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 June 30, 2007

                                       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 July 31,  2007,  there  were  4,864,102  shares  of Class A common  stock and
28,387,357 shares of Class B common stock outstanding.

<PAGE>

FORWARD-LOOKING STATEMENTS

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

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

(1)   Foreign,  national,  state and local  government  regulations,  actions or
      initiatives, including:

      (a)   attempts to limit or otherwise  regulate the sale,  distribution  or
            transmission   of   adult-oriented   materials,   including   print,
            television, video, Internet and wireless materials,

      (b)   limitations  on the  advertisement  of  tobacco,  alcohol  and other
            products which are important sources of advertising  revenue for us,
            or

      (c)   substantive  changes in postal  regulations which could increase our
            postage and distribution costs;

(2)   Risks associated with our foreign 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 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,  new electronic
      media 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 or technical  failure
      of transponders or other transmitting or playback equipment that is beyond
      our  control  and  competition  for  channel  space on  linear  television
      platforms or video-on-demand platforms;

(14)  Failure to maintain our  agreements  with multiple  system  operators,  or
      MSOs, and direct-to-home, or DTH, operators on favorable terms, as well as
      any decline in our access to, and  acceptance by, DTH and/or cable systems
      and the possible resulting deterioration in the terms, cancellation of fee
      arrangements 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 certain  minimum  revenue  amounts  under  certain
      television distribution agreements;

                                       2
<PAGE>

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

(21)  Effects of the national consolidation of television distribution companies
      (e.g., cable MSOs, satellite platforms and telecommunications  companies);
      and

(22)  Risks associated with the viability of our  subscription-,  on demand- and
      e-commerce-based Internet models.

     For a detailed  discussion  of these and other  factors that may affect our
performance,  see Part I, Item 1A. "Risk  Factors" in our Annual  Report on Form
10-K for the year ended December 31, 2006.

                                       3
<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                                    FORM 10-Q

                                TABLE OF CONTENTS

                                                                            Page
                                     PART I
                              FINANCIAL INFORMATION

Item 1.   Financial Statements

            Condensed Consolidated Statements of Operations and
            Comprehensive Income/Loss for the Quarters Ended
            June 30, 2007 and 2006 (Unaudited)                                 5

            Condensed Consolidated Statements of Operations and
            Comprehensive Income/Loss for the Six Months Ended
            June 30, 2007 and 2006  (Unaudited)                                6

            Condensed Consolidated Balance Sheets at June 30, 2007
            (Unaudited) and December 31, 2006                                  7

            Condensed Consolidated Statements of Cash Flows for
            the Six Months Ended June 30, 2007 and 2006 (Unaudited)            8

            Notes to Condensed Consolidated Financial Statements (Unaudited)   9

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                                 15

Item 3.   Quantitative and Qualitative Disclosures About Market Risk          19

Item 4.   Controls and Procedures                                             20


                                       PART II
                                  OTHER INFORMATION

Item 1.   Legal Proceedings                                                   21

Item 1A.  Risk Factors                                                        21

Item 4.   Submissions of Matters to a Vote of Security Holders                21

Item 6.   Exhibits                                                            22

                                       4
<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 June 30 (Unaudited)
                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                              2007           2006
---------------------------------------------------------------------------------
<S>                                                    <C>            <C>
Net revenues                                           $    85,652    $    80,477
---------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                           (66,532)       (65,567)
   Selling and administrative expenses                     (15,157)       (14,257)
   Restructuring expenses                                     (110)        (1,906)
---------------------------------------------------------------------------------
Total costs and expenses                                   (81,799)       (81,730)
---------------------------------------------------------------------------------
Gain on disposal                                                --             29
---------------------------------------------------------------------------------
Operating income (loss)                                      3,853         (1,224)
---------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                           623            602
   Interest expense                                         (1,204)        (1,281)
   Amortization of deferred financing fees                    (134)          (134)
   Other, net                                                 (168)            50
---------------------------------------------------------------------------------
Total nonoperating expense                                    (883)          (763)
---------------------------------------------------------------------------------
Income (loss) before income taxes                            2,970         (1,987)
Income tax expense                                          (1,059)        (1,320)
---------------------------------------------------------------------------------
Net income (loss)                                            1,911         (3,307)
=================================================================================

Other comprehensive income (loss)
   Unrealized gain (loss) on marketable securities              96           (111)
   Unrealized gain (loss) on derivatives                        47            (59)
   Foreign currency translation gain (loss)                   (108)           502
---------------------------------------------------------------------------------
Total other comprehensive income                                35            332
---------------------------------------------------------------------------------
Comprehensive income (loss)                            $     1,946    $    (2,975)
=================================================================================

Weighted average number of common shares outstanding
   Basic                                                    33,243         33,158
=================================================================================
   Diluted                                                  33,272         33,158
=================================================================================
Basic and diluted earnings (loss) per common share     $      0.06    $     (0.10)
=================================================================================
</TABLE>

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

                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                              2007           2006
---------------------------------------------------------------------------------
<S>                                                    <C>            <C>
Net revenues                                           $   171,067    $   162,597
---------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                          (133,479)      (128,819)
   Selling and administrative expenses                     (29,740)       (29,594)
   Restructuring expenses                                     (110)        (1,906)
---------------------------------------------------------------------------------
Total costs and expenses                                  (163,329)      (160,319)
---------------------------------------------------------------------------------
Gain on disposal                                                --             29
---------------------------------------------------------------------------------
Operating income                                             7,738          2,307
---------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                         1,098          1,209
   Interest expense                                         (2,566)        (2,709)
   Amortization of deferred financing fees                    (268)          (268)
   Other, net                                                 (307)          (146)
---------------------------------------------------------------------------------
Total nonoperating expense                                  (2,043)        (1,914)
---------------------------------------------------------------------------------
Income before income taxes                                   5,695            393
Income tax expense                                          (2,310)        (2,911)
---------------------------------------------------------------------------------
Net income (loss)                                            3,385         (2,518)
=================================================================================

