Pulling rabbits out of hats.

Though she shares his last name, Christie Hefner, CEO of Playboy Enterprises, couldn't be more different than her infamous father, Hugh - he of the smoking jacket-topped silk pajamas. Hef, Playboy's founder and former CEO, is known more for unfailing enthusiasm for curvy babes and the party life than business sense. Not so daughter Christie, who is widely credited with turning around her father's flailing empire.

With her clean-cut features, sharply tailored suits, and professional demeanor, Hefner has been shoring up the House that Hef built since 1982, when she was named Playboy's president at the tender age of 29. Then in a mid-life crisis of sorts, the company Hefner inherited from Dad was coping with a drastic decline in the circulation of its flagship monthly as well as the dead weight of cash-hemorrhaging casinos and night clubs, where the rabbit-ear clad Bunnies seemed to outnumber paying patrons. Also dragging on Playboy's balance sheet was 1982's annual loss of $51.8 million, not to mention a walking cliche of a CEO who much preferred hosting lavish parties at his Boogie Nights-style and Playboy Enterprises-funded mansion than fretting about shareholder returns.

Hefner, who was just a year old in 1953, when Hef left a post at Esquire and used a $600 loan to publish the first issue of Playboy, wasted no time launching a makeover of the embattled company. After shaping up operations and shirking off the floundering casino and nightclub holdings, she set about leveraging Playboy's powerful brand name through ancillary businesses such as adult-oriented cable TV and pay-per-view programming and a catalog division hawking videos, CDs, and lingerie. Her efforts brought about her first - and, according to Christie, only - business-related clash with Hef. "I wanted to close the Playboy Clubs, and he wanted to try to resurrect them," she recalls. The debate ended with a father-daughter compromise: the launch of a new version of the Playboy Club in New York. "Like most clubs, it didn't make very much money, and we then got out of the business."

While Playboy was clearly ready for a change, the leadership swap from power playboy to power babe was not entirely painless. "When Christie was pressed into service the company was flailing and without direction," says Dennis McAlpine, a media analyst with Ryan, Beck & Co. "Christie didn't have CEO experience when she started, and she tried doing some things that didn't work in terms of bringing in the wrong people and putting people in the wrong places. As she got experience, she also got good at bringing people in who know what they're doing and then letting them alone to do their jobs."

Hefner's housecleaning efforts gradually put the company back on track. Yet last year's profits of $4.3 million on revenues of $318 million still trail the $13 million on sales of $363 million Playboy reported in 1980. The lag partly reflects hefty investments in growth areas, such as development of the Internet site Playboy.com and additional programming for the company's entertainment division - both essential to Hefner's brandcentric diversification strategy.

"To have long-term survivability, brands shouldn't be identified in the consumer's mind with a single product," she says. "They should reflect a point of view that you can own and adapt what products will best express it given trends in fashion, lifestyle, and technology. What we've done is extract from the magazine the essence of what the brand stands for as a lifestyle, and a sense of fun, sexy entertainment and then marry that with the right content or the right product to represent the brand in a different format, whether that be Playboy Television or Playboy Online."

Of late, such marriages are proving expensive. In second quarter 1999, Playboy reported a net loss of $3 million versus a net income of $2.1 million in 1998 for the same period, a drop Hefner attributes to growing pains. Purchasing rival Spice Entertainment Cos. for a pricey $100 million earlier this year hit the firm's growing $91 million entertainment arm with a $2.1 million boost in interest expenses. Unexpected roadblocks that delayed a much anticipated deal with Venezuela-based Cisneros Television Group, owner of nine pay-TV channels, to create Playboy TV International added to the bottom line woes. But in the long term, the addition of Spice's more explicit programming to Playboy's cable offerings will bring 1.5 million more cable subscribers to Playboy's current 12.3 million, and the Cisneros deal will take the company into Latin America and Canada.

Much has been made of Playboy's highly trafficked web site, which is now luring 90 million page views per month. Yet, Playboy Online lost $6.53 million in 1998 and reported second quarter losses of $1.7 million. "Because of the established brand name, it gets a lot of traffic; the problem is converting traffic into money," says McAlpine. "The idea is that if there's this much hay, there must be a horse under there somewhere."

"We're making an annual net investment of between $5 and $10 million, which is modest in Internet terms," says Hefner, pointing out that in addition to sales of music, adult videos, other Playboy merchandise, membership fees, and monthly pay per view Webcasts, the site is enticing new advertisers into the fold. "To date, the on-line ad revenues are almost exclusively new advertisers to the company."

Hefner recently appointed a dedicated sales force to help Playboy Online meet its five-year plan of doubling revenues each year. In hopes of tapping into the site traffic to beef up Playboy Magazine's circulation - at 3.15 million, not even half its 1970s subscribership - the company is also launching "a combination cyberclub membership and subscription to the magazine," she adds.

Even as Hefner steers Playboy toward new avenues of growth, she's also taking a chance on reviving one she fought to abandon long ago: the Playboy casino. But this time, she's doing it her way - licensing the Playboy brand name to local partners. "She's leveraging the name to get equity at a relatively low cost," says McAlpine.

Playboy's first casino opened in Rhodes, Greece, earlier this year, and the company is already looking at 12 more proposals. "One of the things that intrigued me was how often I got calls from other gaming companies asking me to put a Playboy Club, Playboy Show, or Playboy Cigar Bar into their hotel/casinos," says Hefner. "If all these smart people thought that this would be a traffic builder, maybe it would be smart for us to own a piece of the real profit center of those facilities, which is the casino. You don't have to build a volcano to create a destination. Frankly, you just create a facility that's upscale, that's for grownups, and that has great entertainment and a built-in theme."

Maybe Hef - that Energizer bunny of playboys - can provide the entertainment.

CHRISTIE HEFNER

Chairman, President, and Chief Executive Playboy Enterprises

"Two years ago, everyone thought that advertising would be the largest revenue stream for the Internet sites. Today, it's e-commerce."

Age: 47

Family: Husband, William Marovitz, former Illinois state senator and sometime consultant to Playboy Enterprises

Education: Brandeis University, B.A. English and American History

Pastimes: Politics and law. "Before joining Playboy, my goal was to go to law school and ultimately wind up on the bench or maybe in the Senate."

Preferred Magazine Reading: The Economist. "I've never read any of the women's magazines. The writing is too much better in Playboy."