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, 2008

                                       OR

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

                  For the transition period from _____ to _____

                        Commission file number 001-14790

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

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

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

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

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

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

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

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

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

At July 31,  2008,  there  were  4,864,102  shares  of Class A common  stock and
28,452,590 shares of Class B common stock outstanding.

<PAGE>

FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

(3)   Our  ability to manage the risk  associated  with our  exposure to foreign
      currency exchange rate fluctuations;

(4)   Changes in general economic conditions,  consumer spending habits, viewing
      patterns,  fashion trends or the retail sales  environment  which, in each
      case,  could reduce demand for our programming and products and impact our
      advertising revenues;

(5)   Our ability to protect our trademarks,  copyrights and other  intellectual
      property;

(6)   Risks as a distributor of media content, including our becoming subject to
      claims for defamation, invasion of privacy, negligence,  copyright, patent
      or trademark infringement and other claims based on the nature and content
      of the materials we distribute;

(7)   The risk  our  outstanding  litigation  could  result  in  settlements  or
      judgments which are material to us;

(8)   Dilution from any potential  issuance of common stock or convertible  debt
      in connection with financings or acquisition activities;

(9)   Competition  for  advertisers  from  other  publications,  media or online
      providers or any decrease in spending by advertisers,  either generally or
      with respect to the adult male market;

(10)  Competition in the television,  men's magazine,  Internet,  wireless,  new
      electronic  media  and  product  licensing   markets;

(11)  Attempts by consumers, distributors,  merchants or private advocacy groups
      to exclude our programming or other products from distribution;

(12)  Our  television,  Internet  and  wireless  businesses'  reliance  on third
      parties  for  technology  and  distribution,   and  any  changes  in  that
      technology and/or  unforeseen delays in 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,  pressure  on splits or adverse  changes in certain  minimum
      revenue amounts 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 undertake 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)  Effects  of  the  national   consolidation  of  the  single-copy  magazine
      distribution  system and risks associated

                                       2

<PAGE>

      with the financial stability of major magazine wholesalers;

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

(21)  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 fiscal year ended December 31, 2007.

                                       3

<PAGE>

                            PLAYBOY ENTERPRISES, INC.
                                    FORM 10-Q

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
                                     PART I
                              FINANCIAL INFORMATION

Item 1.    Financial Statements

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

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

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

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

              Notes to Condensed Consolidated Financial Statements
              (Unaudited)                                                      9

Item 2.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                          17

Item 3.    Quantitative and Qualitative Disclosures About Market Risk         22

Item 4.    Controls and Procedures                                            22

                                     PART II
                                OTHER INFORMATION

Item 1.    Legal Proceedings                                                  24

Item 1A.   Risk Factors                                                       25

Item 4.    Submissions of Matters to a Vote of Security Holders               25

Item 6.    Exhibits                                                           26

                                       4

<PAGE>

                                     PART I
                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

                                                              2008         2007
-------------------------------------------------------------------------------
Net revenues                                             $  73,378    $  85,652
-------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                           (60,125)     (67,560)
   Selling and administrative expenses                     (13,522)     (14,129)
   Restructuring expense                                        36         (110)
   Impairment charge on assets held for sale                  (103)           -
-------------------------------------------------------------------------------
Total costs and expenses                                   (73,714)     (81,799)
-------------------------------------------------------------------------------
Operating income (loss)                                       (336)       3,853
-------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                           296          623
   Interest expense                                         (1,123)      (1,204)
   Amortization of deferred financing fees                     (89)        (134)
   Other, net                                                  175         (168)
-------------------------------------------------------------------------------
Total nonoperating expense                                    (741)        (883)
-------------------------------------------------------------------------------
Income (loss) before income taxes                           (1,077)       2,970
Income tax expense                                          (1,031)      (1,059)
-------------------------------------------------------------------------------
Net income (loss)                                        $  (2,108)   $   1,911
===============================================================================

Other comprehensive income (loss)
   Unrealized gain (loss) on marketable securities             (72)          96
   Unrealized gain on derivatives                                -           47
   Foreign currency translation loss                          (201)        (108)
-------------------------------------------------------------------------------
Total other comprehensive income (loss)                       (273)          35
-------------------------------------------------------------------------------
Comprehensive income (loss)                              $  (2,381)   $   1,946
===============================================================================

Weighted average number of common shares outstanding
   Basic                                                    33,300       33,243
===============================================================================
   Diluted                                                  33,300       33,272
===============================================================================

Basic and diluted earnings (loss) per common share       $   (0.06)   $    0.06
===============================================================================

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

                                       5

<PAGE>

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

                                                              2008         2007
-------------------------------------------------------------------------------
Net revenues                                             $ 151,914    $ 171,067
-------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                          (123,881)    (135,460)
   Selling and administrative expenses                     (28,227)     (27,759)
   Restructuring expense                                      (558)        (110)
   Impairment charge on assets held for sale                  (103)           -
-------------------------------------------------------------------------------
Total costs and expenses                                  (152,769)    (163,329)
-------------------------------------------------------------------------------
Operating income (loss)                                       (855)       7,738
-------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                           656        1,098
   Interest expense                                         (2,256)      (2,566)
   Amortization of deferred financing fees                    (178)        (268)
   Other, net                                                 (342)        (307)
-------------------------------------------------------------------------------
Total nonoperating expense                                  (2,120)      (2,043)
-------------------------------------------------------------------------------
Income (loss) before income taxes                           (2,975)       5,695
Income tax expense                                          (2,268)      (2,310)
-------------------------------------------------------------------------------
Net income (loss)                                        $  (5,243)   $   3,385
===============================================================================