Other comprehensive income (loss)
   Unrealized gain on marketable securities                    153              9
   Unrealized gain (loss) on derivatives                        36            (61)
   Foreign currency translation gain (loss)                   (285)           417
---------------------------------------------------------------------------------
Total other comprehensive income (loss)                        (96)           365
---------------------------------------------------------------------------------
Comprehensive income (loss)                            $     3,289    $    (2,153)
=================================================================================

Weighted average number of common shares outstanding
   Basic                                                    33,236         33,149
=================================================================================
   Diluted                                                  33,271         33,149
=================================================================================

Basic and diluted earnings (loss) per common share     $      0.10    $     (0.08)
=================================================================================
</TABLE>

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

                                       6
<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                           (Unaudited)
                                                              June 30,   December 31,
                                                                  2007           2006
-------------------------------------------------------------------------------------
<S>                                                        <C>            <C>
Assets
Cash and cash equivalents                                  $    26,391    $    26,748
Marketable securities and short-term investments                 9,013          9,000
Receivables, net of allowance for doubtful accounts of
  $4,645 and $3,688, respectively                               41,502         47,728
Receivables from related parties                                 2,066          1,791
Inventories                                                     13,086         12,599
Deferred subscription acquisition costs                          9,385          9,931
Other current assets                                            11,226          9,426
-------------------------------------------------------------------------------------
   Total current assets                                        112,669        117,223
-------------------------------------------------------------------------------------
Long-term investments                                            6,279             --
Property and equipment, net                                     19,962         17,407
Long-term receivables                                            4,517          4,665
Programming costs, net                                          54,621         55,183
Goodwill                                                       133,531        132,974
Trademarks                                                      64,705         63,794
Distribution agreements, net of accumulated amortization
   of $4,119 and $3,435, respectively                           29,021         29,705
Other noncurrent assets                                         13,850         14,832
-------------------------------------------------------------------------------------
Total assets                                               $   439,155    $   435,783
=====================================================================================

Liabilities
Acquisition liabilities                                    $     7,514    $    10,773
Accounts payable                                                32,381         28,846
Accrued salaries, wages and employee benefits                    4,738          4,896
Deferred revenues                                               44,325         45,050
Accrued litigation settlement                                    1,800          1,800
Other liabilities and accrued expenses                          14,075         14,124
-------------------------------------------------------------------------------------
   Total current liabilities                                   104,833        105,489
-------------------------------------------------------------------------------------
Financing obligations                                          115,000        115,000
Acquisition liabilities                                          8,048          9,692
Net deferred tax liabilities                                    19,260         18,422
Other noncurrent liabilities                                    24,616         23,552
-------------------------------------------------------------------------------------
   Total liabilities                                           271,757        272,155
-------------------------------------------------------------------------------------

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;
    28,765,219 and 28,743,914 issued, respectively                 288            287
Capital in excess of par value                                 228,255        227,775
Accumulated deficit                                            (54,306)       (57,691)
Treasury stock, at cost, 381,971 shares                         (5,000)        (5,000)
Accumulated other comprehensive loss                            (1,888)        (1,792)
-------------------------------------------------------------------------------------
   Total shareholders' equity                                  167,398        163,628
-------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                 $   439,155    $   435,783
=====================================================================================
</TABLE>

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

                                       7
<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                  for the Six Months Ended June 30 (Unaudited)
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                  2007           2006
-------------------------------------------------------------------------------------
<S>                                                        <C>            <C>
Cash flows from operating activities
Net income (loss)                                          $     3,385    $    (2,518)
Adjustments to reconcile net income (loss)
 to net cash provided by operating activities:
   Depreciation of property and equipment                        2,232          1,827
   Amortization of intangible assets                             1,158            612
   Amortization of investments in
    entertainment programming                                   17,444         17,561
   Amortization of deferred financing fees                         268            268
   Deferred income taxes                                           838          2,151
   Net change in operating assets and liabilities                8,218            180
   Investments in entertainment programming                    (17,627)       (19,545)
   Stock-based compensation                                        359          1,794
   Other, net                                                      301            932
-------------------------------------------------------------------------------------
Net cash provided by operating activities                       16,576          3,262
-------------------------------------------------------------------------------------
Cash flows from investing activities
Payments for acquisitions                                         (105)        (7,761)
Purchases of investments                                        (6,384)          (267)
Proceeds from sales of investments                                  --         11,000
Additions to property and equipment                             (5,030)        (2,826)
-------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities           (11,519)           146
-------------------------------------------------------------------------------------
Cash flows from financing activities
Payments of acquisition liabilities                             (5,669)        (4,511)
Proceeds from stock-based compensation                              82            227
-------------------------------------------------------------------------------------
Net cash used for financing activities                          (5,587)        (4,284)
-------------------------------------------------------------------------------------
Effect of exchange rate changes on cash
 and cash equivalents                                               173            343
-------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                         (357)          (533)
Cash and cash equivalents at beginning of period                26,748         26,089
-------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                 $    26,391    $    25,556
=====================================================================================
</TABLE>

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

                                       8
<PAGE>

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(A)  BASIS OF PREPARATION

     The  financial  information  included  in  these  financial  statements  is
unaudited but, in the opinion of management,  reflects all normal  recurring and
other  adjustments  necessary  for a fair  presentation  of the  results for the
interim  periods.  The  interim  results  of  operations  and cash flows are not
necessarily  indicative  of those  results  and cash flows for the entire  year.
These  financial  statements  should be read in  conjunction  with the financial
statements and notes to the financial  statements contained in our Annual Report
on Form 10-K for the fiscal  year  ended  December  31,  2006.  Certain  amounts
reported for the prior periods have been  reclassified to conform to the current
year's presentation.

