Sun sets on the Playboy Era

After years of falling circulations within the men's magazine sector, the credit crisis and recession could not have come at a worse time for the ailing bunny. Playboy Enterprises reported a 2nd quarter (Q2) loss of almost $9m in August, reflecting a 15% decline in revenues. The company was even forced to merge the July and August issues of the magazine to cut costs, and is set to do so again in January and February. November's edition even featured cartoon character Marge Simpson on its cover, although it is not entirely clear whether this reflects editorial humour or an inability to maintain the traditional six figure pay outs to Playboy cover girls. The late night party lights have now been switched off at the English Manor and the company's New York offices, although it remains to be seen whether this represents a new spirit of prudence or a harbinger of the company's final days. A corporate empire that once made a vast fortune from selling naked images of beautiful women now struggles to pay its bills. As part of a declining industry in the midst of a banking recession, simply borrowing more to refill the champagne glasses may no longer be an option for Playboy.

In November Playboy's new President Alex Vaickus announced that Q3 revenues were down $14m (20%) to $56m, although a series of economies had reduced the net operating loss to a more modest $1.1m. Revenues fell across all sectors of activity, including Playboy's magazine, TV, online and licensing operations. Playboy's digital revenues were down 12% to $9.6m, and new CEO Scott Flanders warned of further job losses to come as part of an aggressive cost-cutting strategy. Although Playboy's operating costs have been pared back, their 'corporate expenses' still ran to $5.5m in Q3, up by almost $1m despite prices falling in the recessionary climate.

Rumours of a potential sell off are rife, especially given the brand's association with a coveted lifestyle, and the Playboy Empire remains asset rich despite a recent market valuation of below $100m. Although some analysts price the company at more than $500m, Playboy's market value in effect falls far short of this figure owing to heavy debts of around $155m, even if the company does claim to hold substantial 'cash' reserves of some $80m. Despite the economic downturn, Playboy has been pursuing an aggressive expansion strategy with new hotels and entertainment complexes opening in Cancun, Miami and Macao, in addition to existing venues in Los Angeles and Las Vegas. The Company has already amassed a sizeable property portfolio whose value may ultimately run into the hundreds of millions.

Observers have attributed Playboy's current market myxomatosis to a plague of causes, ranging from a collapse in advertising revenues to the prevalence of free content on the Internet. The truth is however that Playboy has become relatively conservative in its tastes and content when compared to leading competitors such as Hustler, Penthouse and Club. Also, due to the broad range of Playboy publications and the number of respected rivals, the once coveted crown of 'Playboy model' has become far less prestigious than it once was. Asking leading celebrities and top models to divest of their modesty is an expensive affair and in a world saturated by explicit content, Playboy's implied nudes have become somewhat tame fare.

The future direction of Playboy remains uncertain as the ruling Hefner dynasty has in effect been replaced by more cost conscious directors. In fact 2009 has been all change at the helm, as the recent trials and tribulations at the once playful bunny have resulted in a more austere attitude to business. However, despite the new broom, the tune seems strangely familiar as Alex Vaickus announced his determination to maintain the company's flagship print publication, come what may. Our view is that if the new board elects to make the magazine more 'exclusive', refines its content, raises the cover price, and focuses upon distributing a more explicit print-on-demand edition by mail order, then they may just succeed in regaining the prestige and viability of the legendary Playboy magazine.

Putting a price to the Playboy Empire is no straightforward enterprise. Some analysts value the Playboy brand alone at over $200m, especially given its potential to grow through licensing during the next economic upswing. The Playboy logo already adorns a wide range of products from women's lingerie and perfumes, to sportswear and T-shirts, not to mention casinos and swimming pools. Playboy's proprietary content is also highly valued due to its strong global circulation (over 3.5 million magazine copies sold last year), and its powerful advertising platform which attracts affluent and aspiring young men. This key demographic market remains enticing to advertisers, and hence the Playboy magazine and its content are still prized at more than $40m. While Playboy TV has been relatively slow to switch to the increasingly popular video-on-demand format, Playboy Channel subscriptions and advertising still draw in over $20m a year, giving the Playboy TV network a valuation in excess of $100m. This figure is certain to rise as Playboy embraces new platforms and technologies during the course of the economic recovery.

Meanwhile the columnists have short listed a veritable who's who of eligible bachelors apparently 'waiting in the wings' to become the new emperor of Playboy. However, much of Playboy's traditional business is centered upon the declining industry of the men's print magazine and we are, after all, in the midst of a deep recession. For those suitors who don't happen to have hundreds of millions in spare cash to hand, raising the necessary capital in the current climate would be a tall order even for leading industrialists. Many banks and investors remain 'too pragmatic' to invest in 'soft' media and lifestyle products such as Playboy, especially when countless millions are suffering hardship and unemployment. Despite the downsides, a few potential buyers from the leisure and media industries may be tempted to throw their hat into the ring. Conspicuous among the names touted are Robert Sillerman of CKX, Chris Albrecht of Foresee Entertainment, Berth Milton of the Private Media Group, Mark Cuban, owner of the Dallas Mavericks, Gustavo Cisneros of the Cisneros Group and the Maloof brothers, owners of the Las Vegas Palm Hotel. Although these leading lights of the entertainment industry have all been tipped to make a move for Playboy, the asking price for the aging bunny may fall still further as the 'luxury lifestyle' sector still awaits signs of a robust upturn in demand. For now at least the smart money is playing the waiting game, and a bid, if and when it does come, is more likely to materialize when the big banks are in a position to lend to a resurgent leisure sector.

