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

                                    FORM 10-Q

(Mark One)

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

                  For the quarterly period ended March 31, 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 April 30,  2008,  there  were  4,864,102  shares of Class A common  stock and
28,435,513 shares of Class B common stock outstanding.

<PAGE>

FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(11)  Attempts by consumers, 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 take in the future;

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

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

(19)  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 March 31, 2008 and 2007
             (Unaudited)                                                       5

             Consolidated Balance Sheets at March 31, 2008 (Unaudited)
             and December 31, 2007                                             6

             Condensed Consolidated Statements of Cash Flows for the
             Quarters Ended March 31, 2008 and 2007 (Unaudited)                7

             Notes to Condensed Consolidated Financial Statements
             (Unaudited)                                                       8

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

Item 3.   Quantitative and Qualitative Disclosures About Market Risk          19

Item 4.   Controls and Procedures                                             19

                                     PART II
                                OTHER INFORMATION

Item 1.   Legal Proceedings                                                   21

Item 1A.  Risk Factors                                                        22

Item 6.   Exhibits                                                            22

                                        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 March 31 (Unaudited)
                    (In thousands, except per share amounts)

                                                                2008       2007
-------------------------------------------------------------------------------
Net revenues                                                $ 78,536   $ 85,415
-------------------------------------------------------------------------------
Costs and expenses
   Cost of sales                                             (63,756)   (67,900)
   Selling and administrative expenses                       (14,705)   (13,630)
   Restructuring expense                                        (594)        --
-------------------------------------------------------------------------------
Total costs and expenses                                     (79,055)   (81,530)
-------------------------------------------------------------------------------
Operating income (loss)                                         (519)     3,885
-------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                             360        475
   Interest expense                                           (1,133)    (1,362)
   Amortization of deferred financing fees                       (89)      (134)
   Other, net                                                   (517)      (139)
-------------------------------------------------------------------------------
Total nonoperating expense                                    (1,379)    (1,160)
-------------------------------------------------------------------------------
Income (loss) before income taxes                             (1,898)     2,725
Income tax expense                                            (1,237)    (1,251)
-------------------------------------------------------------------------------
Net income (loss)                                           $ (3,135)  $  1,474
===============================================================================

Other comprehensive income (loss)
   Unrealized gain (loss) on marketable securities              (470)        57
   Unrealized gain (loss) on derivatives                          78        (11)
   Foreign currency translation gain (loss)                      383       (177)
-------------------------------------------------------------------------------
Total other comprehensive loss                                    (9)      (131)
-------------------------------------------------------------------------------
Comprehensive income (loss)                                 $ (3,144)  $  1,343
===============================================================================

Weighted average number of common shares outstanding
   Basic                                                      33,275     33,230
===============================================================================
   Diluted                                                    33,275     33,269
===============================================================================

Basic and diluted earnings (loss) per common share          $  (0.09)  $   0.04
===============================================================================

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

                                        5

<PAGE>

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

<TABLE>
<CAPTION>
                                                                       (Unaudited)
                                                                          Mar. 31,      Dec. 31,
                                                                              2008          2007
------------------------------------------------------------------------------------------------
<S>                                                                    <C>           <C>
Assets
Cash and cash equivalents                                              $    17,670   $    20,603
Marketable securities and short-term investments                             4,505        12,952
Receivables, net of allowance for doubtful accounts of
   $3,800 and $3,627, respectively                                          47,827        51,139
Receivables from related parties                                             2,656         1,704
Inventories                                                                  9,212        11,363
Deferred subscription acquisition costs                                      9,165         8,686
Deferred tax asset                                                           1,320         1,320
Assets held for sale                                                        11,538         4,706
Prepaid expenses and other current assets                                    9,943        13,402
------------------------------------------------------------------------------------------------
   Total current assets                                                    113,836       125,875
------------------------------------------------------------------------------------------------
Long-term investments                                                        6,393         6,556
Property and equipment, net                                                 16,367        14,665
Long-term receivables                                                        2,795         2,795
Programming costs, net                                                      54,836        54,926
Goodwill                                                                   133,572       133,570
Trademarks                                                                  65,852        65,437
Distribution agreements, net of accumulated amortization
   of $5,134 and $4,803, respectively                                       28,006        28,337
Deferred tax asset                                                           1,206         1,206
Other noncurrent assets                                                     11,494        11,789
------------------------------------------------------------------------------------------------
Total assets                                                           $   434,357   $   445,156
================================================================================================

