 million, or 29%, for the quarter and
$8.2  million,  or 18%,  for the  nine-month  period,  and  profit  contribution
decreased  $1.3  million  for the quarter  and $3.2  million for the  nine-month
period. Our online websites are in the midst of a major infrastructure  overhaul
and redesign effort, which we anticipate to be substantially  completed in early
2009. We believe that this will increase  traffic,  resulting in higher revenues
and profit  contribution  from the online business.  During this transition,  we
expect lower  revenues and profit  contribution.  Additionally,  our Playboy and
BUNNYshop   e-commerce  and  catalog  businesses  were  outsourced  to  eFashion
Solutions,  LLC,  resulting  as planned with lower  revenues  but higher  profit
contribution for the quarter and nine-month period.

      Revenues from other  businesses  decreased  $1.4 million,  or 58%, for the
quarter  and  $1.9  million,  or 33%,  for the  nine-month  period,  and  profit
contribution  decreased  $1.1  million  for the  quarter  and was  flat  for the
nine-month period.  This resulted primarily from the receipt of a license fee in
the  prior  year  quarter   related  to  our  production   company,   Alta  Loma
Entertainment,  and lower DVD sales, offset by lower costs for these businesses.
In  response  to declines  in the  worldwide  DVD  market,  we plan to exit this
business in phases and focus our distribution strategies on digital.

      The group's  administrative  expenses decreased $1.5 million,  or 33%, for
the quarter and $1.1 million,  or 8%, for the  nine-month  period due in part to
lower legal expenses.

      Programming  amortization  and  online  content  expenses  increased  $0.6
million, or 6%, for the quarter and were flat for the nine-month period.

      Segment  income for the group  decreased  $4.4  million,  or 61%,  for the
quarter and $11.5 million,  or 61%, for the nine-month period due to the results
previously discussed.

PUBLISHING GROUP

      Domestic magazine revenues decreased $1.4 million,  or 8%, for the quarter
and $6.6 million,  or 12%, for the nine-month  period,  reflecting weak industry
dynamics.  Subscription  revenues decreased $0.4 million, or 4%, for the quarter
and $1.8 million,  or 6%, for the nine-month  period  primarily due to 3% and 5%
fewer copies served, respectively.  Newsstand revenues were flat for the quarter
and  decreased  $1.3  million,  or 22%, for the  nine-month  period on 23% fewer
copies  sold.  Advertising  revenues  decreased  $1.0  million,  or 16%, for the
quarter and $3.5 million,  or 19%, for the  nine-month  period.  The quarter and
nine-month  period reflected 11% and 9% fewer  advertising pages compared to the
respective  prior year  periods  due in part to the loss of a major  advertiser,
coupled with 5% and 11% decreases in average net revenue per page, respectively,
largely due to lowering  our rate base  effective  with the January  2008 issue.
Advertising sales for the 2008 fourth quarter magazine issues are closed, and we
expect  to report  approximately  17% lower  advertising  revenues  and 3% fewer
advertising pages compared to the 2007 fourth quarter.

      On a  combined  basis,  Playboy  print  and  online  advertising  revenues
decreased $0.7 million, or 9%, for the quarter and $2.5 million, or 12%, for the
nine-month period.

      International  magazine  revenues  were flat for the quarter and increased
$0.4 million,  or 7%, for the nine-month  period. The increase was primarily due
to the Russian and German editions.

      Special  editions  and  other  revenues  were  flat  for the  quarter  and
decreased $0.4 million,  or 5%, for the nine-month  period. The decrease was due
mainly to 15% fewer special editions newsstand copies sold,  partially offset by
a $1.00 cover price increase effective with the July 2007 issues.

      Segment  loss for the group was flat for the  quarter and  increased  $0.3
million,  or 4%, for the nine-month  period as the previously  discussed revenue
declines  for the  quarter  were  offset  by lower  manufacturing,  subscription
collection and editorial  costs,  while the revenue  declines for the nine-month
period were mostly  offset by lower  manufacturing,  editorial,  post-employment
benefit and subscription collection costs.


