Playboy Q3 2006 Earnings Call Transcript

Playboy Enterprises, Inc. (PLA)
Q3 2006 Earnings Call
November 7, 2006 11:00 am ET

Executives

Martha Lindeman - Investor Relations
Linda G. Havard - Chief Financial Officer, Executive Vice President, Finance and Operations
Christie Hefner - Chairman of the Board, Chief Executive Officer

Analysts

Michael Savner - Banc of America Securities
Michael Kelman - Susquehanna Financial Group
Lucas Binder - UBS
David Bank - RBC Capital Markets
John Klim - Credit Suisse
David Leibowitz - Burnham Securities
Robert R. Routh - Jefferies & Company

Presentation

Operator

Welcome to today’s teleconference. At this time, all participants are in a listen-only mode. Later, there will be an opportunity to ask questions during our Q&A session. Please note this call may be recorded.

I would now like to turn the program over to your moderator, Ms. Martha Lindeman. Go ahead, please.

Martha Lindeman

Good morning, everyone, and welcome to the third quarter conference call. If you need a copy of our press release and earnings supplement, you can look on our website at www.peiinvestor.com, or call Arissa at 312-373-2432.

During the call today, we will be making forward-looking statements pursuant to the Safe Harbor provisions of the Securities and Litigation Reform Act. These statements reflect our current beliefs and plan. They are not guaranteed and involve risks and uncertainties that could cause our actual results to differ materially from those discussed today.

We are under no obligation to update these statements.

I refer you to the Safe Harbor language in today’s release, which describes some of the factors that could cause our results to differ materially from today’s discussion.

We also may make reference to non-GAAP measures. This information, including a reconciliation to the related GAAP measure, is available in today’s release.

We will start today with Linda Havard, who will walk you through the quarter’s results. Then she will turn this over to Christie Hefner who will discuss the outlook for the remainder of the year. Linda.

Linda G. Havard

Thank you, Martha, and good morning, everyone. We were pleased to deliver better-than-anticipated financial performance in the third quarter, which resulted from continued strong growth in our newer digital media and licensing businesses. However, as compared to the third quarter of 2005, these gains were offset by continuing weakness in our two mature businesses of domestic TV and publishing.

Turning first to the entertainment group, year over year, the businesses reported flat profits before programming and content expense, with increased profits from the newer digital media businesses nearly offsetting lower domestic TV profits. The $1.2 million growth in programming and content spending was due to the planned increase in online content compared to last year, in part reflecting the acquisition of ICS, an affiliate network of websites, we made a year ago.

We are now on track to making total cash investments of $43 million in entertainment content this year, a number that also includes our first Club Jenna productions for use on TV, online and DVD, as well as Sirius Radio, and higher content spending in the U.K., as a result of foreign currency translation.

Programming amortization expense, originally anticipated to be just under $43 million, is now expected to come in at approximately $41 million.

In domestic TV, we are seeing a continuation of the trends that we have discussed throughout this year, namely lower revenues compared to last year, resulting from the loss of exclusivity with one of the satellite services and on the cable side, the transition to a more competitive video-on-demand model from the 24-by-7 linear network model, where we hold a majority of the shelf space.

The linear to VOD transition has been only partially offset by the recent rollout of Playboy TV as a subscription video-on-demand service, and by our movie offerings going up on the VOD platform in more than 8 million additional cable households.

Turning to international now, the 17% revenue growth that international TV and mobile wireless reported in the third quarter was attributable primarily to the continued top-line growth of our U.K. networks, overages from Hutchison, our largest mobile licensee, and from new mobile wireless deals.

In online, we benefited from the June acquisition of Club Jenna, or CJI, and last year’s acquisition of ICS, which led to a nearly $4 million increase in online subscription revenues.

DVD sales related to the CJI acquisition and revenues from Playboy Radio, which airs on Sirius, were responsible for the increase in the entertainment group’s other revenues.

Turning now to publishing, a $2.8 million decline in third quarter revenues resulted from lower circulation and advertising sales at Playboy magazine. Lower costs, reflecting expense control measures we put in place earlier this year, helped offset almost $2.7 million of that revenue shortfall, leading to only a small increase in the group’s loss in the quarter.

While readership studies show that Playboy's editorial is appealing to younger and better educated consumers, it is clear that we, like virtually all magazines outside of the celebrity titles, continue to face a very difficult domestic magazine market.

