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

                                    FORM 10-Q

(Mark One)

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

                For the quarterly period ended September 30, 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 October 31,  2007,  there were  4,864,102  shares of Class A common stock and
28,396,416 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  and
      partners;
(3)   Our  ability to manage the risk  associated  with our  exposure to foreign
      currency exchange rate fluctuations;
(4)   Changes in general economic conditions,  consumer spending habits, viewing
      patterns,  fashion trends or the retail sales  environment  which, in each
      case,  could reduce demand for our programming and products and impact our
      advertising revenues;
(5)   Our ability to protect our trademarks,  copyrights and other  intellectual
      property;
(6)   Risks as a distributor of media content, including our becoming subject to
      claims for defamation, invasion of privacy, negligence,  copyright, patent
      or trademark infringement and other claims based on the nature and content
      of the materials we distribute;
(7)   The risk  our  outstanding  litigation  could  result  in  settlements  or
      judgments which are material to us;
(8)   Dilution from any potential  issuance of common stock or convertible  debt
      in connection with financings or acquisition activities;
(9)   Competition  for  advertisers  from  other  publications,  media or online
      providers or any decrease in spending by advertisers,  either generally or
      with respect to the adult male market;
(10)  Competition in the television,  men's magazine,  Internet,  wireless,  new
      electronic media and product licensing markets;
(11)  Attempts  by  consumers  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,
      e-commerce and ad-supported 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

<TABLE>
<CAPTION>
                                                                                                     Page
                                                                                                     ----

                                                 PART I
                                          FINANCIAL INFORMATION

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

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

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

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

                Condensed Consolidated Statements of Cash Flows for the Nine Months
                Ended September 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                                  20

Item 4.    Controls and Procedures                                                                     20

                                                 PART II
                                            OTHER INFORMATION

Item 1.    Legal Proceedings                                                                           21

Item 1A.   Risk Factors                                                                                21

Item 6.    Exhibits                                                                                    22
</TABLE>


                                        4
<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                              2007          2006
--------------------------------------------------------------------------------
<S>                                                    <C>           <C>
Net revenues                                           $    82,858   $    82,297
--------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                           (61,409)      (63,097)
   Selling and administrative expenses                     (17,312)      (15,366)
   Restructuring expenses                                       --          (118)
--------------------------------------------------------------------------------
Total costs and expenses                                   (78,721)      (78,581)
--------------------------------------------------------------------------------
Operating income                                             4,137         3,716
--------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                           568           527
   Interest expense                                         (1,170)       (1,471)
   Amortization of deferred financing fees                    (134)         (134)
   Other, net                                                  163          (165)
--------------------------------------------------------------------------------
Total nonoperating expense                                    (573)       (1,243)
--------------------------------------------------------------------------------
Income before income taxes                                   3,564         2,473
Income tax expense                                            (969)       (1,336)
--------------------------------------------------------------------------------
Net income                                                   2,595         1,137
================================================================================

Other comprehensive income (loss)
   Unrealized gain on marketable securities                    148           107
   Unrealized gain (loss) on derivatives                      (131)           74
   Foreign currency translation gain (loss)                     83          (131)
--------------------------------------------------------------------------------
Total other comprehensive income                               100            50
--------------------------------------------------------------------------------
Comprehensive income                                   $     2,695   $     1,187
================================================================================

Weighted average number of common shares outstanding
   Basic                                                    33,251        33,169
================================================================================
   Diluted                                                  33,301        33,173
================================================================================

Basic and diluted earnings per common share            $      0.08   $      0.03
================================================================================
</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 Nine Months Ended September 30 (Unaudited)
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                              2007          2006
--------------------------------------------------------------------------------
<S>                                                    <C>           <C>
Net revenues                                           $   253,925   $   244,894
--------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                          (194,888)     (191,916)
   Selling and administrative expenses                     (47,052)      (44,960)
   Restructuring expenses                                     (110)       (2,024)
--------------------------------------------------------------------------------
Total costs and expenses                                  (242,050)     (238,900)
--------------------------------------------------------------------------------
Gain on disposal                                                --            29
--------------------------------------------------------------------------------
Operating income                                            11,875         6,023
--------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                         1,666         1,736
   Interest expense                                         (3,736)       (4,180)
   Amortization of deferred financing fees                    (402)         (402)
   Other, net                                                 (144)         (311)
--------------------------------------------------------------------------------
Total nonoperating expense                                  (2,616)       (3,157)
--------------------------------------------------------------------------------
Income before income taxes                                   9,259         2,866
Income tax expense                                          (3,279)       (4,247)
--------------------------------------------------------------------------------
Net income (loss)                                            5,980        (1,381)
================================================================================