                                       20
<PAGE>

LICENSING GROUP

      Licensing  Group revenues  increased $0.3 million,  or 2%, for the quarter
and were flat for the nine-month period. The current year quarter and nine-month
period reflected higher consumer products royalties,  principally from Southeast
Asia and Latin America.  The nine-month  period  reflected $1.6 million of lower
sales of original art compared to the prior year period.  Revenues for the group
increased 5% for the nine-month period excluding the original art sales.

      The group's segment income increased $0.4 million,  or 5%, for the quarter
and was flat for the nine-month period due to the changes in revenues  discussed
above.

CORPORATE ADMINISTRATION AND PROMOTION

      Corporate Administration and Promotion expenses decreased $3.3 million, or
42%,  for the quarter  and $3.3  million,  or 16%,  for the  nine-month  period,
largely due to lower compensation-related and other benefits,  trademark defense
and marketing expenses.

RESTRUCTURING EXPENSE

      In the third  quarter of 2008, we developed a  restructuring  plan that is
expected  to result  in lower  overhead  costs.  As a result  of this  plan,  we
recorded a charge of $2.3 million  related to costs  associated with a workforce
reduction of 55  employees,  most of whose jobs will be eliminated in the fourth
quarter of 2008. We also eliminated  approximately  25 open positions.  Payments
under  this  plan  will  begin  in the  fourth  quarter  of  2008  and  will  be
substantially  completed by the end of 2009 with some payments  continuing  into
2010.

      In 2007, we  implemented a plan to outsource  our  e-commerce  and catalog
businesses,  to sell the assets related to our Los Angeles  production  facility
and to eliminate  office space obtained in the  acquisition of Club Jenna,  Inc.
and related  companies.  As a result of this  restructuring  plan, we recorded a
reserve of $0.4 million for costs  associated  with a workforce  reduction of 28
employees.  During the  nine-month  period ended  September 30, 2008, as part of
this  restructuring  plan, we recorded an additional reserve of $0.6 million for
contract termination fees and expenses.

      Total  costs  of   approximately   $13.5  million  for  our  prior  years'
restructuring  plans were paid through September 30, 2008, $1.0 million of which
was paid during the nine-month period ended September 30, 2008.

NONOPERATING EXPENSE

      Nonoperating  expense increased $0.5 million,  or 89%, for the quarter and
$0.6 million,  or 22%, for the  nine-month  period  primarily due to the loss of
investment income from investments sold in the current year.

INCOME TAX EXPENSE

      Income tax expense of $1.4  million for the current  year quarter and $3.6
million for the nine-month  period  increased from $1.0 million and $3.3 million
in the respective  prior year periods due to higher foreign  withholding tax and
prior period refunds.

      Our effective  income tax rate differs from the U.S.  statutory  rate. Our
income tax  provision  consists  of foreign  income  tax,  which  relates to our
international  television  networks and withholding tax on licensing income, for
which we do not  receive  a  current  U.S.  income  tax  benefit  due to our net
operating loss position. Our income tax provision also includes deferred federal
and state  income  taxes  related  to the  amortization  of  goodwill  and other
indefinite-lived intangibles, which cannot be offset against deferred tax assets
due to the indefinite reversal period of the deferred tax liabilities.

LIQUIDITY AND CAPITAL RESOURCES

      At September 30, 2008,  we had $25.4 million in cash and cash  equivalents
compared to $20.6  million in cash and cash  equivalents  at December  31, 2007.
During the nine-month period ended September 30, 2008, we sold at par


                                       21
<PAGE>

all of our $6.0 million of auction rate securities,  or ARS, which were included
in  marketable  securities  and  short-term  investments  at December  31, 2007.
Financing  obligations  were  $115.0  million  at both  September  30,  2008 and
December 31, 2007.

      At September  30, 2008,  cash  generated  from our  operating  activities,
existing cash and cash  equivalents  and  marketable  securities  and short-term
investments  were  fulfilling our liquidity  requirements.  We also have a $50.0
million credit  facility,  which can be used for revolving  borrowings,  issuing
letters of credit or a combination of both. At September 30, 2008, there were no
borrowings   under  this   facility  and  $1.1  million  in  letters  of  credit
outstanding,  resulting in $48.9 million of available borrowings.  If the global
economic  weakness that resulted from recent  disruptions in the broad financial
markets were to  deteriorate  or be prolonged for an extended  period,  it could
impact our  profitability and related cash generation  capability.  See Part II,
Item 1A. "Risk Factors" for more information.