Our licensing business remains strong. More than 80% of the $1.7 million in top-line growth during the quarter fell to the segment income line, delivering a third quarter 2006 operating margin of 62% for the group, compared to a margin of approximately 56% last year.

We did not record any profit in the third quarter related to the Palms venue, which opened in early October. The growth in licensing came instead from our traditional merchandising business, primarily from licensees in Europe.

Third quarter 2006 corporate, admin, and promotion expense was actually down year over year, excluding the addition of $400,000 in stock option expense, and excluding $1.4 million in trademark, content, and administrative fees, which were eliminated this year as a result of the company’s fourth quarter 2005 repurchase of the remaining minority interest of playboy.com.

Now, I will turn you over to Christie.

Christie Hefner

Thank you, Linda. Looking ahead, it is clear we have many opportunities, as well as a few challenges. That is perhaps most true in the entertainment business, where this quarter, we had the satisfaction of seeing significant growth in our newer digital businesses.

The domestic TV business, however, remains difficult for the reasons we have articulated over the past quarters. As we have stated, our goal is to maintain the leadership position in television that we have held for more than 20 years, and we are taking steps to ensure that.

For example, we recently relaunched our Spice Digital Network, upgrading the consumer product in terms of programming, scheduling, and packaging. During the third quarter, we added more than 8 million households in which Playboy TV is offered as a subscription product.

I know many of you want to know how we are performing. Unfortunately, because of the three-month delay in reporting, we only have early indicators. We do know that Playboy SVOD has a very high usage rate, meaning that subscribers are spending a lot of time in the space. That is very good news.

But the challenge in delivering revenue growth requires the appeal of Playboy SVOD to the consumer to be amplified by marketing -- marketing in terms of pricing and promotion, marketing that we do not control, and marketing that ultimately will drive the penetration rate.

At the same time, our near-term domestic TV revenues are reflecting both the loss of exclusivity on DirecTV, as well as the uncertainty of the take rate of the new network launches on Echostar.

In our newer media businesses, we are continuing to make steady progress. On the international TV and mobile side, we are entering new deals, adding new territories, finding new partners, and extending our distribution franchise globally.

In online, for example, we launched last week our first ISVOD product. That is Internet subscription video on demand. It will be marketed to our affiliate network, and this new service has a wider and better array of features than any other product currently available. It offers downloads of a wide range of movies in many different formats, and is the next step in our broadband video distribution plan. We are already at work on a version that will offer even deeper levels of innovative experiences to the consumer.

Along with our traditional fast-growing digital businesses, you could also expect to see continued year-over-year gains in the other category of entertainment revenues. These will be driven by the sale of DVDs that are being produced and marketed under the Club Jenna brand. We should begin to see significant revenue gains in DVD revenues as we ramp up CJI production in 2007.

In publishing, we are looking for better results in the fourth quarter than last year. Given the anticipated 10% increase in ad revenues, and the cost control measures we have put in place, we believe that we will succeed.

Overall, the outlook for the magazine industry continues to be weak. Circulation is difficult, particularly in the higher margin newsstand market. In the most recent audit, seven of our peer group men’s titles reported lower newsstand sales, and the group as a whole reported net almost 250,000 fewer copies sold per issue over the first-half of 2006, compared to the first-half of last year.

This is, unfortunately, a long-term trend. Over the past four years, the newsstand dollar sales for the industry as a whole have declined nearly 20%, even including the up-tick in the celebrity titles and the beneficial effect of price increases.

At the same time, ad dollars continue to drift to other media. We have positioned ourselves to benefit from that, however, and we saw an increase in advertising sales on the playboy.com free site, which we relaunched in September to include a richer array of editorial content, both to build audience and attract more ad dollars online.

Fortunately, we continue to be able to profitably capitalize on the powerful brand that our magazine has created and promotes, and that was no more apparent than at the opening of the Palms venue last month. I know some of you were able to join us at the event, and I know many of you have since had the chance to visit.

For those of you who have not, let me just say that the club is fantastic and is doing extremely well. As Linda indicated, we will begin reporting revenues related to the club in the fourth quarter which, combined with revenue growth in our traditional merchandising business, should result in year-over-year licensing profit growth in the fourth quarter.

As discussed at our analysts’ meeting in October, we have many opportunities to expand the licensing businesses. These include adding new categories, like the concierge service that is advertised in this month’s issue of the magazine, growing our business in under-developed territories like Latin American and Southeast Asia, and closing deals for future location-based entertainment venues.

