November 24, 2009 / 2:14 PM / in 9 years

UPDATE 2-Playboy to outsource magazine ops to American Media

* American Media to take over production, sales, support

* Playboy keeps editorial; sees magazine profit in 2011 (Adds financial terms from Playboy SEC filing)

NEW YORK, Nov 24 (Reuters) - Playboy Enterprises Inc PLA.N will outsource all its publishing operations except for editorial to American Media Inc in a bid to cut costs and return its namesake magazine to profitability in two years.

The company said on Tuesday that Playboy magazine is forecast to lose $8 million in 2009, and this outsourcing move would reduce that loss by $5 million in 2010 before it reaches profitability in late 2011.

The move comes as Playboy Enterprises, founded by Hugh Hefner, is in talks to be sold for about $300 million. Sources familiar with the matter said earlier this month that Iconix Brand Group (ICON.O) was interested in the Chicago-based company, as was Jim Griffiths, a former entertainment president at Playboy.

Florida-based American Media, the fourth-largest U.S. magazine publisher, will take over production, circulation, advertising sales, marketing and support functions of both Playboy magazine and the company’s other domestic publications.

Playboy will pay American Media a flat fee for its services, the company said in a filing with the U.S. Securities and Exchange Commission late on Tuesday.

Playboy said it will pay some costs and expenses as long as American Media maintains a guaranteed rate base and subscriber mix, the company added. The agreement expires on Dec. 31, 2014. Playboy can cancel the agreement if American Media fails to achieve certain print and digital advertising sales revenue benchmarks, it also said.

The move will result in about 25 job cuts, leading to a fourth-quarter charge of $2 million, Playboy said, adding that some of the positions will be transferred to American Media.

“By joining forces with American Media, we will be able to significantly reduce our cost structure and leverage the economies of scale related to manufacturing, distribution and marketing,” Playboy Chief Executive Scott Flanders said.

“This partnership will enable us to generate profits from our magazine operations in 2011,” he said in a statement.

Earlier this month, Playboy posted a narrower third-quarter loss of $1.1 million, or 3 cents per share, as revenue fell across its print, TV and licensing businesses. That compared with its $6.2 million loss, or 19 cents a share, a year earlier. [ID:nN053714]

The outsourcing move was first reported in the Wall Street Journal, which said it would be funded in part from Playboy’s advertising sales.

Shares of Playboy edged down 2 cents to close at $4.10 on the New York Stock Exchange. (Reporting by Tiffany Wu, Deepti Govind and Robert MacMillan; Editing by Dave Zimmerman and Richard Chang) ((tiffany.wu@thomsonreuters.com; +1 646 223 6142; Reuters Messaging: tiffany.wu.reuters.com@reuters.net)) (To read more about the media business, visit the Reuters MediaFile blog at blogs.reuters.com/mediafile/)

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