(B)  RECENTLY ISSUED ACCOUNTING STANDARDS

     In February 2007, the Financial  Accounting  Standards  Board, or the FASB,
issued  Statement  of  Financial  Accounting  Standards  No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities, including an amendment of
FASB  Statement  No. 115, or Statement  159.  Statement  159 allows  entities to
voluntarily elect to measure many financial assets and financial  liabilities at
fair value.  The  election is made on an  instrument-by-instrument  basis and is
irrevocable.  We are required to adopt  Statement  159 at the beginning of 2008.
The impact of the adoption of Statement 159 will be dependent upon the extent to
which  we elect to  measure  eligible  items  at fair  value.  We are  currently
evaluating the impact,  if any, of adopting  Statement 159 on our future results
of operations and financial condition.

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

     In  September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards  No. 157, Fair Value  Measurements,  or Statement  157.  Statement 157
provides   enhanced  guidance  for  using  fair  value  to  measure  assets  and
liabilities.  We are required to adopt  Statement 157 effective at the beginning
of 2008. We are currently  evaluating the impact, if any, of adopting  Statement
157 on our future results of operations and financial condition.

(C)  RESTRUCTURING EXPENSES

     In 2006, we  implemented a cost  reduction  plan that has resulted in lower
overhead costs and annual programming and editorial expenses. As a result of the
2006 restructuring plan, we reported a charge in 2006 of $2.1 million related to
costs associated with a workforce reduction of 15 employees.

     During  the  quarter  ended  June 30,  2007,  we  recorded  an  unfavorable
adjustment of $47 thousand related to our 2002 and 2001 restructuring  plans and
an unfavorable adjustment of $63 thousand related to our 2006 restructuring plan
as a result of changes in plan  assumptions  related to excess  office space and
employee severance.  In addition, in 2006, we recorded a favorable adjustment of
$0.2 million and an unfavorable  adjustment of $0.1 million  related to our 2002
and 2001  restructuring  plans,  respectively,  as a result of  changes  in plan
assumptions primarily related to excess office space.

     During the  six-month  period ended June 30, 2007, we made cash payments of
$0.5 million  related to prior years'  restructuring  plans.  Of the total costs
related to our restructuring plans, approximately $12.4 million was paid through
June 30, 2007, with the remaining $0.3 million to be paid through 2008.

                                       9
<PAGE>

     The   following   table  sets  forth  the  activity  and  balances  of  our
restructuring  reserves  for  the  year  ended  December  31,  2006  and for the
six-month period ended June 30, 2007 (in thousands):

<TABLE>
<CAPTION>
                                                         Consolidation
                                                         of Facilities
                                              Workforce            and
                                              Reduction     Operations          Total
-------------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>
Balance at December 31, 2005                $        --    $     1,210    $     1,210
Reserve recorded                                  2,103             --          2,103
Adjustments to previous estimates                    --           (105)          (105)
Other                                                --           (574)          (574)
Cash payments                                    (1,673)          (263)        (1,936)
-------------------------------------------------------------------------------------
Balance at December 31, 2006                        430            268            698
Adjustments to previous estimates                    63             47            110
Cash payments                                      (455)           (37)          (492)
-------------------------------------------------------------------------------------
Balance at June 30, 2007                    $        38    $       278    $       316
=====================================================================================
</TABLE>

(D)  EARNINGS PER COMMON SHARE

     The  following  table  sets  forth the  computations  of basic and  diluted
earnings per share, or EPS (in thousands, except per share amounts):
<TABLE>
<CAPTION>
                                                       Quarters Ended               Six Months Ended
                                                          June 30,                       June 30,
                                                  -------------------------    -------------------------
                                                         2007          2006           2007          2006
--------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>            <C>           <C>
Numerator:
  For basic and diluted EPS - net income (loss)   $     1,911   $    (3,307)   $     3,385   $    (2,518)
========================================================================================================

Denominator:
  For basic EPS - weighted average shares              33,243        33,158         33,236        33,149
  Effect of dilutive potential common shares:
     Employee stock options and other                      29            --             35            --
--------------------------------------------------------------------------------------------------------
      Dilutive potential common shares                     29            --             35            --
--------------------------------------------------------------------------------------------------------
For diluted EPS - weighted average shares              33,272        33,158         33,271        33,149
========================================================================================================

Basic and diluted earnings (loss)
 per common share                                 $      0.06   $     (0.10)   $      0.10   $     (0.08)
========================================================================================================
</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, or convertible  notes.  These
shares were not included in the computations of diluted EPS for the quarters and
six-month  periods ended June 30, 2007 and 2006, as their  inclusion  would have
been antidilutive (in thousands):

<TABLE>
<CAPTION>
                                Quarters Ended               Six Months Ended
                                   June 30,                       June 30,
                          -------------------------       -----------------------
                             2007            2006            2007            2006
---------------------------------------------------------------------------------
<S>                        <C>             <C>              <C>             <C>
Stock options               3,283           3,975           3,220           3,192
Convertible notes           6,758           6,758           6,758           6,758
---------------------------------------------------------------------------------
Total                      10,041          10,733           9,978           9,950
=================================================================================
</TABLE>

                                       10
<PAGE>

(E)  INVENTORIES

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

                                                          June 30,  December 31,
                                                              2007          2006
--------------------------------------------------------------------------------
Paper                                                  $     3,215   $     2,917
Editorial and other prepublication costs                     7,100         7,425
Merchandise finished goods                                   2,771         2,257
--------------------------------------------------------------------------------
Total inventories                                      $    13,086   $    12,599
================================================================================

(F)  INCOME TAXES

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

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

     In June  2006,  the FASB  issued  Interpretation  No.  48,  Accounting  for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, or FIN
48. FIN 48 clarifies the accounting for  uncertainty in income taxes  recognized
in a company's financial  statements and prescribes a recognition  threshold and
measurement attribute for the financial statement recognition and measurement of
a tax  position  taken or  expected  to be taken  in a tax  return.  FIN 48 also
provides  guidance  on  description,  classification,  interest  and  penalties,
accounting in interim periods,  disclosure and transition.  We adopted FIN 48 on
January 1, 2007. Pursuant to FIN 48 and as a result of the implementation of FIN
48, we recognized no  adjustment  in the liability for  unrecognized  income tax
benefits.  There have been no material  changes to the amount of  uncertain  tax
positions  since the adoption of FIN 48. At June 30,  2007,  we did not have any
material  unrecognized  income  tax  benefits.  We do not  expect  to  recognize
significant  increases or decreases in unrecognized income tax benefits over the
next 12 months.

