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 March 31, 2006

                                       OR

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

                        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, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer |_|   Accelerated filer |X|    Non-accelerated filer |_|

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).

Yes |_| No |X|

At April 30, 2006, there were 4,864,102 shares of Class A common stock and
28,293,671 shares of Class B common stock outstanding.

<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                                    FORM 10-Q

                                TABLE OF CONTENTS

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

Item 1.  Financial Statements

              Condensed Consolidated Statements of Operations and Comprehensive
              Income (Loss) for the Quarters Ended March 31,
              2006 and 2005 (Unaudited)                                                    3

              Condensed Consolidated Balance Sheets at March 31, 2006 (Unaudited)
              and December 31, 2005                                                        4

              Condensed Consolidated Statements of Cash Flows for the
              Quarters Ended March 31, 2006 and 2005 (Unaudited)                           5

              Notes to Condensed Consolidated Financial Statements (Unaudited)             6

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                                        13

Item 3.  Quantitative and Qualitative Disclosures About Market Risk                       19

Item 4.  Controls and Procedures                                                          19

                                     PART II
                                OTHER INFORMATION

Item 1.  Legal Proceedings                                                                20

Item 1A. Risk Factors                                                                     20

Item 6.  Exhibits                                                                         20
</TABLE>


                                       2
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                            PLAYBOY ENTERPRISES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                         AND COMPREHENSIVE INCOME (LOSS)
                   for the Quarters Ended March 31 (Unaudited)
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                             2006              2005
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>
Net revenues                                                                           $   82,120        $   83,451
-------------------------------------------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                                                          (63,252)          (59,276)
   Selling and administrative expenses                                                    (15,337)          (13,267)
-------------------------------------------------------------------------------------------------------------------
Total costs and expenses                                                                  (78,589)          (72,543)
-------------------------------------------------------------------------------------------------------------------
Operating income                                                                            3,531            10,908
-------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                                          607               187
   Interest expense                                                                        (1,428)           (2,648)
   Amortization of deferred financing fees                                                   (134)             (233)
   Minority interest                                                                           --              (370)
   Debt extinguishment expenses                                                                --           (19,280)
   Other, net                                                                                (196)             (476)
-------------------------------------------------------------------------------------------------------------------
Total nonoperating expense                                                                 (1,151)          (22,820)
-------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                                           2,380           (11,912)
Income tax expense                                                                         (1,591)           (1,207)
-------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                                             789           (13,119)
-------------------------------------------------------------------------------------------------------------------

Other comprehensive income (loss)
   Unrealized gain (loss) on marketable securities                                            120               (25)
   Unrealized gain (loss) on derivatives                                                       (2)              211
   Foreign currency translation gain                                                           85               276
-------------------------------------------------------------------------------------------------------------------
Total other comprehensive income                                                              203               462
-------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)                                                            $      992        $  (12,657)
===================================================================================================================

Weighted average number of common shares outstanding
   Basic                                                                                   33,141            33,354
===================================================================================================================
   Diluted                                                                                 33,453            33,354
===================================================================================================================

Basic and diluted earnings (loss) per common share                                     $     0.02        $   (0.39)
==================================================================================================================
</TABLE>

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


                                       3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                      (Unaudited)
                                                                                         Mar. 31,          Dec. 31,
                                                                                             2006              2005
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>
Assets
Cash and cash equivalents                                                              $   25,647        $   26,089
Marketable securities and short-term investments                                           26,307            25,963
Receivables, net of allowance for doubtful accounts of
   $4,238 and $3,883, respectively                                                         41,054            46,296
Receivables from related parties                                                            1,754             1,928
Inventories, net                                                                           12,360            12,846
Deferred subscription acquisition costs                                                    10,731            10,452
Other current assets                                                                        9,365             8,761
-------------------------------------------------------------------------------------------------------------------
   Total current assets                                                                   127,218           132,335
-------------------------------------------------------------------------------------------------------------------
Property and equipment, net                                                                13,971            13,771
Long-term receivables                                                                       2,673             2,628
Programming costs, net                                                                     52,819            52,683
Goodwill                                                                                  122,510           122,448
Trademarks                                                                                 61,220            61,139
Distribution agreements, net of accumulated amortization
   of $2,862 and $2,779, respectively                                                      30,279            30,362
Other noncurrent assets                                                                    13,217            13,603
-------------------------------------------------------------------------------------------------------------------
Total assets                                                                           $  423,907        $  428,969
===================================================================================================================


Liabilities
Acquisition liabilities                                                                $   10,651        $   11,782
Accounts payable                                                                           22,894            25,429
Accrued salaries, wages and employee benefits                                               5,506            10,068
Deferred revenues                                                                          46,302            45,987
Accrued litigation settlement                                                                  --             1,000
Other liabilities and accrued expenses                                                     15,831            16,396
-------------------------------------------------------------------------------------------------------------------
   Total current liabilities                                                              101,184           110,662
-------------------------------------------------------------------------------------------------------------------
Financing obligations                                                                     115,000           115,000
Acquisition liabilities                                                                    11,788            11,792
Net deferred tax liabilities                                                               18,460            17,555
Other noncurrent liabilities                                                               17,007            16,713
-------------------------------------------------------------------------------------------------------------------
   Total liabilities                                                                      263,439           271,722
-------------------------------------------------------------------------------------------------------------------

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;
      28,673,175 and 28,643,443 issued, respectively                                          287               286
Capital in excess of par value                                                            225,934           223,537
Accumulated deficit                                                                       (59,187)          (59,976)
Treasury stock, at cost, 381,971 shares                                                    (5,000)           (5,000)
Accumulated other comprehensive loss                                                       (1,615)           (1,649)
-------------------------------------------------------------------------------------------------------------------
   Total shareholders' equity                                                             160,468           157,247
-------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                             $  423,907        $  428,969
===================================================================================================================
</TABLE>

