Playboy Enterprises, Inc.

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Playboy Enterprises, Inc.

680 N. Lake Shore Drive
Chicago, Illinois 60611
U.S.A.
(312) 751-8000
Fax: (312) 751-2818
Web site: http://www.playboy.com

Public Company
Incorporated: 1953
Employees: 583
Sales: $247.2 million (1995)
Stock Exchanges: New York
SICs: 2721 Periodicals Publishing & Printing; 4841 Cable & Other Pay Television Services; 6794 Patent Owners and Lessors

Playboy Enterprises, Inc. is an international powerhouse in the publishing, entertainment, and licensing industries. The company was established through the publication of Playboy magazine in 1953, and became known throughout the world for its centerfold pictures of well-built nude women. During the 1990s, however, the company transformed itself into a diverse operation which included pay-per-view television, weekly TV programming, movies, videos and video catalogs, a cable TV network, and the marketing and selling of name-brand retail products (including clothing, liquor, sound systems, and condoms). In spite of this diversification strategy, the company has always been and will continue to be identified with Playboy magazine which is published in an American edition and 16 foreign editions. Well down from its peak circulation during the late 1960s and early 1970s, the company’s flagship publication still has the highest circulation among men’s magazines with approximately 3 million readers.

Born in the 1950s

Hugh Hefner, the founder of the “Playboy empire,” was born in 1927 in Chicago, Illinois. Raised in the strict religious tradition of German-Swedish Protestantism, Hefner and his younger brother were forbidden to drink, smoke, swear, and, particularly distressing to the two boys, attend movies on Sunday. Hefner’s father, an accountant for an aluminum company, was almost never home, and his mother, an austere and imposing women, was the dominant personality in raising the children. Within such a family setting sex was regarded as horrid, something never to be discussed or even mentioned. Young Hugh developed into an introverted young man, escaping into a fantasy world of writing, drawing cartoons, and collecting butterflies.

Upon graduating from high school in 1944, Hefner served as a clerk in military installations throughout the United States for the remainder of World War II, and then was discharged in the summer of 1946. He followed his high school sweetheart, Millie Williams, to the University of Illinois at Champaign-Urbana, and attended classes as a psychology major, and gained renown as a contributor of cartoons to the campus humor magazine. After graduating in 1949, Hefner married Millie, moved back to Chicago and, in order to support his family, worked in the personnel department of a cartoon manufacturing company. Hating the job, Hefner decided to quit and attend classes in psychology at Northwestern University. He soon dropped out, however, and took a position as a copywriter in the advertising department of Esquire magazine. When his boss refused to give him a five dollar raise, Hefner suddenly quit his job. In 1952, Hefner found himself without steady employment. At the same time, his marriage to Millie, which was rocky from the beginning, fell apart.

Although Hefner hated his job at Esquire, it was while working at the publication’s office in Chicago that he came up with his idea for a new product. Esquire had been successful in creating an image of what it meant to be an urbane young man, sophisticated and worldly, and interested in fancy sports cars, good food, expensive clothing, exotic wine, hi-fi equipment, and women. Hefner grabbed this idea and decided to take the formula one step further—by including photographed female nudes in the magazine. He approached a freelance art director, Art Paul, and asked him to help design his magazine in exchange for private shares of stock in the product. Pawning his possessions to support himself, Hefner worked odd jobs during the daytime. But through the evenings of 1952, with Paul’s help, Hefner assembled the first issue of Playboy magazine on his kitchen table in a small Chicago apartment. Hefner purchased the famous nude calendar picture of Marilyn Monroe for $200 from the calendar company, inserted some risque cartoons and jokes of his own, rounded up a few literary pieces that had previously been published in other magazines, and in November 1953 went to press. With $600 of his own money, and $10,000 raised through the sale of private stock to friends and supporters, Hefner published the first issue of Playboy magazine. It carried no date, since Hefner didn’t know when he’d have the money to publish a second issue, or even if there would be one.

The bold and brash new publication sold 55,000 copies at 50 cents apiece, and Hefner was on his way to establishing the Playboy empire. By the publication of the fourth issue, Hefner had made enough money to rent an office in downtown Chicago and begin hiring a staff. Still, he retained firm control of all aspects of the magazine’s publication. Unknown to most people, however, was the initial difficulty Hefner had in convincing women to strip for his cameras. In fact, at one point Hefner was unable to find any women who wanted to pose nude for his magazine. When an attractive female subscription manager at the magazine came to ask him for an addressograph machine, Hefner responded that she could have her machine if she would pose as the Playmate of the Month. The beautiful subscription manager agreed, and word got around that the photo sessions were conducted with respect, good humor, and consummate professionalism. From that time onward Hefner was deluged with photos from women working at the Playboy office in Chicago and from models throughout the United States.