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

     We file U.S.,  state and foreign income tax returns in  jurisdictions  with
varying  statutes of  limitations.  The 2003  through  2006 tax years  generally
remain subject to examination by federal and most state tax authorities.

(G)  CONTINGENCIES

     In 2006,  we recorded a charge of $1.8  million,  based on an  agreement in
principle, for the settlement of litigation with Directrix,  Inc., or Directrix.
The settlement amount, which was subject to Bankruptcy Court approval,  was paid
in August 2007. The settlement is a compromise of disputed  claims and is not an
admission of liability. We believe that we had good defenses against Directrix's
claims,  but made the reasonable  business  decision to settle the litigation to
avoid further  management  distraction and defense costs, which we had estimated
would have approximately equaled the amount of the settlement.

     In 2006, we acquired Club Jenna, Inc. and related  companies,  a multimedia
adult entertainment business, to complement our existing television,  online and
DVD  businesses.  We paid $7.7  million at closing and $1.6 million in 2007 with
additional  payments of $1.7 million,  $2.3 million and $4.3 million required in
2008, 2009 and 2010,

                                       11
<PAGE>

respectively.  Pursuant to the acquisition  agreement,  we are also obligated to
make future  contingent  earnout  payments based  primarily on sales of existing
content of the acquired  business over a ten-year period and on content produced
by the acquired  business  during the five-year  period after the closing of the
acquisition. If the required performance benchmarks are achieved, any contingent
earnout  payments  will be recorded as  additional  purchase  price.  No earnout
payments have been made through June 30, 2007.

     In 2005,  we acquired an affiliate  network of websites to  complement  our
existing  online  business.  We paid $8.0 million at closing and $2.0 million in
2006, and an additional payment of $2.0 million is required in 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  additional
purchase  price  and/or  compensation  expense.  During  2007 and 2006,  earnout
payments of $0.1 million were made each year and recorded as additional purchase
price.

     In 2002,  a $4.4  million  verdict was entered  against us by a state trial
court in Texas in a lawsuit with a former publishing licensee. We terminated the
license in 1998 due to the licensee's failure to pay royalties and other amounts
due us under the license  agreement.  We appealed and the State  Appellate Court
reversed  the  judgment  by the trial  court,  rendered  judgment  for us on the
majority of  plaintiffs'  claims and  remanded  the  remaining  claims for a new
trial.  We filed a petition  for review with the Texas  Supreme  Court.  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.

(H)  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, which is not funded. We made cash payments under this policy of $0.1
million and $0.2 million during the quarter and six-month  period ended June 30,
2007,  respectively,  and $0.1 million and $0.2  million  during the quarter and
six-month period ended June 30, 2006, respectively.

(I)  STOCK-BASED COMPENSATION

     Upon  adoption of  Statement  of  Financial  Accounting  Standards  No. 123
(revised 2004),  Share-Based  Payment,  or Statement 123(R), we began estimating
the value of options on the date of grant using the Lattice  Binomial  model, or
Lattice model. The Lattice model requires  extensive analysis of actual exercise
and cancellation  data and includes a number of complex  assumptions  related to
expected  volatility,  risk-free  interest rate,  expected  dividends and option
exercises and cancellations.

     The following table sets forth the assumptions used for the Lattice model:
<TABLE>
<CAPTION>
                                   Quarters Ended                    Six Months Ended
                                       June 30,                           June 30,
                            ---------------------------        -----------------------------
                                    2007           2006                2007             2006
--------------------------------------------------------------------------------------------
<S>                         <C>            <C>                 <C>              <C>
Expected volatility             25% - 41%      29% - 43%           25% - 41%        29% - 43%
Weighted average volatility           34%            38%                 34%              38%
Risk-free interest rate     4.67% - 5.04%  4.32% - 4.66%       4.67% - 5.04%    4.32% - 4.66%
Expected dividends                    --             --                  --               --
--------------------------------------------------------------------------------------------
</TABLE>

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

                                       12
<PAGE>

     During the quarter and  six-month  period ended June 30,  2007,  we granted
160,000 stock options,  exercisable for shares of our Class B Stock,  which will
vest over a three-year  period from the grant date and expire ten years from the
grant date.  There were no stock options  granted  during the second  quarter of
2006;  during the six-month period ended June 30, 2006, we granted 670,500 stock
options.  The weighted  average  expected  life for options  granted  during the
current  quarter  and  six-month  period was 6.3 years and during the  six-month
period of 2006 was 5.8  years.  The  weighted  average  fair value per share for
stock options granted during the current quarter and six-month  period was $4.64
and during the six-month period of 2006 was $6.40.

     During the quarter and  six-month  period ended June 30,  2007,  we granted
250,625  restricted  stock units,  which provide for the issuance of our Class B
stock if our two-year  cumulative  operating income target thresholds are met as
of December 31, 2008, with an additional  one-year holding period for restricted
stock units that vest based on performance. There were no restricted stock units
granted  during the second  quarter of 2006;  during the six-month  period ended
June 30, 2006, we granted 188,500  restricted  stock units. The weighted average
grant date fair value for  restricted  stock  units  granted  during the current
quarter and six-month  period was $10.61 and during the six-month period of 2006
was $14.51.

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

                                  Quarters Ended            Six Months Ended
                                     June 30,                   June 30,
                              ---------------------      ---------------------
                                   2007        2006           2007        2006
------------------------------------------------------------------------------
Stock options                 $     448   $     796      $     165   $   1,505
Restricted stock units               87         160             87         195
Other equity awards                  50          37             92          80
ESPP                                  8           8             15          14
------------------------------------------------------------------------------
Total                         $     593   $   1,001      $     359   $   1,794
==============================================================================

     Statement  123(R)  requires that the total amount of  compensation  expense
recognized  reflects the number of stock  options that  actually  vest as of the
completion  of the  vesting  period.  Upon the vesting of certain  stock  option
grants,  we adjusted  our  stock-based  compensation  expense to reflect  actual
versus  estimated  forfeitures.  During the  quarter  ended March 31,  2007,  we
recorded  a  favorable  adjustment  of  $1.0  million  to  reflect  that  actual
forfeitures for vested stock option grants exceeded the estimated amounts.

