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Playboy pins hopes on Net

As it continues to venture beyond its print business, Playboy is turning to the Web and e-commerce to expand its empire.

After turning on his PC-TV, a customer watches an erotic adult film on cable. When it ends, he clicks over to the Net for an online chat with the sultry star just featured. Later, he buys a keepsake copy of the video on the same Web site.

Although this scenario is technically possible now, it's still a hot commercial fantasy for executives at Playboy Enterprises.

"You can take the idea of the magazine--which is sort of sexy, good times, fun for grown-ups--and then create programming around that idea," Christie Hefner, CEO and chairwoman of Playboy Enterprises, said in an interview with CNET's NEWS.COM. "That's what we did in television, and that is what we're going to do on the Web."



Playboy's Christie Hefner on increasing new media investment
At least for now, the complete convergence of television and personal computing is an academic proposition, and the company's Internet revenues remain relatively small against those of its publishing and television groups. Nevertheless, this year marks Playboy's strongest effort to date to extend its Rambo-like brand power to the global network.

Despite the slew of X-rated sites on the Net, Playboy Enterprises is betting that its marketing force, multimedia platforms, pictorials, and its articles--yes, articles--can make the company's adult entertainment business extremely profitable in digital form.

And Playboy is no ordinary company plying the sex trade online. It is nothing short of an American icon, a rare agent of social change that is also an emblem of brazen capitalistic drive.

Traditional businesses and Netrepreneurs alike are following the company's moves closely as a potential model for economic success online. From a cultural perspective, Playboy's digital reincarnation could create a new generation of followers: young, hip, well-paid Web surfers, many of whom weren't even born when Hugh Hefner published its first issue nearly half a century ago.

"They have something everybody wants: a name and semi-quality pornographic pictures," said Kendrick Noble of Noble Consultants. "Marketing and things directly associated with the magazine have continued to be fairly successful. So they should be able to find new ways to utilize the Web. Video and imagery have worked out for them, and that is essentially what the Net offers."

Playboy's free Web site launched in August of 1994. Last July, the much-anticipated Cyber Club opened, as did its online Playboy Store. Now the advertising-supported Playboy.com site gets 1.4 million page views per day. Overall, online catalog sales and Cyber Club subscriptions took in $4 million last year, without the company devoting any marketing to the sites. The profits aren't much compared to the rest of the company, but 75 percent of Net revenues were collected from customers who were buying from Playboy for the first time.

As an example of the opportunity for new business, Christie Hefner points out that the majority of the 25,000 Cyber Club members do not subscribe to the magazine. The Cyber Club charges up to $60 per year for access to archived articles and photos as well as Playmate chats and their home pages. Pay-as-you-go transactions also are being tested.

"We think video streaming will be a reality, and we'll be able to sell both pay-per-view and subscription programming over the Web," Christie Hefner said. "I think it is the most exciting business opportunity the company has ever been presented with."

The goal, she said, is "to make Playboy.com the first site that young men go to on the Web."

The undertaking is just the latest Herculean turn engineered by the younger Hefner, who joined her father's 45-year-old company in 1975 and was named president in 1982. She was appointed to her current positions a decade ago.

Under her guidance, the company made a profitable foray into television in the early 1990s, a move that allowed her to cut back mounting losses. As a result, Playboy's stock soared 70 percent to $17 per share and revenues rose to $297 million in 1997.

So when Hefner spun out a New Media division in January, continuing the family's maverick traditions, it was clear that the Net was being primed to harvest a larger share of the company's future earnings.

Apparently sharing her father's uncanny sense of timing, Hefner may be making her online push at a propitious moment. Because of increased competition and other factors, the magazine's advertising revenues plummeted in the 1980s and its circulation base shrank from 6 million in 1972 to 3.15 million last year.

Despite the remarkably unabashed beginnings of its flagship publication, analysts say the magazine has become a bit stale of late--and that the Net could be a perfect shot of revitalization for the company.