Our goal is to give you a look at the 2007 outlook in early December during media week, as we have typically done in the past. We are now in the process of laying out our budgets for the year, and I am especially pleased to have Bob Meyers as our new President of Media, who is now taking leadership of facing the challenges and opportunities across our media platforms, and will be with Linda and Martha and me in New York to present the plans that we have for building on the base of support that we are putting in place in 2006.

With that, we will open up to questions.

Question-and-Answer Session

Operator

(Operator Instructions)

We will take our first question from Michael Savner with Banc of America Securities. Go ahead, please.

Michael Savner - Banc of America Securities

Good morning, thanks very much. Two questions, if I could. First, Linda, I think you mentioned this, but just the organic growth in entertainment, if you could just tell us the exact contribution from the Club Jenna and ICS acquisitions. I think you said $4 million. I just want to make sure I heard you correctly, and that was everything related to acquisition growth in the quarter.

Secondly, Christie, tell me if you think I am reading into this too much, but when I look at the performance in the quarter, which is certainly at least a few pennies above expectations, and the way it is worded in the press release, it sounds like it was a contemplation of lowering guidance or at best, maintaining guidance. To me, that sounds like your expectations from when you last updated guidance to today is that the fourth quarter must implicitly be doing worse than you expected, because I would have thought, at worst case, we would be maintaining guidance and at best case, the out-performance in Q3 would flow through to the high-end of full-year guidance or better.

I may be reading into it, but I was a little surprised by the way that was categorized.

Linda G. Havard

Let me answer your first question about the $4 million. That was just for the online piece of Club Jenna, and it included also our other pieces of business. We have not said how much Jenna is contributing this year, and we will not break it out separately, sorry. To give you some sense, we have said that both Jenna and the ICS acquisitions were immediately accretive.

Christie Hefner

Yes, I think your interpretation is correct, which is that on the one hand, we have the positive results that we reported in terms of the new media businesses and the licensing business, but we continue to be concerned about both the visibility of results in domestic TV and the rate of results generated in domestic TV.

Specifically, we know that linear pay-per-view channels are declining even faster than people probably expected. We know from the early results that the Playboy subscription product is being under-marketed and therefore, the ability of rolling it out to translate into meaningful dollars is not an automatic effect until the marketing gets married to the rollout.

We know we have launch costs associated with the new channels on satellite, and so the question is at what rate do we ramp up on the revenue side as against those ramped launch costs.

Given that these are relatively new products in which we do not have real world market experience that we can extrapolate from, I just felt that the best visibility that I could give to you guys was reflected in the language we used in the release.

Michael Savner - Banc of America Securities

That is helpful. Thank you.

Operator

Thank you. We will take our next question from Michael Kelman with Susquehanna Financial Group. Go ahead, please.

Michael Kelman - Susquehanna Financial Group

Thanks very much. I just have a question on your new channel re-launches, and particularly if you are seeing any push-back from any of the cable operators with regard to changing your channel, particularly with respect to the language in some of your carriage agreements.

Also, on a similar front, given that you now are producing a lower number of total channels, do you expect to see any change in the number of movie network households from your current 86 million total? Also, do you expect to see any cost reductions, because you are going to be running a fewer number of channels?

Christie Hefner

On the first question, no. In fact, quite the opposite. We went out to all of the systems to vent the new programming and product positioning, and the response was actually quite enthusiastic.

On the second question, Mike, we should not be reporting anything lower because on average, cable systems have taken two movie networks per household, and we have a lot more networks, but on average, it is two per household, so that should not change the way we report.

On the last question, yes, there is a modest cost-savings associated with reducing the number of networks.

Michael Kelman - Susquehanna Financial Group

Great, and then I have one other quick question for you, switching to another subject. On publishing, could you talk a little bit about some of the drivers for your expected 10% increase in advertising revenue? Is it mostly on the CPM side, or do you expect a significant increase in ad pages?

Christie Hefner

It is based on pages, not net. In fact, the net is principally a function, every quarter, of the mix. In other words, high-volume advertisers in certain categories are at different rates, so actually, at least as near as we can tell, and of course, we have not billed the quarter yet, I think the net may be a little lower, but we also are confident because of the timing of getting the orders, that the pages will be higher.

That continues to be a function of bringing in more advertisers outside the core categories, as we are working to offset the declines in tobacco and liquor. For example, we have Axe and Cody, and Electronic Arts, and Porsche, BMW Motorcycles. You guys see it every issue, so you see that the range of advertisers is actually much broader than it was a couple of years ago.