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


                                       4
<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                   for the Quarters Ended March 31 (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                             2006              2005
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>
Cash flows from operating activities
Net income (loss)                                                                      $      789        $  (13,119)
Adjustments to reconcile net income (loss) to net cash provided by
  operating activities
   Depreciation of property and equipment                                                     885               769
   Amortization of intangible assets                                                          285               413
   Amortization of investments in entertainment programming                                 8,498             9,253
   Amortization of deferred financing fees                                                    134               233
   Debt extinguishment expenses                                                                --            19,280
   Deferred income taxes                                                                      905               614
   Net change in operating assets and liabilities                                             113            (3,481)
   Investments in entertainment programming                                                (9,331)           (8,653)
   Litigation settlement                                                                   (1,000)           (1,875)
   Stock-based compensation                                                                   978                31
   Other, net                                                                                  97               641
-------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                                   2,353             4,106
-------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of investments                                                                     (185)          (26,750)
Proceeds from sales of investments                                                             --            10,000
Additions to property and equipment                                                        (1,099)           (1,041)
Other, net                                                                                    (54)               --
-------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities                                                     (1,338)          (17,791)
-------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from financing obligations                                                            --           115,000
Repayment of financing obligations                                                             --           (80,000)
Payment of debt extinguishment expenses                                                        --           (15,197)
Payment of acquisition liabilities                                                         (1,457)           (1,880)
Purchase of treasury stock                                                                     --            (5,000)
Payment of deferred financing fees                                                             --            (3,463)
Proceeds from stock plans                                                                      --               525
Other, net                                                                                     --               (39)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities                                       (1,457)            9,946
-------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                                                    (442)           (3,739)
Cash and cash equivalents at beginning of period                                           26,089            26,668
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                                             $   25,647        $   22,929
===================================================================================================================
</TABLE>

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


                                       5
<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,  2005.  Certain  amounts
reported for the prior period have been  reclassified  to conform to the current
year's presentation.

(B)   RECENTLY ISSUED ACCOUNTING STANDARDS

      In March 2006,  the Financial  Accounting  Standards  Board,  or the FASB,
issued  Statement of Financial  Accounting  Standards  No. 156,  Accounting  for
Servicing of Financial Assets, or Statement 156. Statement 156 permits an entity
to choose either the amortization  method or fair value method for each class of
separately recognized servicing assets and servicing  liabilities.  At March 31,
2006, we did not have any financial assets and liabilities relating to servicing
rights  subject  to  Statement  156.  We are  required  to adopt  Statement  156
effective at the  beginning of 2007.  We do not expect the adoption of Statement
156 to  have a  significant  impact  on our  future  results  of  operations  or
financial condition.

      In  February  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 155,  Accounting  for Certain  Hybrid  Financial  Instruments,  or
Statement  155.  Statement 155 resolves  issues  addressed in FASB Statement 133
Implementation  Issue  No.  D1,  "Application  of  Statement  133 to  Beneficial
Interests in Securitized  Financial  Assets."  Amongst other things,  it permits
fair value  remeasurement  for any hybrid financial  instrument that contains an
embedded derivative that otherwise would require bifurcation. At March 31, 2006,
we did not have any  hybrid  financial  instruments  subject  to the fair  value
election under  Statement 155. We are required to adopt  Statement 155 effective
at the beginning of 2007. We do not expect the adoption of Statement 155 to have
a significant impact on our future results of operations or financial condition.

(C)   RESTRUCTURING EXPENSES

      During the quarter  ended March 31,  2006,  we made cash  payments of $0.1
million  related to our 2002  restructuring  plan. Of the total costs related to
our restructuring plans, approximately $10.1 million was paid by March 31, 2006,
with the remaining $1.1 million to be paid through 2007.

      In 2005, we recorded an additional  charge of $0.1 million  related to our
2002  restructuring  plan as a result of changes in plan  assumptions  primarily
related to leased space.  There were no additional  charges  related to our 2001
restructuring plan.

      The   following   table   displays   the  activity  and  balances  of  our
restructuring  reserve  account for the quarter ended March 31, 2006 and for the
year ended December 31, 2005 (in thousands):

<TABLE>
<CAPTION>
                                                                      Consolidation
                                                     Workforce    of Facilities and
                                                     Reduction           Operations             Total
-----------------------------------------------------------------------------------------------------
<S>                                                 <C>                  <C>               <C>
Balance at December 31, 2004                        $      179           $    1,827        $    2,006
Adjustment to previous estimate                             17                  132               149
Cash payments                                             (196)                (749)             (945)
-----------------------------------------------------------------------------------------------------
Balance at December 31, 2005                                --                1,210             1,210
Cash payments                                               --                 (117)             (117)
-----------------------------------------------------------------------------------------------------
Balance at March 31, 2006                           $       --           $    1,093        $    1,093
=====================================================================================================
</TABLE>


                                       6
<PAGE>

(D)   EARNINGS PER COMMON SHARE

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

<TABLE>
<CAPTION>
                                                                                                (Unaudited)
                                                                                              Quarters Ended
                                                                                                 March 31,
                                                                                       ----------------------------
                                                                                             2006              2005
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>
Numerator:
For basic and diluted EPS - net income (loss)                                          $      789        $  (13,119)
===================================================================================================================

Denominator:
For basic EPS - weighted average shares                                                    33,141            33,354
   Effect of dilutive potential common shares:
   Employee stock options and other                                                           312                --
-------------------------------------------------------------------------------------------------------------------
      Dilutive potential common shares                                                        312                --
-------------------------------------------------------------------------------------------------------------------
For diluted EPS - weighted average shares                                                  33,453            33,354
===================================================================================================================

Basic and diluted EPS                                                                  $     0.02        $    (0.39)
===================================================================================================================
</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  shares  of  Class B  stock  contingently  issuable  under  our  3.00%
convertible  senior  subordinated notes due 2025; these shares were not included
in the  computation  of  diluted  EPS,  for the  quarters  presented,  as  their
inclusion would have been antidilutive (in thousands):

<TABLE>
<CAPTION>
                                                                                                  (Unaudited)
                                                                                                 Quarters Ended
                                                                                                    March 31,
                                                                                            -----------------------
                                                                                             2006              2005
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>               <C>
Stock options                                                                               2,409             3,746
Convertible senior subordinated notes, interest of 3.00%                                    6,758             6,758
-------------------------------------------------------------------------------------------------------------------
Total                                                                                       9,167            10,504
===================================================================================================================
</TABLE>

(E)   INVENTORIES, NET

      Inventories, net, which are stated at the lower of cost (specific cost and
average cost) or fair value, consisted of the following (in thousands):


<TABLE>
<CAPTION>
                                                                                      (Unaudited)
                                                                                         Mar. 31,          Dec. 31,
                                                                                             2006              2005
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>
Paper                                                                                  $    3,167        $    3,939
Editorial and other prepublication costs                                                    6,258             6,529
Merchandise finished goods                                                                  2,935             2,378
-------------------------------------------------------------------------------------------------------------------
Total inventories, net                                                                 $   12,360        $   12,846
===================================================================================================================
</TABLE>


                                       7
<PAGE>

(F)   INCOME TAXES

      Our income tax  provision  consists  of foreign  income tax related to our
international  networks and withholding tax on licensing  income for which we do
not receive a current U.S.  income tax benefit because of 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.