DERIVATIVE INSTRUMENTS

      We hedge the  variability of forecasted  cash receipts  related to royalty
payments  denominated  in  yen  and  euro  with  derivative  instruments.  These
royalties are hedged with forward contracts for periods not exceeding 12 months.
The fair value and carrying value of our forward contracts are not material. For
the nine-month  period ended September 30, 2008, hedges deemed to be ineffective
due to us not being able to exactly match the  settlement  date of the hedges to
the receipt of these royalty payments resulted in immaterial losses.

CASH FLOWS FROM OPERATING ACTIVITIES

      Net cash provided by operating  activities for the nine-month period ended
September 30, 2008 was $0.8 million, compared to $23.5 million in the prior year
period.  This  decrease was primarily  due to the  operating  results  discussed
earlier  combined  with  decreases  in  accounts  payable,  partially  offset by
decreases  in prepaid  expenses  and other  current  assets and  investments  in
entertainment programming.

CASH FLOWS FROM INVESTING ACTIVITIES

      Net cash provided by investing  activities for the nine-month period ended
September  30, 2008 was $7.1  million,  compared to net cash used for  investing
activities of $16.6 million in the prior year period.  This change reflected net
proceeds  of $5.1  million  related  to the April  2008 sale of our Los  Angeles
production facility assets. The net cash provided during the current year period
also reflected $9.9 million of proceeds primarily reflecting the sale of our ARS
and  the  liquidation  of a  portion  of  our  investment  in an  enhanced  cash
portfolio, compared to net purchases of investments of $9.8 million in the prior
year period.

CASH FLOWS FROM FINANCING ACTIVITIES

      Net cash used for financing  activities  for the  nine-month  period ended
September 30, 2008 was $2.4 million,  a decrease of $5.6 million compared to the
prior  year  period.   The  decrease   reflected  $2.5  million  of  acquisition
liabilities  payments during the current year period compared to $7.9 million of
acquisition liabilities payments in the prior year period.

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

      The negative  effect of foreign  currency  exchange  rates on our cash and
cash equivalents  during the nine-month  period ended September 30, 2008 of $0.7
million  was due to the  strengthening  of the U.S.  dollar  against  the  pound
sterling and euro; the positive effect of foreign currency exchange rates on our
cash and cash equivalents  during the nine-month period ended September 30, 2007
of $0.4  million was a result of the  weakening of the U.S.  dollar  against the
pound sterling and euro.

RECENTLY ISSUED ACCOUNTING STANDARDS

      In May 2008, the FASB issued Statement of Financial  Accounting  Standards
No. 162, The Hierarchy of Generally Accepted Accounting Principles, or Statement
162.  Statement  162  identifies  the sources of accounting  principles  and the
framework  for  selecting  the  principles  to be  used  in the  preparation  of
financial  statements that are presented in conformity  with generally  accepted
accounting  principles.  Statement 162 becomes  effective 60 days


                                       22
<PAGE>

following  the  Securities  and  Exchange  Commission's  approval  of the Public
Company Accounting  Oversight Board amendments to AU Section 411, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting  Principles.  We
do not expect the  adoption  of  Statement  162 to impact our future  results of
operations or financial condition.

      In May 2008, the FASB issued Staff  Position No. APB 14-1,  Accounting for
Convertible  Debt  Instruments  That  May Be  Settled  in Cash  upon  Conversion
(Including  Partial Cash  Settlement),  or FSP APB 14-1.  FSP APB 14-1 specifies
that issuers of convertible  debt  instruments  that may be settled in cash upon
conversion should separately  account for the liability and equity components in
a manner that will reflect the entity's  nonconvertible debt borrowing rate when
interest cost is recognized in subsequent  periods. We are required to adopt FSP
APB 14-1 at the beginning of 2009 and apply FSP APB 14-1  retrospectively to all
periods  presented.  We are currently  evaluating the impact of adopting FSP APB
14-1 on our results of operations and financial condition.