Other comprehensive income (loss)
   Unrealized gain (loss) on marketable securities            (542)         153
   Unrealized gain on derivatives                               78           36
   Foreign currency translation gain (loss)                    182         (285)
-------------------------------------------------------------------------------
Total other comprehensive loss                                (282)         (96)
-------------------------------------------------------------------------------
Comprehensive income (loss)                              $  (5,525)   $   3,289
===============================================================================

Weighted average number of common shares outstanding
   Basic                                                    33,287       33,236
===============================================================================
   Diluted                                                  33,287       33,271
===============================================================================

Basic and diluted earnings (loss) per common share       $   (0.16)   $    0.10
===============================================================================

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

                                       6

<PAGE>

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

                                                       (Unaudited)
                                                          June 30,     Dec. 31,
                                                              2008         2007
-------------------------------------------------------------------------------
Assets
Cash and cash equivalents                                $  25,615    $  20,603
Marketable securities and short-term investments             3,553       12,952
Receivables, net of allowance for doubtful accounts
   of $3,669 and $3,627, respectively                       44,735       51,139
Receivables from related parties                             2,957        1,704
Inventories                                                  9,366       11,363
Deferred subscription acquisition costs                      8,194        8,686
Deferred tax asset                                           1,320        1,320
Assets held for sale                                             -        4,706
Prepaid expenses and other current assets                    9,482       13,402
-------------------------------------------------------------------------------
   Total current assets                                    105,222      125,875
-------------------------------------------------------------------------------
Long-term investments                                        6,431        6,556
Property and equipment, net                                 18,190       14,665
Long-term receivables                                        2,795        2,795
Programming costs, net                                      54,243       54,926
Goodwill                                                   133,585      133,570
Trademarks                                                  66,107       65,437
Distribution agreements, net of accumulated
   amortization of $5,465 and $4,803, respectively          27,675       28,337
Deferred tax asset                                           1,206        1,206
Other noncurrent assets                                     11,294       11,789
-------------------------------------------------------------------------------
Total assets                                             $ 426,748    $ 445,156
===============================================================================

Liabilities
Acquisition liabilities                                  $   2,670    $   2,134
Accounts payable                                            31,725       37,842
Accrued salaries, wages and employee benefits                4,157        8,304
Deferred revenues                                           42,093       43,955
Deferred tax liability                                       1,490        1,490
Other liabilities and accrued expenses                      13,603       14,269
-------------------------------------------------------------------------------
   Total current liabilities                                95,738      107,994
-------------------------------------------------------------------------------
Financing obligations                                      115,000      115,000
Acquisition liabilities                                      5,656        7,936
Deferred tax liability                                      19,467       18,604
Other noncurrent liabilities                                24,439       24,305
-------------------------------------------------------------------------------
   Total liabilities                                       260,300      273,839
-------------------------------------------------------------------------------

Shareholders' equity
Common stock, $0.01 par value
   Class A voting - 7,500,000 shares authorized;
      4,864,102 issued                                          49           49
   Class B nonvoting - 75,000,000 shares authorized;
      28,825,478 and 28,784,079 issued, respectively           288          288
Capital in excess of par value                             230,489      229,833
Accumulated deficit                                        (58,009)     (52,766)
Treasury stock, at cost - 381,971 shares                    (5,000)      (5,000)
Accumulated other comprehensive loss                        (1,369)      (1,087)
-------------------------------------------------------------------------------
   Total shareholders' equity                              166,448      171,317
-------------------------------------------------------------------------------
Total liabilities and shareholders' equity               $ 426,748    $ 445,156
===============================================================================

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)

                                                              2008         2007
-------------------------------------------------------------------------------
Cash flows from operating activities
Net income (loss)                                        $  (5,243)   $   3,385
Adjustments to reconcile net income (loss) to net cash
   provided by (used for) operating activities:
   Depreciation of property and equipment                    2,192        2,232
   Amortization of intangible assets                         1,130        1,158
   Amortization of investments in entertainment
      programming                                           16,333       17,444
   Amortization of deferred financing fees                     178          268
   Stock-based compensation                                    450          359
   Impairment charge on assets held for sale                   103            -
   Deferred income taxes                                       863          838
   Net change in operating assets and liabilities           (1,502)       8,218
   Investments in entertainment programming                (15,964)     (17,627)
   Other, net                                                  125          301
-------------------------------------------------------------------------------
Net cash provided by (used for) operating activities        (1,335)      16,576
-------------------------------------------------------------------------------
Cash flows from investing activities
Payments for acquisitions                                      (60)        (105)
Purchases of investments                                      (588)      (6,384)
Proceeds from sales of investments                           9,511            -
Additions to assets held for sale                           (6,920)           -
Proceeds from assets held for sale                          12,000            -
Additions to property and equipment                         (5,741)      (5,030)
-------------------------------------------------------------------------------
Net cash provided by (used for) investing activities         8,202      (11,519)
-------------------------------------------------------------------------------
Cash flows from financing activities
Payments of acquisition liabilities                         (2,200)      (5,669)
Proceeds from stock-based compensation                          67           82
-------------------------------------------------------------------------------
Net cash used for financing activities                      (2,133)      (5,587)
-------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash
   equivalents                                                 278          173
-------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents         5,012         (357)
Cash and cash equivalents at beginning of period            20,603       26,748
-------------------------------------------------------------------------------
Cash and cash equivalents at end of period               $  25,615    $  26,391
===============================================================================

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

                                       8

<PAGE>

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(A)   BASIS OF PREPARATION

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

(B)   RECENTLY ISSUED ACCOUNTING STANDARDS

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

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

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

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

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

      In  December  2007,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 141 (revised 2007),