Other comprehensive income (loss)
   Unrealized gain on marketable securities                    301           116
   Unrealized gain (loss) on derivatives                       (95)           13
   Foreign currency translation gain (loss)                   (202)          286
--------------------------------------------------------------------------------
Total other comprehensive income                                 4           415
--------------------------------------------------------------------------------
Comprehensive income (loss)                            $     5,984   $      (966)
================================================================================

Weighted average number of common shares outstanding
   Basic                                                    33,241        33,156
================================================================================
   Diluted                                                  33,281        33,156
================================================================================

Basic and diluted earnings (loss) per common share     $      0.18   $     (0.04)
================================================================================
</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)
                                                     September 30,  December 31,
                                                              2007          2006
--------------------------------------------------------------------------------
<S>                                                    <C>           <C>
Assets
Cash and cash equivalents                              $    26,203   $    26,748
Marketable securities and short-term investments            12,381         9,000
Receivables, net of allowance for doubtful
   accounts of $3,923 and $3,688, respectively              45,929        47,728
Receivables from related parties                             1,818         1,791
Inventories                                                 13,293        12,599
Deferred subscription acquisition costs                      9,314         9,931
Other current assets                                        10,801         9,426
--------------------------------------------------------------------------------
   Total current assets                                    119,739       117,223
--------------------------------------------------------------------------------
Long-term investments                                        6,523            --
Property and equipment, net                                 20,561        17,407
Long-term receivables                                        2,502         4,665
Programming costs, net                                      54,634        55,183
Goodwill                                                   133,551       132,974
Trademarks                                                  65,038        63,794
Distribution agreements, net of accumulated
   amortization of $4,461 and $3,435, respectively          28,679        29,705
Other noncurrent assets                                     13,531        14,832
--------------------------------------------------------------------------------
Total assets                                           $   444,758   $   435,783
================================================================================

Liabilities
Acquisition liabilities                                $     5,588   $    10,773
Accounts payable                                            35,423        28,846
Accrued salaries, wages and employee benefits                7,543         4,896
Deferred revenues                                           44,267        45,050
Accrued litigation settlement                                   --         1,800
Other liabilities and accrued expenses                      13,313        14,124
--------------------------------------------------------------------------------
   Total current liabilities                               106,134       105,489
--------------------------------------------------------------------------------
Financing obligations                                      115,000       115,000
Acquisition liabilities                                      7,994         9,692
Net deferred tax liabilities                                19,679        18,422
Other noncurrent liabilities                                25,075        23,552
--------------------------------------------------------------------------------
   Total liabilities                                       273,882       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;
       28,773,588 and 28,743,914 issued, respectively          288           287
Capital in excess of par value                             229,038       227,775
Accumulated deficit                                        (51,711)      (57,691)
Treasury stock, at cost, 381,971 shares                     (5,000)       (5,000)
Accumulated other comprehensive loss                        (1,788)       (1,792)
--------------------------------------------------------------------------------
   Total shareholders' equity                              170,876       163,628
--------------------------------------------------------------------------------
Total liabilities and shareholders' equity             $   444,758   $   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 Nine Months Ended September 30 (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                              2007          2006
--------------------------------------------------------------------------------
<S>                                                    <C>           <C>
Cash flows from operating activities
Net income (loss)                                      $     5,980   $    (1,381)
Adjustments to reconcile net income (loss) to net
  cash provided by operating activities:
   Depreciation of property and equipment                    3,501         2,816
   Amortization of intangible assets                         1,746         1,294
   Amortization of investments in entertainment
    programming                                             25,462        26,768
   Amortization of deferred financing fees                     402           402
   Deferred income taxes                                     1,257         2,885
   Net change in operating assets and liabilities           12,605        (2,587)
   Investments in entertainment programming                (26,671)      (28,264)
   Litigation settlement                                    (1,800)       (1,000)
   Stock-based compensation                                  1,103         3,235
   Other, net                                                  (69)          987
--------------------------------------------------------------------------------
Net cash provided by operating activities                   23,516         5,155
--------------------------------------------------------------------------------
Cash flows from investing activities
Payments for acquisitions                                     (105)       (7,761)
Purchases of investments                                    (9,828)         (485)
Proceeds from sales of investments                              --        11,000
Additions to property and equipment                         (6,643)       (4,633)
--------------------------------------------------------------------------------
Net cash used for investing activities                     (16,576)       (1,879)
--------------------------------------------------------------------------------
Cash flows from financing activities
Payments of deferred financing fees                           (123)           --
Payments of acquisition liabilities                         (7,919)       (8,296)
Proceeds from stock-based compensation                         121           265
--------------------------------------------------------------------------------
Net cash used for financing activities                      (7,921)       (8,031)
--------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash
 equivalents                                                   436           370
Net decrease in cash and cash equivalents                     (545)       (4,385)
--------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period            26,748        26,089
--------------------------------------------------------------------------------
Cash and cash equivalents at end of period             $    26,203   $    21,704
================================================================================
</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