Michael Kelman - Susquehanna Financial Group

Great. Thank you.

Linda G. Havard

I want to go back to complete an answer that Christie had started, to Mike’s question about the cost of -- should the cost be lower for having fewer networks. Yes, that is true over the longer term, but in the short-term, there are actually more costs because we had to light up, in some cases, double networks in order to make sure that we were actually illuminating the new networks.

So in the transition period, as Christie mentioned, the costs are actually higher, both for the elimination as well as the other marketing.

Michael Kelman - Susquehanna Financial Group

Thank you.

Operator

Thank you. We will take our next question from Lucas Binder with UBS. Go ahead, please.

Lucas Binder - UBS

Thank you. A couple of quick questions. Linda, I just want to make sure I heard you right. You said non-cash stock compensation expense for the quarter was $400,000?

Linda G. Havard

Lucas, that is in corporate. Only in corporate. It is about -- it is still $3 million for the year for the total company, but it is a big increase in corporate, so we pointed it out just the corporate piece.

Lucas Binder - UBS

Could you tell us what the non-cash stock comp was for the entire business?

Linda G. Havard

It is about 800 in this quarter.

Lucas Binder - UBS

Okay. Christie, you mentioned the fact that -- I guess two questions with regard to entertainment. You mentioned that Playboy TV and the new channels are under-marketed. What efforts have you been able to undertake and what do you plan to do to try to get the MSOs to highlight the programming and highlight what it is that Playboy TV provides to improve the marketing?

I guess the second question is on the SVOD, the move up to 8 million, I assume that has a lot to do with Comcast. Should we see that number continue to increase as Comcast continues to bring SVOD online to more of its households?

Christie Hefner

Lucas, let me take the last one first, on SVOD. Pretty much, we launched in almost all of the homes, so the 8 million is our estimate of what we think we will be at at Comcast. There should not be anymore. It is really a question of how do we do in those homes.

On the marketing question, Lucas, it is a combination of putting the programs together, which we I think have done quite a good job of, and those programs run the gamut from cross-channel promotion to programming that can run what is sometimes called before the pin, in front of the pin. In other words, that is edited to be appropriate without being on a pay service. It is designed to in effect entice the consumer to want to then pay for service.

Putting those programs together, which as I say, I think we have done, and then selling them in. What we are trying to do is sell them in at the two levels you have to sell them in. Bob and I are going to try and sell them in at the very top of the largest MSOs, and then the organization needs to actually sell them in at the grassroots trench level.

Lucas Binder - UBS

Thank you.

Operator

Thank you. We will take our next question from David Bank with RBC Capital Markets. Go ahead, please.

David Bank - RBC Capital Markets

Thank you. Good morning. Let’s see, a couple of questions. The first is in terms of color on domestic TV, two things there. The first one, I understand your lack of visibility on the revenue side. It kind of makes sense, given what you have said historically. But could you give us a little bit more visibility in terms of the expense side? Specifically, do you think there are anymore rationalizations to occur that you could quantify for us?

On the entertainment side generally, have you consolidated the Club Jenna facilities? Have you consolidated ICS, for that matter? Are there any further expense cuts to come out of the Jenna acquisition?

Also, you have said historically that there is a pretty major lag between VOD sales and the usage data, so often what we are looking at in VOD trends is really reflective of what might have occurred four or five months ago. What month do you have hard data for at this point on VOD?

Last question, on publishing. You said, I think if I heard Christie right 4Q06 publishing, you gave us a sense that there would be improvement on a year-over-year basis. I think you said we will have a better year than we did in Q4. Could you talk about sequential improvement, or anything in the perspective of we have really narrowed the loss in that division? Could we expect to see sequential improvement, or a sequential decline? Some perspective there.

Christie Hefner

On the last question, I would like very much to not get in a box of trying to give that level of specificity of quarterly projection. Candidly, it would be impossible to do because of the unknown newsstand sales results for the quarter.

What we do know are the ad sales, which we have shared with you. Based on that, we feel good about the quarter-over-quarter comparison to last year. Where we fall relative to the third quarter is really not knowable, without the newsstand sales number.

David Bank - RBC Capital Markets

I am sorry, could you just repeat what you said? You said the ad sales were up 10% year over year, is that right?

Christie Hefner

I did.

David Bank - RBC Capital Markets

Okay.