                                       9

<PAGE>

Business  Combinations,  or  Statement  141(R).  Statement  141(R)  retains  the
fundamental  requirements  of the  original  pronouncement  requiring  that  the
purchase method be used for all business combinations.  Statement 141(R) defines
the acquirer as the entity that obtains control of one or more businesses in the
business  combination,  establishes  the  acquisition  date as the date that the
acquirer  achieves  control and requires  the  acquirer to recognize  the assets
acquired,  liabilities  assumed  and any  noncontrolling  interest at their fair
values as of the acquisition date.  Statement 141(R) also requires,  among other
things,  that  acquisition-related  costs  be  recognized  separately  from  the
acquisition.  We are  required  to  adopt  Statement  141(R)  prospectively  for
business  combinations on or after January 1, 2009.  Assets and liabilities that
arose from  business  combinations  prior to January 1, 2009 are not affected by
the adoption of Statement 141(R).

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

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

(C)   SALE OF ASSETS

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

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

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

(D)   RESTRUCTURING EXPENSE

      In 2007, we  implemented a plan to outsource  our  e-commerce  and catalog
businesses,  to sell the assets related to our Los Angeles  production  facility
and to eliminate  office space obtained in the  acquisition of Club Jenna,  Inc.
and related companies, or Club Jenna. As a result of this restructuring plan, we
recorded  a reserve  of $0.4  million  for

                                       10

<PAGE>

costs  associated  with  a  workforce  reduction  of 28  employees.  During  the
six-month  period ended June 30, 2008,  as part of this  restructuring  plan, we
recorded an additional reserve of $0.6 million for contract termination fees and
expenses related to the 2007 workforce reduction.

      During the six-month  period ended June 30, 2008, we made cash payments of
$0.9 million related to prior years'  restructuring  plans.  Approximately $13.4
million  of the total  costs of our prior  years'  restructuring  plans was paid
through June 30, 2008, with the remaining $0.2 million to be paid during 2008.

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

                                                  Consolidation
                                                  of Facilities
                                      Workforce             and
                                      Reduction      Operations           Total
-------------------------------------------------------------------------------
Balance at December 31, 2006          $     430       $     268       $     698
Reserve recorded                            429               -             429
Adjustments to previous estimates            43             (27)             16
Cash payments                              (473)           (127)           (600)
-------------------------------------------------------------------------------
Balance at December 31, 2007                429             114             543
Additional reserve recorded                 149             445             594
Adjustments to previous estimates           (36)              -             (36)
Cash payments                              (473)           (460)           (933)
-------------------------------------------------------------------------------
Balance at June 30, 2008              $      69       $      99       $     168
===============================================================================

(E)   EARNINGS (LOSS) PER COMMON SHARE

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

<TABLE>
<CAPTION>
                                                   Quarters Ended           Six Months Ended
                                                       June 30,                  June 30,
                                              ------------------------   ------------------------
                                                    2008          2007         2008          2007
-------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>          <C>           <C>
Numerator:
For basic and diluted EPS - net
   income (loss)                              $   (2,108)   $    1,911   $   (5,243)   $    3,385
=================================================================================================

Denominator:
For basic EPS - weighted average shares           33,300        33,243       33,287        33,236
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         33,300        33,272       33,287        33,271
=================================================================================================

Basic and diluted earnings (loss) per
   common share                               $    (0.06)   $     0.06   $    (0.16)   $     0.10
=================================================================================================
</TABLE>

                                       11

<PAGE>

      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 six-month  periods ended June 30, 2008 and 2007, as their inclusion
would have been antidilutive (in thousands):

                                Quarters Ended               Six Months Ended
                                    June 30,                      June 30,
                             ---------------------         ---------------------
                               2008           2007           2008           2007
--------------------------------------------------------------------------------
Stock options                 3,702          3,283          3,624          3,220
Convertible notes             6,758          6,758          6,758          6,758
--------------------------------------------------------------------------------
Total                        10,460         10,041         10,382          9,978
================================================================================

(F)   INVENTORIES

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

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

                                                         June 30,      Dec. 31,
                                                             2008          2007
-------------------------------------------------------------------------------
Paper                                                    $  3,076      $  2,948
Editorial and other prepublication costs                    5,783         5,518
Merchandise finished goods                                    507         2,897
-------------------------------------------------------------------------------
Total                                                    $  9,366      $ 11,363
===============================================================================

(G)   INCOME TAXES

      Our income tax provision  consists  primarily of foreign income tax, which
relates  to  our  international  television  networks  and  withholding  tax  on
licensing income,  for which we do not receive a current U.S. income tax benefit
due to our net operating loss, or NOL,  position.  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 FASB Statement of Financial  Accounting  Standards No. 109,  Accounting
for Income  Taxes.  We record net  deferred  tax assets to the extent we believe
these   assets  will  more  likely  than  not  be   realized.   In  making  such
determination,  we  consider  all  available  positive  and  negative  evidence,
including  scheduled  reversals of deferred tax  liabilities,  projected  future
taxable income, tax planning strategies and recent financial  performance.  As a
result of our cumulative  losses in the U.S. and certain foreign  jurisdictions,
we have concluded that a full  valuation  allowance  should be recorded for such
jurisdictions.

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

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

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

                                       12

<PAGE>

international   tax   jurisdictions,   numerous  tax  years  remain  subject  to
examination  by tax  authorities,  including tax returns for 2002 and subsequent
years.