(G)   CONTINGENCIES

      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 to us under the license  agreement.  We are currently pursuing an appeal. We
have posted a bond in the amount of approximately $9.4 million, which represents
the amount of the judgment, costs and estimated pre- and post-judgment interest.
We, on advice of legal counsel,  believe that it is not probable that a material
judgment against us will be sustained and have not recorded a liability for this
case in  accordance  with  Statement of Financial  Accounting  Standards  No. 5,
Accounting for Contingencies.

      In  2003,  we  recorded  $8.5  million  for the  settlement  of the  Logix
litigation,  which related to events prior to our 1999  acquisition of Spice. We
made payments of $1.0 million,  $1.0 million and $6.5 million in 2006,  2005 and
2004, respectively.

      In the third quarter of 2005, we acquired an affiliate network of websites
to complement  our existing  online  business.  We paid $8.3 million at closing,
which  included $8.0 million for the initial  purchase price and $0.3 million of
acquisition-related  costs.  Additional payments of $2.0 million are required in
each of 2006 and 2007.  Pursuant to the asset  purchase  agreement,  we are also
obligated to make future  contingent  earnout  payments over a five-year  period
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 a combination of additional  purchase price and compensation
expense. No additional earnout payments have been made through March 31, 2006.

(H)   STOCK-BASED COMPENSATION

      On January 1, 2006,  we adopted the  provisions  of Statement of Financial
Accounting  Standards No. 123 (revised 2004),  Share-Based Payment, or Statement
123(R),  which is a revision of Statement of Financial  Accounting Standards No.
123, Accounting for Stock-Based Compensation, or Statement 123. Statement 123(R)
supersedes  Accounting  Principles  Board Opinion No. 25,  Accounting  for Stock
Issued to Employees,  and amends Statement of Financial Accounting Standards No.
95,  Statement of Cash Flows.  Statement  123(R)  requires that all  stock-based
compensation  to  employees,  including  grants of employee  stock  options,  be
recognized in the income statement based on its fair value.

      We have stock plans for key employees  and  nonemployee  directors,  which
provide for the grant of nonqualified  and incentive stock options and/or shares
of restricted  stock units,  deferred stock and other  performance-based  equity
awards.  The exercise price of options  granted equals or exceeds the fair value
at the grant date. In general, options vest over a two- to four-year period from
the grant date and expire ten years from the grant date.  Restricted stock units
have been granted to key employees and provide for the issuance of Class B stock
if  three-year  cumulative  operating  income  target  thresholds  are  met.  In
addition,  one of the plans pertaining to nonemployee  directors also allows for
the  issuance  of Class B stock as awards  and  payments  for  annual  retainer,
committee and meeting fees.

Valuation Information

      Upon adoption of Statement  123(R), we began estimating the value of stock
options on the date of grant using a Lattice  Binomial  model, or Lattice model,
under the  modified  prospective  method.  Prior to the  adoption  of  Statement
123(R),  the value of each  employee  stock option was  estimated on the date of
grant  using the  Black-Scholes  model for the  purpose  of pro forma  financial
information,  in  accordance  with  Statement  123. The Lattice  model  requires
extensive  analysis  of actual  exercise  behavior  data and a number of complex
assumptions including


                                       8
<PAGE>

expected  volatility,  risk-free interest rate, expected  dividends,  and option
cancellations. Results for prior periods have not been restated.

      The following  assumptions were used for the Lattice model in 2006 and the
Black-Scholes model in 2005:

                                                         Quarters Ended
                                                            March 31,
                                                ------------------------------
                                                       2006              2005
------------------------------------------------------------------------------
Expected volatility                                       38%               46%
Risk-free interest rate                         4.32% - 4.51%     3.85% - 4.18%
Expected dividends                                        --                --
------------------------------------------------------------------------------

      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  remaining  vested
life and the extent to which the option's fair value exceeds the exercise price.
The Lattice model  estimates the  probability of exercise as a function of these
two variables based on the entire history of exercises and  cancellations on all
past option grants.

      The weighted  average expected life for options granted during the current
quarter using the Lattice model was 5.8 years, and the weighted average expected
life for options  granted during the prior year quarter using the  Black-Scholes
model was 6.0 years. The weighted average fair value per share for stock options
granted during the current  quarter was $6.40 using the Lattice  model,  and the
weighted average fair value per share for stock options granted during the prior
year quarter was $5.84 using the Black-Scholes model.

      Stock-based  compensation expense recognized in the Condensed Consolidated
Statements of Operations and Comprehensive Income (Loss) for the current quarter
is  based  on  awards  ultimately   expected  to  vest,  reduced  for  estimated
forfeitures.  Statement 123(R) requires  forfeitures to be estimated at the time
of grant and revised, if necessary,  in subsequent periods if actual forfeitures
differ from those  estimates.  Forfeitures  were  estimated  based on historical
experience.  In our pro forma  information  required under Statement 123 for the
periods  prior to fiscal 2006, we accounted for  forfeitures  as they  occurred.
Under the fair value  recognition  provisions  of Statement  123(R),  we measure
stock-based  compensation cost at the grant date based on the value of the award
and recognize the expense over the vesting period.  Compensation expense for all
stock-based  payment  awards granted prior to and subsequent to January 1, 2006,
is recognized using the straight-line attribution method.

Stock Option Activity

      At March 31,  2006,  297,107  shares of Class B stock were  available  for
future  grants under our various stock plans on a combined  basis.  Stock option
transactions during the quarter ended March 31, 2006, are summarized as follows:

<TABLE>
<CAPTION>
                                                                              Weighted Average
                                                    Shares                     Exercise Price
------------------------------------------------------------------       --------------------------
                                            Class A        Class B           Class A        Class B
------------------------------------------------------------------       --------------------------
<S>                                              <C>     <C>             <C>             <C>
Outstanding at December 31, 2005                 --      3,374,135       $         --    $     15.85
Granted                                          --        670,500                 --          14.50
Exercised                                        --        (13,666)                --          10.84
Canceled                                         --        (55,999)                --          13.27
------------------------------------------------------------------
Outstanding at March 31, 2006                    --      3,974,970       $         --    $     15.67
==================================================================       ---------------------------
</TABLE>

      There was no aggregate  intrinsic value for options granted in the current
quarter  since  the  average  fair  value at March 31,  2006,  was less than the
exercise price on the date of grant.  The aggregate  intrinsic value for options
exercised  during the  current  quarter  was  approximately  $0.1  million.  The
aggregate  intrinsic  value for options  granted and exercised  during the prior
year quarter were $0.7 million and $0.3  million,  respectively.  The  aggregate
intrinsic  value of options  outstanding and exercisable at March 31, 2006, were
$4.5 million and $3.7 million, respectively.


