Playboy Outsourcing Operations? Times must really be tough!!

Playboy Enterprises Inc. recentlly announced that they will be outsourcing most of their operations to American Media Inc. in a 5-year partnership deal.

Apparently it’s not party time anymore at the company Hugh Hefner started (partly with money loaned by his mother). In fact they have seen their margins erode progressively over time. They netted out $2.3MM profits on revenues of $331MM in 2006 (0.7% margin), in 2007 they made $4.9MM in profits on $340MM in revenues (1.4% margin). To put their operating profitability in perspective, consider this- Playboy operating profits in ’07 were $10MM, giving an operating margin of 2.9%. Bauer Consumer Media, publishers of FHM magazine had operating profits of £65.4MM during the 12 months to 31 March 2008 on revenues of £313.1MM– a 20.9% margin. So they do need a revamping of their operational strategy. Especially given the manual intensive nature of the publishing business, the economies of scale AMI can bring to the table may reeally unlock the profit potential at this controversial yet iconic brand. I guess they are hoping that AMI, which has a score of successful magazine titles in their portfolio can help them improve operational effectiveness.

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