Liabilities
Acquisition liabilities                                                $     2,181   $     2,134
Accounts payable                                                            32,305        37,842
Accrued salaries, wages and employee benefits                                6,364         8,304
Deferred revenues                                                           43,090        43,955
Deferred tax liability                                                       1,490         1,490
Other liabilities and accrued expenses                                      13,872        14,269
------------------------------------------------------------------------------------------------
   Total current liabilities                                                99,302       107,994
------------------------------------------------------------------------------------------------
Financing obligations                                                      115,000       115,000
Acquisition liabilities                                                      7,872         7,936
Deferred tax liability                                                      19,035        18,604
Other noncurrent liabilities                                                24,216        24,305
------------------------------------------------------------------------------------------------
   Total liabilities                                                       265,425       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; 28,812,528 and
      28,784,079 issued, respectively                                          288           288
Capital in excess of par value                                             230,592       229,833
Accumulated deficit                                                        (55,901)      (52,766)
Treasury stock, at cost - 381,971 shares                                    (5,000)       (5,000)
Accumulated other comprehensive loss                                        (1,096)       (1,087)
------------------------------------------------------------------------------------------------
   Total shareholders' equity                                              168,932       171,317
------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                             $   434,357   $   445,156
================================================================================================
</TABLE>

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

                                        6

<PAGE>

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

<TABLE>
<CAPTION>
                                                                              2008          2007
-------------------------------------------------------------------------------------------------
<S>                                                                    <C>           <C>
Cash flows from operating activities
Net income (loss)                                                      $    (3,135)  $     1,474
Adjustments to reconcile net income (loss) to net cash provided by
   (used for) operating activities:
   Depreciation of property and equipment                                    1,044         1,115
   Amortization of intangible assets                                           565           600
   Amortization of investments in entertainment programming                  8,210         8,581
   Amortization of deferred financing fees                                      89           134
   Stock-based compensation                                                    584          (234)
   Deferred income taxes                                                       431           419
   Net change in operating assets and liabilities                           (1,232)        5,351
   Investments in entertainment programming                                 (8,258)       (9,813)
   Other, net                                                                  215          (184)
------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities                        (1,487)        7,443
------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchases of investments                                                      (397)       (6,155)
Proceeds from sales of investments                                           8,513            --
Additions to assets held for sale                                           (6,832)           --
Additions to property and equipment                                         (2,759)       (2,576)
------------------------------------------------------------------------------------------------
Net cash used for investing activities                                      (1,475)       (8,731)
------------------------------------------------------------------------------------------------
Cash flows from financing activities
Payments of acquisition liabilities                                           (250)         (319)
Proceeds from stock-based compensation                                          36            39
------------------------------------------------------------------------------------------------
Net cash used for financing activities                                        (214)         (280)
------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents                   243            54
------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents                                   (2,933)       (1,514)
Cash and cash equivalents at beginning of period                            20,603        26,748
------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period                             $    17,670   $    25,234
================================================================================================
</TABLE>

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

                                        7

<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 March 2008,  the Financial  Accounting  Standards  Board,  or 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),  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 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 financial

                                        8

<PAGE>

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
nonfinancial  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
nonfinancial  liabilities to have a significant  impact on our future results of
operations or financial condition.

(C)   RESTRUCTURING EXPENSE

      In 2007, we  implemented a plan to outsource our remaining  e-commerce and
catalog  businesses,  to sell the assets  related to our Los Angeles  production
facility and to eliminate  office space  obtained as part of the  acquisition of
Club Jenna,  Inc.  and  related  companies,  or Club Jenna.  As a result of this
restructuring  plan, we recorded a reserve of $0.4 million for costs  associated
with a workforce  reduction of 28 employees.  During the quarter ended March 31,
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 quarter  ended March 31,  2008,  we made cash  payments of $0.4
million related to prior years' restructuring plans. Approximately $12.9 million
of the total  costs of our prior  years'  restructuring  plans was paid  through
March 31, 2008, with the remaining $0.7 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
Cash payments                                    (294)           (154)     (448)
-------------------------------------------------------------------------------
Balance at March 31, 2008                   $     284      $      405   $   689
===============================================================================

(D)   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):