                                       9
<PAGE>

      The following  table  summarizes  information  regarding  stock options at
March 31, 2006:

<TABLE>
<CAPTION>
                                    Options Outstanding                              Options Exercisable
                        ------------------------------------------       ------------------------------------------
                                           Weighted       Weighted                         Weighted        Weighted
                                            Average        Average                          Average         Average
Range of                      Number      Remaining       Exercise            Number      Remaining        Exercise
Exercise Prices          Outstanding  Life In Years          Price       Exercisable  Life In Years           Price
------------------------------------------------------------------       ------------------------------------------
<S>                        <C>                 <C>         <C>             <C>                 <C>          <C>
Class B
$9.90-$16.72               3,049,470           7.13        $ 13.01         1,917,804           5.84         $ 12.66
$21.00-$24.13                583,500           3.07          21.84           583,500           3.07           21.84
$26.25-$31.50                342,000           2.81          28.89           342,000           2.81           28.89
------------------------------------                                     -----------
Total Class B              3,974,970           6.16        $ 15.67         2,843,304           4.91         $ 16.50
====================================------------------------------       ===========-------------------------------
</TABLE>

      Stock-based  compensation  expense is included  in our  various  segments'
selling and administrative expenses.

      The following table represents  stock-based  compensation  expense for the
current  quarter and pro forma amounts for the prior year quarter (in thousands,
except per share amounts):

<TABLE>
<CAPTION>
                                                                                                (Unaudited)
                                                                                              Quarters Ended
                                                                                                 March 31,
                                                                                       ----------------------------
                                                                                             2006              2005
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>
Stock-based compensation
   Stock options                                                                       $      709        $      704
   Employee stock purchase plan                                                                 6                 -
-------------------------------------------------------------------------------------------------------------------
     Total stock-based compensation                                                    $      715        $      704
===================================================================================================================

Net income (loss)
   As reported                                                                         $      789        $  (13,119)
   Fair value of stock-based compensation excluded from net income, gross                                      (704)
                                                                                                         ----------
     Pro forma                                                                                           $  (13,823)
                                                                                                         ==========

Basic and diluted EPS
   As reported                                                                         $     0.02        $    (0.39)
   Pro forma                                                                                             $    (0.41)
-------------------------------------------------------------------------------------------------------------------
</TABLE>

      The following table  summarizes our non-vested  stock options at March 31,
2006:

<TABLE>
<CAPTION>
                                                                                                  Non-Vested Shares
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                                      <C>
Outstanding at December 31, 2005                                                                            980,651
Granted                                                                                                     670,500
Vested                                                                                                     (449,820)
Exercised/Canceled                                                                                          (69,665)
-------------------------------------------------------------------------------------------------------------------
Outstanding at March 31, 2006                                                                             1,131,666
===================================================================================================================
</TABLE>

      The intrinsic  value of our non-vested  stock options,  for both employees
and nonemployee  directors,  was $0.8 million,  which was based upon our Class B
stock closing price of $14.20 per share on March 31, 2006. As of March 31, 2006,
there was $6.0 million of unrecognized  stock-based compensation expense related
to non-vested  stock options,  which will be recognized over a weighted  average
period of 1.8 years.


                                       10
<PAGE>

Restricted Stock Unit Activity

      At March 31, 2006, we had 488,000 restricted stock units outstanding,  all
of which were performance-based  restricted stock awards contingent upon meeting
certain performance goals.

                                                       Number of Shares
                                                    ----------------------
                                                        2006          2005
--------------------------------------------------------------------------
Outstanding at beginning of period                   319,000       164,000
Granted                                              188,500       182,000
Canceled                                             (19,500)      (27,000)
--------------------------------------------------------------------------
Outstanding at end of period                         488,000       319,000
==========================================================================

      For the quarters ended March 31, 2006 and 2005,  stock-based  compensation
expense  related to  restricted  stock units was $35 thousand and $0.3  million,
respectively.

Employee Stock Purchase Plan

      We have an  Employee  Stock  Purchase  Plan to provide  substantially  all
regular full- and part-time  employees an opportunity to purchase  shares of our
Class B stock through payroll  deductions.  The funds are withheld and then used
to acquire  stock on the last trading day of each  quarter,  based on that day's
closing price less a 15% discount.  The Employee Stock Purchase Plan had minimal
impact on our expenses as a result of the adoption of Statement 123(R).

Income Taxes

      On  November  10,  2005,  the FASB issued  Staff  Position  No.  123(R)-3,
Transition Election Related to Accounting for Tax Effects of Share-Based Payment
Awards,  or Staff Position  123(R)-3.  We have elected to adopt the  alternative
transition  method  provided in Staff Position  123(R)-3 for calculating the tax
effects  of  stock-based   compensation   pursuant  to  Statement  123(R).   The
alternative  transition  method  simplifies  the  calculation  of the  beginning
balance of the additional paid-in-capital pool, or APIC pool, related to the tax
effect of employee  stock-based  compensation.  This method also has  subsequent
impact on the APIC pool and  Condensed  Consolidated  Statements  of Cash  Flows
relating to the tax effects of employee stock-based compensation awards that are
outstanding upon adoption of Statement 123(R).

(I)   BENEFIT PLANS

      We currently  maintain a practice of paying a separation  allowance  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. For the quarter ended March 31, 2006, payments made under this
policy were $0.2 million.