"You get racier coverage in Cosmopolitan than Playboy--it has lost its edge," said Dennis McAlpine, an analyst for Josephthal, Lyon & Ross. "So the Internet may introduce younger people to the Playboy name."

Until now, however, Playboy's approach to the Net can perhaps best be described as low-key. Unlike other media moguls at such dynasties as Time Warner, Hefner wanted to make sure she could make money before hiring a huge staff and throwing resources at the Web.

"It has been a business that has been managed very carefully in terms of investment during the period of the last several years where we tried to explore whether we really had the potential to generate revenues from advertising, subscription, pay-per-view and e-commerce," Hefner said. "We've completed a six-month strategic review with an outside group that has led us to conclude that there is very significant potential, and we're going to start investing more significantly to realize that potential."

Others have looked to Playboy as proof that ad-supported Web sites can make money. Some analysts attribute much of this market popularity to the allure of adult content, but Hefner points out that nude pictorials account for only 20 percent of Playboy.com's pages.

"They are one of few Internet players that are making money. So far they seem to be getting a decent number of Cyber Club subscribers without doing much marketing," McAlpine said. "Given the number of hits they get, clearly everybody knows what the name means."

At the same time, he takes note of Playboy's conservative approach to its Web business. "It's going to have to pay for itself," McAlpine said. "But Net revenues are not growing as much as people think. When you've got a $300 million base like Playboy, this is just an adjunct to what they are doing."


Christie Hefner on expanding the brand online
 
To attract its new breed of consumer, Playboy will expand its original online content over the next year. Realizing the overlapping demographics of technology news junkies and Playboy readers, for example, the site will offer more coverage of gadgets and computers.

No longer a stepchild of the publishing empire, the New Media division will now have to carry its weight alongside the television, cable, products, catalog and gaming operations. Revenue made by the division, which includes CD-ROMs and Net sites, will be separated from the rest of the company in earning reports. More employees will be added too; since April of last year, the staff has gone from 10 to 30.

Just last week, Buford Smith of Reuters America was appointed president of Playboy New Media. With a chief commander in place, Playboy is now ready to carve out its longer-term online strategy.

The Internet is a new way to bolster its profitable catalog business as well. The lion's share of Playboy's $4 million in online profits last year were generated by the Playboy Store, the online version of the company's videos, apparel and pin-ups. Sales also were boosted by last year's launch of CCVideo and CCMusic.

Moreover, the antipornography movement that once threatened the magazine hasn't hindered the Net business to the same degree. There has been a diligent campaign to limit children's access to online adult-oriented material, but for the most part, only child pornography laws are being enforced. Playboy checks ID for entry to most parts of its site where full frontal nudity is shown--except for some pages in its digital catalog.

As always, Playboy will try to sell itself into the "lifestyle" category to stave off associations with hardcore pornographers and the opposition they often attract. "It's about not segregating it as a sex site. [For example] we wouldn't want a 'playboy.xxx' domain," said Rebecca Theim, the company's director of corporate communications.

Yet lifestyle vs. pornography is really not the issue for Playboy anymore. The secret is to enter the market in the right place at the right time, Hefner says, just as the company did with television.

"It's the strength of the brand and the promise of the brand that is the great, leveraging asset," she added. "And then the key is, can you create the original content that delivers on that expectation."

As it branches out, Playboy will not abandon its original print business. The magazine will still cater to Baby Boomers, who remain fascinated with the history of Hugh Hefner--his storied days of lounging in silk pajamas, cavorting with Playmates prancing the grounds of the Playboy Mansion, reflecting on everything from the sexual revolution to international politics.

For the younger crowd, Playboy intends to continue building on that legend through virtual stimulation.

"They are experiencing Playmates as celebrities--not like a passive 900 sex-number experience," said Rodger Brown, editor of Playboy Online. "The big goal is to create online membership because that is where Playboy is going to come alive again."