                                                              Quarters Ended
                                                                 March 31,
                                                            -------------------
                                                                2008       2007
-------------------------------------------------------------------------------
Numerator:
   For basic and diluted EPS - net income (loss)            $ (3,135)  $  1,474
===============================================================================

Denominator:
   For basic EPS - weighted average shares                    33,275     33,230
   Effect of dilutive potential common shares:
      Employee stock options and other                            --         39
-------------------------------------------------------------------------------
         Dilutive potential common shares                         --         39
-------------------------------------------------------------------------------
   For diluted EPS - weighted average shares                  33,275     33,269
===============================================================================

Basic and diluted earnings (loss) per common share          $  (0.09)  $   0.04
===============================================================================

                                        9

<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  presented,  as  their  inclusion  would  have  been  antidilutive  (in
thousands):

                                                               Quarters Ended
                                                                 March 31,
                                                            -------------------
                                                                2008       2007
-------------------------------------------------------------------------------
Stock options                                                  3,546      3,166
Convertible notes                                              6,758      6,758
-------------------------------------------------------------------------------
Total                                                         10,304      9,924
===============================================================================

(E)   INVENTORIES

      On January 15, 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):

                                                            Mar. 31,   Dec. 31,
                                                                2008       2007
-------------------------------------------------------------------------------
Paper                                                       $  3,185   $  2,948
Editorial and other prepublication costs                       5,484      5,518
Merchandise finished goods                                       543      2,897
-------------------------------------------------------------------------------
Total                                                       $  9,212   $ 11,363
===============================================================================

(F)   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 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 March 31, 2008 and December 31, 2007, we had  unrecognized tax benefits
of $8.0 million;  we do not expect this amount to change  significantly over the
next 12  months.  Due to the  impact of  deferred  income  tax  accounting,  the
disallowance  would  not  affect  the  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 amount of the NOL. In our

                                       10

<PAGE>

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

(G)   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  financial
liabilities.  Statement  157  requires  enhanced  disclosures  about  assets and
liabilities measured at fair value. Our financial assets primarily relate to our
marketable  securities  and  investments.  Our financial  liabilities  primarily
relate to our derivative  instruments to hedge the  variability of cash flows to
be received related to forecasted  royalty  payments  denominated in the yen and
the euro.

      We utilize  the market  approach to measure  fair value for our  financial
assets and  financial  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:

   o  Level 1: Inputs are quoted prices in active  markets for identical  assets
      or liabilities.

   o  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.

   o  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  financial
liabilities  measured  at fair  value  on a  recurring  basis  and the  basis of
measurement at March 31, 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                 $        10,898        $        6,393       $         4,505(1)  $         --
Derivative liabilities                                $          (446)       $           --       $          (446)    $         --
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   In December 2007, we purchased an investment in an enhanced cash portfolio
      as a marketable  security for $7.7 million.  At December 31, 2007,  due to
      adverse  market  conditions,  we determined  that the market value of this
      investment was  other-than-temporarily  impaired, and we recorded a charge
      of  $0.1  million  in  "Other,  net"  on our  Consolidated  Statements  of
      Operations.  Through March 31, 2008,  we have received four  distributions
      from the investment,  which is being  liquidated,  at an average net asset
      value of 98.63%,  resulting in a cumulative realized loss of $42 thousand.
      During the quarter ended March 31, 2008,  we recorded an  additional  $0.1
      million of unrealized  losses. At March 31, 2008, our remaining balance in
      this investment was $4.5 million.

(H)   CONTINGENCIES

      In  2006,  we  acquired  Club  Jenna,  a  multimedia  adult  entertainment
business, to complement our existing television,  online and DVD businesses.  We
paid $7.7 million at closing and $1.6 million in 2007 with  additional  payments
of $1.7 million,  $2.3 million and $4.3 million required in 2008, 2009 and 2010,
respectively.  Pursuant to the acquisition  agreement,  we are also obligated to
make future contingent earnout payments based primarily on

                                       11

<PAGE>

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 March 31, 2008.

      In 2005, we acquired an affiliate  network of websites to  complement  our
existing  online  business.  We paid $8.0 million at closing and $2.0 million in
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.  No earnout  payments  were made during the quarter ended
March 31, 2008.  During 2007,  $0.1  million of earnout  payments  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 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.  We, on
advice  of  legal  counsel,  believe  that it is not  probable  that a  material
judgment against us will be sustained and have not recorded a liability for this
case in  accordance  with  Statement of Financial  Accounting  Standards  No. 5,
Accounting for Contingencies.

