A visit to Martha Lindeman at Playboy’s New York office on Fifth Avenue found her in a glass-walled conference room, busy at work with two fund managers. To the credit of their moral balance sheet, the investors had eyes only for the figures on the paper rather than those of the Vargas originals that tastefully bedecked the office. ‘We’re very friendly by nature and we spend a lot of time with our investors,’ Lindeman remarks.
In the old days, assets had a different meaning in the Playboy context. But Lindeman’s IR program is pointed firmly at the bottom line under the new regime of CEO Christie Hefner, daughter and heir of founder Hugh Hefner. Lindeman came to Playboy Enterprises Inc in 1992 to manage IR for a company with ‘a great brand name, a strong balance sheet, a very easily understood strategy for growth, a highly leverageable business in entertainment, and an extremely articulate CEO who, along with the rest of the senior management, was willing to market the company.’
The challenge was J and still is J that Playboy is a small-cap company whose quarter billion dollar valuation does not yet do justice to its global-sized brand name.
Boom & Bust
‘You have to be very graphic with a small-cap company like Playboy,’ Lindeman says with conscious irony. ‘You can’t sit back and wait for investors to discover you, because when you’re in your office you’re not out selling stock. With a small-cap you have to keep knocking on those doors.’
In the boom and bust entertainment industry, oddly enough, Lindeman sees Playboy’s closest peer company as Disney. She quotes CEO Hefner to explain: ‘Nobody goes to see a movie because it’s a Paramount or Sony movie; they’ll go to see a Harrison Ford or Tom Cruise movie. But they will see a Disney movie and they’ll buy or rent a Playboy video.’
However, unlike Disney, Playboy’s profitability is threatened by federal legislation that would restrict access to adult cable programming. Most analysts share the company’s view that the first amendment, and Playboy, will eventually triumph in the courts; and they give Lindeman credit for explaining the issues and vicissitudes of the company’s litigation.
Still, the gulf between a Playmate and Mickey Mouse as brand images is nothing in comparison with the size disparity of the two companies. ‘It makes it hard for us to find comparable peer companies,’ Lindeman notes. She finds the company’s size and relatively small float a bigger problem than any ‘sin discount’ that could be ascribed to what the Washington Post called the brand’s ‘sleazy sexuality.’ In fact, Lindeman parlays the brand into IR, with Playboy’s annual report certainly one of the more visually striking additions to an analyst’s shelf, while the investor package, needless to say, includes a copy of the latest issue of the magazine.
Playboy Enterprises refutes any accusation of sexism by pointing to the composition of its management: half are women, including CEO Christie Hefner and CFO Linda Havard. ‘If you look at our company from a feminist aspect, we’re very liberal in our hiring policy and always have been,’ insists Lindeman.
Chilly Response
That doesn’t necessarily make the search for investors easy, however, and a cold call on the Southern Baptist pension fund would presumably get a chilly response. ‘When I’m looking for prospective investors, I’ll look at analysts and small-cap funds who might be interested and examine their investment styles and policies on size of investment and social issues,’ explains Lindeman. ‘You can’t take it personally when people say no. After all, it’s not because they don’t like you; they just don’t like your class of stock or don’t like what they see on the chart. You just hang up the phone, pick it up and call the next guy.’
To identify investor quirks Playboy uses a targeting service. ‘It’s very helpful, particularly for a small company.’ Outsourcing services like that took some adjustment for Lindeman since, before starting for Playboy, she worked for the Chicago-based Tribune Company where the IR budget was just a ‘a rounding error, whereas now I can clearly see our budget in the numbers.’
A former equities trader, Lindeman left Wall Street in 1978 when the daily volume of the NYSE was sometimes only 15 mn shares. ‘If I’d known what was coming, I’d still be there,’ she comments ruefully. But armed with a graduate degree in communications, her subsequent career in financial communications made sense. She credits the Tribune with supplying her real IR education, especially as she got to work with Andy Hays, named one of the country’s top ten IROs by Institutional Investor. As a president of the local Niri chapter and a lecturer in IR herself, Lindeman became a pillar of the profession in the windy city. When the call came from Christie Hefner at Playboy, Chicago’s only other media business, it meant that – without moving her family – ‘I got to step up and run my own department.’
More with Less
Once there she found that ‘smaller companies have to be more creative with their resources. I can’t just go ahead and buy every service or put on a big field trip, but what I can do is use what the company already has to offer.’
So, for example, she takes a small group of investors to the annual Playmate of the Year Party in Los Angeles. Not only do they see better graphics than the usual roadshow features, ‘They get to see advertisers, managers from the entertainment business, and distributors on the cable or satellite side. They get to see our vendors and the promotional machine of Playboy at work.’
Husbanding scarce resources, Playboy eschews elaborate roadshows in favor of conference calls and media conferences held by brokerage houses. And, according to Lindeman, the IR department’s major asset is that ‘our management really seems to enjoy the interest and scrutiny of Wall Street. And where they can’t always give me money, they can give me time, which is much more valuable.’
Of course, management is more than just an IR asset. In fact, governance is pretty much in the family. Like many media companies, Playboy’s stock has two classes: Hugh Hefner owns 72 percent of the 5 mn or so voting A shares and about half of around 15 mn non-voting B shares.
Under Christie Hefner, the company executed a turnaround and is now reaping dividends from a heavy investment in the entertainment business. ‘Not long ago we were investing rather than making money, but then the numbers changed and it became a very interesting growth business.’