                                       11
<PAGE>

(J)   SEGMENT INFORMATION (1)

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

                                                             (Unaudited)
                                                           Quarters Ended
                                                              March 31,
                                                    ---------------------------
                                                          2006             2005
-------------------------------------------------------------------------------
Net revenues
Entertainment                                       $   51,177       $   50,482
Publishing                                              23,495           27,004
Licensing                                                7,448            5,965
-------------------------------------------------------------------------------
Total                                               $   82,120       $   83,451
===============================================================================
Income (loss) before income taxes
Entertainment                                       $    7,873       $   11,820
Publishing                                              (2,297)            (384)
Licensing                                                4,346            3,678
Corporate Administration and Promotion                  (6,391)          (4,206)
Investment income                                          607              187
Interest expense                                        (1,428)          (2,648)
Amortization of deferred financing fees                   (134)            (233)
Minority interest                                           --             (370)
Debt extinguishment expenses                                --          (19,280)
Other, net                                                (196)            (476)
-------------------------------------------------------------------------------
Total                                               $    2,380       $  (11,912)
===============================================================================

                                                   (Unaudited)
                                                      Mar. 31,         Dec. 31,
                                                          2006             2005
-------------------------------------------------------------------------------
Identifiable assets
Entertainment                                       $  271,697       $  274,473
Publishing                                              35,580           38,833
Licensing                                                8,275            7,539
Corporate Administration and Promotion                 108,355          108,124
-------------------------------------------------------------------------------
Total                                               $  423,907       $  428,969
===============================================================================

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


                                       12
<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 and with our Annual
Report on Form 10-K for the year ended December 31, 2005. All period  references
are to our fiscal periods unless otherwise indicated.

RESULTS OF OPERATIONS (1)

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

<TABLE>
<CAPTION>
                                                                                              Quarters Ended
                                                                                                 March 31,
                                                                                       ---------------------------
                                                                                           2006               2005
------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>
Net revenues
Entertainment
   Domestic TV                                                                         $    22.3         $    25.2
   International                                                                            13.8              13.4
   Online subscriptions and e-commerce                                                      13.2              11.0
   Other                                                                                     1.9               0.9
------------------------------------------------------------------------------------------------------------------
   Total Entertainment                                                                      51.2              50.5
------------------------------------------------------------------------------------------------------------------
Publishing
   Playboy magazine                                                                         19.2              22.9
   Special editions and other                                                                2.6               2.3
   International publishing                                                                  1.7               1.8
------------------------------------------------------------------------------------------------------------------
   Total Publishing                                                                         23.5              27.0
------------------------------------------------------------------------------------------------------------------
Licensing
   International licensing                                                                   5.5               4.5
   Domestic licensing                                                                        1.3               1.3
   Marketing events                                                                          0.2               0.2
   Other                                                                                     0.4                 -
------------------------------------------------------------------------------------------------------------------
   Total Licensing                                                                           7.4               6.0
------------------------------------------------------------------------------------------------------------------
Total net revenues                                                                     $    82.1         $    83.5
==================================================================================================================

Net income (loss)
Entertainment
   Before programming amortization and online content expenses                         $    17.3         $    21.7
   Programming amortization and online content expenses                                     (9.4)             (9.8)
------------------------------------------------------------------------------------------------------------------
   Total Entertainment                                                                       7.9              11.9
------------------------------------------------------------------------------------------------------------------
Publishing                                                                                  (2.3)             (0.4)
------------------------------------------------------------------------------------------------------------------
Licensing                                                                                    4.3               3.6
------------------------------------------------------------------------------------------------------------------
Corporate Administration and Promotion                                                      (6.4)             (4.2)
------------------------------------------------------------------------------------------------------------------
Operating income                                                                             3.5              10.9
------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                                         0.6               0.2
   Interest expense                                                                         (1.4)             (2.6)
   Amortization of deferred financing fees                                                  (0.1)             (0.2)
   Minority interest                                                                          --              (0.4)
   Debt extinguishment expenses                                                               --             (19.3)
   Other, net                                                                              (0.2)              (0.5)
------------------------------------------------------------------------------------------------------------------
Total nonoperating expense                                                                  (1.1)            (22.8)
------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                                            2.4             (11.9)
Income tax expense                                                                          (1.6)             (1.2)
------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                                      $     0.8         $   (13.1)
==================================================================================================================
Basic and diluted earnings (loss) per common share                                     $    0.02         $   (0.39)
==================================================================================================================
</TABLE>

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


                                       13
<PAGE>

      Our revenues decreased $1.4 million,  or 2%, for the quarter primarily due
to expected lower revenues from our Publishing Group, partially offset by higher
revenues from our Licensing and Entertainment Groups.

      Operating income decreased $7.4 million, or 68%, for the quarter primarily
due to lower results from our  Entertainment  and Publishing  Groups.  Operating
results for our segments  were  impacted on a combined  basis by $0.7 million of
stock option expense as a result of the implementation of Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment.

      Net income of $0.8  million was $13.9  million  higher than the prior year
quarter due to debt  extinguishment  expense of $19.3  million in the prior year
quarter and a $1.2 million  decrease in interest expense in the current quarter,
partially offset by the lower operating results mentioned above.

      Several  of  our  businesses   may  experience   variations  in  quarterly
performance.  As a result,  our  performance  in any quarter is not  necessarily
reflective  of full-year  or  longer-term  trends.  Playboy  magazine  newsstand
revenues vary from issue to issue,  with revenues  generally  higher for holiday
issues and any issues  including  editorial or pictorial  features that generate
additional  public  interest.  Advertising  revenues  also vary from  quarter to
quarter  depending  on  economic  conditions,  holiday  issues  and  changes  in
advertising buying patterns.  Online subscription revenues and operating results
are  impacted  by  decreased  Internet  traffic  during the summer  months,  and
e-commerce  revenues and operating results are typically strongest in the fourth
quarter due to the holiday buying season.

ENTERTAINMENT GROUP

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

      Revenues from our domestic TV business decreased $2.9 million, or 12%, for
the quarter.  Playboy TV and Movie network revenues  decreased $0.9 million,  or
7%,  and  $1.7  million,  or  18%,  respectively,  primarily  due  to  decreased
pay-per-view,  or PPV,  buys.  These  decreases were  principally  the result of
consumers migrating from linear channels to  video-on-demand,  or VOD. We expect
this trend to  negatively  impact our Movie  networks  as the VOD market is more
competitive  and we have less shelf space with the system  operators  in the VOD
environment than in the linear network  environment.  We expect Playboy TV to be
favorably  impacted by our monthly  subscription  service with a VOD  component,
which should more than offset the unfavorable  impact of Playboy TV's PPV to VOD
migration.  Revenues from VOD decreased $0.4 million,  or 24%,  primarily due to
revenue  adjustments.  Direct-to-home,  or DTH, revenues and revenues associated
with our studio facility were relatively flat for the quarter.

      Profit  contribution from our domestic TV business decreased $4.7 million,
or 27%,  for the  quarter  as a result of the  lower  revenues  described  above
combined with increases in areas such as revenue  sharing,  marketing and salary
and related expenses.

