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PLA AT A GLANCE

P/E ► -0.450   EV/EBITDA ► -0.877   ROA ► -48.3% VERY LOW ROE ► -181.7% LOW Debt to Equity ► 15.2 VERY HIGH Current Ratio ► 0.936 AVG Interest Coverage Ratio ► -29.9 LOW

 

 

 

 

 

 

Revenue, Net Income, and Net MarginRevenue, Gross Profit, and Gross MarginOperating IncomeEbitIncome Before TaxesNet Income from Continuing OpsInterest vs Continuing IncomeInterest CoverageOperating Expenses Research & DevelopmentSG&AAmortization & Depreciation

Playboy Enterprises is an adult media corporation that earns revenue from a diverse group of holdings; its businesses range from the world-renowned Playboy magazine to a licensing group that has managed to attach the Playboy name to everything from watches to the Palms Casino in Las Vegas. While the company's publishing and television businesses have been hit with declining revenues, corporate restructuring could allow Playboy to realize the earnings potential of the world's number one men's magazine. Furthermore, worldwide economic growth is changing the social values of more conservative societies around the world, creating new markets for Playboy's previously taboo products.

The company is also taking advantage of evolving media technologies like online video and satellite radio to distribute its content and further expand its brand recognition, which helps boost its already highly profitable licensing division. While Playboy is technically a media company, its unique content separates it from traditional media and publishing conglomerates. At the same time, it isn't limited to pornographic material and, as such, doesn't exclusively compete in the adult entertainment market. Despite its niche position and highly visible brand name, Playboy is facing the same difficulties that plague both the traditional media and porn industries; as the Internet becomes more popular, the demand for print material (including the Playboy magazine) continues to decline. Additionally, the Internet has spurred the proliferation of free porn sites, which can steal business away from Playboy's subscription-based online offerings. The future of the company will hinge on its ability to adapt to these changing trends and adjust its operations accordingly.

Pamela Anderson, the most famous Playboy centerfold of all.

[edit] Company Overview

Playboy Enterprises is an adult media and licensing company that has been crafting the lifestyle vision of the American male since 1953, when Hugh Hefner published the first magazine. As close to a family business as a publicly-traded company can get, Playboy is run by Christie Hefner; her father, the founder, is Chief Creative Officer. The company is now a multi-million dollar, international phenomenon; with television, radio, nightclubs, and resorts, the company is known across the world for its sexy, progressive portrayal of the American dream. To most people Playboy means one thing: sex. Playboy's history, public image, and product line are synonymous with sex and porn; its products reflect this image, an image that subjects the company to some unique forces that few other companies face.

[edit] Media

Playboy is known for many things, from the sexy, provocative magazine that mixes modern trends with racy photography to the iconic, smoking-jacket-clad founder who decided to live the lifestyle his magazine portrayed. The company began peddling Hefner's vision of the sophisticated alpha male through its magazine, but has since expanded into nearly every available platform:

[edit] Publishing

Playboy magazine was once the keystone of the company's business; though its publishing segment has not been profitable for the last three years. Though print publishing is declining as a journalistic platform, Playboy is the world's number one men's magazine, covering such topics as fashion, celebrity news, and the arts, while featuring photos of its beautiful playmates. In 2007 alone, newsstand sales fell 10%, but print advertising revenue increased by 3%. Playboy Enterprises also publishes a number of other, similarly themed magazines; worldwide circulation is over 20 million and rising.

[edit] Entertainment

• Playboy TV has subscription-based television channels available in 70 countries on over 27 networks. 1,500 hours of original content are created each year, not including the hundreds of DVDs and videos that are sold in stores. Its programming caters almost exclusively to men; the shows are reminiscent of MTV with one main exception; for the most part, the women are nude. Since the acquisition of ClubJenna Inc. made Playboy one of the nation's largest hardcore porn producers, Playboy has also expanded its programming to include video-on-demand, as well as the all-porn Spice Network.
• Playboy Radio is broadcast over Sirius Satellite Radio; its content ranges from relationship advice to interviews with playmates, the ladies who appear in Playboy's products. The station, much like the magazine, attempts mix sophistication with eroticism.
• Playboy Wireless offers content that is downloadable to mobile devices, like cell phones and PDAs. Content includes videos, pictures, games, and ringtones, all with the Playboy theme; this service is offered in 30 territories.
• Playboy Online includes a broad range of web offerings, though, for the most part, it is a collection of adult websites with offerings ranging from softcore nudes and beyond. Playboy Online's revenue-earning sectors, like video-on-demand and subscription revenues, are now included under Playboy's "entertainment" sector, which is why the table above shows no revenue for Playboy Online. The website is subscription only and contains no outside advertising.

[edit] Licensing

The Rabbit Head logo is one of the most recognizable symbols in the world; its powerful association with Playboy, and therefore with sex, sophistication, and glamorous living, makes it a powerful force in attracting sales. Playboy's licensing division essentially sells the use of the Playboy name, logo, and image, to other companies. Among the products not produced by Playboy that feature the Playboy logo, name, or other associations, are clothing lines, lifestyle and entertainment products, a nightclub and casino, and a mansion resort in Macao. While licensing isn't the largest part of the Playboy business, it is the most profitable and has grown tremendously over the past three years.

[edit] Trends and Forces

[edit] Corporate Restructuring

The company has restructured itself in order to get cut down on excess administration costs. There are now only two departments in Playboy: Media and Licensing. By integrating the publishing and entertainment businesses, the company hopes to cut costs, thereby streamlining operations and helping make its magazine and television content profitable once again.

