August 12, 2008 | By Eric Fox he bunny ears aren't as perky as they normally are after Playboy Enterprises (NYSE:PLA) reported a $0.06 loss on revenues of $73.4 million last week for the second quarter of 2008. This was lower than the consensus estimate of a $0.05 gain and revenues of $81.7 million. The poor earnings and lagging performance beg to ask how much more can investors take from this formerly hopping company, and is it time for someone outside the Hefner family to take charge? The case against Playboy is fairly simple - the stock has done horribly since the 1990s. The last time it closed at $4.33 was January 1991, when the first President Bush was in the White House, and Stacey Arthur was the Centerfold of the Month. The present management has certainly been there long enough to change things. Christie Hefner, the daughter of Playboy founder Hugh Hefner, has been President since 1982, and Chairman of the Board and Chief Executive Officer since 1988. (To learn more about the executives of corporations, read our article The Basics Of Corporate Structure.) How do they get away with such poor performance? Hugh Hefner owns 3.3 million of the Class A shares or 69.5% of the outstanding, and 7.9 million Class B Shares, or 28% of the outstanding shares. Only the Class A shares get a vote at the annual meeting. During the Q2 conference call, it was the usual list of excuses that most old media companies come up with at earnings time: * Increased competition for consumer attention and dollars. * The migration of advertisers to other platforms. * Uncontrollable cost increases. * The search for new business models disrupting the media industry. When you throw the weak economy and the resulting pinch on consumer and advertiser spending into the mix, the disappointing quarter is further explained. While these are legitimate excuses for any media or publishing company, they are not new, and it is up to management to find strategies to combat these industry forces. In the publishing segment, it’s no secret that Playboy Magazine, the print publication that the company is famous for, has been in a circulation freefall for years. Not even international sales can help, as even that has declined: Playboy Magazine Circulation (millions) 2007 1999 Domestic 2.8 3.2 International 1.0 1.3 Total 3.8 4.5 Its circulation looks to drop further as the company said that it expects a 10% decrease in advertising pages in the third quarter of 2008 compared to last year. Revenues and earnings from licensing the Playboy brand to others was up for the quarter to $11.6 and $6.0 million, respectively, but neither are large enough to impact the overall company. In the Entertainment Group, which contains TV and online businesses, revenues, were also disappointing for the quarter. Playboy is not alone in the publishing world, as one who is facing declining circulation and reduced advertising revenues. Other publishing companies impacted by these issues include the New York Times Company (NYSE:NYT), another family controlled enterprise, and Lee Enterprises (NYSE:LEE), which owns a chain of newspapers and magazines throughout the U.S. If Playboy wants to start reproducing its earnings like, well, bunnies, then it must look to new forms of revenue that take the digital age into account. This may mean passing the bunny ears, tail, bowtie and cuffs over to someone who doesn't share the Hefner name.
$4.75 (08/14/08)