      During the  nine-month  period ended  September  30, 2007,  we recorded an
unfavorable  adjustment  of $47  thousand  related  to  restructuring  plans  we
implemented  in 2002 and  2001 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 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  nine-month  period  ended  September  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  September  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,  which are  included in Other  liabilities  and accrued
expenses  on the  Condensed  Consolidated  Balance  Sheets,  for the year  ended
December 31, 2006 and for the  nine-month  period ended  September  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                                      (473)           (56)          (529)
-------------------------------------------------------------------------------------
Balance at September 30, 2007               $        20    $       259    $       279
=====================================================================================
</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              Nine Months Ended
                                                        September 30,                September 30,
                                                  -------------------------    -------------------------
                                                         2007          2006           2007          2006
--------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>            <C>           <C>
Numerator:
   For basic and diluted EPS - net income (loss)  $     2,595   $     1,137    $     5,980   $    (1,381)
========================================================================================================

Denominator:
   For basic EPS - weighted average shares             33,251        33,169         33,241        33,156
   Effect of dilutive potential common shares:
       Employee stock options and other                    50             4             40            --
--------------------------------------------------------------------------------------------------------
         Dilutive potential common shares                  50             4             40            --
--------------------------------------------------------------------------------------------------------
For diluted EPS - weighted average shares              33,301        33,173         33,281        33,156
========================================================================================================

Basic and diluted earnings (loss) per common
 share                                            $      0.08   $      0.03    $      0.18   $     (0.04)
========================================================================================================
</TABLE>

      The following table sets forth the number of shares related to outstanding
options  to  purchase  our  Class B common  stock,  or  Class B  stock,  and the
potential  number  of shares of Class B stock  contingently  issuable  under our
3.00%  convertible  senior  subordinated  notes due 2025, or convertible  notes.
These  shares  were not  included  in the  computations  of diluted  EPS for the
quarters and  nine-month  periods  ended  September  30, 2007 and 2006, as their
inclusion would have been antidilutive (in thousands):

<TABLE>
<CAPTION>
                                                       Quarters Ended              Nine Months Ended
                                                        September 30,                September 30,
                                                  -------------------------    -------------------------
                                                         2007          2006           2007          2006
--------------------------------------------------------------------------------------------------------
<S>                                                     <C>          <C>             <C>          <C>
Stock options                                           3,058         3,892          3,163         3,425
Convertible notes                                       6,758         6,758          6,758         6,758
--------------------------------------------------------------------------------------------------------
Total                                                   9,816        10,650          9,921        10,183
========================================================================================================
</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):

                                                September 30,  December 31,
                                                         2007          2006
---------------------------------------------------------------------------
Paper                                             $     3,271   $     2,917
Editorial and other prepublication costs                6,532         7,425
Merchandise finished goods                              3,490         2,257
---------------------------------------------------------------------------
Total inventories                                 $    13,293   $    12,599
===========================================================================

(F)   INCOME TAXES

      Our income tax provision  consists  primarily 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. 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  September  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 was paid in August 2007. The settlement was a compromise
of disputed claims and was 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


                                       11
<PAGE>

2007 with  additional  payments of $1.7  million,  $2.3 million and $4.3 million
required  in 2008,  2009 and 2010,  respectively.  Pursuant  to the  acquisition
agreement,  we are also  obligated to make future  contingent  earnout  payments
based  primarily on sales of existing  content of the acquired  business  over a
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 September 30, 2007.

      In 2005, we acquired an affiliate  network of websites to  complement  our
existing online business.  We paid $8.0 million at closing, $2.0 million in 2006
and $2.0 million in September 2007. Pursuant to the asset purchase agreement, we
are also obligated to make future contingent earnout payments over the five-year
period commencing  January 1, 2005 based primarily on the financial  performance
of the acquired business.  If the required performance  benchmarks are achieved,
any contingent  earnout  payments will be recorded as additional  purchase price
and/or  compensation  expense.  During 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 posted a
bond in the amount of approximately  $9.4 million,  which represented the amount
of the judgment,  costs and estimated pre- and  post-judgment  interest.  We, 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 $0.2 million and $0.4 million during the quarter and nine-month  period ended
September 30, 2007,  respectively,  and $37 thousand and $0.3 million during the
quarter and nine-month period ended September 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
the Lattice  model.  The Lattice  model  requires  extensive  analysis of actual
exercise  and  cancellation  data and  includes a number of complex  assumptions
related to expected volatility,  risk-free interest rate, expected dividends and
option exercises and cancellations.