(H)   FAIR VALUE MEASUREMENT

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

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

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

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

<TABLE>
<CAPTION>
                                                               Quoted Prices in                              Significant
                                                             Active Markets for  Significant Other          Unobservable
                                         Total Fair Value      Identical Assets  Observable Inputs                Inputs
                                              Measurement             (Level 1)          (Level 2)             (Level 3)
------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                  <C>                 <C>                   <C>
Marketable securities and investments        $      9,984         $      6,431        $      3,553(1)       $          -
Derivative liabilities                       $       (152)        $          -        $       (152)         $          -
------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   At December 31, 2007,  we had $6.9 million in an enhanced  cash  portfolio
      included in  "Marketable  securities and  short-term  investments"  on our
      Consolidated   Balance  Sheet.  Due  to  adverse  market  conditions,   we
      determined    that   the   market   value   of   this    investment    was
      other-than-temporarily impaired, and during the fiscal year ended December
      31,  2007,  we  recorded a charge of $0.1  million in "Other,  net" on our
      Consolidated  Statements  of  Operations.  Through June 30, 2008,  we have
      received six distributions from the investment, which is being liquidated,
      at an  average  net  asset  value of  98.26%,  resulting  in a  cumulative
      realized loss of $0.1 million.  At June 30, 2008, our remaining balance in
      this investment was $3.6 million.

(I)   CONTINGENCIES

      We  acquired  the Club  Jenna  business  in 2006,  for  which we paid $7.7
million  at  closing,  $1.6  million  in 2007  and  $1.7  million  in 2008  with
additional  purchase price payments of $2.3 million and $4.3 million due in 2009
and 2010,  respectively.  Pursuant  to the  acquisition  agreement,  we are also
obligated to make future contingent earnout payments based primarily on sales of
existing content of the acquired  business over a 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, 2008.

                                       13

<PAGE>

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

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

(J)   BENEFIT PLANS

      We  maintain a practice  of paying a  separation  allowance,  which is not
funded,  under our salary  continuation  policy to employees  with at least five
years of continuous service who voluntarily terminate employment with us and are
at age 60 or thereafter. We made cash payments under this policy of $0.1 million
and $0.3 million  during the quarter and  six-month  period ended June 30, 2008,
respectively, and $0.1 million and $0.2 million during the quarter and six-month
period ended June 30, 2007, respectively.

(K)   STOCK-BASED COMPENSATION

      Upon adoption of FASB 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                    Six Months Ended
                                                   June 30,                           June 30,
                                         -----------------------------     ------------------------------
                                                 2008             2007             2008              2007
---------------------------------------------------------------------------------------------------------
<S>                                      <C>              <C>              <C>               <C>
Expected volatility                          31% - 41%        25% - 41%        31% - 41%         25% - 41%
Weighted average volatility                        35%              34%              35%               34%
Risk-free interest rate                  1.95% - 5.10%    4.67% - 5.04%    1.95% - 5.10%     4.67% - 5.04%
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.

      During the quarter and  six-month  period ended June 30, 2008,  we granted
171,000 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  six-month  period ended June 30,  2007,  we
granted  160,000  stock

                                       14

<PAGE>

options.  During the current year  quarter and  six-month  period,  the weighted
average  expected  life for  options  granted was 6.7 years and during the prior
year quarter and  six-month  period,  it was 6.3 years.  During the current year
quarter and  six-month  period,  the  weighted  average fair value per share for
options  granted  was $2.45 and  during  the prior year  quarter  and  six-month
period, it was $4.64.

      During the quarter and  six-month  period ended June 30, 2008,  we awarded
270,625  restricted  stock units,  which provide for the issuance of our Class B
stock if certain  performance  goals are met.  Pursuant to the  requirements  of
Statement  123(R),  we will establish a measurement  date and disclose the grant
date fair value and expense for these  restricted  stock units in the applicable
reporting  period after the performance  goals are approved.  During the quarter
and six-month  period ended June 30, 2007, we granted 250,625  restricted  stock
units that provide for the issuance of our Class B stock if two-year  cumulative
operating  income target  thresholds are met.  During the prior year quarter and
six-month  period,  the weighted  average  grant date fair value for  restricted
stock units was $10.61.  In the quarter ended June 30, 2008, we determined  that
it was unlikely that the minimum threshold associated with the 2007 grants would
be met. Therefore,  in the quarter ended June 30, 2008, we reversed $0.6 million
of  stock-based  compensation  expense,  which  included  $0.5  million that was
recorded in 2007 related to this restricted stock unit grant.

      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,
                                  ---------------------    --------------------
                                       2008        2007         2008       2007
-------------------------------------------------------------------------------
Stock options                     $     380    $    448    $     844   $    165
Restricted stock units                 (563)         87         (502)        87
Other equity awards                      43          50           96         92
ESPP                                      6           8           12         15
-------------------------------------------------------------------------------
Total                             $    (134)   $    593    $     450   $    359
===============================================================================

      Statement  123(R) requires that the total amount of  compensation  expense
recognized reflect the number of stock-based awards that actually vest as of the
completion  of their  respective  vesting  periods.  Upon the vesting of certain
stock-based awards, we adjusted our stock-based  compensation expense to reflect
actual versus estimated forfeitures. During the six-month periods ended June 30,
2008 and 2007,  we  recorded an  unfavorable  adjustment  of $0.1  million and a
favorable   adjustment  of  $1.0  million,   respectively,   to  reflect  actual
forfeitures for vested stock option grants.