Christie Hefner

Let me try and respond to the question about costs. There are two I think important areas here as far as costs are. One are the promotional costs or the marketing costs that indeed we need to be spending to support the launch or rollout of these new products, whether it is the new networks on satellite or whether it is Playboy SVOD, as we have discussed already on this conference call. So it is actually very important we spend those dollars, even though they are spent in advance, in effect, of the generation of returns against those.

The other category of expense, however, are the expenses that do not relate directly to driving revenues, but the operating expenses of the businesses. There, there is no question that one of Bob Meyers’ charges from me is to make sure that we have right-sized the cost structure, particularly for domestic TV, based on what in fact we think the revenue production is going to be in that business.

Areas like production facilities and Rita, Club Jenna, will clearly be on the agenda of things that Bob and his team will be looking at, and will be making recommendations and we will be acting on them to put us in a position for 2007 to deliver the results that we would like to deliver, while at the same time making sure that we have the right organization and resources in place to continue to drive growth in the new digital media businesses.

David, in terms of what month do we have, in some cases we have July, in other cases we have May, and in other cases we have August, so it is definitely historical.

David Bank - RBC Capital Markets

Okay. Would you say in the majority of cases, you have it where VOD has been launched yet, or you do not really have that, so it is -- that is a big part of why visibility is so limited?

Christie Hefner

That is part of why visibility has been so limited.

David Bank - RBC Capital Markets

Okay. All right, thank you.

Operator

(Operator Instructions)

We will take our next question from William Drewry with Credit Suisse. Go ahead, please.

John Klim - Credit Suisse

Good morning. This is John Klim for Bill. The company has done a good job monetizing revenues from new distribution platforms. Could you update us on your progress on incremental revenues from mobile content? Then, if you could just touch on what, if any, revenue potential you believe you could recognize from video broadband?

Linda G. Havard

Let me just summarize what I said in the conference call on that, which was that we had a 17% revenue growth in the quarter versus last year in international TV, mobile and wireless. We combined those for reporting purposes, but primarily, that was attributable to overages from Hutchison, which it had been in place for multiple territories, and also new mobile wireless deals.

I do not know if there is anything Christie can add to that, but we continue to see growth in performance and we have people who are looking and trying to create additional value as we move forward.

Christie Hefner

What I would add is, to remind all of us that we were, as you referenced, an early believer in the distribution platform of mobile, just as we were with the Internet and with pay TV, that we struck initial deals on the basis where we had no risk, so they were minimum guarantees and the potential for overages. We are benefiting from the rollout of more devices under those deals, yet at the same time, we think that the potential to get a more meaningful portion of the revenues and profits as mobile becomes a bigger business, is something we want to focus on.

As a result, we recently hired a new executive from Sony to full-time focus on building the global mobile businesses. His sort of twin charge is to develop and implement the right strategy to enter the U.S. market, and to look for ways to participate in the upside internationally.

It is our hope that at the media week conference in December, we will begin to start to try and share some greater information about how we look at the potential of that business over the next several years.

John Klim - Credit Suisse

That is great. So all investors should stay tuned for media week.

Christie Hefner

John, we have a similar lag in reporting problem with the mobile businesses as we do with television, but we do our best.

John Klim - Credit Suisse

And then video broadband?

Christie Hefner

Well, we are in the format already. We actually have a streaming version in Hong Kong of Playboy TV on mobile. There I think you can safely assume that our content and brand will follow the technology, and whether that is broadband delivered via the Internet, like the ISVOD product that I talked about, or whether that is broadband delivery on mobile, which is something, particularly in Asia, that is seeming to get some traction.

One of our advantages is on the Playboy side, we basically own all of our content, and as you all remember, one of the drivers for the Club Jenna acquisition was the ability to actually make, and therefore own for all platform exploitation, adult content. Similarly with the ICS acquisition, it put us in the position of not only buying a profitable business, but buying a content creation capability in the adult space in the short form, particularly Internet oriented content.

John Klim - Credit Suisse

Great. Thanks very much.

Operator

Thank you. We will take our next question from David Leibowitz with Burnham Securities. Go ahead, please.

David Leibowitz - Burnham Securities

Good morning. Very briefly, what percent did your revenue and pre-tax income is coming from out-licensing at this time?

Christie Hefner

I am sorry, David, out-licensing? You mean from the licensing group?

David Leibowitz - Burnham Securities

Yes, putting the Playboy name on something where you have no up-front costs, but you are deriving revenue and earnings?

Christie Hefner

Linda is going to make that calculation as we sit here.