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

<TABLE>
<CAPTION>
                                                        Quarters Ended              Nine Months Ended
                                                        September 30,                 September 30,
                                                  --------------------------   ---------------------------
                                                         2007           2006           2007           2006
----------------------------------------------------------------------------------------------------------
<S>                                                       <C>   <C>            <C>            <C>
Expected volatility                                       N/A       31% - 42%      25% - 41%      29% - 43%
Weighted average volatility                               N/A             37%            34%            38%
Risk-free interest rate                                   N/A   4.62% - 5.16%  4.67% - 5.04%  4.32% - 5.16%
Expected dividends                                        N/A             --             --             --
----------------------------------------------------------------------------------------------------------
</TABLE>

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


                                       12
<PAGE>

      No stock options were granted during the third quarter of 2007; during the
nine-month  period ended  September 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.  During the
quarter and nine-month  period ended  September 30, 2006, we granted 135,000 and
805,500 stock  options,  respectively.  For options  granted  during the current
nine-month period, the weighted average expected life was 6.3 years;  during the
prior year quarter,  it was 6.0 years; and for the nine-month period of 2006, it
was 5.9 years.  For options granted during the current  nine-month  period,  the
weighted  average  fair value per share was  $4.64;  during  the  quarter  ended
September 30, 2006, it was $4.17; and for the nine-month  period ended September
30, 2006, it was $6.03.

      No restricted  stock units were granted  during the third quarter of 2007;
during the  nine-month  period  ended  September  30, 2007,  we granted  250,625
restricted  stock units,  which provide for the issuance of our Class B stock if
we meet  our  two-year  cumulative  operating  income  target  thresholds  as of
December 31, 2008,  with an additional  one-year  holding  period for restricted
stock units that vest based on  performance.  During the quarter and  nine-month
period ended September 30, 2006, we granted 45,000 and 233,500  restricted stock
units,  respectively.  For  restricted  stock units  granted  during the current
nine-month period, the weighted average fair value per share was $10.61;  during
the quarter  ended  September  30, 2006,  it was $9.33;  and for the  nine-month
period ended September 30, 2006, it was $13.51.

      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        Nine Months Ended
                                      September 30,          September 30,
                                   -------------------   ---------------------
                                      2007        2006       2007         2006
------------------------------------------------------------------------------
Stock options                      $   481   $   1,087   $    646   $    2,592
Restricted stock units                 208         308        295          503
Other equity awards                     49          40        141          120
ESPP                                     6           6         21           20
------------------------------------------------------------------------------
Total                              $   744   $   1,441   $  1,103   $    3,235
==============================================================================

      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 nine-month period ended September 30,
2007, we recorded  favorable  adjustments 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         Nine Months Ended
                                             September 30,           September 30,
                                         ---------------------   ----------------------
                                             2007         2006        2007         2006
---------------------------------------------------------------------------------------
<S>                                      <C>         <C>         <C>         <C>
Net revenues
Entertainment                            $ 49,579    $  50,198   $ 152,275   $  148,920
Publishing                                 23,115       24,585      69,118       71,870
Licensing                                  10,164        7,514      32,532       24,104
---------------------------------------------------------------------------------------
Total                                    $ 82,858    $  82,297   $ 253,925   $  244,894
=======================================================================================

Income before income taxes
Entertainment                            $  7,188    $   5,851   $  18,793   $   18,605
Publishing                                 (1,490)        (891)     (6,159)      (4,940)
Licensing                                   6,340        4,632      19,540       13,054
Corporate Administration and Promotion     (7,901)      (5,758)    (20,189)     (18,701)
Restructuring expenses                         --         (118)       (110)      (2,024)
Gain on disposal                               --           --          --           29
Investment income                             568          527       1,666        1,736
Interest expense                           (1,170)      (1,471)     (3,736)      (4,180)
Amortization of deferred financing fees      (134)        (134)       (402)        (402)
Other, net                                    163         (165)       (144)        (311)
---------------------------------------------------------------------------------------
Total                                    $  3,564    $   2,473   $   9,259   $    2,866
=======================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                 September 30,             December 31,
                                                          2007                     2006
---------------------------------------------------------------------------------------
<S>                                                  <C>                     <C>
Identifiable assets
Entertainment                                        $ 285,081               $  288,540
Publishing                                              34,317                   38,146
Licensing                                               10,953                    9,386
Corporate Administration and Promotion                 114,407                   99,711
---------------------------------------------------------------------------------------
Total                                                $ 444,758               $  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 of this
Quarterly  Report on Form 10-Q 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):