      The  following  table sets forth stock option  activity for the  six-month
period ended June 30, 2008:

                                                                       Weighted
                                                                        Average
                                                        Number of      Exercise
                                                           Shares         Price
-------------------------------------------------------------------------------
Outstanding at December 31, 2007                        3,546,250    $    15.60
Granted                                                   171,000          5.72
Canceled                                                  (21,500)        12.71
-----------------------------------------------------------------
Outstanding at June 30, 2008                            3,695,750    $    15.16
===============================================================================

                                       15

<PAGE>

(L)   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,
                                                        -----------------------    -----------------------
                                                              2008         2007          2008         2007
----------------------------------------------------------------------------------------------------------
<S>                                                     <C>           <C>          <C>          <C>
Net revenues
Entertainment                                           $   41,142    $  51,838    $   89,056   $  102,696
Publishing                                                  20,589       22,658        40,720       46,003
Licensing                                                   11,647       11,156        22,138       22,368
----------------------------------------------------------------------------------------------------------
Total                                                   $   73,378    $  85,652    $  151,914   $  171,067
==========================================================================================================
Income (loss) before income taxes
Entertainment                                           $    1,810    $   7,301    $    4,509   $   11,605
Publishing                                                  (1,954)      (2,273)       (5,122)      (4,669)
Licensing                                                    6,081        5,523        12,724       13,200
Corporate Administration and Promotion                      (6,206)      (6,588)      (12,305)     (12,288)
Restructuring expense                                           36         (110)         (558)        (110)
Impairment charge on assets held for sale                     (103)           -          (103)           -
Investment income                                              296          623           656        1,098
Interest expense                                            (1,123)      (1,204)       (2,256)      (2,566)
Amortization of deferred financing fees                        (89)        (134)         (178)        (268)
Other, net                                                     175         (168)         (342)        (307)
----------------------------------------------------------------------------------------------------------
Total                                                   $   (1,077)   $   2,970    $   (2,975)  $    5,695
==========================================================================================================
<CAPTION>

                                                                                     June 30,     Dec. 31,
                                                                                         2008         2007
----------------------------------------------------------------------------------------------------------
<S>                                                                                <C>          <C>
Identifiable assets
Entertainment                                                                      $  283,879   $  287,940
Publishing                                                                             30,992       35,320
Licensing                                                                              12,488       11,560
Corporate Administration and Promotion                                                 99,389      110,336
----------------------------------------------------------------------------------------------------------
Total                                                                              $  426,748   $  445,156
==========================================================================================================
</TABLE>

                                       16

<PAGE>

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

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

RESULTS OF OPERATIONS (1)

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

<TABLE>
<CAPTION>
                                                                     Quarters Ended            Six Months Ended
                                                                        June 30,                   June 30,
                                                                 -----------------------    -----------------------
                                                                       2008         2007          2008         2007
-------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>           <C>          <C>          <C>
Net revenues
Entertainment
   Domestic TV                                                   $     14.8    $    21.6    $     31.3   $     41.3
   International TV                                                    13.4         13.7          28.1         27.5
   Online/mobile                                                       11.6         14.8          26.8         30.5
   Other                                                                1.4          1.7           2.9          3.4
-------------------------------------------------------------------------------------------------------------------
   Total Entertainment                                                 41.2         51.8          89.1        102.7
-------------------------------------------------------------------------------------------------------------------
Publishing
   Domestic magazine                                                   16.8         19.0          32.9         38.1
   International magazine                                               1.9          1.8           4.0          3.7
   Special editions and other                                           1.9          1.9           3.8          4.2
-------------------------------------------------------------------------------------------------------------------
   Total Publishing                                                    20.6         22.7          40.7         46.0
-------------------------------------------------------------------------------------------------------------------
Licensing
   Consumer products                                                    8.0          7.5          17.2         16.2
   Location-based entertainment                                         1.3          0.9           2.2          1.8
   Marketing events                                                     2.3          2.3           2.5          2.6
   Other                                                                  -          0.5           0.2          1.8
-------------------------------------------------------------------------------------------------------------------
   Total Licensing                                                     11.6         11.2          22.1         22.4
-------------------------------------------------------------------------------------------------------------------
Total net revenues                                               $     73.4    $    85.7    $    151.9   $    171.1
===================================================================================================================

Net income (loss)
Entertainment
   Before programming amortization and online content expenses   $     11.7    $    17.4    $     24.2   $     31.9
   Programming amortization and online content expenses                (9.9)       (10.1)        (19.7)       (20.3)
-------------------------------------------------------------------------------------------------------------------
   Total Entertainment                                                  1.8          7.3           4.5         11.6
-------------------------------------------------------------------------------------------------------------------
Publishing                                                             (1.9)        (2.3)         (5.1)        (4.7)
-------------------------------------------------------------------------------------------------------------------
Licensing                                                               6.0          5.5          12.7         13.2
-------------------------------------------------------------------------------------------------------------------
Corporate Administration and Promotion                                 (6.2)        (6.6)        (12.3)       (12.3)
-------------------------------------------------------------------------------------------------------------------
Segment income (loss)                                                  (0.3)         3.9          (0.2)         7.8
Restructuring expense                                                     -         (0.1)         (0.6)        (0.1)
Impairment charge on assets held for sale                              (0.1)           -          (0.1)           -
-------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                                (0.4)         3.8          (0.9)         7.7
-------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                                    0.4          0.6           0.7          1.1
   Interest expense                                                    (1.2)        (1.1)         (2.3)        (2.5)
   Amortization of deferred financing fees                             (0.1)        (0.2)         (0.2)        (0.3)
   Other, net                                                           0.2         (0.1)         (0.3)        (0.3)
-------------------------------------------------------------------------------------------------------------------
Total nonoperating expense                                             (0.7)        (0.8)         (2.1)        (2.0)
-------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                      (1.1)         3.0          (3.0)         5.7
Income tax expense                                                     (1.0)        (1.1)         (2.2)        (2.3)
-------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                $     (2.1)   $     1.9    $     (5.2)  $      3.4
-------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings (loss) per common share               $    (0.06)   $    0.06    $    (0.16)  $     0.10
===================================================================================================================
</TABLE>

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

                                       17

<PAGE>

      Revenues  decreased  $12.3  million,  or 14%,  for the  quarter  and $19.2
million,  or 11%, for the  six-month  period  largely due to lower  domestic TV,
online/mobile and domestic magazine revenues.

