Playboy Enterprises, Inc. Q2 2010 Earnings Call Transcript

Playboy Enterprises, Inc. Q2 2010 Earnings Call Transcript
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Playboy Enterprises, Inc. (PLA)

Q2 2010 Earnings Call

August 5, 2010 11:00 am ET

Executives

Martha Lindeman - SVP, Corporate Communications and IR

Scott Flanders - CEO

Alex Vaickus - President

Christoph Pachler - EVP and CFO

Analysts

David Bank - RBC Capital

Martin Pyykkonen - Janco Partners

Presentation

Operator

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Previous Statements by PLA
» Playboy Enterprises Inc. Q1 2010 Earnings Call Transcript
» Playboy Enterprises Inc. Q4 2009 Earnings Conference Call
» Playboy Q3 2009 Earnings Call Transcript

Good day, everyone, and welcome to today's program. (Operator Instructions) It is now my pleasure to turn the conference over to Ms. Martha Lindeman.

Martha Lindeman

Good morning, everyone, and welcome to the second quarter 2010 conference call. If you need a copy of our press release and earnings supplement, you can look on our website at www.peiinvestor.com or you can call Brian at 312-373-2432.

During the call today, we will be making forward-looking statements pursuant to the Safe Harbor provisions of the Securities Litigation Reform Act. These statements reflect our current beliefs and plans. They are not guaranteed and involve risks and uncertainties that could cause our actual results to differ materially from those discussed today. We are under no obligation to update these statements. I refer you to the Safe Harbor language in today's release as well as the risk factors in our Securities filings, which describe some of the factors that could cause our results to differ materially from today's discussion.

On the call today, we have our Playboy's CEO, Scott Flanders; our President, Alex Vaickus; and for the first time, we're happy to welcome Christoph Pachler, Chief Financial Officer, and the most recent addition to our management team.

So let me start by turning this over to Scott.

Scott Flanders

Thank you, Martha. The job that I took 13 months ago has proved to be as fascinating as I expected. It's been as challenging as I thought and as rewarding as I hoped. Much has changed at this company over the past year. And at this juncture, I am looking forward to seeing more visible results of the work we've done and to start delivering solid earnings.

As CEO, my first order of business was to devise a strategy to replace a business model that was not working. This dysfunction was particularly obvious in our diverse media businesses, which were reeling from the combined effects of a slowdown in consumer spending and increased competition.

Given the margins we generated in our licensing business, and I'm not just talking about consumer products, but also international publishing and TV agreements, it was apparent to me that we needed to find ways to outsource more of our operations while maintaining the focus on our core competencies of content creation and brand management.

The magazines' losses, which had reached nearly $1 million per issue in 2008, were clearly unsustainable for a company of this size. Just prior to my arrival, a number of cost reduction measures were put in place. These included reducing subscription acquisition expense as the first step, to lowering the rate base and combining two issues into one editorial package, which we did twice last year.

These were effective in reducing costs and led to significantly lower losses last year. However, these were stark GAAP measures that could not be sustained indefinitely.

So in November, we announced a deal with magazine publisher, AMI, to handle all of the production, circulation, distribution, sales and marketing of Playboy magazine. The transition was completed this spring, and we are pleased with results to date, not just in terms of the cost reductions, but also in terms of upticks in advertising and subscription sales. We are on track to achieving our stated goal of having the magazine run breakeven in 2011.

In February, we announced a deal with IMG and they are now serving as our licensing agent in Asia, a territory that was always challenging to manage with our small and remote staff. IMG is bringing us some exciting new opportunities, and we are confident that this deal will exceed our high expectations. Alex will give you more of the details on our progress in a few minutes.

My efforts have been focused on the internal organization as well by beefing up the management team and signing Alex additional oversight and bringing new senior executives on board. I'm particularly to welcome our new CFO, Christoph Pachler, who is on the call today for the first time.

He joined us from Sony Pictures Entertainment where he served and Senior Vice President of Strategy and Operations. His financial skills and experience in TV in international markets make him a great addition to the team. And Alex and I are pleased to have him with us. Christoph's role will be more extensive than that of a traditional CFO, and we are already leveraging his knowledge of the television industry.

For many years, TV was Playboy's largest and most profitable business and was the reason many investors bought our stock. Over the last five years, the industry has undergone dramatic change, and our domestic TV revenues have declined by half due to increased competition exacerbated by a weak economy.

Through this turmoil, Playboy TV has fared much better than our movie channels, and we believe that Playboy TV network can serve as the base of a vital and profitable TV business. In the fourth quarter, we will launch a new look for Playboy TV and a new slated programming, all of which we will describe in more detail in the coming months.

Our strategy in TV is indicative of the two-pronged approach to running our TV and online businesses that we are implementing. While focused on finding partnerships and outsourcing agreements, we want to run our businesses as effectively as we can in the interim. We are continuously looking for revenue opportunities as well as streamlining initiatives. I am confident that we have the strategy and a team to effectively monetize the power of the Playboy brand.

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