      In April 2008, the FASB issued Staff Position No. FAS 142-3, Determination
of the Useful Life of Intangible  Assets, or FSP FAS 142-3. FSP FAS 142-3 amends
the  factors  that  should be  considered  in  developing  renewal or  extension
assumptions  used to determine the useful life of a recognized  intangible asset
under  Statement 142. We are required to adopt FSP FAS 142-3  prospectively  for
intangible  assets  acquired  on or after  January  1, 2009.  Intangible  assets
acquired  prior to January 1, 2009 are not  affected by the  adoption of FSP FAS
142-3.

      In March 2008, the FASB issued Statement of Financial Accounting Standards
No. 161,  Disclosures  about  Derivative  Instruments and Hedging  Activities-an
amendment of FASB  Statement No. 133, or Statement  161.  Statement 161 requires
enhanced  disclosures  about how and why an entity uses derivative  instruments,
how  derivative  instruments  and related  hedged items are  accounted for under
Statement of Financial  Accounting  Standards No. 133, Accounting for Derivative
Instruments and Hedging  Activities,  and its related  interpretations,  and how
derivative  instruments  and related  hedged items affect an entity's  financial
position,  financial  performance  and  cash  flows.  We are  required  to adopt
Statement  161 at the  beginning  of  2009.  Since  Statement  161  impacts  our
disclosure  but not our  accounting  treatment for  derivative  instruments  and
related hedged items,  our adoption of Statement 161 will not impact our results
of operations or financial condition.

      In  December  2007,  the FASB issued  Statement  of  Financial  Accounting
Standards  No.  160,   Noncontrolling   Interests  in   Consolidated   Financial
Statements-an amendment of ARB No. 51, or Statement 160. Statement 160 clarifies
that a noncontrolling  interest (previously referred to as minority interest) in
a subsidiary is an ownership  interest in a  consolidated  entity that should be
reported as a component of equity in the consolidated  financial statements.  It
also requires  consolidated  net income to include the amounts  attributable  to
both the  parent  and the  noncontrolling  interest.  We are  required  to adopt
Statement 160 at the beginning of 2009. We are currently  evaluating the impact,
if any,  of  adopting  Statement  160 on our future  results of  operations  and
financial condition.

      In  December  2007,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 141 (revised 2007),  Business  Combinations,  or Statement 141(R).
Statement   141(R)  retains  the   fundamental   requirements  of  the  original
pronouncement  requiring  that the  purchase  method  be used  for all  business
combinations.  Statement  141(R) defines the acquirer as the entity that obtains
control of one or more businesses in the business  combination,  establishes the
acquisition date as the date that the acquirer achieves control and requires the
acquirer  to  recognize  the  assets  acquired,   liabilities  assumed  and  any
noncontrolling  interest  at  their  fair  values  as of the  acquisition  date.
Statement  141(R) also requires,  among other things,  that  acquisition-related
costs be recognized  separately from the  acquisition.  We are required to adopt
Statement 141(R) prospectively for business  combinations on or after January 1,
2009.  Assets and  liabilities  that arose from business  combinations  prior to
January 1, 2009 are not affected by the adoption of Statement 141(R).

      In September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 158,  Employers'  Accounting for Defined Benefit Pension and Other
Postretirement  Plans-an  amendment  of FASB  Statements  No. 87, 88,  106,  and
132(R),  or Statement 158.  Statement 158 requires an entity to (a) recognize in
its  statement of  financial  position an asset or an  obligation  for a defined
benefit  postretirement  plan's  funded  status,  (b) measure a defined  benefit
postretirement plan's assets and obligations that determine its funded status as
of the end of the employer's fiscal year and (c) recognize changes in the funded
status of a defined benefit  postretirement plan in comprehensive  income in the
years in which the  changes  occur.  We  adopted  the  recognition  and  related
disclosure  provisions  of  Statement  158  effective  December  31,  2006.  The
measurement  date  provision of  Statement  158 is effective at the


                                       23
<PAGE>

end of 2008.  Since we use a December 31  measurement  date,  this  provision of
Statement  158 will not have an impact on our future  results of  operations  or
financial condition.