If Playboy does survive its evident cash flow crisis and the lean times of 2010 as expected, then there is plenty to remain optimistic about. Playboy TV is strongly positioned to carry its adult content to the Internet and a new generation of mobile platforms. Playboy TV is also rumoured to be launching an all-inclusive linear and online VOD service that will enable subscribers to access their content on a variety of platforms anywhere and at anytime. With a raft of new content on the horizon in addition to the traditional fare of 'soft' feature films, Playboy's TV and digital platforms are strongly positioned to take on their rivals. There will be plenty of new market share up for grabs as many contenders wither and die in the recessionary heat. Moreover, given that Playboy TV is now perceived to be a more mainstream product, other distributors and broadcasters may decide to carry the channel, raising its revenues and reach still further.

Men's magazine market continues its free fall

Playboy effectively serves as the barometer for an entire industry. The economic phenomenon that was the men's magazine has long since dissipated, and the multi-million circulations of the nineties are but a fond publishers' memory. Today only a handful of monthly titles can still boast seven figure global circulations. Several titles have already ceased to print as the latest UK circulation figures for August 2009 reveal that the annual falls in circulation have continued unabated. FHM's readership declined by 16% to just over 235,000 copies, while that of Esquire fell by 9% to barely 52,000. Other leading titles fared far worse. The circulation of Loaded magazine dropped by almost a quarter to 72,679, while the circulations of the two leading men's weeklies Nuts and Zoo also witnessed a sharp decline. Nuts' readership fell by almost a quarter to 188,500 and that of arch rival Zoo tumbled 31% to just over 111,000. Clearly it will not be very long before many of these titles follow Dennis Publishing's Maxim to join Monkey in an exclusively online format. This represents quite a turnaround in the fortunes of Maxim, a magazine which in 1995 once sold 350,000 copies within the UK alone. There has already been one notable fatality this year. In April Bauer closed the doors of Arena magazine after 22 years of publication, and although the once popular title may have been the first to fail outright, it almost certainly will not be the last. Depicted below are the most recent figures for the leading UK men's magazines, showing the annual change in their circulation figures.

Playboy rivals continue to fly the flag of prosperity

In a world richly laced with irony it may come as little surprise that a surge in the number of attractive debutantes willing to disrobe for the glamour and adult industries has coincided with an unprecedented decline in the industry's ability to pay them to do so. However some of Playboy's leading rivals are weathering the financial storm better than others, although Penthouse and Hustler are somewhat less forthcoming about their figures than their less explicit rival. In contrast, Paul Raymond Publications (PRP), whose titles include Club and Mayfair, joined Playboy in the red last year. PRP recorded a net loss of just over £166,000 in 2008 having made a profit of £1.4m the previous year. Given that PRP made pre-tax profits of £10.7m and £8.4m in 2004 and 2005 respectively, the tide of adult fortune has turned sharply against the great impresario's grand daughter Fawn James as she takes the reins. The explanation offered by the PRP group was somewhat familiar, citing 'increased competition from other media sources, primarily Internet-based sources.'

As many men's titles continue to stare into the abyss, Larry Flynt, founder of Hustler magazine, remains apparently unperturbed. Mr. Flynt published his first copy of Hustler magazine in 1974 and today his company's annual profits still exceed $1 million despite the apocalyptic downturn. Mr. Flynt attributes his company's survival to their swift adaptation to new media platforms and their diversification into casinos and broadcast media. Although revenues from the company's core business have fallen sharply in line with the general industry trend, their casinos and broadcasting operations are still thriving. Remarkably, the Hustler group's profitability has been sustained despite the widespread availability of free adult content on the Internet, even though sales of Hustler magazine and DVDs have declined dramatically. Revenues from Internet activities, although still profitable, are also down sharply. Playboy's other American arch rival Penthouse, now owned by FriendFinder Networks, has become part of the fastest-growing privately held magazine publisher in the States. Between 2005 and 2008 FriendFinder's earnings grew by almost a 1,000% to $331m. In addition to publishing Penthouse since 2007, FriendFinder also operates highly profitable and sexually-oriented social networks and distributes adult content. There are however dark rumours that Penthouse Magazine itself is making a loss and that Anthony Previte, FriendFinder's chief operating officer, is set to close the doors on the print operation due to losses of around $16,000 per issue. This intention was strongly denied by FriendFinder's CEO Marc Bell, who claimed that such a move would have been disclosed given that the company had filed for an IPO with the SEC to raise $460m for future expansion.

Mr. Flynt meanwhile attributes Hustler's continued survival to a timely diversification into new markets and his decision to spread risk. The last of the venerated founders of the men's magazine industry still standing has even gone so far as to suggest that the adult DVD industry will die out completely in 2010, and expresses a strong conviction that the print magazine industry is also in terminal decline. Judging by the inclement forecasts and the increased threat of competition from mobile and Internet platforms, the decline in the fortunes of Playboy signals the end of the golden age of the colour magazine. Unless Playboy and their rivals tighten their belts and focus upon new media platforms, their empires may go the way of vinyl records, VHS video and the glossy men's magazine...