Executive Seat: Q&A With LFP’s Michael Klein

If there is one adult entertainment company that can rightfully brag it is on top of the hill peering down at its competitors, it would be LFP Inc. The Beverly Hills, Calif., corporate giant, started up by namesake founder Larry Flynt, has its fingers in nearly every aspect of the biz — from broadcast to print to sex toys to clothing to online to to DVD to licensing. And just to add a ‘lil sizzle, the company also operates a Los Angeles-area casino.

Running all of the above — and more — is Michael Klein, president of LFP.

With LFP, the fact that we are such a well-known brand with Hustler we get approached a lot from people with unique new ideas and concepts for the online business. We explore all of them.

XBIZ caught up with Klein and asked him a few questions about how he got into the biz, how his company works and what’s going on right now at LFP.

XBIZ: How did you venture into the adult industry?

KLEIN: My first foray into the adult industry was when I was hired by cable programming company Rainbow Networks to create the on-air look for three local New York channels that they were going to take nationwide. One was called Bravo, the other called Weekend Cinema (later renamed American Movie Classics, or as people call it now AMC) and the last one was called Escapade.

Eight months later I moved over to the programming department of Escapade and within a year Playboy worked out a deal with Rainbow to acquire the channel and rebrand it the Playboy Channel. And I spent the next five years handling programming for the Playboy Channel.

I moved to a number of mainstream broadcasting companies after leaving Playboy but most had some adult element to them and eventually got back full-fledged into the adult industry in 2003 when I spoke to LFP about the idea of creating a Hustler TV channel and video-on-demand service. They liked the concept, and in my first meeting with Larry Flynt he offered me a job on the spot.

XBIZ: What’s a typical work day like?

KLEIN: Well since we have offices around the world, I check emails around 5:30 a.m. every morning before working out. At the office, my day is filled with a lot more emails, meetings, agreements to review, and checks to sign, as well as concept or ideas or even talent photos for movie productions to review and approve. Since we have so many entities here, one day I could be focusing on two or three ends of businesses and the next day it could be two or three completely different business lines.

XBIZ: How hands-on are you with developing new products, striking new deals?

KLEIN: As my management team will attest to, I have somewhat of a hands-on approach. I don’t micromanage them since we do have what I feel is a strong team of division leaders but I do want to know what deals are being worked on and what developments are taking place.

With any new acquisition target I am very much involved in from the beginning along with other members of LFP as we have to make sure we perform a strong due-diligence process. I also like to get the input of the people internally who have a lot of knowledge in the area.

For example if we are looking at something Internet related, then besides getting the finance team including analysts involved, I will get some of the top people of our Internet group on board for the review process. If it is casino related, then I will bring in our head of casino operations. Of course, with all major deals or acquisitions, we run these by Larry Flynt and need his sign off before anything can be finalized.

XBIZ: What about the proposed acquisition of New Frontier Media. If the merger goes through as planned, what will it mean for the company?

KLEIN: We look at this as a way to expand our broadcasting business. The broadcasting area has become a very significant portion of the overall business for LFP and continues to grow. While I am president over all entities here at LFP, the broadcasting group is very near and dear to me since it is what I started here and brought me to the company and where I have the most knowledge of all our entities. I have a strong focus on this part of our business.

Our distribution of our Hustler TV service through pay-per-view and VOD has now grown to over 55 countries, and we have launched a number of other services such as our Hustler HD channel and VOD platform, and we even have a 3D offering. We are excited to add all the properties that New Frontier Media has to the mix of offerings that we can bring to our current and new affiliates.

XBIZ: Do you see LFP as a pioneer when it comes to the online side of the business?

KLEIN: I would think that we are one of the pioneers. There are a lot of very talented people in the adult Internet business, and I enjoy meeting and talking with them all the time since I feel that I am constantly learning from everyone.

With LFP, the fact that we are such a well-known brand with Hustler we get approached a lot from people with unique new ideas and concepts for the online business. We explore all of them and work with a large number of them to test out new things. Not all of them work, but we feel clearly you have to try to find that right one that will take the online business to the next level.

Most that come to us are new methods of delivery through various different online technologies or utilizing existing platforms in a new way and being part of the right platform at the infancy stage is important. For years I have been preaching about smart TVs and that is now just starting to take off and we will be part of it in hopefully a big way.

XBIZ: LFP has been able to gain big sales and new customers from parodies. Do you see parodies continuing to help drive DVD sales in the coming years?

KLEIN: We continue to make parodies and they still continue to do well for us, especially in the DVD sales area. But there are so many parody movies out there now and the concepts that are worthwhile are getting thin, so we are very selective now on which parody movies we make. At one time our philosophy was to make at least two parody movies a month, but now we determine the ones that we think will be big sellers in the DVD marketplace and that would work well on other platforms such as online and broadcasting and focus just on those. And at the same time we continue to find other concepts that work for the DVD marketplace and still continue to have strong business with our Barely Legal line.

XBIZ: Many have forecasted DVDs’ death years ago. In 2012, DVDs still are here. What about five years from now? Will they still be around?

KLEIN: The DVD business is dwindling but it is still there and I am sure that it will continue for years to come, but just on a smaller scope and reach than what we have today. While more people get their content from online sources — PCs, tablets and mobile phones — and broadcasting, there will always be that group that wants to have the physical DVD copy.

With technology that exists today, I am always surprised when I hear how many people reach out to us saying they don’t have Internet service or know how to use it. You would think that everyone nowadays would have some form of online connection, but we hear constantly from a significant number of Hustler Magazine customers who still don’t have any Internet access and reach out to us to get DVDs or some of other products like apparel or novelty items. Also, we are still seeing strong sales of our 3D Blu-ray DVDs in Europe so there is still a market there for it.

XBIZ: Are there any new Hustler projects around the corner?

KLEIN: We are always looking at ways to expand the company, whether it is to acquire another casino or add more retail locations or expand our broadcasting or Internet presence. We have a lot of deals presented to us every month on companies looking to be acquired, and we try to evaluate each one of them — some more thoroughly than others. A number of deals that have happened in the industry over the past couple of years in terms of mergers and acquisitions were with companies that had approached us as well to see our interest.

In those instances we either didn’t feel the company meshed with our core competency, so we didn’t make any offer, or we had set a valuation for the company that we felt comfortable with and others were willing to pay a price that was outside our comfort level, so at that point we left the discussions.

We continue to explore new deals but I am firm believer in only discussing the specifics when and if the deal is completed.

XBIZ: When not thinking about the biz, what do you like to do?

KLEIN: While work does take up a lot of my time, besides being with my family, I am a big sports junkie and do watch a lot of it. I love watching the NFL the most and try to go to a number of games during the year. Also my son and I do take in a number of either baseball, hockey or basketball games when we get the chance (and can get good tickets). I am also an avid skier but with so much travel for business these days, I haven’t been able to take advantage of that as I would like.

(Just a suggestion: but we should have an industry show at Vail. I will be the first to sign up if it is during skiing season.)