      In September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 157, Fair Value  Measurements,  or Statement  157,  which provides
enhanced  guidance for using fair value to measure  assets and  liabilities.  We
adopted  Statement 157 on January 1, 2008, as required for our financial  assets
and liabilities.  However, FASB Staff Position FAS 157-2, Effective Date of FASB
Statement No. 157,  delayed the effective date of Statement 157 to the beginning
of 2009 for all nonfinancial  assets and liabilities,  except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least  annually).  We do not expect the adoption of Statement  157 for
our  nonfinancial  assets and  liabilities  to have a significant  impact on our
future results of operations or financial condition.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      We are  exposed  to certain  market  risks,  including  changes in foreign
currency  exchange  rates.  There was no material change in our exposure to such
fluctuations during the nine-month period ended September 30, 2008.  Information
regarding  market  risks  as of  December  31,  2007 is  contained  in Item  7A.
"Quantitative  And  Qualitative  Disclosures  About  Market  Risk" in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2007.

      At  September  30,  2008,  we did not  have  any  floating  interest  rate
exposure.  As of that  date,  all of our  outstanding  debt  consisted  of 3.00%
convertible senior  subordinated notes due 2025, or convertible notes, which are
fixed-rate obligations. The fair value of the $115.0 million aggregate principal
amount of the  convertible  notes is  influenced  by changes in market  interest
rates,  the share price of our Class B common stock and our credit  quality.  At
September  30, 2008,  the  convertible  notes had an implied fair value of $79.4
million.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

      Our management,  with the participation of our Chief Executive Officer and
Chief  Financial  Officer,  has evaluated the  effectiveness  of our  disclosure
controls  and  procedures  (as  such  term is  defined  in Rules  13a-15(e)  and
15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange
Act) as of the end of the period covered by this quarterly report. Based on such
evaluation,  our Chief  Executive  Officer  and  Chief  Financial  Officer  have
concluded  that,  as of the end of such  period,  our  disclosure  controls  and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis,  information  required to be disclosed by us in the reports that
we file or submit under the Exchange Act.

Internal Control over Financial Reporting

      There have not been any changes in our  internal  control  over  financial
reporting (as such term is defined in Rules  13a-15(f)  and 15d-15(f)  under the
Exchange Act) during the fiscal  quarter to which this report  relates that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.


                                       24
<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      On February 17, 1998,  Eduardo  Gongora,  or Gongora,  filed suit in state
court in Hidalgo County,  Texas,  against  Editorial  Caballero SA de CV, or EC,
Grupo Siete International,  Inc., or GSI, collectively the Editorial Defendants,
and us. In the complaint, Gongora alleged that he was injured as a result of the
termination of a publishing license agreement, or the License Agreement, between
us and EC for the publication of a Mexican edition of Playboy  magazine,  or the
Mexican  Edition.  We terminated  the License  Agreement on or about January 29,
1998,  due to EC's failure to pay  royalties  and other amounts due us under the
License  Agreement.  On February  18, 1998,  the  Editorial  Defendants  filed a
cross-claim against us. Gongora alleged that in December 1996 he entered into an
oral  agreement  with the Editorial  Defendants to solicit  advertising  for the
Mexican  Edition  to be  distributed  in the United  States.  The basis of GSI's
cross-claim was that it was the assignee of EC's right to distribute the Mexican
Edition in the United States and other Spanish-speaking Latin American countries
outside of Mexico.  On May 31, 2002, a jury returned a verdict against us in the
amount of $4.4 million.  Under the verdict,  Gongora was awarded no damages. GSI
and EC were  awarded $4.1 million in  out-of-pocket  expenses and  approximately
$0.3 million for lost profits,  even though the jury found that EC had failed to
comply with the terms of the License  Agreement.  On October 24, 2002, the trial
court signed a judgment against us for $4.4 million plus pre- and  post-judgment
interest  and costs.  On  November  22,  2002,  we filed  post-judgment  motions
challenging  the judgment in the trial court.  The trial court  overruled  those
motions  and we  vigorously  pursued an appeal  with the State  Appellate  Court
sitting  in Corpus  Christi  challenging  the  verdict.  We posted a bond in the
amount of  approximately  $9.4  million,  which  represented  the  amount of the
judgment,  costs and estimated pre- and  post-judgment  interest,  in connection
with the  appeal.  On May 25,  2006,  the State  Appellate  Court  reversed  the
judgment by the trial  court,  rendered  judgment  for us on the majority of the
plaintiffs'  claims and remanded the remaining  claims for a new trial.  On July
14,  2006,   the   plaintiffs   filed  a  motion  for   rehearing  and  en  banc
reconsideration,  which we opposed.  On October 12,  2006,  the State  Appellate
Court denied  plaintiffs'  motion. On December 27, 2006, we filed a petition for
review with the Texas  Supreme  Court.  On January 25, 2008,  the Texas  Supreme
Court denied our petition for review.  On February 8, 2008,  we filed a petition
for rehearing with the Texas Supreme  Court.  On May 16, 2008, the Texas Supreme
Court denied our motion for rehearing. The posted bond has been canceled and the
remaining claims will be retried.  We, on advice of legal counsel,  believe that
it is not probable  that a material  judgment  against us will be  obtained.  In
accordance  with Financial  Accounting  Standards  Board  Statement of Financial
Accounting  Standards No. 5,  Accounting for  Contingencies,  or Statement 5, no
liability has been accrued.