<TABLE>
<CAPTION>
                                                                     Quarters Ended            Nine Months Ended
                                                                      September 30,              September 30,
                                                                 -----------------------    -----------------------
                                                                       2007         2006          2007         2006
-------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>          <C>          <C>
Net revenues
Entertainment
   Domestic TV                                                   $     17.6    $    20.5    $     58.9   $     63.7
   International TV                                                    14.3         12.4          41.8         36.5
   Online/mobile                                                       15.3         15.4          45.6         44.2
   Other                                                                2.4          1.9           6.0          4.5
-------------------------------------------------------------------------------------------------------------------
   Total Entertainment                                                 49.6         50.2         152.3        148.9
-------------------------------------------------------------------------------------------------------------------
Publishing
   Domestic magazine                                                   18.3         19.7          56.4         59.1
   International magazine                                               1.9          1.7           5.6          5.0
   Special editions and other                                           2.9          3.2           7.1          7.8
-------------------------------------------------------------------------------------------------------------------
   Total Publishing                                                    23.1         24.6          69.1         71.9
-------------------------------------------------------------------------------------------------------------------
Licensing
   Consumer products                                                    8.7          6.8          24.9         20.5
   Location-based entertainment                                         0.9          0.3           2.7          0.3
   Marketing events                                                     0.4          0.3           3.0          2.8
   Other                                                                0.1          0.1           1.9          0.5
-------------------------------------------------------------------------------------------------------------------
   Total Licensing                                                     10.1          7.5          32.5         24.1
-------------------------------------------------------------------------------------------------------------------
Total net revenues                                               $     82.8    $    82.3    $    253.9   $    244.9
===================================================================================================================

Net income (loss)
Entertainment
   Before programming amortization and online content expenses   $     16.4    $    16.7    $     48.3   $     49.2
   Programming amortization and online content expenses                (9.2)       (10.9)        (29.5)       (30.6)
-------------------------------------------------------------------------------------------------------------------
   Total Entertainment                                                  7.2          5.8          18.8         18.6
-------------------------------------------------------------------------------------------------------------------
Publishing                                                             (1.4)        (0.8)         (6.1)        (4.9)
-------------------------------------------------------------------------------------------------------------------
Licensing                                                               6.3          4.6          19.5         13.0
-------------------------------------------------------------------------------------------------------------------
Corporate Administration and Promotion                                 (7.9)        (5.8)        (20.2)       (18.7)
-------------------------------------------------------------------------------------------------------------------
Segment income                                                          4.2          3.8          12.0          8.0
Restructuring expenses                                                   --         (0.1)         (0.1)        (2.0)
-------------------------------------------------------------------------------------------------------------------
Operating income                                                        4.2          3.7          11.9          6.0
-------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                    0.6          0.6           1.7          1.8
   Interest expense                                                    (1.2)        (1.5)         (3.7)        (4.2)
   Amortization of deferred financing fees                             (0.1)        (0.1)         (0.4)        (0.4)
   Other, net                                                           0.1         (0.2)         (0.2)        (0.3)
-------------------------------------------------------------------------------------------------------------------
Total nonoperating expense                                             (0.6)        (1.2)         (2.6)        (3.1)
-------------------------------------------------------------------------------------------------------------------
Income before income taxes                                              3.6          2.5           9.3          2.9
Income tax expense                                                     (1.0)        (1.4)         (3.3)        (4.3)
-------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                $      2.6    $     1.1    $      6.0   $     (1.4)
-------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings (loss) per common share               $     0.08    $    0.03    $     0.18   $    (0.04)
===================================================================================================================
</TABLE>

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


                                       15
<PAGE>

      Our revenues  increased  $0.5  million for the quarter as higher  revenues
from  our  Licensing  Group  were  mostly  offset  by  lower  revenues  from our
Entertainment and Publishing Groups. Our revenues increased $9.0 million for the
nine-month period as higher revenues from our Entertainment and Licensing Groups
were partially offset by lower revenues from our Publishing Group.

