Turnarounds

For Playboy, Losing Nudity Means Winning Business

Playboy Enterprises' controversial move was dictated by social media realities, changing tastes in its target audience, and new business opportunit...
David McCannFebruary 5, 2016

About two seconds after hearing last October that Playboy Enterprises planned to stop publishing photographs of nude women in its magazine, I experienced a rare moment of pristine clarity, expressed as: This is a last, futile grasp. Can you say “Dead Magazine Walking”?

I wasn’t the only one shaking his head. Almost instantaneously, Twitter came alive with pointed humor:

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Sure, nudity in a print magazine is a quaint artifact more than 20 years into the Internet age. But, I asked myself, rhetorically (or so I thought): “Take a guy who’s interested in consuming the kind of content Playboy offers other than nudity — on balance, wouldn’t this fellow, Playboy in hand, prefer to have the nudes than not?”

For a CFO editor, there was only one way to get to the bottom of this critically important question: chat up the CFO of Playboy. And so I did.

Playboy logoPlayboy Enterprises is a business, of course, even if a diminished one compared to the heyday of its popularity. The formerly public company went private in 2011, when its valuation was $185 million, compared with $1 billion just 11 years earlier, according to Statistic Brain Research Institute. The magazine’s circulation was about 800,000 as of last fall, down from 5.6 million in 1975, according to The Hollywood Reporter.

Aside from the magazine, the company acquires revenue from its digital businesses, including Playboy.com and various apps; licensing its name and bunny logo, which the company says brings in $60 million a year; and live events at the Playboy Mansion in Los Angeles and elsewhere.

I spoke by phone with CFO Christoph Pachler two days ago, on Wednesday. Today, Feb. 5, Playboy is launching the first nudity-free issue of its magazine (well, sort of; if you want to see what I mean, buy a copy) in San Francisco at its annual Super Bowl bash. I came away from the convo wondering how I could have been so naïve.

Pachler, who came to Playboy in 2010 after serving as finance chief for the international television division of Sony Pictures, says the opportunity to help revive the company was a strong lure. What clinched the decision was evidence that the brand’s “unaided awareness” was in a league with Apple, Nike, and almost no others.

Opinion_Bug7“You show people the bunny, and 97% globally don’t need anything else to identify the brand,” Pachler says. “But the potential of this massive asset wasn’t maximized.”

The strategy to change the brand identity away from its identification with nudity had been percolating for several years. “We saw that our brand was [popular] in social media,” the CFO says. “We had very low costs to acquire Facebook fans, for example.”

Christof Pachler

Christoph Pachler

That posed a problem, though. While Facebook users were an engaged and growing audience, meaning a lot of them liked or shared content Playboy posted on its Facebook platform, Facebook had an iron-clad no-nudity policy. Typically the point of a company having a Facebook page is to drive people to a website. But at the time, Playboy.com, which had been outsourced, was nothing more than a gateway to an adult-magazine subscription site. So Playboy had nowhere to direct its large Facebook audience.

“You can’t grow revenues based on nudity if you want to partner with Facebook, or other big gatekeepers like Google and [Apple’s] App Store,” Pachler says. So in the spring of 2014 Playboy repurchased the website from the outside operator, Mind Geek, hired 60 new people for its digital team, and built a new site with diverse content but no nudity. It was launched in August 2014.

Right around the time of the relaunch, Pachler says, he told the board of directors to be mindful that a major website relaunch often leads to a short-term audience dip. “We’ll make it up in the long run, but be prepared,” he said.

They needn’t have bothered. By December, the number of monthly unique visitors to the site had mushroomed from about 4 million to 20 million, largely because of new traffic arriving through social media channels. Today, a company spokesman says, more than a third of Playboy.com users visit almost every single day.

Going nudity-free in the print magazine is just the next logical step in the rejuvenation of the brand, Pachler says. In fact, he notes, before Hugh Hefner created the Playboy brand in 1953 he spent a lot of time writing out the “Playboy philosophy.” Nudity was not among the core values, but rather part of what helped create an audience for the publication, according to Pachler.

The target audience was then, and remains today, “a young, urban male who has a little money to spend and wants to live the good life,” Pachler says.

In recent years Playboy was missing that target; before the website relaunch, the average age of registered users was 47. Now, though, it’s fallen to 31. That gives Playboy confidence that it can make hay with the nudity-free magazine. “The way we’re looking at this, we’re taking the Playboy brand back to the core values that Hefner created,” says Pachler.

Without providing details, he says print subscriptions and newsstand distribution are on the rise because of the forthcoming, non-nude issues. Until now, in stores Playboy has been in a cover-hiding polybag, high out of the reach of youngsters. “I’m 6-feet-3, and I usually have a hard time reaching that high,” the CFO says. Now, Playboy can come down the rack and share space with magazines like GQ and Esquire.

Most importantly, the number of advertisers is also on the rise. Since October Playboy officials have had more than 300 meetings with advertisers and potential ones and received enthusiastic response, according to Pachler. “New advertisers are flocking to the magazine,” he says. “We have a Dodge ad in the March issue, and we hadn’t had an ad from a Detroit car company since 1991.”

But what about that young, urban male who wants to live the good life and is reading Playboy? Would he not, in fact, prefer to have some nudity?

“We’ve done extensive research on this,” Pachler says. “Why do people buy our product? What we found is that nudity does not attract the young audience. It’s a bit of a weird turn-off for them. A young man today has grown up exposed to nudity from the moment he got his cell phone or computer. Nudity as portrayed in Playboy seemed outdated to him. And also, the roles of women in society have changed.”

He continues, “What we need to be careful of, and what came out of our research, is that we don’t turn this into Better Homes and Gardens. Advertisers have told us very clearly, ‘we need you guys to be edgy and push the boundaries like you have forever.’ There will still be beautiful women, by the way, just not nude ones. There’s more mystery, a bit of teasing going on, and we found that young men find that a lot more attractive than full-on exposure.”

Pachler says he expects the revamped Playboy will help the company achieve a goal of expanding its licensing business. Currently, the vast majority of that business is obtained from international sources, particularly China, which represents half of the $60 million annual revenue.

Interestingly, Playboy cannot distribute its media products in China. Its revenue there comes strictly from apparel companies and others to which it licenses its name and trademarked images.

The company hopes it now will be able to grow its U.S. licensing business, which presently is almost non-existent. “We haven’t closed anything yet, because we want to get the full impact from our announcement of the non-nude brand in the magazine,” Pachler says. “But we believe that within the next nine months we will be looking for new opportunities in the United States.”

In addition to the rebranding, Playboy has undergone other significant changes since Pachler’s arrival, including a major restructuring of the cost base and overall infrastructure. “From a CFO perspective, it’s been as exciting as any five years I could have had,” he says.

Photo: Playboy Enterprises, Chapman Boehler