The naked truth Featured

7:00pm EDT March 22, 2005
Christie Hefner inherited far more than her father's famous name. The daughter of Playboy magazine founder Hugh M. Hefner -- idol of young hedonists everywhere -- also acquired his sense of innovation, an ability to recognize where society is headed and the wherewithal to capitalize on those changes.

"As I started to read the magazine, I came to recognize how remarkable it was that my father was advocating philosophy and points of view that were in step with my generation and out of step with his own, whether that was the war in Vietnam, the environmental movement or changes in attitude about sexual behavior and birth control," says Hefner, chairman and CEO of Playboy Enterprises Inc. "As I grew up, I was able to appreciate and be extremely proud of what Playboy stands for, not so much as a business success but really as a philosophy of values about the world."

Coming of age in the 1970s, Hefner adopted that philosophy and followed in her father's journalism footsteps, joining the staff of the Boston Phoenix, an alternative Village Voice-style publication. But she quickly learned she didn't like that side of the notebook.

"It taught me I didn't want to be a journalist because I didn't get to write what I wanted to write about," she says. "(I) had visions of being an Ellen Goodman-style columnist, getting to offer my point of view on the world. And if that were ever going to be an option for me, it certainly wasn't going to be in the early part of my career.

"At that point, I decided I would probably go to law school. But before I could do that, my father persuaded me to come back to Chicago and learn a little bit about the business. Once I got here, I never left."

With Hefner at the helm, Playboy has expanded the venerable men's entertainment enterprise from a staid print publication into an entertainment powerhouse on television, the Internet and now the wireless world.

In 1988, Hefner was elected chairman and CEO of a company in financial distress. And while she has returned Playboy to profitability -- the company reported a $10 million profit last year on revenue of $329 million -- it was quite a struggle.

Built to last

Hefner spent seven years in a variety of roles before, in 1982, assertively seeking the vacant position of president after her father was forced, because of a regulatory dispute, to divest the company's single largest profit center, its United Kingdom casinos.

"I felt (an outside search) would take a fair amount of time," she says. "The person coming in would have to take time to understand the businesses and the organization and develop plans to move forward and rally the troops to move forward.

"We didn't have the time to do that. I felt we could get started right away making the changes that needed to be made in terms of divesting the company of the businesses that weren't profitable and cutting back on costs and trying to refocus."

The board and her father agreed, naming Hefner president, while her father retained the titles chairman and CEO.

She quickly realized the loss of the casinos only added to the company's troubles, which were much larger than she had thought.

"The biggest challenge was that the company was losing a lot of money," Hefner says. "The single biggest profit centers were the casinos in the U.K., and because of a regulatory dispute, it sold those businesses shortly before I became president. It went overnight from being profitable to reporting a loss of $50 million. Given the capital base of the company, we didn't have a lot of time to turn it around.

"I never really stopped to think about the magnitude of the challenges. I just focused on what I thought we needed to do, get as much done every day and every week as we could, and kept my focus on cash, not on earnings or the stock price, which is one of the luxuries we have as a family-controlled company."

Hefner started by restructuring operations and stripping away unproductive parts of the business.

"The turnaround was really a function of being able to shed those businesses that weren't successful -- like the clubs, the record business or the book publishing business," she says. "We focused to make sure the magazine retained its leadership in the men's market and then looked for opportunities for growth."

That led to the only disagreement Hefner ever had about business with her father.

"I was president, not CEO," she says, "and felt since we had sold the hotels and resorts, it was a good time to get out the club business. My father noted there were still half a million people paying us for their Playboy Club key cards every year. How did we know it couldn't be successful if we didn't try and update the business?

"It was impossible to answer without trying, so, in effect, we did. We opened a newer club in New York City, which was in many ways very successful in the sense that it was a neat place and attracted a nice crowd. But it also reinforced the basic problem, which is it is very hard to make money in the club business, especially when the heyday of all night clubs came at time when you could afford for those small venues great live entertainment, which you really can't do anymore. To his credit, when the results came in after the first year, he said, 'You're right. Let's move on.' And we went through the process of closing down the clubs."

The incident highlights the difference between Christie Hefner and the iconic "Hef."

"In terms of differences between my father and me, I think the principle one is that his real focus and genius has always been on the creative and promotional side of it, whereas I've always enjoyed and focused more on the strategic and management side of the business," she says.

