Playboy Announces 3rd Quarter Results, Inks European Licensing Deal

Nov 9, 2010 9:00 AM PST
CHICAGO — Playboy Enterprises Inc. today announced a net loss for the third quarter ended Sept.30 of $27.4 million due largely to impairment and restructuring charges, but reported some improvement in its licensing and print and digital efforts.

The company also announced that is has expanded its deal with IMG Licensing Worldwide to include Europe.

This third quarter report compares to a net loss of $1.1 million in the prior year quarter when the company recorded $500,000 in restructuring charges.

Excluding these charges, the company reported a net loss in the third quarter of $1.6 million, compared to a net loss last year of $600,000.

The company’s third quarter revenues were $52.1 million, down seven percent from $56 million recorded in last year's third quarter.

Playboy also reported segment income of $0.7 million compared to $2.7 million last year, citing improvements in the Print/Digital and Licensing Groups that were offset by lower Entertainment Group profits and increased corporate expense.

Playboy Enterprises Inc. CEO Scott Flanders said, "We continue to make progress toward our goal of transitioning Playboy to a brand management company. The success of our existing partnerships with AMI and IMG demonstrate the viability and promise of outsourcing agreements. Working with AMI, we have reduced Playboy magazine's cost structure, contributing to the improvement in the Print/Digital Group's third quarter profitability compared to last year. In Asia, IMG helped close the single largest product licensing deal we've ever done, which was a factor in the significant top- and bottom-line growth the Licensing Group reported today.”

He added, "While outsourcing some operations, we will continue to oversee licensing related to our location-based entertainment venues and we are excited to report financially meaningful developments in this strategically important business. Later this month we will open Playboy Clubs in both Macao and Cancun and we finalized last month a plan to bring a Playboy Club back to London after more than two decades. We expect the London club to open in the second quarter of 2011.”

Flanders noted that Playboy expects to sign additional operating agreements that will improve margins, limit downside and include stringent performance criteria.

In related news, Playboy announced the expansion of its agreement with IMG Licensing Worldwide.

“Given their accomplishments in Asia, they [IMG] will now serve as our exclusive agent in Europe as well. As part of our overall strategic focus, we also remain committed to controlling expenses and, in the third quarter, reduced our cost structure versus the prior year for the 11th consecutive quarter," Flanders said.

"PEI's successful collaboration with IMG in Asia made extending the partnership to include Europe an attractive opportunity to grow our revenue base and accelerate our transition to a brand management company. IMG's extensive network of agents in Europe can help increase Playboy's consumer reach as well as the visibility and power of the Playboy brand," said Adrianna Chinnici, Playboy's senior vice president, global licensing.

Bruno Maglione, IMG executive vice president and global managing director IMG Licensing Worldwide said, "IMG's 50-year experience and established infrastructure in the European market will allow us to build on Playboy's success throughout the region, as we have been doing already in Asia, and to continue to significantly expand its licensing business."

While the agreement with IMG will cover a wide range of men's and women's apparel, accessories and other product categories, Playboy said that its pan-global and entertainment venue licenses as well as the company's media businesses will be exempt from this arrangement.

In addition to developing new business prospects, IMG will oversee the financial and legal administrative processes related to Playboy's European licensing agreements and will monitor compliance. The contract gives Playboy final approval on all licenses.

Third quarter results for Playboy's Entertainment Group showed segment income of $800,000, versus $2.3 million in last year's quarter. Revenues declined 20 percent to $19.5 million from $24.4 million in the same time periods.

Domestic TV revenues were down 21 percent to $9.8 million from $12.5 million last year. As previously announced, DirecTV, Inc. withheld estimated payments of $3 million for TV programming received from Playboy during the quarter. The company said that revenue loss combined with modest declines in movie network and VOD revenues were responsible for the downturn.

Playboy also recorded a $1.2 million charge for bad debt expense for receivables related to DirecTV.

The company reported that Increased competition and unfavorable foreign exchange contributed to a $1.7 million reduction in third quarter international TV revenues to $9 million. This decline was offset in part by lower expenses versus the prior year quarter.

Playboy magazine was largely responsible for the $0.9 million increase in the Print/Digital Group segment income to $1.3 million, compared to $400,000 last year. The group's revenues declined five percent to $21.7 million in the same time periods.

Playboy magazine third quarter revenues grew six percent versus last year to $10 million while operating costs declined. The improvement was attributed to the publication of three issues of Playboy magazine in this year's quarter versus two in last year’s quarter, which contributed to a 21 percent increase in circulation revenues in the same time periods.

Third quarter 2010 advertising pages were up 31 percent, although advertising revenues declined 25 percent due to a planned 42 percent reduction in the magazine's rate base.

The company said that it expects Playboy magazine advertising pages to increase approximately seven percent in the 2010 fourth quarter.

Third quarter Digital revenues were $8.5 million, down $1.1 million from last year, reflecting lower pay-sites and advertising revenues. A reduced cost structure partially countered the revenue decline.

Playboy said its Licensing Group segment income grew 11 percent to $6.2 million compared to the same quarter last year on a 24 percent increase in revenues to $10.9 million.

Consumer products sales were up 36 percent in the quarter due to increased royalties from licensees in Southeast Asia and Latin America.

Corporate expense rose to $7.6 million in the third quarter from $5.5 million in the same period last year.

Higher trademark defense expense and fees related to Hugh Hefner's proposal to take the company private contributed to the increase.

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