As the media work themselves into a collective froth over the titillating news of a takeover battle for Playboy’s (PLA) once highly desirable assets, the real story is likely being pushed into the background.  Based on the nature of Playboy’s content, which now spans well beyond magazines with naked woman in them, it’s easy to see why the trees are obscuring the forest.  That said, the real issue might be whether or not this “smut” purveyor is the canary in the coal mine for the media space.

The media space has long been filled with strong personalities and, in many cases, built on the integrity of these personas.  While it may be hard to view Playboy through the lens of integrity, think instead of The New York Times (NYT) or The Washington Post (WPO).  Part of the success of these two entities is the integrity and respect that they have fostered over decades of publishing.  Any blow to that image is taken very seriously.  While this doesn’t sound much like Playboy, Hugh Hefner’s image is integrally tied with the iconic brand he founded and for which he has long been the public face.  He has a vested interest in maintaining the stature of what he started that goes well beyond his stock ownership of the company.

As Playboy matured on the strength of its core publishing business, it tried to expand beyond the print space, venturing into such things as night clubs and video.  At one time, these were largely dabbling efforts that didn’t need to succeed because of the strength of the core operations.  This continues to look strikingly similar to the newspaper space occupied by the two newspaper companies above, but also reaches into other media sectors and includes such major brands as Walt Disney (DIS).  Over the years some companies have been more successful at branching out than others, leading to relative winners and losers.  But the strength of many media companies’ core operations was often enough to handle the blow of failed expansion efforts.  When there was success there was growth, when there was failure, it didn’t matter much.

In recent years, however, the Internet has forced material challenges onto the media companies.  Playboy, in particular, faced stiff competition from the new medium.  Indeed, some estimate that about one-third of all online activity is related in some way to pornography.  With much of this content likely free, anyone not reading Playboy for the stories had a much cheaper place to go for their “content.”  This should also sound familiar, as it’s the same thing that Apple’s (AAPL) iPod did to the music industry and Google’s (GOOG) YouTube did to the video space—with the help of copyright infringing piracy that neither company condoned, of course.  It’s also the same thing that many publishing companies did to themselves when they raced to give away for free content for which they once charged in the vain hope that advertising revenue would be sufficient to support such efforts.

So, throughout the media space, companies are being hit hard by the Internet and are working overtime to find a way to adapt.  In virtually all of the above cases, there has been some amount of resistance to this new medium, but also the realization that the technology had to be embraced or irrelevance would quickly follow.  Playboy’s efforts here have been no different than those of its less-sordid media cohort. 

Part of the problem that Playboy faces is its image, which again puts it in the company of such household brands as The Wall Street Journal, owned by Rupert Murdoch’s News Corp (NWS), and The New York Times.  The question becomes, “How does one protect the image of the company, which in Playboy’s situation is tightly tied to its founder, while making the necessary changes to compete in a changed market?”  Murdoch has been adamant that copyrighted content will have to be paid for and, interestingly, The Wall Street Journal’s online edition is one of the few success stories with regard to charging a subscription fees for content.  Granted, it is far from a resounding success, but it has achieved far better outcomes than has The New York Times.  So, as in the past, some companies have been more successful than others, but, in the Internet age, Playboy has been particularly hard hit.

Many years ago, The St. Petersburg Times faced a similar dilemma.  The answer for this local newspaper was to become a for-profit subsidiary of a not-for-profit school.  Essentially, the newspaper was taken private.  Now, with less of a demand to meet outside expectations, the paper has the leeway to do things that many others don’t.  Indeed, some of the content that this local paper publishes would seem wildly out of place in USA Today, owned by Gannett (GCI), but satisfies either local reader demands or the wishes of its private owners.  But the content decision need not be driven solely by the motive of profit.

So, Playboy, if it goes private, will have the ability to accept things that might be very difficult for a public company.  Reduced profit margins might be acceptable, for example, while the company figures out how to participate better in today’s Internet driven world.  Or, perhaps, the continuation of the Playboy brand despite perceived irrelevance because of the importance of the image to the broader organization (or even just to assuage Hefner’s ego).  All of these things are far easier to achieve when a company doesn’t have to deal with shareholders.  This “end game” holds true even if Friend Finder eventually wins the bidding war, which is highly doubtful based on Hefner’s ownership interest.

It doesn’t take much imagination to see this story unfolding, in rhyming fashion, with The New York Times and a large private equity shop.  Media companies have long gone in and out of the private space, often with the help of private equity companies like Blackstone (BX).  Only now, these companies may go private and stay private because doing so will allow them to survive more capably than would a more public life.  And, if they can return to their historical cash cow ways, even if at a lower level, all the better for the owners who can put those earnings to work in other investments or simply pocket the money for themselves. 

While it is doubtful that large swaths of the media space would follow Playboy’s lead, it isn’t inconceivable that well-known brands could find themselves in this situation in increasing numbers.  Bloomberg’s recent purchase of BusinessWeek from McGraw-Hill (MHP) is a good example of an entity from a larger whole being sold into private arms.  As BusinessWeek is assimilated into Bloomberg, its role isn’t likely to drastically change but the stature it built over the years is now accruing to a new owner that can take the time it needs to revamp the entity and its business model without shareholder interruption.

So, is Playboy the canary in the coal mine?  It could very well be.  Who’s going to “go” next, that’s a harder question to answer.  But it wouldn’t be surprising to see a privatization wave in the media space from which companies never return.