Tuesday, July 13, 2010

Playboy Needs a New Owner

Playboy magazine has been struggling for almost 20 years, falling sales coupled with the introduction of the internet and all the free porn you can shake Shane Jones stick at mean this once great magazine has become a mere shadow of itself. Its heyday was the 1970s when circulation reached around 7 million. It now sells a paltry 2.5 million.

Like most males I have always had a deep respect for the articles in the magazine but have never actually bought a copy and never intend to do so in the future but as an investor is looks like the company behind the magazine, Playboy Enterprises Inc [PLA.NYSE] has finally reached some kind of fork (or staple if you will) in the road.

The magazine was established in 1953 with Marilyn Munroe on the cover and was an idea that came at the right time at the right place. Playboy Enterprises now has a diverse range of businesses based on the company "lifestyle" and the ubiquitous bunny logo but has been trying to catch its tail for many years in order to try and beat the hardcore opposition to remain relevant as its 60 year anniversary approaches.

It has failed in remain relevant and more than that it continues to bleed money. $US200 million in the last two years alone.

Enter the founder of Playboy Magazine, one 83 year old Hugh Hefner, who has just announced that the piece of the company he does not already own he wants to buy for a 40% premium to its previous market close and take the company private once again.

He sites "protecting the legacy of the brand" as one of the reasons for his bid.

The only problem for Hef though is that his main competition for the last 40 years, Penthouse Magazine, owned by FriendFinder Networks Inc, seems to be formulating a competing bid for Playboy which, if true, would start a bidding war and end up with someone paying too much for an asset that has probably seen the best of its days years ago.

Hef sees value in Playboy though at $5.50 pr share but the owners of Penthouse say his bid undervalues the brand.

Apart from the emotions of Hef being challenged by a rival, Hef seems to have forgotten how much hard currency the company has lost over the years and making a business decision this big based on emotion will always end in tears.

Playboy Magazine doesn't make money and if there is any value in the company it remains in the cache earned by the brand over the last 60 years. The problem with that though is Playboy's prospective new customers are surfing the internet for free content and this brand seems to have lost most of its lustre.

The wise thing for Hefner to do would be sell his current 69% holding in Playboy Enterprises to FriendFinder for a great price and enjoy the rest of his lifelong retirement with a couple of blonds on each arm.

Like that other high flying octogenarian, Warren Buffett, Hef's business interests have limited input, in years, due to age and the future lies in another owners hands where it least at last stands a chance of being turned around so that it can make some money for investors.

I hope you enjoyed the article.

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