PLAYBOY ENTERPRISES reaches agreement to outsource publishing functions
American Media, Inc. Will Assume Responsibility for
Non-Editorial Functions of Playboy Magazine;
PEI Projects Magazine’s Profitability by Year-End 2011
CHICAGO, Tuesday, Playboy Enterprises, Inc. (PEI) (NYSE: PLA,PLAA) today announced that it has reached an agreement with American Media, Inc. (AMI) for the outsourcing of all Playboy magazine functions excluding the editorial product. AMI, which is the nation’s fourth-largest consumer magazine publisher, will assume responsibility for the production, circulation, advertising sales, marketing and other support services of both Playboy magazine and the company’s other domestic publications.
Scott N. Flanders, chief executive officer of PEI, said: "Our goal is to focus our resources on what we do best, which is to create compelling content. At the same time, we were looking to partner with companies who can manage the operations of the magazine more effectively than we can as a stand-alone publisher. By joining forces with American Media, we will be able to significantly reduce our cost structure and leverage the economies of scale related to manufacturing, distribution and marketing that are available to this large, multi-title publisher. This agreement also is expected to improve our top-line results as we benefit from AMI’s proven skill in growing newsstand and advertising sales. This partnership will enable us to generate profits from our magazine operations in 2011.
“Playboy magazine is a vital part of this company and our brand. We evaluated AMI’s outsourcing capabilities on both a quantitative and qualitative basis, and we are confident that this partnership will enable us to continue publishing a magazine that reflects the quality and image of Playboy,” Flanders said. “AMI has an unmatched entrepreneurial culture. Its position as the only large U.S. publisher to show year-over-year growth in advertising during the first nine months of this year demonstrates its capabilities.”
AMI Chairman and Chief Executive Officer David J. Pecker said: “By adding Playboy to our stable of cutting edge men’s titles, including Men’s Fitness, UFC Magazine, Muscle & Fitness and Flex, we now deliver over 11 million men 18 - 34 years of age. That’s 34% of all men that age in the country, and it is almost double our closest competitor. For the first time, an advertiser can effectively and efficiently talk to this hard-to-reach demo because our new Young Men’s Network combines the things guys love most - fitness, sports and females - into one group of brands.”
Pecker added: “Scott Flanders has done a masterful job in managing the Playboy empire since taking over. I couldn’t think of a better partner. We are equally excited to work with publishing legend Hugh Hefner. Playboy has been part of American culture for over 50 years, and Hef continues to keep the editorial just as vital today as it was when he launched it.”
Under terms of the contract, AMI will be paid negotiated fees to perform functions currently done by PEI and will be incented to increase both advertising and circulation revenues.
PEI said that Playboy magazine is expected to lose approximately $8 million in 2009, and, with this agreement, to reduce that loss to approximately $5 million in 2010 before reaching profitability in late 2011. The company also said that the agreement will result in a fourth-quarter restructuring charge of approximately $2.0 million due to the elimination of approximately 25 positions, some of which will be transferred to new job openings at AMI.
Both companies will begin working together immediately with a goal of completing the transition by March 2010.
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