From 'Penthouse' to penury? The man who would be King of the Centrefold

It began as a raunchier, downmarket rival to the airbrushed all-American values of Playboy, unashamedly winning the "pubic wars" of the centrefolds in the 1960s. Hugh Hefner may have celebrated the innocent joys of the bachelor lifestyle but for Penthouse and its founder, Bob Guccione, being Mr Medallion Man was nothing to be ashamed about.

Now, nearly 40 years after it was first published in Britain and with pornography arguably more acceptable than ever, Penthouse magazine is facing bankruptcy, outflanked by the internet and the rise of "lads' magazines" such as FHM.

And, as his empire crumbles around him, Mr Guccione, 72, ill with throat cancer, stays holed up in his $40m (£24m), 45-room Manhattan mansion, now offered as collateral for his debts, contemplating a largely self-inflicted series of catastrophic business decisions.

Although Penthouse has been in trouble for years, now the end is surely in sight. Yesterday, Mr Guccione's General Media Inc - the publishers of Penthouse - filed for Chapter 11 protection at the US bankruptcy court in New York, seeking to restructure its debts and operations. The size of its debts is unclear but the court was told that it had between $50m and $100m in both assets and debts.

According to reports, the company has been unable to maintain payments on a $41m loan and the magazine has only appeared once since April because it has been unable to pay printing costs. The August issue is already nearly a month late. Some staff have been laid off and others not paid.

Mr Guccione was reported to have declared last year there was "no future" for mass market adult magazines, so how far he is prepared to keep his baby alive remains to be seen. Circulation - five million at its peak in the 1970s - had dropped to about one million in 1996 and to 530,000 at the end of last year.

Mr Guccione's plight will be music to the ears of the man whom he once sought to depose as the King of the Centrefold. Hugh Hefner - now in his mid-70s - is waxing while Mr Guccione wanes, separated from his wife, allegedly rejuvenated by Viagra and frolicking with his four regular Playmate girlfriends while the circulation of Playboy holds steady at 3.2 million. Mr Hefner has achieved that by retaining the airbrushed image and maintaining the idea that his magazine can be bought for something other than images of naked women: its interviews and serious articles.

"About the only thing remaining in Penthouse's favour is it is portable porn," said Laurence O'Toole, author of Pornocopia, a study of the porn industry. "But apart from that, people who are used to looking at images online don't feel they need to use magazines."

Ever since it was launched by Mr Guccione in London in 1965, when he was working as a journalist for a weekly magazine called London American, Penthouse has sought to both emulate and go further than Playboy. In a battle of nerves with Mr Hefner, his was the first to abandon airbrushing and coy poses to risk showing pubic hair. Its photographs became more and more anatomical and Mr Guccione boasted that "lesbians, threesomes, full-frontal male nudity, erect penises," had all been shown first in Penthouse. Where Playboy had girl-next-door Bunnies, Penthouse had provocative Pets. Mr Guccione copied the lifestyle image - he backed a series of gentlemen's clubs, there was merchandising of Penthouse clothes and sponsorship of sporting events.

Mr Guccione himself, a rugged Sicilian-American with a penchant for leather coats, open shirts and heavy medallions, surrounded by a bevy of Pets, implied that he was the real thing and Mr Hefner, with his silk pyjamas, his pipe and Pepsi, was really a bit of a wimp. Mr Guccione even bought a mansion and filled it with a $200m art collection.

Many now agree that the start of his decline was spending $17.5m on the film Caligula. It was a flop and is still an embarrassment to the careers of Peter O'Toole, Helen Mirren and Malcolm McDowell. Mr Guccione then spent $12m on a failed project to mass produce portable nuclear fusion kits, and a further $40m on research into genetic engineering. Another $60m, plus $200m of other people's money, was spent on an aborted casino venture.

In Britain, meanwhile, Penthouse provided an entry into the top-shelf business for the aspiring young publisher Richard Desmond, whose company, Northern & Shell, began publishing the British edition in 1982, although the relationship ended in the 1990s. Mr Desmond used the expertise gained to launch his own series of even more downmarket and explicit magazines, such as Asian Babes. The money he made would later help buy Express Newspapers.

The 1990s were a bad time for Mr Guccione, who appeared left behind as censorship laws eased and pornography became more acceptable, with even celebrities such as comedian David Baddiel boasting of their porn-buying habits. Both Penthouse and Playboy managed to carve out a small niche in the massive 1980s boom in the porn video industry but both were unable to compete with internet and its access to hardcore material. Penthouse's internet site has also been plagued by technical problems.

"The video porn industry managed to migrate to the internet and it found new ways to market itself, so it has survived," said Laurence O'Toole. Mr Guccione made Penthouse even more explicit. "But there are legal constraints on magazines that don't affect the internet," Mr O'Toole added. Some newsagents took it off shelves and advertisers fell away: even tobacco and alcohol companies were saying it was "too much", says Steve Greenberger, of Zenith Media, an advertising buying firm.

From the other direction, Penthouse was caught by the rise of magazines such as FHM and Maxim, which offered lifestyle content as well as pictures of scantily clad young women. Crucially, there was less embarrassment for men as they bought them in the newsagents. In 1997, Mr Guccione's wife, Kathy Keeton, died from breast cancer. For many years, Mr Guccione had relied upon Ms Keeton, a former dancer he found reading the Financial Times in a nightclub, for the fiscal management of his empire.

Mr Guccione was, reportedly, bereft and retreated into his mansion, surrounded by his art and his bodyguards. But as the debts mounted and without Ms Keeton's advice, things went from bad to worse.

Last year, Penthouse published what it wrongly claimed were topless pictures of the tennis star Anna Kournikova. The magazine has already had to pay damages to the woman who claimed the photos were of her. Just three weeks ago, Mr Guccione settled out of court with Ms Kournikova. The sum was undisclosed but is likely to have been substantial.

Oddly, the straw that broke the back of Penthouse, the pioneer of public pubic hair, may have been to publish the sort of topless photos that appear in our tabloids every day.

RISE AND FALL OF A PORNOGRAPHY PIONEER

1965 'Penthouse' published by Bob Guccione in London as downmarket rival to 'Playboy'

1969 Published in United States for first time; soon becomes first mainstream magazine to show pubic hair

1970s Reaches peak circulation of five million

1979 Mr Guccione launches disastrous and expensive attempt at erotic film, 'Caligula', featuring leading British actors.

1982 British edition published by Northern & Shell, owned by Richard Desmond. Deal ends in 1990s.

1984 Runs a pictorial of the first black woman to hold the Miss America title, Vanessa Williams, prompting her resignation. The issue generated a $14m profit, the highest in its history.

1998 Monica Lewinsky rejects $2m offer to pose.

2002 Sued by the tennis player Anna Kournikova for wrongly claiming topless pictures were of her; the 'real' woman also sues.

2003 'Penthouse' publishers file for bankruptcy protection.