Analysts have noted that the rising cable access to Playboy programming is more than compensating for the long-term droop in the eponymous magazine’s profits. Meanwhile, Playboy’s Web site scores millions of hits, and is one of the few spots in cyberspace that can pay for itself with ad sales even before online subscription numbers are taken into account.
Perusing the Pictures
Nonetheless, it is sometimes more difficult to get analysts to look at the figures than to get browsers to peruse the pictures. As with most small-cap companies, attracting regular analyst coverage is a major problem. ‘We had just one when I started,’ Lindeman confesses. Now four analysts cover the company and she hopes to add two more next year by following the guidance of current holders: ‘I ask them who the best analysts are and what conferences they find most rewarding, then I follow up.’ Her other suggestion for small-caps is to look for research coverage from smaller local brokerage firms.
Lindeman’s take on IR is robustly pragmatic. ‘Basically investor relations is just marketing product. It just so happens that my product is stock and of course there are far more restrictions on what I can say about it: I can’t claim it’s going to make you run faster or jump higher.’
With thousands of other companies competing for attention and investment dollars, Lindeman says she strives to create a unique but easily understood positioning for Playboy stock: ‘A sales pitch designed to create interest in one sentence.’
Bang for the Buck
On her arrival at Playboy in 1992, there were just two very large holders. So one of Lindeman’s immediate aims was to broaden the ownership. ‘We’ve done that now, with the help of a secondary offering. At the first, institutions were important because they gave the biggest bang for the buck.’
But feedback is just as important as economies of scale, she explains: ‘Individuals may have some great ideas but you don’t get a chance to talk to them and they’re not necessarily meeting with the senior management of other companies. They’re not aware of what other companies might be doing that may be of interest to you.’
A small-cap company can only afford limited luxury in the way of targeting. Luckily, Lindeman does not share some of the phobias about, for example, hedge funds. ‘We have hedge funds that are among the most loyal and most helpful holders you could ask for. They will take the time to understand the dynamics of the company and give us useful feedback.’
To find other prospects, ‘You have to rely on the databases that are available. We’re always out there beating the bushes for information.’ Some comes from people on the Street who have pointed her in useful directions, but she energetically finds ‘names everywhere. I read every issue of Barron’s, Business Week and the Wall Street Journal. If someone runs a micro-cap or small cap fund that seems appropriate, they’re going to get a call from me.’
Playboy hasn’t done too much international investor relations, despite the company’s global profile. The magazine’s Scandinavian edition has just been launched, for example, and the Playboy TV network is making inroads in Britain, but few overseas IR activities are tied to such business launches. Lindeman’s future plans do include targeting international institutions and individuals J hitherto ‘one area I haven’t had time to get into.’
On the home front, an Esop plan has proven very popular. The absence of dividends makes a Drip a dubious proposition, but a target for the coming year is a direct investment plan or ‘no-load stock’ for individuals. Lindeman suspects that individual investors are driven by price, which is currently in the teens: ‘That’s opportunity, and the media business is a relatively easy one to understand. We’re not talking about splitting atoms. Most people understand something about the TV and publishing business.’
When tackling both international and individual targeted IR, Lindeman wants to avoid half-cocked approaches. ‘If you’re not going to follow up with it, don’t bother even getting started,’ she counsels. ‘You have to have a reasonable budget and the people- power to finish the program.’
What the Analysts Say
Stewart Halpern
Furman Selz
Halpern praises Playboy for doing a ‘highly outstanding and professional IR job. It’s not very often that a company of that size has such a strong IR program. They are very active, they get out and do lots of conferences, talk to lots of shareholders. They are very good about being in communication. Martha Lindeman in particular is very responsive, so you always get your calls returned even if she’s on vacation. You’re guaranteed a quick turnaround.’
Halpern adds that ‘it’s clear she’s very close and knowledgeable about the company, so you get good insight. She really knows what’s going on in there; it’s not one of those third party situations.’
On the litigation against the Federal Communications Act, threatening access to adult cable programming before 10 pm, he comments, ‘She’s done a good job of explaining some legal and regulatory events that are significant to the company J I’d give her good marks there.’
Marc Gerstein
ValueLine
Gerstein also refers to the ongoing litigation against the Federal Act. ‘It’s hard, and of course they want to present their side. Martha worked hard to make sure the company’s legal filings were available. I did my homework as well, but she helped a lot.’
Describing Lindeman as ‘accessible and candid,’ he says that, overall, the company takes ‘the modern view of IR. Of course, they want to present a company point of view, but they think you might as well come out with the truth fast because we’re going to find out anyway. Even so, they do a good job, arrange good conference calls and Martha is always accessible.’ He has no complaints about access to other senior management either: ‘The only time I asked, I got to meet Christie Hefner, so I certainly can’t complain.’
Dennis McAlpine
Josephthal Lyon Ross
McAlpine joins the chorus of praise for Lindeman. ‘She does a very good job of trying to keep everyone up-to-date. She won’t screw up your figures, but she’ll tell you where she differs.’
‘She also does a very good job dealing with the inherent difficulties of the stock,’ he adds. ‘The number of potential investors is probably reduced by a third just because of the name, compared with say, a fast food outlet. But she also uses it to advantage. Because of the name, she gets into places where a similar-sized company might not.’
McAlpine adds that Lindeman makes good use of conventions and the events the company organizes itself, as well. ‘She controls access to management but she makes them available as well, and Christie Hefner is good at meeting investors.’
