'PLAYBOY' CUTS RATE BASE 4.7%

Also Raises Ad Rates and Cover Price

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NEW YORK (AdAge.com) -- Playboy is slashing its guaranteed paid circulation for advertisers -- the all-important metric known as rate base -- by 4.7%, to 3 million from 3.15 million, and hiking its cover price to $5.99 from $4.99.
'Playboy' is fighting off the relaunched 'Penthouse' as well as continuing challenges from 'Maxim' and 'FHM.'
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Stiff competition
The move comes as Playboy fights off competition from a relaunched Penthouse, as well as continuing encroachment from “lad” books Maxim and FHM.

“This reflects the continuing industry-wide pressure on newsstand sales, which makes it very difficult to predict sales,” Playboy Enterprises said in a filing today with the Securities and Exchange Commission. “Moreover, with the significant increases in paper and postage combined with the weak advertising in the men’s field, this new rate base creates a stronger business model.”

Missed rate base
Playboy has struggled to meet its circulation guarantee to advertisers. It missed its rate base by an average of 1.1% during the first half of the year and by an average of 3.1% for the last half of 2004, according to its statements to the Audit Bureau of Circulations. Although it narrowly made its mark during the first half of 2004, average sales fell below the rate base for all of 2003 as well.

Many magazines resist reducing rate bases for fear that advertisers will consider it a sign of a weakness. The minority view appreciates a rate-base reduction because it signals a commitment to quality circulation and unwillingness to pad circulation with dirt-cheap or unwanted subscriptions.

In 2003, The Atlantic Monthly reduced its rate base to 325,000 from 450,000 amid a drive to create as "pure" a rate base as possible.

"There is a short-term cost to doing it," said John Fox Sullivan, president and group publisher at Atlantic Media. "And understandably everyone's focused on the short term." Over the long term, however, advertisers have rewarded the magazine for its decision. (Its rate base has also grown again, to 375,000.)

Raised ad rates
As Playboy reduces its guaranteed circulation, it is also raising its official ad rates, the quoted prices where negotiations with media buyers often begin. Playboy is increasing the cost-per-thousand readers by 8%, although the rate-base reduction means the official price hike will total just 3%.

Penthouse Media Group last month announced $48 million in private financing to pay for an expansion into TV and wireless delivery. Penthouse said it will use the new money to build multiple high-definition on-demand and subscription TV properties in a direct challenge to Playboy Enterprises, which operates Playboy TV and the Spice channels in the U.S. and abroad. (Last week, Playboy TV signed an agreement with Comcast to distribute movies on a VOD platform.) Penthouse has also changed its look dramatically, turning down the raunch in an attempt to attract mainstream advertisers.

Penthouse paid circulaton
Penthouse had an average paid circulation of 355,698 during the first half of this year, down from 400,229 during the first half of 2004, according to its filings with the Audit Bureau of Circulations.

Playboy's rate-base reduction takes effect with January issue; the cover price will rise one month later. A spokeswoman did not return a call seeking comment by deadline.

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