      On April 12, 2004, J. Roger Faherty, or Faherty,  filed suit in the United
States  District  Court for the  Southern  District  of New York  against  Spice
Entertainment  Companies,  or Spice,  Playboy  Enterprises,  Inc.,  or  Playboy,
Playboy  Enterprises  International,  Inc.,  or PEII, D. Keith  Howington,  Anne
Howington and Logix  Development  Corporation,  or Logix. The complaint  alleges
that  Faherty is entitled to  statutory  and  contractual  indemnification  from
Playboy,  PEII and Spice with respect to defense costs and liabilities  incurred
by Faherty in the litigation described in our Annual Report on Form 10-K for the
fiscal year ended  December 31, 2007,  or the Logix  litigation.  The  complaint
further alleges that Playboy,  PEII,  Spice, D. Keith Howington,  Anne Howington
and Logix conspired to deprive  Faherty of his alleged right to  indemnification
by excluding him from the settlement of the Logix litigation.  On June 18, 2004,
a jury entered a special  verdict finding  Faherty  personally  liable for $22.5
million in damages to the  plaintiffs  in the Logix  litigation.  A judgment was
entered on the verdict on or around  August 2, 2004.  Faherty  filed  post-trial
motions for a judgment  notwithstanding  the verdict and a new trial,  but these
motions were both denied on or about  September  21, 2004.  On October 20, 2004,
Faherty filed a notice of appeal from the verdict. As a result of rulings by the
California  Court of Appeal and the  California  Supreme  Court as  recently  as
February  13,  2008,   Logix's   recovery   against  Faherty  has  been  reduced
significantly,  although  certain  portions  of the  case  have  been  set for a
retrial. In light of these rulings,  however,  when coupled with any offset as a
result of the settlement of the Logix  litigation,  any ultimate net recovery by
Logix against Faherty will be severely reduced and might be entirely eliminated.
In consideration  of this appeal,  Faherty and Playboy have agreed to continue a
temporary stay of the indemnification action filed in the United States District
Court for the Southern District of New York through the end of December 2008. In
late June 2008,  plaintiffs in the Logix  litigation filed a motion in the trial
court seeking to amend a $40.0 million  judgment  previously  entered on consent
against  defendant  Emerald  Media  Inc.,  or EMI,  seeking to add  Faherty as a
judgment debtor. In the event Faherty's indemnification and conspiracy claims go
forward  against  us, we believe  they are  without  merit and that we have good
defenses against


                                       25
<PAGE>

them. As such,  based on the information  known to us to date, we do not believe
that  it is  probable  that a  material  judgment  against  us will  result.  In
accordance with Statement 5, no liability has been accrued.

ITEM 1A. RISK FACTORS

      For a detailed discussion of factors that may affect our performance,  see
Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal
year ended  December  31, 2007.  Except as set forth  below,  there have been no
material changes to the risk factors disclosed in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2007.

