Deal to Save Playboy Collapses as Buyer Backs Out

Time may be running out for Playboy Enterprises (PLA). A deal has fallen apart to sell the publisher of the iconic men's magazine to Iconix Brand Group, owner of London Fog and Danskin. Iconix determined that "it would be too complicated to separate the Playboy brand from the company's other assets," according toBloomberg News.

Iconix, which licenses brands to others, would have had to find partners to run the smut-generating parts of Playboy. That includes Playboy magazine, which has been hemorrhaging advertisers for years, and the Spice Channel, which has more competition from free Internet providers of porn by the hour.

Ultimately, Iconix wasn't willing to venture into a business it knew little about and would likely create more headaches than it was worth. Licensing, a strength for Iconix, is a small business for Playboy, accounting for only $8.7 million of its $56 million in revenue in the quarter ended Sept. 30.

A Sinking Ship

To its credit, Playboy isn't oblivious to its problems. Newly appointed CEO Scott Flanders, who replaced founder Hugh Hefner's daughter Christine in June, is working quickly to try to save the sinking ship. In November, the Chicago-based company said it would outsource the magazine's non-editorial functions to American Media, publisher of the National Enquirer and Men's Fitness. Playboy says the move will enable it to generate profits in 2011 from its magazine operation, which is expected to lose $8 million this year.

This all may be too little too late, because Playboy's financial situation is dismal. Despite third-quarter results that were better than last year's, analysts expect the company will post significant losses by the time 2009 is over.

Could Larry Flynt Save the Day?

Nonetheless, shares of Playboy have gained almost 80 percent this year on expectations that someone -- anyone -- would rescue Hefner's empire. But investors are clearly getting skeptical. And as the news of Iconix's withdrawal spread Wednesday, the company's shares fell almost 13 percent.

Few logical buyers remain. Among the possibilities are Vivid Entertainment Group, the biggest porn producer, and Hefner's longtime nemesis Larry Flynt, who earlier this year asked for a federal bailout of the porn industry. The other main porn producers are probably too small to afford the deal.

"I've heard there are a couple of suitors, but no details," says Paul Fishbein of Adult Video News. Judging from the state of the adult entertainment industry, under assault from piracy and free content, buying Playboy probably doesn't top anyone's Christmas list.