Playboy flirts

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Playboy in bed with the National Enquirer?

Preliminary talks took place recently between Playboy Enterprises, publisher of the trailblazing men's magazine, and supermarket-tabloid publisher American Media about a broad alliance across the companies' portfolios, although they did not result in a deal.

Martha Lindeman, Playboy Enterprises' senior VP-investor relations, said the company does not comment on rumors; David Pecker, chairman-CEO of American Media, also declined to comment.

Christie Hefner, Playboy's chairman-CEO and daughter of its founder and guiding spirit Hugh M. Hefner, said in a prepared statement that, "There is no part of the company except for Collectors' Choice Music [a catalog operation] that is for sale." But, she added, "We have and will continue to seek alliances and partnerships. We are looking for investors for both Playboy Enterprises Inc. and"

Mr. Hefner declined comment.

Playboy's paradox is simple: It is the parent of one of the world's best-known magazine brands yet it is one of the smallest publicly traded media companies. In 2000, Playboy Enterprises took in $307.7 million in revenue and posted an operating loss of $16.9 million and a net loss of $47.6 million. Yet it must strive to compete in a media marketplace dominated by giants such as AOL Time Warner, Walt Disney Co. and Viacom. And it faces competition from mainstream men's lifestyle magazines such as Maxim on one side and hard-core purveyors of Web porn on the other.

The search for investors for the company's dot-com operation has been noted in recent financial statements, although a broader search for investors in the parent company has not. Asked whether the company is seeking partners in areas other than its Internet unit, Exec VP and board member Richard Rosenzweig said, "Not aggressively."

Playboy has an unusual structure. Control of the company remains firmly in Mr. Hefner's hands-he holds 70% of the voting shares. The flagship magazine has never been cheap to produce, at Mr. Hefner's insistence. Its eponymous mansion in Beverly Hills is arguably invaluable to the brand, but requires about $4 million in yearly maintenance costs, according to Morningstar stock analyst T.K. MacKay.

"That's why they may not be attractive to a larger entity," Mr. MacKay said. "Things like that keep a lid on eking out a profit."

Playboy's entertainment unit, including its TV operation, is highly profitable, but its publishing operation-its largest-is not. For the first half of 2001, the publishing unit posted a pretax loss of $531,000 on revenue of $63.3 million.

Playboy reported net losses in its last 10 quarters, due largely to the torrents of red ink flowing from A public offering of the unit was canceled last year, and Mr. Hefner loaned the operation $10 million, in the form of two $5 million promissory notes bearing interest of 10.5% and 12%. More recent filings report the company took on another three investors in, who invested a total of $15 million.

The online operations accounted for $11.5 million of the company's $14.9 million pretax loss for the first half of 2001. Ms. Lindeman said the unit is expected to have revenue this year of $30 million, and to post an operating loss of $15 million to $20 million.

One former Playboy executive said the search for investors has been an open secret in the company in recent years. "There were always people that were dancing with Playboy," the insider said.

Ms. Lindeman declined to comment on any past discussions Playboy may have had. She and Mr. Rosenzweig denied the company needs a cash infusion. "We have access to additional funds, if we need it," Ms. Lindeman said.

Ms. Lindeman said the recent $70 million acquisition of three hard-core porn TV channels required negotiations with the company's bankers, although the company took on no additional debt. These negotiations meant Playboy revised its financial convenants with its bankers and its interest-rate margin was increased 0.25%.

Playboy's stock closed Aug. 31 at $13.65, down from its 52-week high of $19.75, and well off the $33-range peak it hit in the spring of 1999.

"You've got on one hand a serious brand name," said Mr. MacKay, but one that for some potential investors may carry "ethical baggage. And you've got a financial entity that's not in the best financial condition."

Contributing: Mercedes M. Cardona

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