      DirecTV,  the operator that currently generates the largest portion of our
domestic TV revenues,  recently reduced the number of our channels it carries. A
new contract  with DirecTV is still under  negotiation,  but we expect to hold a
majority of the shelf space with that distributor.  Nonetheless,  we also expect
the  loss  of  carriage  will  unfavorably   impact  domestic  TV  revenues  and
profitability.

      International  revenues  increased  $0.4 million,  or 3%, for the quarter.
International television revenues increased $0.9 million, or 8%, for the quarter
primarily  due to  increased  DTH  revenues  from our  networks in the U.K.  and
throughout Europe,  partially offset by the impact of currency rate fluctuations
and decreased revenues from several third party network licensees. International
online and wireless revenues  decreased $0.5 million,  or 24%,  primarily due to
lower  Hutchison  royalties  as a result  of  technology  issues  in Italy as it
transitions  through an upgrade that began in the fourth  quarter of 2005 and is
expected  to be  completed  in this  year's  second  quarter.  This  decline was
partially offset by royalties from new wireless partners.  International  profit
contribution  increased  $0.4  million,  or 6%,  from the  prior  year  quarter,
principally due to the higher revenues previously mentioned.

      Online  subscriptions and e-commerce  revenues increased $2.2 million,  or
19%, for the quarter  primarily as a result of our  acquisition  of an affiliate
network  of  websites,  partially  offset by a  decrease  in  revenues  from our


                                       14
<PAGE>

existing  sites.  Revenues  were also offset by costs for our new  websites  and
investments in technology and marketing initiatives.

      Other businesses revenues and profit  contribution  increased $1.0 million
and $0.5 million, respectively,  primarily due to higher worldwide DVD revenues,
which  were a result of our  recent  acquisition,  and to the  launch of Playboy
Radio on SIRIUS Satellite Radio in the current quarter.

      The group's  administrative  expenses decreased $0.6 million,  or 11%, for
the quarter due to the elimination of our  intra-company  agreements  related to
trademark,  content and  administrative  fees that had been paid by Playboy.com,
Inc., or  Playboy.com,  to us as a result of our October 2005  repurchase of the
remaining  minority  interest of Playboy.com.  This offset  increases in various
other administrative expenses.

      Programming  amortization  and  online  content  expenses  decreased  $0.4
million,  or 3%, despite new programming costs associated with Playboy Radio and
our affiliate network of websites, due to the mix of programming.

      Segment income for the group  decreased  $4.0 million,  or 33%, due to the
previously discussed operating results.

PUBLISHING GROUP

      Playboy magazine revenues decreased $3.7 million, or 16%, for the quarter.
Advertising   revenues  decreased  $2.3  million  primarily  due  to  29%  fewer
advertising pages. Newsstand revenues were $0.7 million lower principally due to
32% fewer copies sold, partially mitigated by the impact of a $1.00 and CAN$1.00
cover price  increase  effective  with the  February  2006  issue.  Subscription
revenues decreased $0.7 million primarily due to lower average revenue per copy,
partially  offset by a lower provision for unpaid copies as a result of improved
payment  experience  and  revenues  from our new digital  edition in the current
quarter.  Advertising  sales for the 2006  second  quarter  magazine  issues are
closed, and we expect to report approximately 16% lower advertising revenues and
19% fewer  advertising  pages compared to the 2005 second quarter as a result of
continued softness in the market.

      Revenues from special  editions and other increased $0.3 million,  or 10%,
for the quarter.  Special editions revenues increased $0.1 million primarily due
to the impact of a $1.00 and CAN$1.00  cover price  increase  effective with the
November  2005 issues,  lower  display  costs and revenues  from our new digital
edition in the current quarter,  mostly offset by a 19% decline in the number of
newsstand  copies sold. The current  quarter also included higher book royalties
of $0.1 million.

      International  publishing  revenues decreased $0.1 million, or 7%, for the
quarter.

      The group's segment loss increased $1.9 million for the quarter  primarily
as a result of the lower revenues  discussed  above,  partially  offset by lower
subscription acquisition amortization, editorial content and marketing expenses.

      Given the industry  trends and their impact on our  Publishing  Group,  we
expect the second quarter loss to be larger than that of the first quarter,  but
our goal this year is to  maintain  a loss that is  consistent  with that of the
prior year.

LICENSING GROUP

      Licensing Group revenues  increased $1.4 million,  or 25%, for the quarter
principally  due to higher  international  royalties from Europe and the sale of
prints  from our art  collection.  The group's  segment  income  increased  $0.7
million,  or 18%,  primarily due to the revenue  increase,  partially  offset by
higher costs related to the group's growth.


                                       15
<PAGE>

CORPORATE ADMINISTRATION AND PROMOTION

      Corporate Administration and Promotion expenses increased $2.2 million, or
52%,  for  the  quarter  largely  due to the  elimination  of our  intra-company
agreements related to trademark,  content and administrative fees as a result of
the previously mentioned Playboy.com minority interest repurchase.

INCOME TAX EXPENSE

      Our  effective  income tax rate differs  from U.S.  statutory  rates.  Our
income tax provision consists of foreign income tax related to our international
networks and withholding  tax on licensing  income for which we do not receive a
current U.S. income tax benefit because of 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 March 31,  2006,  we had  $25.6  million  in cash and cash  equivalents
compared to $26.1 million in cash and cash  equivalents at December 31, 2005. We
had $21.0  million of auction rate  securities,  or ARS,  included in marketable
securities  and  short-term  investments at both March 31, 2006 and December 31,
2005. ARS generally have long-term maturities;  however,  these investments have
characteristics similar to short-term investments because there is a new auction
process at  predetermined  intervals,  typically every 28 days.  Total financing
obligations were $115.0 million at both March 31, 2006 and December 31, 2005.

      At March 31, 2006, cash generated from our operating activities,  existing
cash and  cash  equivalents  and  short-term  investments  were  fulfilling  our
liquidity  requirements.  At  March  31,  2006,  we had a $50.0  million  credit
facility, which can be used for revolving borrowings,  issuing letters of credit
or a combination  of both. At March 31, 2006,  there were no borrowings and $9.8
million in letters of credit  outstanding under this facility,  permitting $40.2
million of available borrowings under this facility.

CASH FLOWS FROM OPERATING ACTIVITIES

      Net cash provided by operating  activities was $2.4 million, a decrease of
$1.7 million from the prior year quarter.

CASH FLOWS FROM INVESTING ACTIVITIES

      Net cash used for  investing  activities  decreased  $16.5  million due to
$26.8 million in investments  made in ARS,  partially offset by $10.0 million in
proceeds from the sale of ARS in the prior year quarter. We did not have any ARS
investment activity in the current quarter.