      Segment income increased $0.4 million for the quarter as increased profits
from  our  Entertainment  and  Licensing  Groups  were  mostly  offset  by lower
Publishing  Group  results and higher  Corporate  Administration  and  Promotion
expenses.  Segment  income  increased  $4.0  million for the  nine-month  period
primarily due to increased  profits from our Licensing Group partially offset by
lower Publishing Group results and higher Corporate Administration and Promotion
expenses.

      Operating  income  increased $0.5 million and $5.9 million for the quarter
and nine-month period, respectively,  due to the improved segment income coupled
with $0.1  million  and $1.9  million  of lower  restructuring  expenses  in the
current quarter and nine-month period, respectively, compared to the prior year.

      Net income of $2.6 million and $6.0 million for the quarter and nine-month
period, respectively,  improved by $1.5 million and $7.4 million compared to the
respective prior year periods.

      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 decreased $2.9 million, or 14%, for
the quarter and $4.8 million, or 8%, for the nine-month period.  These decreases
reflect  in part the  impact of one of our  largest  multiple  system  operators
erroneously  over-reporting  prior periods' sales to us, thus reducing  revenues
for the current  quarter.  We continue to believe that revenues have stabilized,
excluding the impact of the current and prior two quarters' adjustments.

      Profit  contribution from our domestic TV networks  decreased $2.5 million
and $3.6  million for the quarter and  nine-month  period,  respectively.  These
decreases were primarily due to the lower revenues  discussed  above,  increased
volume-related  video-on-demand  distribution  expense  and  expense  related to
certain carriage  distribution  agreements that we began  amortizing  during the
fourth quarter of the prior year, partially offset by lower marketing expense.

      International  TV  revenues  increased  $1.9  million,  or 15%,  and  $5.3
million, or 14%, and profit contribution increased $2.3 million and $3.8 million
for the quarter and nine-month period, respectively, reflecting growth in our UK
and other European  networks.  Foreign currency exchange rate fluctuations had a
favorable impact on revenues and profit contribution for the current quarter and
nine-month period.

      Online/mobile  revenues  were  flat for the  quarter  and  increased  $1.4
million,  or 3%, for the nine-month  period, and profit  contribution  decreased
$0.6  million for the  quarter and  increased  $0.5  million for the  nine-month
period. Online subscription revenues were lower for the quarter due to delays in
new site  launches but higher for the  nine-month  period  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 revenues  from our new BUNNYshop
Catalog and improved sales from our Playboy  Catalog,  more than  offsetting the
impact of  licensing  our Spice  Catalog  in  September  2006,  leading to lower
revenues but higher profit contribution. Advertising revenues were higher due to
a redesign  of the  Playboy.com  website,  attracting  new  advertisers.  Mobile
revenues decreased primarily due to lower royalties,


                                       16
<PAGE>

principally from a licensee in Europe due to delays in launching new products.

      Revenues from other  businesses  increased $0.5 million,  or 25%, and $1.5
million,  or 33%, for the quarter and nine-month period,  respectively,  largely
due  to  recording   license  fees  for  our  production   company,   Alta  Loma
Entertainment,  for the quarter.  Profit contribution increased $0.2 million for
the quarter and decreased $0.3 million for the nine-month period impacted by the
Club  Jenna  acquisition  in June 2006 and a legal  settlement  recorded  in the
current year.

      The group's administrative expenses decreased $0.3 million, or 5%, for the
quarter, due primarily to staffing-related  expenses incurred in the prior year,
and  increased  $1.3 million,  or 8%, for the  nine-month  period,  primarily in
support of the acquired businesses.

      Programming  amortization  and  online  content  expenses  decreased  $1.7
million, or 15%, and $1.1 million, or 3%, for the quarter and nine-month period,
respectively,  primarily due to fewer programs  being  licensed and created.  We
anticipate that 2007  programming  amortization and online content expenses will
be less than $40.0 million compared to $41.8 million for 2006.

      Segment  income for the group  increased  $1.4  million,  or 23%,  for the
quarter and $0.2 million,  or 1%, for the nine-month  period, due to the results
previously  discussed.  We believe the group will report  segment income in 2007
similar to that of the previous year.