                                       13
<PAGE>

(J)  SEGMENT INFORMATION

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

<TABLE>
<CAPTION>
                                              Quarters Ended              Six Months Ended
                                                 June 30,                     June 30,
                                          ------------------------    ------------------------
                                                2007          2006          2007          2006
----------------------------------------------------------------------------------------------
<S>                                       <C>           <C>           <C>           <C>
Net revenues
Entertainment                             $   51,838    $   47,545    $  102,696    $   98,722
Publishing                                    22,658        23,790        46,003        47,285
Licensing                                     11,156         9,142        22,368        16,590
----------------------------------------------------------------------------------------------
Total                                     $   85,652    $   80,477    $  171,067    $  162,597
==============================================================================================
Income (loss) before income taxes
Entertainment                             $    7,301    $    4,881    $   11,605    $   12,754
Publishing                                    (2,273)       (1,752)       (4,669)       (4,049)
Licensing                                      5,523         4,076        13,200         8,422
Corporate Administration and Promotion        (6,588)       (6,552)      (12,288)      (12,943)
Restructuring expenses                          (110)       (1,906)         (110)       (1,906)
Gain on disposal                                  --            29            --            29
Investment income                                623           602         1,098         1,209
Interest expense                              (1,204)       (1,281)       (2,566)       (2,709)
Amortization of deferred financing fees         (134)         (134)         (268)         (268)
Other, net                                      (168)           50          (307)         (146)
----------------------------------------------------------------------------------------------
Total                                     $    2,970    $   (1,987)   $    5,695    $      393
==============================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                                                         June 30,      Dec. 31,
                                                                             2007          2006
-----------------------------------------------------------------------------------------------
<S>                                                                   <C>           <C>
Identifiable assets
Entertainment                                                         $   283,998   $   288,540
Publishing                                                                 35,071        38,146
Licensing                                                                  11,368         9,386
Corporate Administration and Promotion                                    108,718        99,711
-----------------------------------------------------------------------------------------------
Total                                                                 $   439,155   $   435,783
===============================================================================================
</TABLE>

                                       14
<PAGE>

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

     This  discussion   should  be  read  in  conjunction   with  the  Condensed
Consolidated  Financial Statements and accompanying notes in Item 1 and with our
Annual  Report on Form 10-K for the year ended  December  31,  2006.  All period
references are to our fiscal periods unless otherwise indicated.

RESULTS OF OPERATIONS (1)

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

                                              Quarters Ended   Six Months Ended
                                                  June 30,          June 30,
                                             ----------------  ----------------
                                                2007     2006     2007     2006
-------------------------------------------------------------------------------
Net revenues
Entertainment
  Domestic TV                                $  21.6  $  20.9  $  41.3  $  43.2
  International TV                              13.7     11.7     27.5     24.1
  Online/mobile                                 14.6     13.5     30.3     28.8
  Other                                          1.9      1.4      3.6      2.6
-------------------------------------------------------------------------------
  Total Entertainment                           51.8     47.5    102.7     98.7
-------------------------------------------------------------------------------
Publishing
  Domestic magazine                             19.0     20.2     38.1     39.4
  International magazine                         1.8      1.6      3.7      3.3
  Special editions and other                     1.9      2.0      4.2      4.6
-------------------------------------------------------------------------------
  Total Publishing                              22.7     23.8     46.0     47.3
-------------------------------------------------------------------------------
Licensing
  Consumer products                              7.5      6.9     16.2     13.7
  Location-based entertainment                   0.9       --      1.8      --
  Marketing events                               2.3      2.3      2.6      2.5
  Other                                          0.5       --      1.8      0.4
-------------------------------------------------------------------------------
  Total Licensing                               11.2      9.2     22.4     16.6
-------------------------------------------------------------------------------
Total net revenues                           $  85.7  $  80.5  $ 171.1  $ 162.6
===============================================================================

Net income (loss)
Entertainment
  Before programming amortization and
   online content expenses                   $  17.4  $  15.2  $  31.9  $  32.5
  Programming amortization and online
   content expenses                            (10.1)   (10.3)   (20.3)   (19.7)
--------------------------------------------------------------------------------
  Total Entertainment                            7.3      4.9     11.6     12.8
-------------------------------------------------------------------------------
Publishing                                      (2.3)    (1.8)    (4.7)    (4.1)
-------------------------------------------------------------------------------
Licensing                                        5.5      4.1     13.2      8.4
-------------------------------------------------------------------------------
Corporate Administration and Promotion          (6.6)    (6.5)   (12.3)   (12.9)
-------------------------------------------------------------------------------
Segment income                                   3.9      0.7      7.8      4.2
Restructuring expenses                          (0.1)    (1.9)    (0.1)    (1.9)
-------------------------------------------------------------------------------
Operating income (loss)                          3.8     (1.2)     7.7      2.3
-------------------------------------------------------------------------------
Nonoperating income (expense)
  Investment income                              0.6      0.6      1.1      1.2
  Interest expense                              (1.1)    (1.3)    (2.5)    (2.7)
  Amortization of deferred financing fees       (0.2)    (0.2)    (0.3)    (0.3)
  Other, net                                    (0.1)     0.1     (0.3)    (0.1)
-------------------------------------------------------------------------------
Total nonoperating expense                      (0.8)    (0.8)    (2.0)    (1.9)
-------------------------------------------------------------------------------
Income (loss) before income taxes                3.0     (2.0)     5.7      0.4
Income tax expense                              (1.1)    (1.3)    (2.3)    (2.9)
-------------------------------------------------------------------------------
Net income (loss)                            $   1.9  $  (3.3) $   3.4  $  (2.5)
===============================================================================
Basic and diluted earnings (loss)
 per common share                            $  0.06  $ (0.10) $  0.10  $ (0.08)
===============================================================================

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

                                       15
<PAGE>

     Our revenues  increased $5.2 million,  or 6.4%, and $8.5 million,  or 5.2%,
for the quarter and six-month  period,  respectively,  driven by higher revenues
from our Entertainment and Licensing Groups.

