PlanetOut
financing deadline looms

PlanetOut Inc.'s first major hurdle in its uphill climb toward fiscal solvency is just days away. After posting a $6.9 million loss the first quarter of this year, the company's lender set June 30 as the date by which it must raise at least $7 million--with another $8 million to come by August 31.

To that end, PlanetOut put SpecPub, its adult-entertainment division, up for sale in early June. It has also retained investment banking firm Allen and Company to review all aspects of the business and assist in a turnaround--a process company executives predict will take about 18-24 months.

"The first step is to get the company capitalized sufficiently," Dan Miller, PlanetOut's chief financial officer, said. "That's part of the logic in selling the adult business." But he declined to say whether SpecPub already had suitors or if PlanetOut was anywhere near meeting the June 30 deadline.

Miller said company executives will talk "at length" about its capital commitments at the next earnings call, which will take place in early August, if not before then.

It was PlanetOut's last earnings call in May that set off alarms in the financial community, even as a report was released weeks later that showed ad spending in gay media reached record highs in 2006.

In addition to the $6.9 million loss, the San Francisco-based company--owner of Planetout.com, Gay.com, The Advocate , Out , and RSVP Vacations, among others--projected a $7-9 million loss for the entire year. That sent its stock price plummeting to an all-time low on May 22 of 86 cents a share, a drop of 89% from its 52-week high of $7.95.

PlanetOut also has two outstanding loans: one for $7 million due over the next six months; and a second loan of $10 million, most of which is due over the next four years.

The company has been hamstrung more than anything by the poor performance of its travel and cruise subsidiary, RSVP Vacations, in particular lackluster bookings on a trans-Atlantic cruise aboard the Queen Mary that culminated earlier this month. The low occupancy, plus related fines, resulted in a $700,000 hit on first-quarter earnings.

But Miller noted that customer satisfaction rates for RSVP cruises are in the 90th percentile and said bookings for future trips "are on track with our expectations, and our expectation would be that they would be profitable."

Another challenge to the company has been a decline in ad pages and revenue at flagship titles such as The Advocate and Out , which have been below what was forecast to Wall Street. Compared to first quarter 2006, ad pages are down by 41% and 14.3% respectively, according to Publisher Information Bureau figures.

However, LPI has been investing in content and design improvements for both publications, which Bob Cohen, president of the division, expects to have a positive impact on the bottom line. Out completely relaunched last year, and this September, The Advocate will premiere an overall redesign, led by Luke Hayman, who recently redesigned Time magazine and, previously, New York. Cohen has also beefed up the sales and marketing staff with a series of new hires.

"A lot of the things we're doing now are really designed to have maximum impact during the second half of this year, when a lot of media buying decisions are being influenced and made," Cohen said. "The result of that will play out in 2008 with more to come in 2009."

Some advertisers, such as Lexus, have already started to return, but Cohen added that there was no "internal deadline" for reversing sliding sales. "Ordinarily, that's a process that would take 12-18 months," he said.

As for selling the SpecPub unit, Cohen said it was an obvious move for several reasons: it's very profitable (though he declined to provide exact numbers); it's mainly a subscription-based business and PlanetOut is moving toward an advertising-based revenue model; and adult entertainment makes some investors uneasy.

Despite PlanetOut's slump, the overall health of the LGBT media market continues to improve, with ad spending in gay and lesbian publications reaching a record $223.3 million in 2006, an increase of 5.2% over 2005 and an increase of 205% since 1996, according to the latest edition of the Gay Press Report, an annual survey produced by Prime Access Inc. and Rivendell Media.

During the same ten-year period, ad revenue for all consumer magazines increased by only 47%, translating to a compound annual growth rate of 4%, versus 11.8% for gay media.

"There's a lot of evidence that gay media is a growing market," said Bob Witeck, CEO of Witeck-Combs Communications, a Washington, D.C., firm that specializes in LGBT marketing. "You see it in the online social networks that are emerging, plus the advertising base support of Viacom's Logo--Logo now has over 100 advertisers in that space."

Witeck believes PlanetOut got squeezed for cash before it was able to capitalize on the collective power of its media brands, especially since the acquisition of LPI in 2005. "I presumed that there was going to be a brand integration in terms of building brand affinity across properties," he said, "but I guess there was not enough time to do that."

Despite the company's current financial state, Witeck thinks LPI's major titles are still buoyed by their legacy to the community. "The bedrock properties--The Advocate , for example--I think are solid," he said, noting that amid the incessant flow of news, gay media brands highlight issues of importance to gay people.

"Every year elections matter more than the year before," said Witeck, using one example. "It's gay media content that's going to clarify for gay voters what's going on."