Earnings Call: Playboy’s Hefner: The Brand Will Get Us Through; So Will Deep Cuts And Restructuring


imagePlayboy’s saving grace is the power and iconography of its brand. So said CEO Christie Hefner during the company’s Q3 earnings call, in which she acknowledged that Playboy (NYSE: PLA) is facing challenges on all fronts — from dwindling print circulation and ad revenue, to the push to revamp its digital property, to an overly competitive adult entertainment market in the U.K., and the credit crunch that’s hindering the development of new properties. But it’s the brand that will get them through the coming quarters, even if they have to auction branded antiques and artwork to do so. Hefner laid out the company’s battle strategy, which includes tons of cost cutting measures for dealing with a “weakening global economy” that will produce a “weak ad market in print and online, and softer consumer spending.”

Meanwhile, the long-awaited Playboy.com revamp is slated to launch in Q109 (pushed back from the Q4 launch Hefner alluded to back in Q2). Hefner said it would be the “glue” between all of the company’s divisions: media, events, retail, and venues like the Palms.

Photo credit: Playboy Enterprises

ON job cuts: Playboy has eliminated a total of 140 positions this year — or about 17 percent of its workforce — including the 80 or so layoffs it announced just weeks ago. CFO Linda Havard said the cuts would amount to a $5 million headcount savings, most of which would be realized in 2009, though there may be a slight (positive) impact in Q4.

More on global cuts: The global cuts hit the corporate (HR, administrative, etc.) and media (editorial, productions, marketing and circulation) divisions, as well as the DVD business the company’s trying to get out of. Havard also said managers would forego incentive compensation — though it’s unclear whether that’s just for the coming quarter or indefinitely. All told, Playboy is aiming to add $7 million in savings to its previously stated goals of $12 million in magazine-related cost reductions phased in from 2005 – 2007.

Print and digital publishing: The cost reductions offset a decline in Q3 print publishing revenues, but Bob Meyers, EVP and President of Media said that the company couldn’t support double-digit losses. “We’ve seen significant declines in circulation and ad revenues, and we want to evolve the print model to balance the costs … We’ve lowered paper manufacturing costs, the staff reductions, the outsourcing of certain functions, and next year we’ll have a special summer double issue that will incorporate July and August in one package.”

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Brussels Sprouts

Despite Hefner's business acumen, he should have seen the end of the road coming and got out while he could, but he may have mistakenly thought his empire could last forever.
He became the butt of jokes on late night TV because of his oldtimer image, dressed in a robe and because he was constantly surrounded by girls young enough to be his nieces, alienating many readers.
No doubt the current economic downturn has taken its toll on PLAYBOY, but Hefner must have been aware of the dramatic effect the Internet has been having on the media but stayed on even as his rival PENTHOUSE folded a few years ago for the same reasons : declining revenue from plummeting circulation due to the proliferation of free porn on the Net.

AK Works

I recall 10 years ago doing a case study in college and reading about Playboy's declining relevance in adult entertainment. For a moment it appeared Playboy was resurging. I guess I was wrong and that was NOT the case. Then again, with the global economy the way it is, even adult entertainment isn't rating anymore.

Tameka Kee

What happens when Hef's no longer around though? Does that mean the brand will lose much of its equity?

Playboy Fan

Hmm, if that rumor is true you'd think they'd want Hef to keep "the playground pieces." Hef's as much a part of the brand as the bunny head icon. If he's not throwing parties at the mansion that's bad for the brand IMO.

digital bear

Rumor is that they are on the block and a few PE firms are looking at taking over the assets however Hefner won't let go of his playground pieces. A smart buyer would buy the brand, franchise non-stop and give Hef a few pieces of real estate to lease back for life.

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