     Segment income  increased $3.2 million and $3.6 million for the quarter and
six-month  period,  respectively.  The quarter  comparison  reflected  increased
profits from our Entertainment and Licensing Groups, which were partially offset
by lower Publishing Group results.  The six-month comparison reflected increased
profits  from  our  Licensing  Group  and  lower  Corporate  Administration  and
Promotion expenses, partially offset by lower results from our Entertainment and
Publishing Groups.

     Operating  income  increased  $5.0 million and $5.4 million for the quarter
and six-month period,  respectively,  due to the improved segment income coupled
with $1.8 million lower restructuring expenses in the current year.

     Net income of $1.9 million and $3.4  million for the quarter and  six-month
period, respectively,  improved by $5.2 million and $5.9 million compared to the
respective prior year periods primarily due to the operating results  previously
discussed.

     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 revenues and profit contribution of
each of our Entertainment  Group businesses before programming  amortization and
online content expenses.

     Revenues from our domestic TV networks  increased $0.7 million,  or 4%, for
the quarter and decreased  $1.9 million,  or 4%, for the six-month  period.  The
increase for the quarter was  primarily due to higher  video-on-demand,  or VOD,
revenues  net of lower  movie  network  revenues,  together  with an increase in
Playboy TV  revenues.  The  decrease in revenues  for the  six-month  period was
principally  due to a  decrease  in movie  network  revenues,  net of higher VOD
revenues  coupled with lower linear  Playboy TV  revenues.  Favorable  variances
related to previously estimated revenues also impacted the quarter and six-month
period.  We believe that second half domestic TV revenues will be  approximately
equal to the first half, excluding the favorable variances related to previously
estimated revenues.

     Profit  contribution  from our domestic TV networks  increased $0.9 million
for the quarter and decreased $1.1 million for the six-month period. In addition
to the previously  discussed revenue  performance,  profit contribution was also
impacted  by  lower  marketing  expenses  related  to  timing  of  expenditures,
partially  offset by  increased  volume-related  VOD  distribution  expenses and
expense  related  to  certain  carriage  distribution  agreements  that we began
amortizing during the fourth quarter of the prior year.

     International TV revenues increased $2.0 million, or 16%, and $3.4 million,
or 14%, and profit contribution  increased $1.7 million and $1.5 million for the
quarter and six-month period, respectively,  reflecting revenue growth in our UK
and other European networks.  While foreign exchange rate fluctuations  resulted
in increases in both revenues and expenses,  the  fluctuations had an immaterial
impact on profit  contribution.  We believe that  international TV revenues will
continue to improve for the remainder of 2007.

     Online/mobile  revenues increased $1.1 million, or 8%, and $1.5 million, or
5%, and profit  contribution  increased  $0.5  million and $1.1  million for the
quarter and six-month period,  respectively.  Online subscription  revenues were
higher in both periods  primarily due to our acquisition of Club Jenna, Inc. and
related companies,  or Club Jenna, in June 2006. E-commerce revenues were higher
due to  improved  sales  from our  Playboy  Catalog  and  revenues  from our new
BUNNYshop  Catalog,  more than  offsetting  the  impact of  licensing  our Spice
Catalog  in  September  2006,  leading  to  lower  revenues  but  higher  profit
contribution.

                                       16
<PAGE>

     Revenues from other  businesses  increased  $0.5 million,  or 37%, and $1.0
million,  or 38%, for the quarter and  six-month  period,  respectively.  Profit
contribution  increased  $0.2 million for the quarter and decreased $0.5 million
for the  six-month  period.  The  improvement  was largely due to the Club Jenna
acquisition,  and the six-month  negative  comparison was largely due to a legal
settlement recorded in the current year.

     The group's  administrative  expenses  increased $1.0 million,  or 23%, and
$1.6  million,  or 16%,  for the quarter  and  six-month  period,  respectively,
primarily to support the acquired businesses.

     Programming amortization and online content expense decreased $0.2 million,
or 2%, for the quarter and  increased  $0.6  million,  or 3%, for the  six-month
period. The six-month period reflected larger investments in online content.  We
anticipate that 2007 programming amortization and online content expense will be
less than $40.0 million, compared to $41.8 million for 2006.

     Segment  income  for the group  increased  $2.4  million,  or 50%,  for the
quarter  and  decreased  $1.2  million,   or  9%,  for  the  six-month   period,
respectively, due to the operating results previously discussed.

PUBLISHING GROUP

     Domestic magazine revenues decreased $1.2 million, or 6%, and $1.3 million,
or 3%, for the quarter and six-month  period,  respectively.  A continuation  of
negative  industry  trends  caused  circulation   revenues  to  decrease,   with
subscription  revenues  decreasing $0.9 million, or 8%, and $1.9 million, or 8%,
for the quarter and six-month  period,  respectively,  primarily due to downward
pressure   on  both   renewal   rates   and   direct-to-publisher   subscription
acquisitions.  Newsstand  revenues  decreased  $0.2  million,  or 8%,  and  $0.3
million, or 5%, for the quarter and six-month period,  respectively,  due to 10%
and 7% fewer copies sold,  respectively.  Advertising revenues were $0.2 million
lower for the quarter but $0.9  million  higher for the  six-month  period.  The
quarter  results reflect an 8% decrease in average net revenue per page due to a
change  in  the  mix  of  advertisers,  partially  offset  by a 5%  increase  in
advertising  pages.  The  improvement  in the  six-month  period  reflects a 10%
increase in advertising pages,  partially offset by a 2% decrease in average net
revenue per page,  again due to a change in the mix of advertisers.  Advertising
sales for the 2007 third quarter  magazine  issues are closed,  and we expect to
report  approximately  5%  higher  advertising  revenues  and a 9%  increase  in
advertising pages compared to the 2006 third quarter.