(I)   BENEFIT PLANS

      We currently maintain a practice of paying a separation  allowance,  which
is not funded,  under our salary  continuation policy to employees with at least
five years of continuous  service who voluntarily  terminate  employment with us
and are at age 60 or thereafter. We made cash payments under this policy of $0.2
million  and $0.1  million  during the  quarters  ended March 31, 2008 and 2007,
respectively.

(J)   STOCK-BASED COMPENSATION

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

                                                              Quarters Ended
                                                                 March 31,
                                                          ---------------------
                                                               2008        2007
-------------------------------------------------------------------------------
Stock options                                             $     464   $    (283)
Restricted stock units                                           61          --
Other equity awards                                              53          42
ESPP                                                              6           7
-------------------------------------------------------------------------------
Total                                                     $     584   $    (234)
===============================================================================

      No stock options or restricted stock units were granted during each of the
quarters ended March 31, 2008 and 2007.

      FASB Statement of Financial  Accounting  Standards No. 123 (revised 2004),
Share-Based  Payment,  requires  that the total amount of  compensation  expense
recognized  reflects 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 quarters ended March 31, 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.

                                       12

<PAGE>

(K)   SEGMENT INFORMATION

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

                                                              Quarters Ended
                                                                 March 31,
                                                          ---------------------
                                                               2008        2007
-------------------------------------------------------------------------------
Net revenues
Entertainment                                             $  47,914   $  50,858
Publishing                                                   20,131      23,345
Licensing                                                    10,491      11,212
-------------------------------------------------------------------------------
Total                                                     $  78,536   $  85,415
===============================================================================
Income (loss) before income taxes
Entertainment                                             $   2,699   $   4,304
Publishing                                                   (3,168)     (2,396)
Licensing                                                     6,643       7,677
Corporate Administration and Promotion                       (6,099)     (5,700)
Restructuring expense                                          (594)         --
Investment income                                               360         475
Interest expense                                             (1,133)     (1,362)
Amortization of deferred financing fees                         (89)       (134)
Other, net                                                     (517)       (139)
-------------------------------------------------------------------------------
Total                                                     $  (1,898)  $   2,725
===============================================================================

                                                           Mar. 31,    Dec. 31,
                                                               2008        2007
-------------------------------------------------------------------------------
Identifiable assets
Entertainment                                             $ 285,801   $ 287,940
Publishing                                                   31,866      35,320
Licensing                                                    11,388      11,560
Corporate Administration and Promotion                      105,302     110,336
-------------------------------------------------------------------------------
Total                                                     $ 434,357   $ 445,156
===============================================================================

(L)   SUBSEQUENT EVENT

      On April 1, 2008, we completed  the sale of the assets  related to our Los
Angeles  production  facility to Broadcast  Facilities,  Inc., or BFI, for $12.0
million.  Our  need for the  facility  had  significantly  decreased  since  its
inception, and we believe that the need for linear network transmission capacity
will  continue  to  decrease  over the next  several  years.  We recorded a $1.5
million charge on assets held for sale in 2007.

      In connection with the sale of these assets,  we entered into an agreement
to sublet the entirety of the leased  production  facility in Los Angeles to BFI
for a period equal to the remaining term of our lease.  BFI has agreed to assume
all of our liabilities and obligations  under the existing lease of the facility
as a part of the  sublease  and has 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 have 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,  office space and, upon our request,  certain  optional
services.  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 the initial term, we may renew the agreement for an additional  three-year
term on substantially the same terms and conditions.

                                       13

<PAGE>

      The  foregoing  description  of the  terms of the  sublease  and  services
agreements is a summary and by its nature is incomplete. For further information
regarding the terms and conditions of these agreements, reference is made to the
text of the agreements,  which will be filed as exhibits to our Quarterly Report
on Form 10-Q for the quarter ended June 30, 2008.

