Hefner searching for TV, Web partners to revive Playboy

Hugh Hefner, the Playboy Enterprises Inc. founder who is taking the company private, is looking for new business partners to help him develop and rebuild his slumping television and Internet businesses.

Playboy, based in Chicago, agreed to be bought this week by Hefner, 84, in a deal valued at $207 million. As a private company, it will be easier for Playboy to restructure and work with others in reviving the operations, Chief Executive Officer Scott Flanders said. New areas the company is considering include 3-D programming, he said.

"We will strike new partnerships for our digital and TV businesses," he said in an interview. "We have to take huge restructuring charges to form those relationships, and doing so outside the public environment I think will make it easier."

Flanders, who the company said will remain as CEO once Hefner's acquisition is complete, declined to identify potential new partners. Playboy's namesake magazine, first published by Hefner in 1953, started working 14 months ago with American Media Inc., which now handles all of its operations except for editorial functions, Flanders said.

Playboy's TV revenue, which comes from video on demand and a premium channel that brings in monthly subscription fees, were cut in half in the past five years as new Web and video-on- demand rivals emerged, Flanders said. In 2010, TV generated about $90 million of Playboy's annual sales, he said, down from $98 million in 2009. TV accounted for 41 percent of Playboy's 2009 revenue.

“If you think of one factor that has had the largest impact over the past five years, it's the decline of the television business,” Flanders said. Playboy is looking for a partner to help build the television and digital businesses in the U.S. and in international markets, he said.

One possible new initiative could be the introduction of a three-dimensional adult channel, Flanders said. He said costs associated with producing 3-D content "have really come down."

"We are evaluating it," Flanders said.

FriendFinder Networks Inc., which publishes Penthouse magazine and also submitted a bid to purchase Playboy, said last week that it would start a 3-D adult channel. FriendFinder's bid for Playboy was rejected in favor of Hefner's offer.

Playboy lost more than $200 million in the two years leading up to Hefner's initial offer in July. As magazine circulation and revenue declined, the magazine's rate base, the total of newsstand and subscription sales guaranteed to advertisers, was lowered to 1.5 million copies from 2.6 million.

After cutting staff and contracting magazine operations out to American Media, which publishes several titles including The National Enquirer, Playboy magazine broke even in the third quarter of 2010, Flanders said.

Hefner, who declined to comment, will remain focused on guiding the editorial direction of the magazine, working from the Playboy mansion in Los Angeles, and personally selecting the centerfold model for each issue, Flanders said.

"I saw Hef yesterday at the mansion and he left the meeting and said ‘I've got to go work on the magazine,'" Flanders said. "He spends a good part of every day of his life dedicated to and working on the magazine."

Hefner's personal lifestyle and live-in girlfriends have been the subject of a reality show, “The Girls Next Door,” which aired on Comcast Corp.'s E! channel. Last month, Hefner announced on Twitter his engagement to girlfriend Crystal Harris, 24, who is set to become his third wife.

Playboy has also partnered with IMG Worldwide Inc., which manages the company's brand licensing in Asia and in Europe. The licensing arrangements have become the fastest-growing segment of Playboy's business, Flanders said. In the third quarter, licensing contributed 21 percent of Playboy's revenue, up from 16 percent a year earlier.

We need to "accelerate our partnerships," Flanders said. "That's our future."