Should Playboy have Offshored?
Playboy Enterprises announced on Tuesday that it’s going to outsource all business functions except editorial to American Media Inc. It primarily meant that American Media will ‘handle’ production, circulation, advertising sales, marketing and other services of Playboy magazine and other publications. Playboy CEO Scott Flanders believes that outsourcing operations will significantly cut costs and lead to profitability at its magazines business in 2011.
The first question that comes to my mind (somthing that I havn’t been able to get answers to, as well) is; what do they mean by ‘handle’? Outsourcing is famous for saving costs but is that the real motive behind this association? Undoubtedly, I see this relationship reducing the cost of production of their magazines but i wonder if enough offshoring options considered. Playboy’s partner in Singapore is doing a fantastic job at publishing and even creating content for VIP Magazine. They should have been the ideal choice for a vendor to manage operations for Playboy, in addition to a number of other service providers who have a wide network in the U.S. to manage production and other operations. Wouldn’t this have led to more significant savings?
Executive at Playboy further added that it’s expected to lose about $8 million this year and the deal with American Media should reduce the loss to $5 million in 2010 before turning a profit a year later. Playboy said it expects to record a fourth-quarter restructuring charge of $2 million to cut 25 positions, some of which will be transferred to American Media. Playboy has set March 2010 as the latest date for moving business functions over to American Media. In my opinion, this isn’t the beginning of an outsourcing relationship but an initiation of a bid that American Media could make to buy all brands and assets of Playboy Enterprises in years to come. I may be playing the devil’s advocate here, but believe Playboy is either acting naive, or laying base for creating an environment for lay-off’s (for their stocks to be least effected in the financial markets) and then finally being acquired by another company.
As for now, all we can do is, wait and watch. What do you think?
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Appreciate both your views.
@David: I definitely cannot imagine a call center in Singapore or SE Asia trying to sell ad space in the U.S. But I am sure you will agree that the production and back-end operations could be offshored if the motive is to save “Cost”. In addition to this, you may have noticed most offshore vendors (atleast the larger ones) have significant presence in the U.S. They are capable of selling ad-space in Print, in addition to creating innovative multi-media (New-Media) solution for online advertisers. Playboy also has significant presence Online and TV and hence, a partner who is technically sound with a history in servicing the media industry, may have been the right choice. Btw: Would you know if there were others who were evaluated?
I respectfully disagree with both of you. Offshoring as specific an industry as US magazine production is suicide. On the other hand, handing off production, circulation and ad sales to a company as well versed and as experienced as AMI is a great move. They already have the relationships with vendors, advertisers, etc. and know the market intimately.
Magazines make money from ad sales. Can you imagine a call center in Singapore or somewhere else in SE Asia trying to sell ad pages to clients? It would be impossible to succeed.
AMI has the economies of scale and scope to make this a truly cost-cutting measure.
Of course there will be attached layoffs, as there have been over the past couple of years as PEI tries to modernize its business model. But this is an industry that cannot be equated to a manufacturing or telecom company by so cavalierly suggesting offshoring.
This was probably Playboy’s best option to ensure that the company stays in business for the time being.
I agree pretty much, as indicated on my blog (where i have a link to yours incidentally…)
Surely Playboy, if it had looked closely at the universe of service providers available to it across all shores, would not have chosen AMI to take over production, sales, circ etc solely on service provision advantages alone. Something else would appear to be afoot.