PUBLISHING GROUP

      Domestic  magazine  revenues  decreased  $1.4  million,  or 7%,  and  $2.7
million,   or  5%,  for  the  quarter  and  nine-month   period,   respectively.
Subscription  revenues decreased $1.0 million,  or 8%, and $2.8 million,  or 8%,
for the quarter and nine-month period,  respectively,  primarily due to downward
pressure   on  both   renewal   rates   and   direct-to-publisher   subscription
acquisitions.  Newsstand  revenues  decreased  $0.7  million,  or 30%,  and $1.0
million, or 13%, for the quarter and nine-month period, respectively,  primarily
due to 23%  and  13%  fewer  copies  sold,  respectively.  Advertising  revenues
increased  $0.3  million,  or 4%, and $1.1  million,  or 6%, for the quarter and
nine-month period, respectively. The quarter increase reflects an 8% increase in
advertising pages,  partially offset by a 4% decrease in average net revenue per
page due to the mix of advertisers. The nine-month period reflects a 9% increase
in advertising  pages,  partially offset by a 3% decrease in average net revenue
per page,  again due to the mix of advertisers.  Advertising  sales for the 2007
fourth quarter magazine issues are closed, and we expect to report approximately
3% lower advertising  revenues on a 1% increase in advertising pages compared to
the 2006 fourth quarter.

      We  believe  that  the  complementary  nature  of  our  online  and  print
businesses  will allow us to grow our overall  audience for Playboy  content and
effectively  aggregate that audience for our advertising partners. On a combined
basis, our online and print advertising  revenues increased $0.8 million for the
quarter and $2.3 million for the nine-month  period. We project combined Playboy
online and print advertising  revenues will increase for the 2007 fourth quarter
compared to the 2006 fourth quarter.  To better reflect changes in how and where
media is consumed and in response to the challenging magazine landscape,  we are
adjusting  our  magazine  rate  base  (the  total  newsstand  and   subscription
circulation  guaranteed  to  advertisers)  to  2.6  million  from  3.0  million,
effective with the January 2008 issue.

      International  magazine revenues increased $0.2 million,  or 11%, and $0.6
million, or 12%, for the quarter and nine-month period, respectively.

      Special  editions and other revenues  decreased  $0.3 million,  or 9%, and
$0.7 million, or 9%, for the quarter and nine-month period, respectively.  Fewer
special  editions  newsstand  copies  sold in both  periods  resulted in revenue
decreases  of $0.2  million and $0.9  million  for the  quarter  and  nine-month
period, respectively.

      The group's segment loss increased $0.6 million, or 67%, and $1.2 million,
or 25%,  for the quarter  and  nine-month  period,  respectively.  Both  current
periods were impacted by additional expensing of subscription  collection costs,
and the current nine-month period also included actual allocated post-employment
benefit  costs  related to senior  editorial  employees.  On a comparable  basis
without the subscription  collection and post-employment  benefit costs, segment
results would have improved for the nine-month period as the higher  advertising
revenues and cost


                                       17
<PAGE>

reductions  more  than  offset  the  circulation   revenue  declines  previously
discussed and higher editorial costs. The group's results for the fourth quarter
are expected to be in line with those of the current quarter.

LICENSING GROUP

      Licensing Group revenues increased $2.6 million, or 35%, and $8.4 million,
or 35%, for the quarter and nine-month period,  respectively,  reflecting higher
consumer products royalties and royalties from our location-based  entertainment
venue at the Palms Casino Resort in Las Vegas, which opened in October 2006. The
nine-month  period also  reflected  $1.8  million in sales of  original  artwork
compared to $0.5 million in the prior year period.  The group's  segment  income
increased  $1.7 million,  or 37%, and $6.5 million,  or 50%, for the quarter and
nine-month  period,  respectively,  as a  result  of  these  revenue  increases,
partially offset by  growth-related  costs. We now anticipate  growth in segment
income for the year of approximately 25 to 30%, excluding the impact of original
art sales.

CORPORATE ADMINISTRATION AND PROMOTION

      Corporate Administration and Promotion expenses increased $2.1 million, or
37%,  and  $1.5  million,   or  8%,  for  the  quarter  and  nine-month  period,
respectively.  Both current  periods  reflected  additional  expense  related to
certain  trademark  costs that were  previously  capitalized.  The  quarter  was
unfavorably  impacted by the timing of some expenses.  The nine-month period was
favorably   impacted  by  the   previously   mentioned   allocation   of  actual
post-employment benefit costs to the Publishing Group.

RESTRUCTURING EXPENSES

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

INCOME TAX EXPENSE

      Income tax expense  decreased  $0.4  million,  or 27%, for the quarter and
$1.0 million, or 23%, for the nine-month period.  These decreases were primarily
the result of a decrease in deferred  income tax expense due to a fourth quarter
2006  modification  of the  assumptions  related to the useful  lives of certain
carriage distribution agreements.

      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. 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  September  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 September 30, 2007,  we had $26.2 million in cash and cash  equivalents
compared to $26.7 million in cash and cash  equivalents at December 31, 2006. We
also had $12.4  million and $3.0  million of auction  rate  securities,  or ARS,
included in marketable  securities and  short-term  investments at September 30,
2007  and  December  31,  2006,  respectively.   ARS  generally  have  long-term
maturities; however, these investments have characteristics similar to


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<PAGE>

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 September 30, 2007 and December 31, 2006.