      Segment  results  decreased  $4.2 million for the quarter and $8.0 million
for the six-month period  primarily due to lower results from our  Entertainment
Group  largely due to lower  revenues.  In addition,  the quarter and  six-month
period include the reversals of $1.1 million and $0.5 million,  respectively, of
variable  compensation  expense,  which were  previously  accrued in each of the
segments.

      Operating  results decreased $4.2 million for the quarter and $8.6 million
for the six-month period  primarily due to the lower segment results  previously
discussed.  Additionally,  the current  year  six-month  period  reflected  $0.6
million of restructuring expense.

      Net losses were $2.1 million and $5.2 million for the current year quarter
and six-month period, respectively. These compared to net income of $1.9 million
and $3.4 million in the  respective  prior year periods.  The changes in results
were primarily due to the lower operating results previously discussed.

ENTERTAINMENT GROUP

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

      Revenues from our domestic TV networks decreased $6.8 million, or 31%, for
the quarter and $10.0  million,  or 24%, for the  six-month  period,  and profit
contribution  decreased  $5.2  million for the quarter and $7.6  million for the
six-month period.  Increases in Playboy TV monthly subscription revenues for the
quarter  and  six-month  period  were  more than  offset  by lower  pay-per-view
revenues  reflecting the continued  migration  from linear  networks to the more
competitive video-on-demand platform. The decreases also reflected the impact of
unfavorable  variances in the current year quarter and six-month period compared
to favorable variances in the prior year periods related to previously estimated
revenues.  The sale of our Los Angeles production  facility assets in April 2008
resulted,  as expected,  in lower revenues but increased profit contribution for
the quarter and six-month period.

      International  TV revenues  were  basically  flat as they  decreased  $0.3
million,  or 2%, for the  quarter and  increased  $0.6  million,  or 2%, for the
six-month period. Profit contribution decreased $0.5 million for the quarter but
increased  $1.1  million for the  six-month  period.  The quarter and  six-month
period  reflected lower revenues from our U.K.  networks offset by growth in our
other  European  networks.  Lower  costs  and  foreign  currency  exchange  rate
fluctuations had a favorable impact on results for the six-month period.

      Online/mobile revenues decreased $3.2 million, or 22%, for the quarter and
$3.7  million,  or 12%,  for  the  six-month  period,  and  profit  contribution
decreased  $0.2  million  for the quarter  and $2.0  million  for the  six-month
period. Our online websites are in the midst of a major infrastructure  overhaul
and redesign effort, which we anticipate to be substantially complete by the end
of 2008. We believe that this will  generate  more traffic,  resulting in higher
revenue and profit  contribution  from the online business in 2009.  During this
transition, we expect lower revenues and profit contribution.  Additionally, our
Playboy and  BUNNYshop  e-commerce  and catalog  businesses  were  outsourced to
eFashion  Solutions,   LLC,  with  planned  lower  revenues  but  higher  profit
contribution for the quarter and six-month period.

      Revenues from other  businesses  decreased  $0.3 million,  or 25%, for the
quarter  and  $0.5  million,  or  16%,  for the  six-month  period,  and  profit
contribution  increased  $0.2  million for the quarter and $1.2  million for the
six-month period primarily as a result of a decrease in DVD sales which was more
than offset by lower costs.

      The  group's  administrative  expenses  were  flat  for  the  quarter  and
increased $0.4 million, or 4%, for the six-month period.

      Programming  amortization  and  online  content  expenses  decreased  $0.2
million,  or 2%, for the  quarter  and $0.6  million,  or 3%, for the  six-month
period.

      Segment  income for the group  decreased  $5.5  million,  or 75%,  for the
quarter and $7.1 million,  or 61%, for the  six-month  period due to the results
previously discussed.

                                       18

<PAGE>

PUBLISHING GROUP

      Domestic   magazine   revenues   decreased  across  all  revenue  streams,
reflecting  industry dynamics.  This resulted in lower revenues of $2.2 million,
or 11%,  for the quarter and $5.2  million,  or 14%, for the  six-month  period.
Subscription  revenues  decreased $0.6 million,  or 6%, for the quarter and $1.4
million, or 7%, for the six-month period primarily due to 5% fewer copies served
in the current year quarter and six-month period.  Newsstand  revenues decreased
$0.9  million,  or 41%,  for the  quarter  and  $1.3  million,  or 28%,  for the
six-month period  primarily due to 28% and 27% fewer copies sold,  respectively.
Advertising  revenues  decreased $0.6 million,  or 10%, for the quarter and $2.5
million,  or 21%, for the six-month period primarily due to 7% and 14% decreases
in average  net revenue  per page,  respectively,  largely due to our lower rate
base  effective  with the  January  2008  issue,  combined  with 3% and 8% fewer
advertising  pages compared to the respective  prior year periods due in part to
the loss of a major  advertiser.  Advertising  sales for the 2008 third  quarter
magazine  issues are  closed,  and we expect to report  approximately  15% lower
advertising  revenues and 10% fewer advertising pages compared to the 2007 third
quarter.

      On a  combined  basis,  Playboy  print  and  online  advertising  revenues
decreased $0.6 million, or 8%, for the quarter and $2.5 million, or 19%, for the
six-month period.