     International  magazine revenues  increased $0.2 million,  or 14%, and $0.4
million, or 13%, for the quarter and six-month period, respectively.

     Special editions and other revenues were flat for the quarter and decreased
$0.4 million, or 9%, for the six-month period.  Fewer special editions newsstand
copies sold in both periods  resulted in lower revenues of $0.4 million and $0.6
million for the quarter and six-month period, respectively.

     The group's segment loss increased $0.5 million,  or 30%, and $0.6 million,
or 15%, for the quarter and six-month period, respectively,  because the periods
also  included   post-employment  benefit  costs  related  to  senior  editorial
employees  and  additional  expensing of  subscription  collection  costs.  On a
comparable  basis,  segment  results  would have  improved  for the  quarter and
six-month  period as cost reductions  more than offset the  circulation  revenue
declines  previously  discussed and higher  editorial  costs. As a result of the
continuing   difficult  market  trends  and  the  post-employment   benefit  and
subscription collection costs, we believe that the group's segment profitability
will likely be in line with what we reported in 2005.

LICENSING GROUP

     Licensing Group revenues increased $2.0 million,  or 22%, and $5.8 million,
or 35%, for the quarter and six-month period, respectively, reflecting royalties
from our  location-based  entertainment  venue at the Palms Casino Resort in Las
Vegas, which opened in October 2006, and higher consumer products royalties. The
quarter and  six-month  period also  reflected  $0.4  million and $1.7  million,
respectively,  in sales of original artwork compared to none and $0.4 million in
the prior year periods,  respectively. The group's segment income increased $1.4
million, or 36%, and $4.8 million, or 57%, for the quarter and six-month period,
respectively, as a result of these revenue

                                       17
<PAGE>

increases,  partially  offset by  growth-related  costs.  We continue to project
growth of  approximately  20 to 25% in the  Licensing  Group's  segment  income,
excluding the impact of sales of original art.

CORPORATE ADMINISTRATION AND PROMOTION

     Corporate  Administration  and Promotion expenses were flat for the quarter
and decreased $0.6 million,  or 5%, for the six-month period,  with both periods
reflecting  additional  expense  related  to certain  trademark  costs that were
previously   capitalized,   the  previously   mentioned   allocation  of  actual
post-employment  benefit  costs to the  Publishing  Group  and  lower  marketing
expenses.

RESTRUCTURING EXPENSES

     During  the  quarter  ended  June 30,  2007,  we  recorded  an  unfavorable
adjustment of $0.1 million related to prior  restructuring  plans as a result of
changes in plan assumptions.  For the six-month period, we made cash payments of
$0.5 million related to our  restructuring  plans. Of the total costs related to
our restructuring  plans,  approximately $12.4 million was paid through June 30,
2007, with the remaining $0.3 million to be paid through 2008.

INCOME TAX EXPENSE

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

     In June 2006, the Financial Accounting Standards Board, or the FASB, issued
Interpretation   No.  48,   Accounting  for  Uncertainty  in  Income  Taxes,  an
interpretation  of FASB  Statement  No.  109,  or FIN 48. We  adopted  FIN 48 on
January 1, 2007. Pursuant to FIN 48 and as a result of the implementation of FIN
48, we recognized no  adjustment  in the liability for  unrecognized  income tax
benefits.  There have been no material  changes to the amount of  uncertain  tax
positions  since the adoption of FIN 48. At June 30,  2007,  we did not have any
material  unrecognized  income  tax  benefits.  We do not  expect  to  recognize
significant increases or decreases in unrecognized tax benefits over the next 12
months.

LIQUIDITY AND CAPITAL RESOURCES

     At June 30,  2007,  we had  $26.4  million  in cash  and  cash  equivalents
compared to $26.7 million in cash and cash  equivalents at December 31, 2006. We
also had $9.0  million  and $3.0  million of auction  rate  securities,  or ARS,
included in marketable  securities and  short-term  investments at June 30, 2007
and December 31, 2006,  respectively.  ARS generally have long-term  maturities;
however,   these   investments  have   characteristics   similar  to  short-term
investments because at predetermined  intervals,  typically every 28 days, there
is a new auction  process.  Total financing  obligations  were $115.0 million at
both June 30, 2007 and December 31, 2006.

     At June 30, 2007,  cash generated from our operating  activities,  existing
cash and cash equivalents and marketable  securities and short-term  investments
were  fulfilling  our  liquidity  requirements.  In addition,  our $50.0 million
credit facility, which can be used for revolving borrowings,  issuing letters of
credit or a combination  of both, had no borrowings and $10.6 million in letters
of credit outstanding,  resulting in $39.4 million of available borrowings under
this facility at June 30, 2007.

CASH FLOWS FROM OPERATING ACTIVITIES

     Net cash provided by operating activities for the six months ended June 30,
2007 was $16.6 million,  an increase of $13.3 million compared to the prior year
period primarily due to changes in working capital.

                                       18
<PAGE>

CASH FLOWS FROM INVESTING ACTIVITIES

     Net cash used for  investing  activities  for the six months ended June 30,
2007 was $11.5 million,  an increase of $11.7 million compared to the prior year
period.  This  increase was primarily due to the purchase of $6.0 million in ARS
and  capital  expenditures  of $5.0  million,  which were  primarily  related to
leasehold  improvements  at our New  York  office  and Los  Angeles  programming
facility and technology-related  items. The prior year period reflected proceeds
of $11.0  million  from the sale of  investments  and  payments of $7.8  million
primarily related to the acquisition of Club Jenna.

CASH FLOWS FROM FINANCING ACTIVITIES

     Net cash used for  financing  activities  for the six months ended June 30,
2007 was $5.6  million,  an increase of $1.3 million  compared to the prior year
period  primarily  due to  acquisition  liability  payments  related  to  Califa
Entertainment Group, Inc. and Club Jenna.

