News : Playboy shedding DVDs in favor of online

LOS ANGELES (Reuters) - Playboy Enterprises Inc, which publishes the world's most widely read adult entertainment magazine, will stop making DVDs to save about $12 million a year, and focus on distributing its content online, the company said in a regulatory filing.

Shutting its DVD operations will cost 80 jobs and $2 million in restructuring charges, according to the filing on Wednesday with the U.S. Securities and Exchange Commission.

With another $4 million taken against archival materials and a receivable, the company anticipates taking $6 million in charges against operating income for the third quarter ended September 30, which is expected to result in a net loss for the quarter.

Playboy spokeswoman Martha Lindeman said the DVD business was accounted for on the company's earnings statements under "Other" along with Playboy radio and its Alta Loma production company. In the first half of 2008, that line item was $2.9 million, compared to the first half of 2007 when it was $3.4 million. Lindeman said the DVD business was the largest of the three in that classification.

Playboy said in the filing that it expects to see some benefits from the cuts in the fourth quarter of 2008, and the full effects next year.

The company announced restructuring plans two months ago with an eye on saving $10 million a year.

In August, Playboy posted a second-quarter loss of $2.1 million, or 6 cents a share, compared with net income of $1.9 million, or 6 cents a share, a year ago. Revenue fell 14 percent to $73.4 million.

In a memo to all Playboy employees that was appended to the filing, Christie Hefner, the company's chairman and chief executive, said the goal was to return the company to profitability in 2009.

Hefner said in the memo that some savings would come from Playboy doing its own magazine pre-production work, outsourcing some non-core functions, and outsourcing newsstand sales for Playboy magazine and special editions.

She said the company was acting to meet the challenges of increased competition for consumers' attention, the migration of advertisers to other platforms, and higher costs of paper, ink and other expenses.

The company will continue to deliver more content digitally, she said in the memo, as it exits the DVD business in phases over a few months to concentrate on selling that content online. Hefner said of the 80 jobs being eliminated, 25 were already open.

Playboy will cut overtime, travel and entertainment, and find environmentally sound ways to save energy and money, including using lighter magazine paper and energy efficient light bulbs.

Hefner said Playboy's balance sheet is strong, its debt level is reasonable with a below market interest rate of 3 percent, and "we have a solid cash position of more than $25 million and access to a $50 million revolving credit agreement."

"Unlike other companies that began in print, we have profitable television, online and mobile businesses, which have domestic and international growth potential," she said in the memo, adding Playboy expects growth in its licensing business to continue, that business was good at Playboy's Las Vegas club, and that it was building an even larger project in Macau.

She said Coty, the world's largest fragrance company, would begin global launch of Playboy fragrances this fall.

(Reporting by Gina Keating; Editing by Toni Reinhold)