CASH FLOWS FROM FINANCING ACTIVITIES

      Net cash used for  financing  activities  was $1.5 million for the current
quarter compared to $9.9 million in cash provided by financing activities in the
prior year quarter. The current year activity reflects payment of an acquisition
liability,  while the prior year  quarter  primarily  reflects  the  issuance of
$115.0  million of  convertible  notes and the use of the  proceeds to pay $95.2
million in  connection  with the  purchase  and  retirement  of all of the $80.0
million  outstanding  principal  amount of senior secured notes issued by one of
our subsidiaries and $3.5 million of related  financing fees.  Proceeds from the
convertible note offering were also used to purchase 381,971 shares of our Class
B stock for $5.0 million.


                                       16
<PAGE>

RECENTLY ISSUED ACCOUNTING STANDARDS

      In March 2006,  the Financial  Accounting  Standards  Board,  or the FASB,
issued  Statement of Financial  Accounting  Standards  No. 156,  Accounting  for
Servicing of Financial Assets, or Statement 156. Statement 156 permits an entity
to choose either the amortization  method or fair value method for each class of
separately recognized servicing assets and servicing  liabilities.  At March 31,
2006, we did not have any financial assets and liabilities relating to servicing
rights  subject  to  Statement  156.  We are  required  to adopt  Statement  156
effective at the  beginning of 2007.  We do not expect the adoption of Statement
156 to  have a  significant  impact  on our  future  results  of  operations  or
financial condition.

      In  February  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 155,  Accounting  for Certain  Hybrid  Financial  Instruments,  or
Statement  155.  Statement 155 resolves  issues  addressed in FASB Statement 133
Implementation  Issue  No.  D1,  "Application  of  Statement  133 to  Beneficial
Interests in Securitized  Financial  Assets."  Amongst other things,  it permits
fair value  remeasurement  for any hybrid financial  instrument that contains an
embedded derivative that otherwise would require bifurcation. At March 31, 2006,
we did not have any  hybrid  financial  instruments  subject  to the fair  value
election under  Statement 155. We are required to adopt  Statement 155 effective
at the beginning of 2007. We do not expect the adoption of Statement 155 to have
a significant impact on our future results of operations or financial condition.


                                       17
<PAGE>

                           FORWARD-LOOKING STATEMENTS

      This Quarterly Report on Form 10-Q contains "forward-looking  statements,"
including  statements  in  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. 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  regulation,  actions  or
      initiatives, including:

      (a)   attempts to limit or otherwise  regulate the sale,  distribution  or
            transmission   of   adult-oriented   materials,   including   print,
            television, video, and online 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  or rates  which  could
            increase our postage and distribution costs;

(2)   Risks associated with our foreign operations,  including market acceptance
      and demand for our products and the products of our licensees;

(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 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 or  convertible  preferred
      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  and  product
      licensing markets;

(11)  Attempts  by  consumers  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  and/or  unforeseen  delays in its  implementation  which might
      affect our plans and assumptions;

(13)  Risks  associated with losing access to  transponders  and competition for
      transponders and channel space;

(14)  Failure to maintain our  agreements  with  multiple  system  operators and
      direct-to-home operators on favorable terms, as well as any decline in our
      access to, and acceptance by,  direct-to-home and/or cable systems and the
      possible  resulting  deterioration  in  the  terms,  cancellation  of  fee
      arrangements or pressure on splits with operators of these systems;

(15)  Risks that we may not realize the expected increased sales and profits and
      other benefits from acquisitions;

(16)  Any charges or costs we incur in connection with restructuring measures we
      may take in the future;

(17)  Risks  associated  with the  financial  condition  of Claxson  Interactive
      Group, Inc., our Playboy TV-Latin America, LLC, joint venture partner;

(18)  Increases in paper, printing or postage costs;

(19)  Risks  associated  with revenue  guarantees  under our cable  distribution
      agreements;

(20)  Effects  of  the  national   consolidation  of  the  single-copy  magazine
      distribution system; and

(21)  Risks  associated  with the viability of our primarily  subscription-  and
      e-commerce-based Internet model.


                                       18
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      At March 31, 2006, we did not have any floating  interest  rate  exposure.
All of our outstanding debt as of that date consisted of the convertible  notes,
which are fixed-rate obligations. The fair value of the $115.0 million aggregate
principal  amount of the notes will be influenced by changes in market  interest
rates, the share price of our Class B stock and our credit quality.  As of March
31, 2006, the convertible notes had an implied fair value of $117.7 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  13(a)-15(e)  and
15(d)-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  13(a)-15(f) and  15(d)-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.


                                       19
<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      No material changes since December 31, 2005.

ITEM 1A. RISK FACTORS

      No material changes since December 31, 2005.

ITEM 6. EXHIBITS

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

10.1          Transfer  of  Service   Agreement   (related  to  Contract  Number
              T79903021),  dated  as  of  October  25,  2004,  among  Spice  Hot
              Entertainment, Inc., Andrita Studios, Inc., and Loral Skynet

10.2          Transponder 15

      10.2.1*     Transfer of Service  Agreement  (related  to  Contract  Number
                  T70102100),    dated   February   4,   2004,   among   Playboy
                  Entertainment  Group, Inc.,  Andrita Studios,  Inc., and Loral
                  Skynet

      10.2.2      Amendment No 1 to Contract Number T70102100 (IA7-C15) dated as
                  of May 7, 2004,  between  Intelsat USA Sales Corp. and Andrita
                  Studios, Inc.

10.3          Transponder 9

      10.3.1*     Agreement  Concerning  Skynet Space Segment Service  (Contract
                  Number  T70309257),  dated as of November  20,  2003,  between
                  Andrita Studios, Inc. and Loral Skynet

      10.3.2*     Amendment No 1 to Contract Number T70309257  (IA7-C9) dated as
                  of May 7, 2004,  between  Intelsat USA Sales Corp. and Andrita
                  Studios, Inc.

10.4          Transponder 23

      10.4.1*     Digital   Channel   Platform   Agreement    (Contract   Number
                  GSS0210100) dated as of February 4, 2003, between Loral Skynet
                  and Playboy Entertainment Group, Inc.

      10.4.2      Amendment No 1 to Contract Number GSS0210100  (Digital Channel
                  Platform) dated as of May 7, 2004,  between Intelsat USA Sales
                  Corp. and Playboy Entertainment Group, Inc.