                                       14

<PAGE>

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

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

RESULTS OF OPERATIONS

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

                                                              Quarters Ended
                                                                 March 31,
                                                          ---------------------
                                                               2008        2007
-------------------------------------------------------------------------------
Net revenues
Entertainment
   Domestic TV                                            $    16.5   $    19.7
   International TV                                            14.7        13.8
   Online/mobile                                               15.2        15.7
   Other                                                        1.5         1.7
-------------------------------------------------------------------------------
   Total Entertainment                                         47.9        50.9
-------------------------------------------------------------------------------
Publishing
   Domestic magazine                                           16.1        19.1
   International magazine                                       2.1         1.9
   Special editions and other                                   1.9         2.3
-------------------------------------------------------------------------------
   Total Publishing                                            20.1        23.3
-------------------------------------------------------------------------------
Licensing
   Consumer products                                            9.2         8.7
   Location-based entertainment                                 0.9         0.9
   Marketing events                                             0.2         0.3
   Other                                                        0.2         1.3
-------------------------------------------------------------------------------
   Total Licensing                                             10.5        11.2
-------------------------------------------------------------------------------
Total net revenues                                        $    78.5   $    85.4
===============================================================================

Net income (loss)
Entertainment
   Before programming amortization and online content
     expenses                                             $    12.5   $    14.5
   Programming amortization and online content expenses        (9.8)      (10.2)
-------------------------------------------------------------------------------
   Total Entertainment                                          2.7         4.3
-------------------------------------------------------------------------------
Publishing                                                     (3.2)       (2.4)
-------------------------------------------------------------------------------
Licensing                                                       6.7         7.7
-------------------------------------------------------------------------------
Corporate Administration and Promotion                         (6.1)       (5.7)
-------------------------------------------------------------------------------
Segment income                                                  0.1         3.9
Restructuring expense                                          (0.6)         --
-------------------------------------------------------------------------------
Operating income (loss)                                        (0.5)        3.9
-------------------------------------------------------------------------------
Nonoperating income (expense)
   Investment income                                            0.3         0.5
   Interest expense                                            (1.1)       (1.4)
   Amortization of deferred financing fees                     (0.1)       (0.1)
   Other, net                                                  (0.5)       (0.2)
-------------------------------------------------------------------------------
Total nonoperating expense                                     (1.4)       (1.2)
-------------------------------------------------------------------------------
Income (loss) before income taxes                              (1.9)        2.7
Income tax expense                                             (1.2)       (1.2)
-------------------------------------------------------------------------------
Net income (loss)                                         $    (3.1)  $     1.5
-------------------------------------------------------------------------------
Basic and diluted earnings (loss) per common share        $   (0.09)  $    0.04
===============================================================================

                                       15

<PAGE>

      Revenues decreased $6.9 million, or 8%, compared to the prior year quarter
largely due to lower domestic TV and domestic  magazine  revenues  combined with
the  impact of an  opportunistic  sale of  original  artwork  in the prior  year
quarter.

      Segment income decreased $3.8 million,  or 98%, compared to the prior year
quarter due to lower results from each of our groups, primarily due to the lower
revenues discussed above.

      Operating  results  decreased  $4.4  million  compared  to the prior  year
quarter due to the lower segment income previously discussed,  coupled with $0.6
million of restructuring expense in the current year quarter.

      Net loss for the current  year  quarter was $3.1  million  compared to net
income of $1.5 million in the prior year quarter. This decrease is 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  $3.2  million,  or 16%,
compared to the prior year quarter primarily due to the impact of an unfavorable
variance  related to previously  estimated  revenues in the current year quarter
compared  to a  favorable  variance  in the prior  year  quarter.  Additionally,
Playboy TV monthly subscription revenues increased for the current year quarter,
but were more than offset by lower pay-per-view  revenues  reflecting  continued
consumer migration from linear networks to the more competitive  video-on-demand
platform.  Profit contribution decreased $2.3 million compared to the prior year
quarter as lower expenses partially offset the revenue decline.

      International  TV  revenues  increased  $0.9  million,  or 6%,  and profit
contribution increased $1.5 million compared to the prior year quarter primarily
due to  growth in our  European  networks.  A  decrease  in costs  from our U.K.
networks also had a favorable impact on profit  contribution in the current year
quarter.

      Online/mobile   revenues  decreased  $0.5  million,   or  3%,  and  profit
contribution  decreased  $1.8 million  compared to the prior year quarter.  This
business is in  transition  and is expected  to have lower  revenues  and profit
contribution  during  this  time.   Additionally,   our  Playboy  and  BUNNYshop
e-commerce and catalog  businesses have been  outsourced to eFashion  Solutions,
LLC, which will start  negatively  impacting  revenues and positively  impacting
profit contribution.