      International  magazine  revenues  were flat for the quarter and increased
$0.3 million, or 7%, for the six-month period.

      Special  editions  and  other  revenues  were  flat  for the  quarter  and
decreased $0.4 million,  or 8%, for the six-month  period.  The decrease for the
six-month  period  was due  mainly to 12%  fewer  newsstand  copies  of  special
editions  sold,  partially  offset by the impact of a $1.00 cover price increase
effective with the July 2007 issues.

      Segment loss for the group improved $0.4 million,  or 14%, for the quarter
as the previously discussed revenue declines together with severance expense and
higher  paper and postage  prices in the  current  year  quarter  were more than
offset by lower  editorial,  post-employment  benefit and  manufacturing  costs.
Segment loss for the six-month  period  increased  $0.4 million,  or 10%, as the
previously discussed revenue declines together with severance expense and higher
paper and postage  prices in the current  year period were  partially  offset by
lower  editorial,   post-employment  benefit,   manufacturing  and  subscription
collection costs.

LICENSING GROUP

      Licensing  Group revenues  increased $0.4 million,  or 4%, for the quarter
and decreased $0.3 million,  or 1%, for the six-month  period.  The current year
quarter and six-month  period  reflected  higher  consumer  products  royalties,
principally  from  Southeast  Asia,  and  higher  location-based   entertainment
royalties.  The prior year quarter and six-month period were favorably  impacted
by $0.4  million  and $1.7  million,  respectively,  of sales of  original  art.
Excluding the original art sales, revenues for the group would have increased 8%
for the quarter and 7% for the six-month period.

      The group's segment income  increased $0.5 million,  or 10%, and decreased
$0.5  million,  or 4%,  for the  quarter  and  six-month  period,  respectively,
primarily due to the changes in revenues discussed above.

CORPORATE ADMINISTRATION AND PROMOTION

      Corporate Administration and Promotion expenses decreased $0.4 million, or
6%, for the quarter and were flat for the six-month period.

RESTRUCTURING EXPENSE

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

                                       19

<PAGE>

      During the six-month  period ended June 30, 2008, we made cash payments of
$0.9 million related to prior years'  restructuring  plans.  Approximately $13.4
million  of the total  costs of our prior  years'  restructuring  plans was paid
through June 30, 2008, with the remaining $0.2 million to be paid during 2008.

INCOME TAX EXPENSE

      Income tax expense of $1.0  million  for the quarter and $2.2  million for
the six-month period was flat compared to the respective prior year periods.

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

LIQUIDITY AND CAPITAL RESOURCES

      At June 30,  2008,  we had  $25.6  million  in cash  and cash  equivalents
compared to $20.6  million in cash and cash  equivalents  at December  31, 2007.
During the six-month  period ended June 30, 2008, we sold at par all of our $6.0
million  of  auction  rate  securities,  or ARS,  which  had  been  included  in
marketable  securities  and short-term  investments at December 31, 2007.  Total
financing obligations were $115.0 million at both June 30, 2008 and December 31,
2007.

      At June 30, 2008, cash generated from our operating  activities,  existing
cash and cash equivalents and marketable  securities and short-term  investments
were fulfilling our liquidity requirements.  We also have a $50.0 million credit
facility, which can be used for revolving borrowings,  issuing letters of credit
or a combination of both. At June 30, 2008,  there were no borrowings under this
facility and $1.2 million in letters of credit  outstanding,  resulting in $48.8
million of available borrowings.

DERIVATIVE INSTRUMENTS

      We hedge the  variability of forecasted  cash receipts  related to royalty
payments  denominated  in  yen  and  euro  with  derivative  instruments.  These
royalties are hedged with forward contracts for periods not exceeding 12 months.
The fair value and carrying value of our forward contracts are not material. For
the six-month period ended June 30, 2008, hedges deemed to be ineffective due to
us not being  able to  exactly  match the  settlement  date of the hedges to the
receipt of these royalty payments resulted in losses of $0.2 million, which were
recorded  as "Other,  net" on the  Consolidated  Statements  of  Operations  and
Comprehensive Income (Loss).

CASH FLOWS FROM OPERATING ACTIVITIES

      Net cash used for operating activities for the six-month period ended June
30, 2008 was $1.3 million, compared to net cash provided by operating activities
of $16.6  million in the prior year period.  This  decrease was primarily due to
the operating  results  discussed  earlier  combined with  decreases in accounts
payable and accrued salaries,  wages and employee benefits,  partially offset by
decreases in prepaid expenses and other current assets and inventories.

CASH FLOWS FROM INVESTING ACTIVITIES

      Net cash provided by investing  activities for the six-month  period ended
June  30,  2008 was  $8.2  million,  compared  to net  cash  used for  investing
activities of $11.5 million in the prior year period.  This change reflected net
proceeds of $5.1 million related to the April 2008 sale of assets related to our
Los Angeles  production  facility and net proceeds from sales of  investments of
$8.9  million,  primarily  reflecting  the sale of our ARS and proceeds from the
liquidation of a portion of our investment in an enhanced cash portfolio  during
the current  year  period,  compared to net  purchases  of  investments  of $6.4
million in the prior year period.

                                       20

<PAGE>

CASH FLOWS FROM FINANCING ACTIVITIES

      Net cash used for financing activities for the six-month period ended June
30, 2008 was $2.1 million, a decrease of $3.5 million compared to the prior year
period.  The decrease  reflected  payments of  acquisition  liabilities  of $2.2
million  during the  current  year period  compared  to payments of  acquisition
liabilities of $5.7 million in the prior year period.

