Playboy’s Denial of Linear Commerce

If you traveled back in time to 1970 and asked a 29-year-old male “what was the last Playboy article you read?” then posed the same question to a 29-year-old male today, both would probably say "oh, I'm not sure." 

However, the guy from 1970 would be lying. Although Playboy has been largely absent from the lives of millennial men, the brand has a chance to revive its once-storied empire using the $100 million in new funds acquired in its recent financing. Now a publicly-traded company (PLBY), it will be interesting to watch how Playboy Enterprises Inc. deploys capital to attract new customers, builds brand loyalty, and, most importantly, to see if the company will use content to reestablish its position in American culture.

When Hugh Hefner appeared on The Dick Cavett Show in 1969, Cavett introduced Hefner by saying, "Anybody who doesn't know who Hugh Hefner is probably just got here into this country, or is under six years of age." An introduction that would be hard to bestow upon anyone else, even now in 2021. Cavett then asked Hefner who the Playboy audience is, and Hefner responded, "Our audience is young professional gentlemen, college-educated, average age 29, half are married, and half are single, and then one out of every four readers are women." Lastly, Cavett praised the writers and interviews published in the magazine and asked Hefner if Playboy would ever consider getting rid of the centerfolds to attract and influence an even bigger audience. Hefner's response was:

“No, I wouldn't consider that, for me, the inconsistency in our society is that it suggests a healthy interest in beautiful women is somehow inconsistent with a healthy intellectual interest, and to me, a complete man is both, and Playboy is both because Playboy is for the complete man." 

Two years later, in 1971, Hefner took the company public after growing its 1970 annual revenue to $127 million with a net income of $8.5 million. At the time, several print media heavyweights such as The Saturday Evening Post, which began in 1897, were going out of business, but Hefner used his magazine to build a lifestyle brand that led readers to Playboy Clubs and Casinos across the country. And it was in these venues where the company made its real profits.

Fast forward to 2021 and today’s Playboy audience hardly resembles Hefner's audience of the '70s. So it will be interesting to see if Playboy uses its new proceeds to recapture its original audience with content geared toward the modern media landscape or stick to selling consumer products to its current audience. 

The Hefner family no longer has any financial interest in the company. They sold their remaining 35% stake in the company to Rizvi Traverse in 2018 for $35 million. Ben Kohn, a private equity professional turned Playboy’s Chief Executive, clearly set out his vision for Playboy’s path moving forward:

"We're no longer a media company; we're a consumer products and digital services company…the Playboy of today counts on consumer products for 83% of its revenue." 

According to its October 2020 Investor Presentation, Playboy wants to be a leader in sexual wellness, style and apparel, gaming and lifestyle, and beauty and grooming spaces. Notable brands mentioned in the company’s presentation include Hims, Lovehoney, Harry's, and Manscaped. The presentation included a consumer breakdown showing that its customer base is 60% male and 40% female. It further stated that it is a leading men's apparel brand in China. Although, it was unclear how much of its revenue is from international markets.

Denial of Linear Commerce

With Playboy entering this direct-to-consumer (DTC) market, one could convincingly argue that it is making a mistake by not trying to regain the prominence it once held in the media space. If an eCommerce startup is seeking funding, investors want to know how it plans to keep its customer acquisition costs (CAC) low while continuing to increase the lifetime value (LTV) of its customers. Besides having a great product, founders need to show their strategy for keeping their brand in the public eye — above and beyond the use of Facebook ads and Instagram influencers. 