      Changes in economic conditions could adversely affect the profitability of
our business.

      The global economy is currently  experiencing  a significant  contraction,
with an almost  unprecedented  lack of  availability  of commercial and consumer
credit.  This current  decrease and any future decrease in economic  activity in
the U.S.  or in other  regions  of the  world  in  which  we do  business  could
significantly  and  adversely  affect our results of  operations  and  financial
condition.  This contraction  could cause a decline in spending by consumers and
advertisers  and reduce demand for our products,  thereby  reducing our revenues
and  earnings.  In  addition,  we currently  fulfill a portion of our  liquidity
requirements  from operating  cash flows.  Our ability to generate cash flows to
meet these  requirements  could be adversely  affected by a continued decline in
economic conditions.

      Adverse  securities and credit market conditions may significantly  affect
our  ability  to access  the  capital  and  credit  markets  and could  harm our
financial position.

      The  securities  and  credit  markets  have  been   experiencing   extreme
volatility  and  disruption.  In  some  cases,  the  markets  have  limited  the
availability  of funds and  increased  the costs  associated  with  issuing debt
instruments.  Our access to  additional  financing  will  depend on a variety of
factors,  such as these market conditions,  the general  availability of credit,
the volume of trading  activities,  the  overall  availability  of credit to our
industry  and our credit  ratings.  If any of these  events  were to occur,  our
internal sources of liquidity may prove to be  insufficient,  and, in such case,
we may not be able to obtain  additional  financing  on favorable  terms,  which
could have an impact on our ability to refinance  credit  facilities or maturing
debt or to react to changing economic and business conditions.


                                       26
<PAGE>

ITEM 6. EXHIBITS

Exhibit Number                          Description
--------------                          -----------

10.1  First Amendment to the Playboy  Enterprises,  Inc.  Deferred  Compensation
      Plan as amended and restated January 1, 2005

10.2  First  Amendment  to the Playboy  Enterprises,  Inc.  Board of  Directors'
      Deferred Compensation Plan as amended and restated January 1, 2005

10.3  First Amended and Restated Playboy  Enterprises,  Inc. 1991  Non-Qualified
      Stock Option Plan for Non-Employee Directors effective as of September 17,
      2008

10.4  Third Amended and Restated Playboy Enterprises,  Inc. 1995 Stock Incentive
      Plan as amended and restated as of September 17, 2008

10.5  Second Amended and Restated 1997 Equity Plan for Non-Employee Directors of
      Playboy Enterprises, Inc. as amended and restated as of September 17, 2008

31.1  Certification  of Chief Executive  Officer  pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002

31.2  Certification  of Chief Financial  Officer  pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002

32    Certification  pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002


                                       27
<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                        PLAYBOY ENTERPRISES, INC.
                                        -------------------------
                                                 (Registrant)


Date:    November 7, 2008               By  /s/ Linda Havard
         ----------------                   ----------------
                                            Linda G. Havard
                                            Executive Vice President
                                            and Chief Financial Officer
                                            (Authorized Officer and
                                            Principal Financial and
                                            Accounting Officer)


                                       28
<PAGE>

                                  EXHIBIT INDEX

Exhibit Number                           Description
--------------                           -----------

10.1  First Amendment to the Playboy  Enterprises,  Inc.  Deferred  Compensation
      Plan as amended and restated January 1, 2005

10.2  First  Amendment  to the Playboy  Enterprises,  Inc.  Board of  Directors'
      Deferred Compensation Plan as amended and restated January 1, 2005

10.3  First Amended and Restated Playboy  Enterprises,  Inc. 1991  Non-Qualified
      Stock Option Plan for Non-Employee Directors effective as of September 17,
      2008

10.4  Third Amended and Restated Playboy Enterprises,  Inc. 1995 Stock Incentive
      Plan as amended and restated as of September 17, 2008

10.5  Second Amended and Restated 1997 Equity Plan for Non-Employee Directors of
      Playboy Enterprises, Inc. as amended and restated as of September 17, 2008

31.1  Certification  of Chief Executive  Officer  pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002

31.2  Certification  of Chief Financial  Officer  pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002

32    Certification  pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002


                                       29