Playboy Bets Online Strategy On Gaming
Gambling part of effort to diversify company's e-commerce revenue
By Patrick Seitz
Investor's Business Daily
Playboy Enterprises Inc. has a rabbit up its sleeve in its online strategy.
The Chicago-based media company, which targets the lifestyle and entertainment interests of men, plans to hop into online gambling as part of its fast-growing Internet business.
Gaming eventually could be Playboy's biggest online moneymaker, says Christie Hefner, Playboy's chief executive. The company's Playboy.com unit already is posting healthy gains from e-commerce, online subscriptions and advertising.
An initial public offering for Playboy.com was pulled in mid-November after the dot-com sector collapsed on Wall Street. Playboy.com, though, has since found alternative financing and has cut costs with an eye toward profitability in early 2002.
Visits to Playboy.com are up. The Web site generated 167 million "page views" in October, up 89% from a year ago. Also, the number of subscribers to its Cyber Club has doubled since last year.
Some 65,000 users pay about $60 a year for the "Club's" premium content, such as access to more photos of its centerfolds. Hefner says there's room to grow, since the flagship men's magazine has a U.S. circulation of 3 million.
Playboy.com expects to start reaping revenue from online gaming and other foreign ventures next year. This month, it signed a joint venture with Focus Digital AG of Munich to launch a German version of Playboy's Web site.
Hefner recently spoke with Investor's Business Daily about Playboy.com and online entertainment.
IBD: What are the top revenue generators at Playboy.com?
Hefner: This year, it's e-commerce, advertising and Cyber Club. Next year, we're projecting about $40 million in revenues and think 25% of that will come from the new businesses – gaming and the international sites.
Ultimately, of all the businesses we're in right now, I certainly think it's possible that gaming could be the biggest.
IBD: Isn't online gaming problematic because of government regulations and restrictions?
Hefner: Not really. If you're interested in doing it well and right, it's actually very doable.
With the early players, it was like the wild, wild West. There were entrepreneurs who set up shop, mostly in the Caribbean and Central America, and who didn't abide by any particularly strong rules to protect against people placing bets from the U.S. They figured that if someone came after them, they'd already have made X millions of dollars and they'd be out the back door before the FBI came in the front door.
That in no way means that you can't operate in a perfectly legitimate way. For example, Ladbroke (Casinos Ltd.), our partner for the Playboy Casino Club in London, has launched an online sports betting and casino business, and it's added 1 billion pounds to its market cap.
Gibraltar and Australia, the two jurisdictions we would be comfortable being based in, have taken the approach that there's nothing wrong with online wagering – it just needs to be appropriately regulated.
Asia, Latin America and Europe all represent significant opportunities for us. Our approach is to assume that online gaming won't ever be legal in the U.S.
IBD: How does the Playboy brand help you in that market?
Hefner: It's important for the consumer to know that if you give your credit card (number) because you're going to bet on a soccer game, that your credit card isn't going to get ripped off. Playboy has a reputation for being trusted and that's a good thing in that space.
IBD: Does the nudity on Playboy.com put you at a business disadvantage at all?
Hefner: No. Roughly 15% of the pages on the site have nudity. So, nobody's coming to the site looking for hard-core sex, because it's easy to find it on the Internet.
If we've got twice as many people spending twice as much time on the site as we had a year ago, that's because what we're offering is resonating with a lot of people. Our site has all the passions that men have, including beautiful women, sports and humor.
IBD: What's the biggest hurdle to realizing your new media strategy?
Hefner: The biggest challenge is to continue to effectively execute it in so many areas. We're trying to do interactive TV, gaming, international sites and close business development, sponsorship and other deals.
We were deliberately careful about the rate of growth of our staff. We have about 145 people that work on Playboy.com. The advantages of being careful about that are twofold. One, it means the net investment to break-even will be much lower than – pick your Web site – MTVi or Disney, for instance. But, secondly, when the market conditions changed and we wanted to retool how much money we would spend to get it to break-even, we didn't have to lay off 100 people. We run pretty lean.
IBD: What's your current thinking on the IPO?
Hefner: All of the compelling reasons for an IPO went away when the market dramatically changed back in April. (Playboy.com's financial) needs got addressed through different funding sources.
We decided we could either have the company and, as we achieved business success – like we have with television, we'd tell the story and it would be reflected in the stock price. Or, we could sell a piece of this company at fire-sale prices. Well, that didn't sound so compelling.
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