      Revenues  from other  businesses  decreased  $0.2  million,  or 7%. Profit
contribution increased $0.9 million compared to the prior year quarter primarily
due to a legal settlement recorded in the prior year quarter.

      The  group's  administrative  expenses  increased  $0.3  million,  or  7%,
compared to the prior year quarter.

      Programming  amortization  and  online  content  expenses  decreased  $0.4
million, or 4%, compared to the prior year quarter.

      Segment income for the group decreased $1.6 million,  or 37%,  compared to
the prior year quarter due to the results previously discussed.

PUBLISHING GROUP

      Domestic magazine revenues decreased $3.0 million, or 16%, compared to the
prior  year  quarter.  Subscription  revenues  decreased  $0.8  million,  or 7%,
primarily due to 5% fewer copies  served in the current year quarter.  Newsstand
revenues decreased $0.4 million, or 16%, primarily due to 20% fewer copies sold.
As previously  announced,  advertising  revenues decreased $1.9 million, or 32%,
due to a 22% decrease in average net revenue per page,  largely due to our lower
rate  base  effective  with the  January  2008  issue,  combined  with 12% fewer
advertising  pages, due in part to the loss of a major  advertiser.  Advertising
sales for the 2008 second quarter  magazine issues are closed,  and we expect to
report  approximately  10% lower  advertising  revenues and 5% fewer advertising
pages compared to the 2007 second quarter.

                                       16

<PAGE>

      On a  combined  basis,  Playboy  print  and  online  advertising  revenues
decreased $1.9 million, or 30%, compared to the prior year quarter.

      International  magazine revenues increased $0.2 million,  or 11%, compared
to the prior year quarter.

      Special  editions  and other  revenues  decreased  $0.4  million,  or 16%,
compared to the prior year quarter due mainly to special editions, the result of
14% fewer newsstand copies sold, partially offset by the impact of a $1.00 cover
price increase effective with the July 2007 issues.

      Segment loss for the group increased $0.8 million, or 32%, compared to the
prior year quarter.  Lower  manufacturing costs due to printing fewer copies and
pages per issue, lower editorial costs and lower  post-employment  benefit costs
largely  offset the revenue  decline and  severance  expense in the current year
quarter.

LICENSING GROUP

      Licensing  Group revenues  decreased $0.7 million,  or 6%, compared to the
prior year quarter.  International  consumer products  royalties were 10% higher
but  the  prior  year  quarter  was   favorably   impacted  by  a  $1.3  million
opportunistic sale of original art.

      The group's segment income decreased $1.0 million, or 13%, compared to the
prior year quarter primarily due to these decreased revenues.

CORPORATE ADMINISTRATION AND PROMOTION

      Corporate Administration and Promotion expenses increased $0.4 million, or
7%, compared to the prior year quarter.

RESTRUCTURING EXPENSE

      In 2007, we  implemented a plan to outsource our remaining  e-commerce and
catalog  businesses,  to sell the assets  related to our Los Angeles  production
facility and to eliminate  office space  obtained as part of 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 quarter ended March 31, 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 quarter  ended March 31,  2008,  we made cash  payments of $0.4
million related to prior years' restructuring plans. Approximately $12.9 million
of the total  costs of our prior  years'  restructuring  plans was paid  through
March 31, 2008, with the remaining $0.7 million to be paid during 2008.

INCOME TAX EXPENSE

      Income tax expense of $1.2  million for the current  year quarter was flat
compared to the prior year quarter.

      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 March 31,  2008,  we had  $17.7  million  in cash and cash  equivalents
compared to $20.6  million in cash and cash  equivalents  at December  31, 2007.
During the quarter  ended March 31,  2008,  we sold our $6.0  million of auction
rate  securities,  or ARS,  which were  included in  marketable  securities  and
short-term  investments at December 31, 2007.  Total financing  obligations were
$115.0 million at both March 31, 2008 and December 31, 2007.

                                       17

<PAGE>

      At March 31, 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 March 31, 2008, there were no borrowings under this
facility and $10.6 million in letters of credit outstanding,  resulting in $39.4
million of available borrowings.