Growth During the 1960s

By 1960, Hefner had created one of the most successful publishing empires in the United States: circulation had surpassed the one million mark, and advertising revenues had skyrocketed to $2.3 million. Buoyed by his achievement, in the early 1960s Hefner decided to open what he called Playboy Clubs, where any tired businessman could eat good food, drink, and be entertained, all the while being waited on by Playboy “Bunnies,” as he called the waitresses and hostesses who wore nothing more than rabbit ears and a one-piece corset with a cottontail fixed to the bottom. Riding on the wave of the sexual revolution of the 1960s, Hefner opened numerous Playboy Clubs across the United States. At the same time, he began to diversify into more standard clubs, casinos, and resorts. In Chicago, Hefner purchased the old Knickerbocker Hotel and transformed it into the posh and elegant Playboy Towers. Beginning in 1965, Hefner invested over $55 million to develop resort hotels in Jamaica, Miami, Great Gorge, New Jersey, and Lake Geneva, Wisconsin. The Lake Geneva resort, the company’s flagship hotel complex, cost $18 million. Other diversification strategies included the construction of Playboy apartment complexes, an agreement with Columbia Pictures to make first-run movies, the production of television shows and records, and the publication of sheet music. From 1965 to 1970, sales at Playboy Enterprises jumped dramatically, from $48 million to just over $127 million.

Throughout the 1960s, Hefner carefully created his own Playboy myth. He purchased a huge Victorian estate in the heart of the most fashionable Gold Coast area on Chicago’s near North Side, and proceeded to decorate it with a combination of Renaissance and contemporary furnishings. Hefner lived in a room off the great hall, complete with a $5 million circular bed, while bunnies and former playmates of the month occupied other rooms on the upper two floors of the mansion. The swimming pool in the backyard was decorated with the trappings of a Roman temple; so many late night parties were held there that neighbors began to file complaints. In fact, the Friday Night Party at the Playboy Mansion, as Hefner dubbed it, was part of what fostered the man’s growing legend. Hefner was the master of ceremonies that included swimming, drinking, eating, dancing, and, of course, lots of voyeurism. Having invited as many bunnies, playmates, casts of stage plays, movie stars, and celebrities in Chicago that he could find, Hefner would strut among his guests with pipe in mouth looking quite similar to a reincarnation of the Great Gatsby.

The Bunny Comes of Age

The early 1970s were the best years to date for Hefner’s Playboy empire. The circulation of Playboy magazine reached its height in 1972 with 7.2 million readers. Pretax profits in 1973 amounted to $20 million, and the company was quickly approaching the 1000 mark for advertising pages. Yet Hefner, growing more dissatisfied with the lack of celebrity access and general conservatism in Chicago, decided to move his residence from the Windy City to the sunshine and glitz of Beverly Hills, California. In the process, he hired Derick Daniels to take charge of managing Playboy’s day-to-day operations and its growing business interests. However when Daniels, who had been instrumental in the develop of Knight-Ridder Newspapers, arrived on the scene in the mid-1970s, he found an empire in disarray. Pretax profits had shrunk to $2 million in 1975, and barely topped $5 million in 1976. The entertainment division, including movies, television, records, and sheet music, was generating terrible losses.

Company Perspectives:

Playboy magazine and the Company’s powerful brand have been fixtures in popular culture for more than four decades. As we approach the millenium, emerging communications technologies such as DTH, the Internet and digital compression will provide us with even more exciting new opportunities for growth, both domestically and in new overseas markets. Playboy will continue to represent a high-quality adult lifestyle. We look to the future with confidence that the power of the Playboy brand will drive the continued profitable worldwide expansion of our entertainment empire.

With the full support of Hefner, who was no longer interested in managing the company, Daniels implemented a comprehensive reorganization strategy. The new head of Playboy made a clean sweep of management at all levels, getting rid of over 100 employees ranging from vice-presidents to assistant publicists. The most important retrenchment came in the entertainment division. Daniels withdrew the company from producing movies and television shows, discontinued its record and sheet music business, except for licensing arrangements, and began to reassess the kind of advertisements run in the pages of its flagship magazine. To compensate for the losses incurred from its foray into entertainment, Daniels decided to develop the company’s gambling operations. Although Playboy’s nightclub and resort division was losing money, its London-based casinos were generating the majority of the company’s cash flow. Daniels upgraded the London casinos, opened a new casino in Cable Beach, the Bahamas, and made plans for a hotel-casino in Atlantic City, New Jersey.

Yet even under the steady leadership and management of Daniels, the Playboy empire continued to languish during the early 1980s. The number of Playboy clubs dropped precipitously, from a high of 22 to only 3. In 1982, because of licensing and legal problems, the company was forced to divest the one bright spot in its financial firmament, the gambling business. All of its casinos in the United States and British territories, including those in Atlantic City, London, and the Bahamas, were sold off to other firms. With a resulting loss of over 50 percent in sales for the company in 1982, compounding a loss of over $69 million during the previous two years, Hefner decided to replace Daniels with someone he knew more intimately and trusted more thoroughly: his own daughter.