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

      The positive effects of foreign  currency  exchange rates on cash and cash
equivalents  during the  six-month  periods ended June 30, 2008 and 2007 of $0.3
million and $0.2  million,  respectively,  were due to the weakening of the U.S.
dollar against certain foreign currencies.

RECENTLY ISSUED ACCOUNTING STANDARDS

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

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

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

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

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

                                       21

<PAGE>

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

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

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

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

      At June 30, 2008, we did not have any floating interest rate exposure.  As
of that date, all of our outstanding debt consisted of 3.00% convertible  senior
subordinated  notes  due  2025,  or  convertible  notes,  which  are  fixed-rate
obligations.  The fair value of the $115.0 million aggregate principal amount of
the convertible  notes is influenced by changes in market  interest  rates,  the
share  price of our Class B common  stock and our  credit  quality.  At June 30,
2008, the convertible notes had an implied fair value of $90.4 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.

                                       22

<PAGE>

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.

                                       23

<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

      On April 12, 2004, J. Roger Faherty, or Faherty,  filed suit in the United
States  District  Court for the  Southern  District  of New York  against  Spice
Entertainment  Companies,  or Spice,  Playboy  Enterprises,  Inc.,  or  Playboy,
Playboy  Enterprises  International,  Inc.,  or PEII, D. Keith  Howington,  Anne
Howington and Logix  Development  Corporation,  or Logix. The complaint  alleges
that  Faherty is entitled to  statutory  and  contractual  indemnification  from
Playboy,  PEII and Spice with respect to defense costs and liabilities  incurred
by Faherty in the litigation described in our Annual Report on Form 10-K for the
fiscal year ended  December 31, 2007,  or the Logix  litigation.  The  complaint
further alleges that Playboy,  PEII,  Spice, D. Keith Howington,  Anne Howington
and Logix conspired to deprive  Faherty of his alleged right to  indemnification
by excluding him from the settlement of the Logix litigation.  On June 18, 2004,
a jury entered a special  verdict finding  Faherty  personally  liable for $22.5
million in damages to the  plaintiffs  in the Logix  litigation.  A judgment was
entered on the verdict on or around  August 2, 2004.  Faherty  filed  post-trial
motions for a judgment  notwithstanding  the verdict and a new trial,  but these
motions were both denied on or about  September  21, 2004.  On October 20, 2004,
Faherty filed a notice of appeal from the verdict. As a result of rulings by the
California  Court of Appeal and the  California  Supreme  Court as  recently  as
February  13,  2008,   Logix'   recovery   against   Faherty  has  been  reduced
significantly,  although  certain  portions  of the  case  have  been  set for a
retrial. In light of these rulings,  however,  when coupled with any offset as a
result of the settlement of the Logix  litigation,  any ultimate net recovery by
Logix against Faherty will be severely reduced and might be entirely eliminated.
In consideration  of this appeal,  Faherty and Playboy have agreed to continue a
temporary stay of the indemnification action filed in the United States District
Court for the Southern District of New York through the end of December 2008. In
late June 2008,  plaintiffs in the Logix  litigation filed a motion in the trial
court  seeking to amend a $40  million  judgment  previously  entered on consent
against  defendant  Emerald  Media  Inc.,  or EMI,  seeking to add  Faherty as a
judgment debtor. In the event Faherty's indemnification and conspiracy claims go
forward  against  us, we believe  they are  without  merit and that we have good
defenses against

                                       24

<PAGE>

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

ITEM 1A. RISK FACTORS

      There have been no material  changes to our Risk  Factors as  contained in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

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

      Our  annual  meeting  of  shareholders  was held on May 21,  2008.  At the
meeting, the following director nominees were elected:

                                                            Votes         Votes
Nominee                                                       For      Withheld
--------------------------------------------------------------------------------
Dennis S. Bookshester                                   4,694,941         2,955
David I. Chemerow                                       4,695,517         2,379
Christie Hefner                                         4,643,025        54,871
Charles Hirschhorn                                      4,695,515         2,381
Jerome H. Kern                                          4,694,944         2,952
Russell I. Pillar                                       4,695,519         2,377
Sol Rosenthal                                           4,694,936         2,960
Richard S. Rosenzweig                                   4,642,520        55,376
--------------------------------------------------------------------------------

      Also at the meeting, the shareholders  ratified the appointment of Ernst &
Young LLP as our independent  registered public accounting firm, or Auditors, as
set forth below:

                                                Votes        Votes
Matter                                            For      Against       Abstain
--------------------------------------------------------------------------------
Auditors                                    4,696,224        1,472           199
--------------------------------------------------------------------------------

                                       25

<PAGE>

ITEM 6. EXHIBITS

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

10.1*   Sublease  Agreement  dated April 1, 2008 between  Broadcast  Facilities,
        Inc. and Playboy Entertainment Group, Inc.

10.2*   Services  Agreement  dated April 1, 2008 between  Broadcast  Facilities,
        Inc. and Playboy Entertainment Group, 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.

                                       26

<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 8, 2008                             By /s/ Linda Havard
                                                    ---------------------------
                                                    Linda G. Havard
                                                    Executive Vice President
                                                    and Chief Financial Officer
                                                    (Authorized Officer and
                                                    Principal Financial and
                                                    Accounting Officer)

                                       27

<PAGE>

                                  EXHIBIT INDEX

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

10.1*   Sublease  Agreement  dated April 1, 2008 between  Broadcast  Facilities,
        Inc. and Playboy Entertainment Group, Inc.

10.2*   Services  Agreement  dated April 1, 2008 between  Broadcast  Facilities,
        Inc. and Playboy Entertainment Group, 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.

                                       28