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

     The positive  effect of foreign  currency  exchange  rates on cash and cash
equivalents  during the current year and prior year was due to the  weakening of
the U.S. dollar against the pound sterling and Euro.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In  February  2007,  the FASB  issued  Statement  of  Financial  Accounting
Standards  No. 159, The Fair Value  Option for  Financial  Assets and  Financial
Liabilities, including an amendment of FASB Statement No. 115, or Statement 159.
Statement 159 allows  entities to  voluntarily  elect to measure many  financial
assets and  financial  liabilities  at fair  value.  The  election is made on an
instrument-by-instrument  basis and is  irrevocable.  We are  required  to adopt
Statement 159 at the beginning of 2008.  The impact of the adoption of Statement
159 will be  dependent  upon the  extent to which we elect to  measure  eligible
items at fair value. We are currently evaluating the impact, if any, of adopting
Statement 159 on our future results of operations and financial condition.

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

     In  September  2006,  the FASB issued  Statement  of  Financial  Accounting
Standards  No. 157, Fair Value  Measurements,  or Statement  157.  Statement 157
provides   enhanced  guidance  for  using  fair  value  to  measure  assets  and
liabilities.  We are required to adopt  Statement 157 effective at the beginning
of 2008. We are currently  evaluating the impact, if any, of adopting  Statement
157 on our future results of operations and financial condition.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     At June 30, 2007, we did not have any floating interest rate exposure.  All
of our  outstanding  debt as of that date  consisted  of the  3.00%  convertible
senior  subordinated  notes due 2025, or convertible notes, which are fixed-rate
obligations.  The fair value of the $115.0 million aggregate principal amount of
the convertible  notes is influenced by changes in market  interest  rates,  the
share price of our Class B stock and our credit  quality.  At June 30, 2007, the
convertible notes had an implied fair value of $110.9 million.

                                       19
<PAGE>

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Internal Control over Financial Reporting

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

                                       20
<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     There have been no material  changes to our Legal  Proceedings as contained
in our Annual Report on Form 10-K for the year ended December 31, 2006.

ITEM 1A. RISK FACTORS

     There have been no material changes to our Risk Factors as contained in our
Annual Report on Form 10-K for the year ended December 31, 2006.

ITEM 4.  SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Our  annual  meeting  of  shareholders  was  held on May 23,  2007.  At the
meeting, the following director nominees were elected:

                                                        Votes            Votes
Nominee (1)                                               For         Withheld
------------------------------------------------------------------------------
Dennis S. Bookshester                               4,457,959          193,985
David I. Chemerow                                   4,457,984          193,960
Christie Hefner                                     4,003,614          648,330
Charles Hirschhorn                                  4,458,108          193,836
Jerome H. Kern                                      4,457,954          193,990
Russell I. Pillar                                   4,435,529          216,415
Sol Rosenthal                                       4,434,671          217,273
Richard S. Rosenzweig                               4,003,121          648,823
------------------------------------------------------------------------------

(1)   On April 30, 2007, Donald G. Drapkin resigned from our Board of Directors,
      effective  immediately,  in  connection  with  his  appointment  as a Vice
      Chairman of Lazard  International and Chairman of the Investment Committee
      of Lazard Ltd. He was a member of our Board of Directors  since 1997 and a
      member of the  compensation  committee.  As a  result,  there  were  eight
      nominees for director at our 2007 Annual Meeting of Stockholders.

     Also at the meeting,  the shareholders  approved,  with voting as set forth
below,  (a) an amendment to our Second Amended and Restated 1995 Stock Incentive
Plan,  or the 1995 Stock  Incentive  Plan,  (b) an  amendment to our Amended and
Restated 1997 Equity Plan for  Non-Employee  Directors,  or the 1997 Equity Plan
for  Non-Employee  Directors,  (c) an amendment to our Employee  Stock  Purchase
Plan,  or ESPP,  and (d)  ratification  of Ernst & Young LLP as our  independent
registered public accounting firm, or Auditors:

                                       Votes      Votes                   Broker
Matter                                   For    Against    Abstain     Non-Votes
--------------------------------------------------------------------------------
1995 Stock Incentive Plan          3,787,067    500,773        788       363,316
1997 Equity Plan for
  Non-Employee Directors           3,644,118    643,470      1,040       363,316
ESPP                               4,270,638     16,974      1,016       363,316
Auditors                           4,641,945      4,291      5,712           N/A
--------------------------------------------------------------------------------

                                       21
<PAGE>

ITEM 6. EXHIBITS

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

10.1*   Agreement   dated   October  4,  2004,   between   Playboy   Enterprises
        International,  Inc. and Fiesta Palms LLC, N-M Ventures II, LLC and Nine
        Group LLC

10.2    Third  Amended  and  Restated  Playboy  Enterprises,   Inc.  1995  Stock
        Incentive Plan

10.3    Second Amended and Restated 1997 Equity Plan For Non-Employee  Directors
        of Playboy Enterprises, Inc.

10.4    Playboy  Enterprises,  Inc. Employee Stock Purchase Plan, as amended and
        restated

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

----------
*    Portions of this exhibit have been  omitted and filed  separately  with the
     SEC pursuant to a request for confidential treatment pursuant to Rule 24b-2
     of the Exchange Act.

                                       22
<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:    August 9, 2007                      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)

                                       23
<PAGE>

                                  EXHIBIT INDEX

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

10.1*   Agreement   dated   October  4,  2004,   between   Playboy   Enterprises
        International,  Inc. and Fiesta Palms LLC, N-M Ventures II, LLC and Nine
        Group LLC

10.2    Third  Amended  and  Restated  Playboy  Enterprises,   Inc.  1995  Stock
        Incentive Plan

10.3    Second Amended and Restated 1997 Equity Plan For Non-Employee  Directors
        of Playboy Enterprises, Inc.

10.4    Playboy  Enterprises,  Inc. Employee Stock Purchase Plan, as amended and
        restated

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

----------
*       Portions of this exhibit have been omitted and filed separately with the
        SEC pursuant to a request for  confidential  treatment  pursuant to Rule
        24b-2 of the Exchange Act.

                                       24