One way for brands to do this is to engage their audience of potential buyers with enjoyable, impactful content, something Playboy once did very well with its stable of high-profile writers and photographers. Granted, producing quality content that ultimately converts readers or viewers into buyers is a tricky task, yet almost all brands, both fledgling and established, make an effort. It’s just that very few do it well. And brands that eschew content production altogether may face significant challenges in achieving long-term success. This need for both a media presence and a great product line is referred to as linear commerce. In an interview with Anthony Pompliano, Web Smith, the founder of 2PM, a company that specializes in breaking down the direct-to-consumer industry, describes linear commerce as:

“The line where media meets commerce, the center of a sustainable and profitable long-term viable business. It can influence demand, and they can meet that demand with supply, or they have supply, and they can manufacture that demand whichever side of the industry they come from. The core of linear commerce is loyalty."

Smith has studied dozens of history’s most successful brands, and there is no doubt Playboy falls into that category, in part because it built its success on the back of a solid linear commerce strategy. In a recent post, Smith discusses how the founders of Michelin Tires introduced Michelin restaurant ratings in 1894 to create additional demand for tires. The thought being if people traveled more often to popular restaurants in France, they would burn more rubber and need more tires. Michelin was just one example of how having a linear commerce strategy can contribute to long-term success and drive brand loyalty. 

More recently, brands such as Glossier and Barstool Sports have used linear commerce to boost their profiles and, accordingly, their profits. Glossier, a women's skincare and makeup brand, was initially a blog focused on women's makeup. After a few years, it started selling products to followers and is now a billion-dollar brand. Dave Portnoy of Barstool Sports started the brand by writing his own sports magazine and then handing it out to anyone who would take a copy.  

While Portnoy may not know it, he followed almost the same path as Hugh Hefner. Although, with a little less sophistication and far fewer women. Hefner started selling his men's magazine in 1953, but the brand became much more valuable once it opened and operated its nightclubs and casinos. Portnoy was able to capture the attention of millennial men and women, but the price that Penn National paid for a portion of ownership is based on the potential profits of Barstool’s following gambling on its platform. 

While it makes sense for Playboy to target its effort on selling products within the sexual wellness, cannabis, and online gambling space, it may not make sense to ignore its enormous media advantage to attract men and women in their 20s and 30s. Playboy once prided itself on being a leader in starting conversations and introducing progressive viewpoints in the print media, but now those conversations more often happen in leading news channels with and in other, more participatory forms such as podcasts, and Playboy is nowhere near the forefront of these discussions. 

Who would have guessed that some of the top podcasts in recent years would feature a former Fear Factor host, two twenty-something women from New York talking about sex, and a former Obama speechwriter talking politics? However, The Joe Rogan Experience, Call Her Daddy, and Pod Save America all climbed to the top of the list in their respective categories.  

Playboy still produced magazines until late 2019 with articles covering politics, sports, and culture, yet the brand failed to resonate with Hefner's target audience nor lead any nuanced conversations about society. Playboy could have easily created podcasts spanning various categories to lead conversations, but it didn't, it stood aside and watched. They even could have tried to acquire similar content creators the way Barstool did with Call Her Daddy which quickly became one of their top podcasts. At a time when it has never been easier to publish content, why would Playboy shy away from it, why not embrace the changing landscape and reclaim its position at the top.        

While trying to compete with these smaller direct-to-consumer brands, Playboy also needs to realize that these startups are funded by investors with different risk appetites than retail investors. These new brands will expect to have operating losses over the next few years, while Playboy will have to report their financials every quarter and show a much quicker path to profitability to keep their stock price from falling. And to do that, they should utilize all the assets at their disposal. Playboy’s real value was not solely the magazine; the magazine was the pathway to other long-term, more profitable ventures. If Playboy denies its original target market and the importance of a nimble linear commerce strategy in today’s saturated marketplace, it will face a tough time reviving its once-formidable empire.

LINKS MENTIONED:
Hugh Hefner on the Dick Cavett Show 1/15/1969 (7:15)

Playboy to Go Public Again in Deal With SPAC (WSJ)

1971: Playboy Plans to Go Public To Finance Its Expansion (NYT)

Playboy Investor Presentation - October 2020 (SEC.Gov)

The Pomp Podcast: Web Smith on The Future of Media (48:54)