10.5*         Omnibus  Amendment to  Agreements  between  Playboy  Entertainment
              Group, Inc.,  Andrita Studios,  Inc. and Intelsat USA Sales Corp.,
              dated as of December 22, 2005

10.6          Playboy TV UK

      10.6.1*     Contract for a Combined  Compressed  Uplink and Eurobird Space
                  Segment  Service,  dated as of May 12, 2003,  between  British
                  Telecommunications plc and Playboy TV UK Limited

      10.6.2      Contract  Amendment  Agreement  (Number 1) dated as of May 12,
                  2003, between British Telecommunications plc and Playboy TV UK
                  Limited


                                       20
<PAGE>

10.7          Playboy TV UK/BENELUX

      10.7.1*     Contract for a Combined  Compressed  Uplink and Eurobird Space
                  Segment  Service,  dated as of May 12, 2004,  between  British
                  Telecommunications plc and Playboy TV UK/BENELUX Limited

      10.7.2*     Contract  Amendment  Agreement (Number 1) dated as of November
                  30, 2004, between British  Telecommunications  plc and Playboy
                  TV UK/BENELUX Limited

10.8*         Amended and Restated Full-Time Satellite and Terrestrial  Services
              Agreement,  dated  as of  September  30,  2003  between  T-Systems
              Canada, Inc. and STV International B.V.

10.9*         Seventh Amendment (related to Subscription  Fulfillment  Agreement
              dated July 1,  1987,  as  amended),  dated  March 7, 2006,  by and
              between Communications Data Services, Inc. and Playboy Enterprises
              International, Inc.

10.10*        Agreement dated as of January 1, 2006, between  Time/Warner Retail
              Sales & Marketing Inc. (f/k/a Warner Publisher Services, Inc.) and
              Playboy Enterprises, Inc.

10.11         Reaffirmation  of Loan  Documents  (relating to Credit  Agreement,
              dated as of March 11, 2003),  dated as of April 1, 2005, among PEI
              Holdings, Inc. and Bank of America, N.A.

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

      *       A portion of this  exhibit has been  omitted and filed  separately
              with the Securities and Exchange  Commission pursuant to a request
              for  confidential   treatment   pursuant  to  Rule  24b-2  of  the
              Securities and Exchange Act of 1934.


                                       21
<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: May 10, 2006                        By  /s/ Linda Havard
      ------------                            ----------------
                                              Linda G. Havard
                                              Executive Vice President,
                                              Finance and Operations,
                                              and Chief Financial Officer
                                              (Authorized Officer and
                                              Principal Financial and
                                              Accounting Officer)


                                       22
<PAGE>

                                  EXHIBIT INDEX

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

10.1          Transfer  of  Service   Agreement   (related  to  Contract  Number
              T79903021),  dated  as  of  October  25,  2004,  among  Spice  Hot
              Entertainment, Inc., Andrita Studios, Inc., and Loral Skynet

10.2          Transponder 15

      10.2.1*     Transfer of Service  Agreement  (related  to  Contract  Number
                  T70102100),    dated   February   4,   2004,   among   Playboy
                  Entertainment  Group, Inc.,  Andrita Studios,  Inc., and Loral
                  Skynet

      10.2.2      Amendment No 1 to Contract Number T70102100 (IA7-C15) dated as
                  of May 7, 2004,  between  Intelsat USA Sales Corp. and Andrita
                  Studios, Inc.

10.3          Transponder 9

      10.3.1*     Agreement  Concerning  Skynet Space Segment Service  (Contract
                  Number  T70309257),  dated as of November  20,  2003,  between
                  Andrita Studios, Inc. and Loral Skynet

      10.3.2*     Amendment No 1 to Contract Number T70309257  (IA7-C9) dated as
                  of May 7, 2004,  between  Intelsat USA Sales Corp. and Andrita
                  Studios, Inc.

10.4          Transponder 23

      10.4.1*     Digital   Channel   Platform   Agreement    (Contract   Number
                  GSS0210100) dated as of February 4, 2003, between Loral Skynet
                  and Playboy Entertainment Group, Inc.

      10.4.2      Amendment No 1 to Contract Number GSS0210100  (Digital Channel
                  Platform) dated as of May 7, 2004,  between Intelsat USA Sales
                  Corp. and Playboy Entertainment Group, Inc.

10.5*         Omnibus  Amendment to  Agreements  between  Playboy  Entertainment
              Group, Inc.,  Andrita Studios,  Inc. and Intelsat USA Sales Corp.,
              dated as of December 22, 2005

10.6          Playboy TV UK

      10.6.1*     Contract for a Combined  Compressed  Uplink and Eurobird Space
                  Segment  Service,  dated as of May 12, 2003,  between  British
                  Telecommunications plc and Playboy TV UK Limited

      10.6.2      Contract  Amendment  Agreement  (Number 1) dated as of May 12,
                  2003, between British Telecommunications plc and Playboy TV UK
                  Limited

10.7          Playboy TV UK/BENELUX

      10.7.1*     Contract for a Combined  Compressed  Uplink and Eurobird Space
                  Segment  Service,  dated as of May 12, 2004,  between  British
                  Telecommunications plc and Playboy TV UK/BENELUX Limited

      10.7.2*     Contract  Amendment  Agreement (Number 1) dated as of November
                  30, 2004, between British  Telecommunications  plc and Playboy
                  TV UK/BENELUX Limited

10.8*         Amended and Restated Full-Time Satellite and Terrestrial  Services
              Agreement,  dated  as of  September  30,  2003  between  T-Systems
              Canada, Inc. and STV International B.V.

10.9*         Seventh Amendment (related to Subscription  Fulfillment  Agreement
              dated July 1,  1987,  as  amended),  dated  March 7, 2006,  by and
              between Communications Data Services, Inc. and Playboy Enterprises
              International,  Inc.


                                       23
<PAGE>

10.10*        Agreement dated as of January 1, 2006, between  Time/Warner Retail
              Sales & Marketing Inc. (f/k/a Warner Publisher Services, Inc.) and
              Playboy Enterprises, Inc.

10.11         Reaffirmation  of Loan  Documents  (relating to Credit  Agreement,
              dated as of March 11, 2003),  dated as of April 1, 2005, among PEI
              Holdings, Inc. and Bank of America, N.A.

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

      *       A portion of this  exhibit has been  omitted and filed  separately
              with the Securities and Exchange  Commission pursuant to a request
              for  confidential   treatment   pursuant  to  Rule  24b-2  of  the
              Securities and Exchange Act of 1934.


                                       24