On the evening of Nov. 20, Scott Flanders, CEO of Playboy Enterprises, was all smiles, and it wasn't just because there were Playboy bunnies draped on either side of him. Going by the company's third-quarter results a loss of $27.4 million was announced earlier this month as the brand's traditional outlets struggle with online competition you wouldn't think he'd be in the celebrating mood. But with the Nov. 20 opening of the Playboy Club Macao, Flanders is confident he's found a place for the iconic company in the digital age. Instead of relying on American men buying magazines and watching cable, the company's profits will depend on two seemingly unlikely demographics: Asian women and cosmopolitan clubgoers.
Playboy, founded by Hugh Hefner in December 1953, was once an adult-entertainment empire. By 1972, the magazine's circulation was over 7.1 million, running stories from the likes of Gabriel García Márquez, Vladimir Nabokov and even the 14th century Italian author Giovanni Boccaccio. At its height, there were more than 30 Playboy Clubs from Omaha to Osaka, Japan, which over the years, employed over 25,000 bunnies. Playboy pushed the U.S.'s sexual boundaries while managing to conjure an air of class and sophistication. As early as 1961, TIME called having a membership key to a Playboy Club "the closet thing to a Phi Beta Kappa from Yale."
Those glory days are long gone. Raunchier magazines like Hustler and lad mags like Maxim cut into profits at either end of the adult-entertainment spectrum, and the unlimited adult entertainment available online further eroded the magazine's relevance. Many of the Playboy Clubs started losing money as early as the 1970s, and in 1988, when its Lansing, Mich., club closed, Playboy was officially gone from American nightlife. "Now guys find that entertainment elsewhere," says Martin Pyykkonen, an analyst for Wedge Partners, an independent equity-analysis firm. Young men still know the name, but "it doesn't have the same cachet." Playboy in the U.S., he says, "has become a watered-down brand."
Not in Asia. Playboy's sales of consumer products increased 36% last year, largely off the success in the Asian market, which accounts for 40% of all licensing revenue. This month Playboy opened a three-story apparel store in Taipei, and the brand recently signed a five-year, $50 million deal with a Shanghai-based company that says it plans to open over 2,000 Playboy-branded outlets in mainland China, where the magazine itself is still banned. Playboy will not just be the magazine anymore; tapping into the buying power of Asia's upwardly mobile middle classes, it will be an "aspirational fashion brand," says Flanders. Over 80% of Playboy-licensed products are purchased by women, he says. "The magazine may say, 'Entertainment for Men,' but the bigger story about our brand is how attracted women are to it."
The red-carpet opening of the Macau club had the requisite local celebrities and all the pomp one expects from a Playboy party, but it also had as many well-dressed couples and single women as it did young bachelors. The opulent 12,000-sq.-ft. Playboy Club Macao at the Sands Macao casino is only the first of Playboy's new overseas venues that will try to replicate the success of its Las Vegas club that opened in 2006. A club in Cancún, Mexico, is set to open later this year, one in London will open in early 2011 and, in 2012, Playboy plans to further invest in the greater-China market with a 30,000-sq.-ft. Playboy Mansion, also in Macau. Within five years, Playboy hopes to have around 20 clubs in the globe's "hippest, most cosmopolitan markets." From a financial point of view, "the clubs are a great way to be going," says Pyykkonen, but the challenge is finding the right partnerships to make that expansion happen quickly. In order to license the brand to the right operators in the appropriate markets, Playboy "has got to up the effort and resources a little bit more," he says.
Right now, it's the Las Vegas Playboy Club and the new club in Macau not the magazine, which is now just treading water that are generating buzz. Flanders says he didn't understand the Playboy brand until he walked into the Playboy Club at the Palms Casino in Las Vegas. "It was all ages, all races. Lots of women. It was a beautiful, hip crowd," he recalls. "It informed my thinking about where we're taking this company, which is away from dependence upon the media properties."
There is one person, however, who could still throw a wrench into this plan to move away from adult media: Hugh Hefner himself. In a surprise bid, the famously virile octogenarian offered in July to buy up at a premium the 30% of the Playboy stock he doesn't already own and take the company private. What that means for the expansion of clubs is unclear, but David Miller, managing director at Caris & Co., an investment bank, told the New York Times that he thought the offer was "in direct conflict with the mission being led by CEO Flanders and his management team."
Hefner, says Pyykkonen, has two simple and enviable wishes for the rest of his life: "He wants to live in the mansion and pick the magazine." Pyykkonen says the attempt to the buy back the stock makes sense if he is worried about losing control of the company and the magazine he created. With major cutbacks, the magazine is no longer a major financial drain on the company, according to Pyykkonen, but "there's a reasonable question to ask: Do they need the magazine anymore?"
It remains to be seen how successful the Playboy Club in Macau will be or if Hefner's proposal to take the company private will succeed, but 2011 looks to be an auspicious year for Playboy in China. Come February, it will be the Year of the Rabbit.