[edit] Strategy Shift

Playboy has historically been a fee- and service-based company, with ad revenues in 2005 making just 9% of the company's overall revenue. This is highly unusual for a media company; newspapers derive an average of 70% of their revenues from advertising; magazines, 50%; and other media companies, 35%. Playboy was the exception to the rule, as its adult content was generally thought to have an inelastic demand curve, allowing the company to charge higher subscription and newsstand prices for its magazines and videos. Now, however, with domestic TV and publishing revenues falling, the company is attempting to pull more money out of advertising by changing its internet content to be more friendly to a wider demographic. Because of the new need for additional ad revenue, overall economic growth has a multiplied effect on Playboy's income, as more money in the economy means more advertising spending.

A Playboy store in China

[edit] Shifting Values and Emerging Markets

The developing world has seen tremendous economic growth in the past few years; countries like China and India are great examples this. As formerly low-income countries develop and their citizens gain more spending power, the demand for luxury goods is increasing. All this amounts to one thing: a fantastic opportunity for Playboy. Playboy's influence on the consumerism and lifestyle choices of the United States is hard to ignore. Fifty years ago, when the bunny logo first showed itself, women asserting their sexuality was not nearly as accepted as it is today, and the average woman wouldn't have associated themselves with the Playboy image. Now the Playboy lifestyle has become more mainstream it has penetrated American society. In many developing countries, the situation is reminiscent of the U.S. fifty years ago. Economies are developing and with them so are social norms. As progressive values begin to undermine the traditional, Playboy has a fantastic opportunity to accelerate consumerism in developing countries. By helping to push along the adoption of progressive values, the company can coax markets for its products into emerging out of the woodwork. The worldwide proliferation of Playboy's magazines and television networks, as well as the introduction of Playboy in India, a country notorious for its kiss- and sex-free Bollywood film industry, are clear indications of this potential.

[edit] Paper-to-Pixel

The print publishing industry has seen a recent drop in circulation; it appears that the Internet has replaced newspapers, pamphlets, and magazines, as the go-to source for news and information. This has been hurting the Playboy magazine, as can be seen by the losses the publishing department at Playboy has incurred over the past few years. The magazine, however, does bring benefits other than just revenue. It is a major driver of the Playboy brand name, and it is what brought the company to fame in the first place, making the brand a household name. Playboy Online is also a major brand driver; though revenues from Playboy Online are negligible, the website and its content push Playboy's sexy and sophisticated image in such a way that anything bearing the logo would be associated with the website. While magazine revenues might stagnate as they appear to have done with the website, both will remain very important to generating revenue from other segments of the company, especially in the high-margin licensing business.

[edit] Advancing Media

Playboy's use of rapidly advancing media technologies will be important to its future success as an entertainment company. The Internet, for example, has seen increasing technological gains; triple-play technology has the ability to bring voice, video, and data together to create comprehensive gaming and communications experience that few have ever seen. Additionally, the Web 2.0 movement promises greater digital interactivity, advancing research, advertising, and entertainment. The greater penetration of wireless technologies in emerging markets is also creating new opportunities for Playboy to deliver content to a substantially larger customer base. Playboy is in the preliminary stages of taking advantage of such advances, offering cyber communication, digital gambling, and, of course, video-on-demand. Future success, especially with faltering performance in the publishing industry, could depend on how the company uses modern telecommunications to offer new content and advance its brand name.

[edit] Satellite Radio

Playboy Radio offers content exclusively through Sirius Satellite Radio. Currently, there are only two providers of satellite radio: Sirius and XM Satellite Radio Holdings. These two companies have fought for control of the satellite radio market for some time now, but they are now seeking regulatory approval to merge into one company. The merger would provide significant synergies, which would likely benefit the new company's overall bottom line. Regulators have been hesitant to grant approval for the merger, however, due to the concern that it would create a monopoly of the satellite radio industry. Sirius and XM are arguing that they compete not just against each other, but against land-based radio services as well, meaning that there would still be a great deal of competition left after the merger. The outcome could impact Playboy Radio's success considerably; with the merger, its programming would likely reach XM's 9.0 million subscribers in addition to Sirius's 8.3 million.

[edit] Competition

As one of the United States' major media companies, Playboy could be considered as competing with such major corporations as Time Warner, Vivendi, Sony, News Corp, Walt Disney Company, Viacom, General Electric Company, and Martha Stewart Living Omnimedia. None of these are adult entertainment companies, however, which is why they aren't really competing against Playboy; the adult media market, thanks to government legislation and good parenting, is far removed from the general media market. In terms of Playboy magazine's editorial and non-pornographic material, magazines such as Esquire (owned by the Hearst Corporation), GQ (owned by Conde Nast Publications Inc.), and Maxim (Dennis Publishing, which owns the U.K. edition, sold the U.S. version to private equity firm Quadrangle Group earlier this year) all target a similar demographic. None of these companies are publicly held.

[edit] Adult Entertainment

Playboy's major competitors in the adult entertainment industry include New Frontier Media (NOOF), Private Media Group (PRVT), LFP Inc., Vivid Entertainment Group, and Penthouse Media Group, Inc. Of these companies, only New Frontier and Private Media are publicly traded, and none of them offer as diverse a product line as Playboy. Additionally, these companies' products are generally heavier on the "graphics" and lighter on the writing and other content that sets Playboy apart.

* - 2006 data. Full fiscal year 2007 data not yet available.

[edit] The Internet is for Porn

Playboy, however, faces increasing competition from a large number of small websites that offer similar content for free. Sites like AskMen.com offer the journalism of Playboy at no cost, and thousands of small, ad-funded sites offer free adult content without the inconvenience of subscriptions. Because of this, Playboy runs the risk of losing online revenues while simultaneously spending large amounts of money to maintain its website.

The Internet Companies Google • Yahoo • EBay • Adobe • Amazon • Microsoft • Baidu • Playboy • Symantec • RealNetworks • VeriSign • Quest • GSI

[edit] References

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