David Leibowitz - Burnham Securities

Okay. Second question, based on the Palms formula, have you disclosed what your potential earnings are for the next 12 to 18 months?

Christie Hefner

Yes. The guidance that we have given on the Palms, David, is that we think the annual contribution in terms of revenues will be approximately $4 million, and that we will take 80% of that to the bottom line.

David Leibowitz - Burnham Securities

Excellent. Lastly, you had mentioned on any number of occasions that you are actively engaged in other potential transactions of similar nature. Is there anything more positive you can tell us about any of them at this juncture?

Christie Hefner

No. You can expect to hear an update at the point where we have specific deals signed.

David Leibowitz - Burnham Securities

Okay. Thank you very much.

Linda G. Havard

David, to your question about the licensing revenue, it is roughly 10% just from licensing of products. But what is interesting, as you guys very well know, is that if you look at the segment income between the media group and the licensing group before corporate, admin, and promotion, the licensing group is contributing increasingly close to the same amount as the media group, because of its strong growth.

David Leibowitz - Burnham Securities

Again, thank you.

Operator

(Operator Instructions)

We will take our next question from Rob Routh with Jefferies and Company. Go ahead, please.

Robert R. Routh - Jefferies & Company

Good morning. I have three quick questions for you. First, I am wondering if you could comment a little bit on the opportunity that the company has to bundle some of its various businesses in order to increase share and reduce churn. For example, Internet subscriptions with magazine subscriptions, or subscriptions with the networks and tie that in with the magazine to increase everything across the board and get higher revenue.

I am wondering if you thought about that at all and if that is a possibility in the future.

Christie Hefner

Yes, we do think about it. I am of the view that there are four areas of opportunity that we are trying to capitalize on by forming this new media group. One of them is the consumer marketing oriented one that you asked about. Another is bundled ad sales, a third is the more efficient and creative movement of content, and the fourth is cost efficiencies.

It is something we are interested in. Now that we have a digital version of the magazine, that quite naturally might lend itself to bundling with, for example, the cyber club subscription.

I would say that generally speaking, the value that we think will be there to the extent we can do that will be on the retention side.

Robert R. Routh - Jefferies & Company

Okay, great. Just two more questions. New Frontier Media obviously reported this morning, and they made it clear in the press release that they believe that they are taking share from you in a significant manner. I am just wondering if you could comment on whether or not you see that as true or false, and if it is, whether or not it is as extensive as it seems to be laid out.

Second, if you could answer, due to the name Playboy has, as evidenced by the Palms deal, and the worldwide power, there is speculation that you have been approached by numerous parties in addition to the Maloofs to establish rather extensive partnerships. I know you cannot say much on this, but anything you could I think would be great, and investors would be very interested in it.

Christie Hefner

On the last question, as you alluded to, there really is not much I can say other than I can say that on the location-based entertainment side, we are in active conversations with potential partners in both Macau and London, so that certainly is an example of the power and appeal of the brand, as you have asked the question.

On the share shifting side, what I would say is that we certainly have lost share on DirecTV. That is obvious. We have not yet generated any results on Echostar, although one might logically assume that we might gain some share there.

On the cable side, I do not actually see that the share that we have lost in shelf space is accruing particularly to New Frontier. As near as I can tell, it is accruing to a collection of smaller suppliers, like Private, Penthouse, Playgirl, and Hustler.

Robert R. Routh - Jefferies & Company

Great. Back to the first question, and again I do realize you cannot say much, and I know that location-based entertainment, obviously people are coming to you and wanting to use the brand and do things. Are you seeing the same thing in your other business lines, such as the networks or the licensing opportunities?

Christie Hefner

Well, definitely in both the international media businesses. We are working on deals to partner with various mobile operators, where we signed and will launch in the first quarter of ’07, with a very good partner, online gaming products on a licensing basis.

In other categories of business that we developed through licensing, like the concierge service, all of those are examples of the ability to partner with companies that have the operating expertise, the local market knowledge, and the capital, who value what Playboy has to bring in terms of our marketing power and the cache of the brand and content.

Robert R. Routh - Jefferies & Company

Great. Thank you very much.

Operator

It appears we have no further questions at this time.

Martha Lindeman

Thank you all very much for joining us this morning. I will be in my office for the remainder of the day. If anyone has any follow-up questions that they think of, please feel free to give me a call. Thank you again.

Operator

Ladies and gentlemen, this concludes today’s teleconference. Thank you for your participation. You may disconnect at any time.

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