During a recent earnings call, Playboy Enterprises CEO Scott Flanders said he was working on a joint venture to develop a new business model that would help Playboy magazine profitable again. Some details of that venture have come to light.
Playboy said it has agreed to farm out the magazine’s advertising sales, circulation, marketing, production and all other business operations to American Media Inc. Playboy will continue to oversee the magazine’s editorial operations.
AMI’s Distribution Services, Inc. will handle Playboy’s newsstand marketing and distribution services.
Roughly 25 jobs will be affected as a result, although some of those could be transferred to AMI. “AMI will be interviewing all of our employees in the areas being outsourced, and it’s not clear how many of them will be asked to join their company,” a Playboy spokesperson told FOLIO:. “We will also keep a few employees.”
Playboy will incur a $2 million restructuring charge in the fourth quarter related to the deal.
Financial terms were not disclosed. As part of the agreement, Playboy said AMI will be paid “negotiated fees” and will be incented to increase both advertising and circulation revenues. The publishers expect to complete the transition by March 2010. UPDATE: Under terms of the contract, AMI said it will be paid "potential fees" in the range of $5 million for advertising, circulation, production and related services. This, the company said, would result in profitability of approximately $2 million.
When asked about AMI’s strategy behind boosting Playboy’s ad and newsstand sales, and its plans for managing the magazine’s recently reduced rate base and frequency, AMI CEO David Pecker had no comment.
According to Flanders, AMI will be able to manage the magazine operations “more effectively than we can as a standalone publisher. By joining forces with American Media, we will be able to significantly reduce our cost structure and leverage the economies of scale related to manufacturing, distribution and marketing that are available to this large, multi-title publisher.”
Flanders said Playboy magazine is expected to lose $8 million this year. This deal, he projected, will allow the magazine reduce the loss to approximately $5 million in 2010 and to reach profitability again by late 2011.
During the earnings call, Playboy Enterprises reported a $23.5 million net loss through the third quarter, down from a $13.6 million net loss in 2008. The company’s print/digital group reported a $900,000 loss through the first nine months compared to a $3 million loss during the same period last year. Flanders said he expects the magazine to report a 38 percent decline in ad pages during the fourth quarter this year.
AMI publishes several titles already targeting man aged 18 to 34 years, including Men’s Fitness, Muscle & Fitness and Flex. AMI also publishes Shape, Star, Natural Health and the National Enquirer.
It was not immediately clear how the agreement with AMI might affect a potential sale of Playboy Enterprises. The company has been said to be entertaining a number of offers, including one from London-based brand management firm Iconix Group. The Playboy spokesperson declined to comment on a potential sale.