      At September  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 September 30, 2007.

CREDIT FACILITY

      We amended our $50.0 million credit facility effective September 28, 2007.
The agreement now provides for revolving borrowings,  the issuance of letters of
credit or a combination of both of up to $50.0 million  outstanding at any time.
The borrowing rates and financial  covenants  contained in the amendment did not
change materially,  but we obtained additional  flexibility in other restrictive
covenants.  Borrowings  under the credit  facility  bear  interest at a variable
rate, equal to a specified LIBOR or base rate plus a specified  borrowing margin
based on our Adjusted EBITDA, as defined in the credit agreement. We pay fees on
the outstanding  amount of letters of credit based on the margin that applies to
borrowings that bear interest at a rate based on LIBOR. All amounts  outstanding
under the credit  facility will mature on September 28, 2010. The obligations of
our  subsidiary  PEI Holdings,  Inc. as borrower  under the credit  facility are
guaranteed  by us  and  each  of  our  other  United  States  subsidiaries.  The
obligations  of the borrower and nearly all of the  guarantors  under the credit
facility  are  secured  by a  first-priority  lien on  substantially  all of the
borrower's and the guarantors' assets.

CASH FLOWS FROM OPERATING ACTIVITIES

      Net cash  provided  by  operating  activities  for the nine  months  ended
September 30, 2007 was $23.5 million,  an increase of $18.4 million  compared to
the prior year period primarily due to changes in working capital.

CASH FLOWS FROM INVESTING ACTIVITIES

      Net cash used for investing activities for the nine months ended September
30, 2007 was $16.6 million,  an increase of $14.7 million  compared to the prior
year period.  This increase was primarily due to the purchase of $9.4 million of
ARS and capital  expenditures of $6.6 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 ARS and payments  for  acquisitions  of $7.8
million primarily related to the acquisition of Club Jenna.

CASH FLOWS FROM FINANCING ACTIVITIES

      Net cash used for  financing  activities  of $7.9 million was flat for the
nine months ended September 30, 2007 compared to the prior year period.

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  periods  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.


                                       19
<PAGE>

      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

      We are  exposed  to certain  market  risks,  including  changes in foreign
currency  exchange  rates.  There was no material change in our exposure to such
fluctuations during the first nine months of 2007.  Information regarding market
risks  as of  December  31,  2006 is  contained  in Item 7A.  "Quantitative  And
Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for
the year ended December 31, 2006.

      At  September  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 September
30, 2007, the convertible notes had an implied fair value of $105.4 million.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Internal Control over Financial Reporting

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


                                       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.


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<PAGE>

ITEM 6.  EXHIBITS

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

10.1*    Sixth  Amendment to the Amended and Restated  Credit  Agreement,  dated
         September 28, 2007, among PEI Holdings,  Inc., as borrower, and Bank of
         America,  N.A., as Agent, and the other lenders from time to time party
         thereto

10.2     Third  Amendment  to October 22, 1997  Playboy  Magazine  Printing  and
         Binding Agreement between Playboy Enterprises,  Inc. and Quad/Graphics,
         Inc. dated July 30, 2007

10.3*    Amended  and  Restated  Agreement,  made as of August 1,  2007,  by and
         between Playboy  Entertainment Group, Inc. and Spice Hot Entertainment,
         Inc., and DirecTV, Inc.

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
      Securities and Exchange  Commission pursuant to a request for confidential
      treatment  pursuant to Rule 24b-2 of the  Securities  and  Exchange Act of
      1934.


                                       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:   November 8, 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*    Sixth  Amendment to the Amended and Restated  Credit  Agreement,  dated
         September 28, 2007, among PEI Holdings,  Inc., as borrower, and Bank of
         America,  N.A., as Agent, and the other lenders from time to time party
         thereto

10.2     Third  Amendment  to October 22, 1997  Playboy  Magazine  Printing  and
         Binding Agreement between Playboy Enterprises,  Inc. and Quad/Graphics,
         Inc. dated July 30, 2007

10.3*    Amended  and  Restated  Agreement,  made as of August 1,  2007,  by and
         between Playboy  Entertainment Group, Inc. and Spice Hot Entertainment,
         Inc., and DirecTV, Inc.

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
      Securities and Exchange  Commission pursuant to a request for confidential
      treatment  pursuant to Rule 24b-2 of the  Securities  and  Exchange Act of
      1934.


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