DERIVATIVE INSTRUMENTS

      We hedge the  variability  of cash flows we expect to  receive  related to
royalty   payments   denominated  in  the  yen  and  the  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 quarter  ended March 31, 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 $0.4
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 quarter  ended March 31,
2008 was $1.5 million,  compared to net cash provided by operating activities of
$7.4 million in the prior year  quarter.  This decrease was primarily due to the
previously  discussed  operating  results  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  entertainment
programming investments.

CASH FLOWS FROM INVESTING ACTIVITIES

      Net cash used for  investing  activities  for the quarter  ended March 31,
2008 was $1.5  million,  a decrease of $7.3  million  compared to the prior year
quarter.  This decrease reflected net proceeds from sales of investments of $8.1
million,  primarily  reflecting  the  sale  of  our  ARS  and a  portion  of our
investment in an enhanced cash portfolio,  and additions of $6.8 million related
to the  April 1,  2008  sale of assets  related  to our Los  Angeles  production
facility  during  the  current  year  quarter,  compared  to  net  purchases  of
investments of $6.2 million in the prior year quarter.

CASH FLOWS FROM FINANCING ACTIVITIES

      Net cash used for  financing  activities  of $0.2  million for the quarter
ended March 31, 2008 was flat compared to the prior year quarter.

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 current  year and prior year quarter of $0.2 million and
$0.1 million, respectively, were due to the weakening of the U.S. dollar against
certain foreign currencies.

RECENTLY ISSUED ACCOUNTING STANDARDS

      In March 2008,  the Financial  Accounting  Standards  Board,  or 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

                                       18

<PAGE>

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),  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
year in which  the  changes  occur.  We  adopted  the  recognition  and  related
disclosure  provisions  of  Statement  158  effective  December  31,  2006.  The
measurement  date  provision of  Statement  158 is effective at the end of 2008.
Since we use a December 31  measurement  date,  this  provision of Statement 158
will not have an impact on our 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 financial  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 nonfinancial 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  nonfinancial  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 quarter  ended March 31,  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 March 31, 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 March 31,
2008, the convertible notes had an implied fair value of $99.1 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

                                       19

<PAGE>

have concluded that, as of the end of such period,  our disclosure  controls and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis,  information  required to be disclosed by us in the reports that
we file or submit under the Exchange Act.

Internal Control over Financial Reporting

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

                                       20

<PAGE>

                                     PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

      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 approximately $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 have
posted a bond in the amount of approximately $9.4 million,  which represents the
amount of the judgment,  costs and estimated pre- and post-judgment interest, 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.  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 June 2008. 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 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.

                                       21

<PAGE>

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 6.  EXHIBITS

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

10.1*    Amendment,  effective March 31, 2008, to Affiliation  Agreement,  dated
         July  8,  2004,  between  Playboy   Entertainment  Group,  Inc.,  Spice
         Entertainment,  Inc.,  Spice Hot  Entertainment,  Inc., and Time Warner
         Cable Inc.

10.2*    Content License, Marketing and Sales Agreement, dated January 15, 2008,
         between Playboy.com, Inc. and eFashion Solutions, LLC

10.3*    First  Amendment,  effective  February 2, 2008, to the Content License,
         Marketing  and  Sales  Agreement,   dated  January  15,  2008,  between
         Playboy.com, Inc. and eFashion Solutions, LLC

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

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

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

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

                                       22

<PAGE>

                                   SIGNATURES

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

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

Date: May 9, 2008                    By /s/ Linda Havard
                                        ----------------
                                        Linda G. Havard
                                        Executive Vice President,
                                        Finance and Operations,
                                        and Chief Financial Officer
                                        (Authorized Officer and
                                        Principal Financial and
                                        Accounting Officer)

                                       23

<PAGE>

                                  EXHIBIT INDEX

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

10.1*    Amendment,  effective March 31, 2008, to Affiliation  Agreement,  dated
         July  8,  2004,  between  Playboy   Entertainment  Group,  Inc.,  Spice
         Entertainment,  Inc.,  Spice Hot  Entertainment,  Inc., and Time Warner
         Cable Inc.

10.2*    Content License, Marketing and Sales Agreement, dated January 15, 2008,
         between Playboy.com, Inc. and eFashion Solutions, LLC

10.3*    First  Amendment,  effective  February 2, 2008, to the Content License,
         Marketing  and  Sales  Agreement,   dated  January  15,  2008,  between
         Playboy.com, Inc. and eFashion Solutions, LLC

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.

                                       24