Reorganization and Reorientation during the 1980s

Christie Hefner, a Phi Beta Kappa and summa cum laude graduate of Brandeis University in 1974, joined her father’s company one year later. In 1985, she was promoted to the position of president, while Hugh Hefner continued as editor-in-chief and majority stockholder in the company. Projecting a highly professional image of the businesswoman of the 1980s, Christie Hefner made a conscious decision to remain far away from the libertine excesses of her father’s lifestyle. Dressed in elegant but demure Gucci business suits, the new president quickly installed a talented management team with extensive corporate experience to help her revitalize the fortunes of Playboy. Her most daunting challenge, however, was how to deal with the dramatic changes in the public’s attitudes toward sex that had occurred over the last 30 years. During the 1950s, the idea of guiltless sex and naughty nudity had catapulted Hugh Hefner to his success, but in the 1980s, where everything seemed tolerated (if not completely accepted) in the sexual arena, Christie’s task was not only to turn the company around but redefine the Playboy credo of “Entertainment For Men.”

With Christie at the helm, Playboy began to create an image for itself as the champion of free speech and first amendment rights. Contracting more and more authors to write about social issues, the company publicly supported gay rights, AIDS research, and the plight of battered women. With its growing overseas presence, Playboy magazine became a forum for dissidents from developing countries to write about abuses of power and government corruption. In the first issue of the company’s Taiwan publication of Playboy, an interview with one of the leaders of the Tiananmen Square student uprising in China received a large amount of space. Although the magazine still reveled in its pictorials of busty women, Christie was hard at work transforming the image of the company in order to attract a more diverse audience.

Still, competition during the 1980s was intense. Penthouse, Hustler, and Oui magazines provided more graphic nude pictures than Playboy. Perhaps worst of all was the decision by the Meese Commission in 1986 to describe the magazine as pornographic. After this decision became public, major vendors such as 7-Eleven and newsstands around the country refused to sell the magazine. Traditionally, 75 percent of all sales of Playboy magazine had come from full-price newsstand sales. When this source of revenue suddenly vanished, Playboy quickly changed course and implemented a highly successful subscription campaign. By the end of the decade, circulation had leveled off at approximately 3.4 million readers, with over 75 percent coming from subscription sales, but the change in direction took time and profits remained stagnant.

One of the bright spots in the Playboy empire was the recreation of the entertainment division. The company had formed a Playboy Channel during the early 1980s in order to take advantage of the burgeoning cable television market. With television subscribers decreasing from a high of 750,000 in 1985 to 430,000 by 1989, Christie and her staff decided to replace the Playboy Channel with a pay-per-view service named Playboy At Night. With soft core movies and Playmate videos, the new cable operation gained access into over 4 million homes and suddenly became the third largest pay-per-view service in the United States. At the same time, the company started putting more money into producing videos, and by the end of the decade Playboy was ranked the third largest nontheatrical distributor of videos, just behind Walt Disney and Jane Fonda. The “For Couples Only” collection, including the highly regarded couples oriented massage video, was one of Playboy’s best selling series of videos.

The 1990s and Beyond

The 1990s started auspiciously for Playboy, especially in the overseas markets: overseas circulation jumped from 500,000 during the mid-1980s to over 1.5 million; 14 foreign editions were being published under license; the company began developing TV programming for Western Europe, where a greater degree of tolerance for nudity made Playboy television more acceptable; and a Playboy licensee opened 20 sportswear boutiques selling jogging suits, jeans, dress shirts, and attache cases with the Playboy logo on each item. The company also initiated a Playboy Channel in Japan, arranged in partnership with Tohokushinsha Film Corporation. In another new development, Playboy revived its gaming interests by taking a 15 percent stake in a casino located on the Greek Island of Rhodes.

During the mid-1990s, Playboy magazine was still edited by Hugh Hefner, with many of the magazine’s signature features, graphics, and cartoons. Advertising pages had dropped to 595 for the year 1995, but circulation was holding at a steady 3.5 million, in spite of the stiff competition from other magazines with more explicit nude centerfold pictures. Christie Hefner succeeded in reducing overhead costs for running the magazine, but Hugh Hefner maintained that he needed a staff of 60 and a budget of approximately $4 million to edit Playboy from his Beverly Hills mansion. Still the majority owner of stock in the company, Hugh Hefner had forsaken his pipe and silk pajamas in order to settle down and marry the 1989 Playmate of the Year, Kimberley Conrad. Hefner and Conrad’s son, Marston, played amid the unused Jacuzzis around the mansion.

In the time since Hugh Hefner started Playboy magazine, American attitudes towards sex have undergone enormous changes. This change in perception has left the second generation of management without a clear course to follow. Yet Christie Hefner is committed to developing the Playboy empire, and to making its products more attractive to the tastes and proclivities of a wider, more mature, and sophisticated audience.