As founder and editor-in-chief, Hugh Hefner still decides the next Playmate of the Month, but it's Christie Hefner who decides where Playboy Enterprises will be next month and next year.

One of those decisions helped lead the company onto the small screen with Playboy TV and the purchase of the Spice Channel. Playboy's channels are available in approximately 130 million U.S. households, and its programming reaches more than 70 countries.

And more than a decade ago, Hefner made Playboy the first national magazine with a presence on the Web with its Playboy.com venture. The site is comprised of original content, as well as repurposed content from the magazine and television. Under Hefner, Playboy.com has become a multiple revenue business with subscription sites, e-commerce, advertising and online gaming. It has grown into one of the most popular online destinations for men and is the company's fastest-growing profit center.

"Clearly one of the reasons we've been successful is that we've positioned ourselves as a content creator with strong brands and we're agnostic with regard to making bets on technology," Hefner says. "A lot of our growth has come from new technologies, whether it's digital homes in the television arena -- which is now being further expanded because of the embracing of video-on-demand and subscription video-on-demand as a technology to deliver content to consumers -- or whether it's the growth of accessing of content via broadband online or the growth in wireless."

Eyes wide open

In her 17 years as Playboy CEO, Hefner has made a name for her ability to deliver the Playboy brand to new audiences. She's even trumped conventional wisdom and looked for ways to draw women into the company's demographics.

"Television, as a segment, is our single biggest profit center," she says. "From a financial perspective, it's been very successful. For Playboy itself, it's had additional benefits. Moving from the magazine to Playboy TV gave us an opportunity to expand our market to women because the majority of viewing of Playboy TV is by couples."

And Hefner has capitalized on that.

"We have built on that with our licensed products division, which has a strong base in women's apparel and accessories, as well as in men's," she says. "That was very positive for us. That we have been able to extend the brand into a multimedia opportunity from print to TV was very important because it encouraged us to add the third business segment -- online."

Hefner's vision led Playboy to the Internet far before it was fashionable.

"We were very influenced by the fact that by '94, we were making a lot of money in television and therefore had demonstrated the ability to move the brand from one medium to another, which is not as easy to do as some might think," she says. "It's not just that we were the first magazine to become a successful network. It's that no other magazine has done it, even in categories where, as a result in the growth of the number of channels from cable and satellite, there are strong categories of programming, but they didn't start from their magazine bases.

"For example, Music Television is not called Rolling Stone; it's MTV," Hefner says. "And news television isn't Time or Newsweek, it's CNN. Even sports wasn't Sports Illustrated, but ESPN, which then turned around and launched a magazine after the fact."

Those opportunities for new players caught Hefner's attention.

"One of the reasons we got interested in the Internet space was that we had made the transition into electronic media," she says. "It also seemed to me that part of the potential appeal of the online world was that you wouldn't have to edit for space or time, so you could really let the consumer be the editor in terms of what their interests were and what they wanted more information on."

Not only has Hefner given consumers the ability to become their own editors, she has also given up control of the magazine -- virtually speaking, that is, following the launch of the company's first-ever video game, "Playboy: The Mansion."

"Ten years ago, (video gaming) was a business for young boys," she says. "It is now very much a young adult market. And that, we think, plays to our sweet spot. So we got interested in moving into that as another category of entertainment and looked for a partner that we thought had a good creative vision for what the first Playboy game could be."

Hefner confesses she isn't very good at the game. Then again, she runs the real thing and learned from the real "Hef."

"One of the most important lessons is, don't compromise on the quality of what you're doing," she says. "He's a very strict taskmaster in that regard, as I think entrepreneurs often are. And I think that's how companies sometimes get in trouble. When they grow so large that they can't be run any more by their entrepreneurial founders, some of that passion for the quality of what you do and frankly, also a passion for the culture you're creating, gets lost.

"Hopefully, I've been able to keep that from happening here. We've been able to grow by professionalizing how we make decisions and how we allocate capital and how we've developed strategies for growth. But at the same time, we've preserved the qualities of the pride in what we do and the respect for the individuals that make good people want to come and do their best work here."

And for that, Hefner just might make the magazine centerfold -- of Fortune.

HOW TO REACH: Playboy Enterprises Inc., (312)751.8000 or www.playboy.com