The
Quiet Revolution
Reader's
Digest Revamps Amid Topsy-Turvy Fiscal Forecasts
FROM PUBLISHING
TRENDS (OCTOBER 2001)
Pleasantville,
New York has always been a delightfully apt address
for the Reader’s Digest Association. Ensconced
there in its bucolic 113-acre campus — the global headquarters
for an empire old DeWitt Wallace built on tales
of anodyne, American optimism — Reader’s Digest was
pleasantry incarnate. For the 100 million readers flipping
open their monthly issue of Reader’s Digest (and
the millions of other subscribers to the company’s book,
video, music, and financial products) popping a renewal
check in the mail to Pleasantville was like having an
interest-bearing account in the Bank of Consolation.
But as many in publishing are aware, smiley faces are
scarce around Pleasantville these days, where a jarringly
ambitious effort is under way to combat hemorrhaging
profits, tumbling response rates, and a sluggish, aging
subscriber base. Under the command of Chairman and CEO
Thomas O. Ryder, executives have mapped out a
subtle yet sweeping makeover to render products “at
once familiar and radically new.” Corporate parlance
is now riddled with can-do jargon like “leaner,” “low
to the ground,” and “fast moving.” Meanwhile, former
employees have described the last three years as a low-grade
state of siege. Around Pleasantville, they call it “the
quiet revolution.”
Struggling to attain financial targets, however, beleaguered
Chief Ryder has been forced to eat his own words, which,
last November, were precisely these: “the turnaround
in the US is here now.” Nine months later, Ryder memorably
summed up results for the fiscal year ended June 30:
“You have seen the numbers for our fourth quarter, and
they are ugly.” Revenues for the fiscal year were just
over $2.5 billion, up 1%. Operating profit slipped about
4% to $247 million. And in the US, Ryder told shareholders
this month, “Books and Home Entertainment (BHE) was
hardest hit. Orders for most products declined sharply,
especially videos and general books.” Operating profit
for the North America BHE group plunged 21% to $71 million,
on revenues that were up slightly to $719 million.
Specifically, the North America BHE unit, led by Thomas
Gardner, was home to “our big disappointment in
the US”: the company’s general books segment, which
slid 18% to $85 million. Officials blamed a bad case
of freezer burn from the frosty direct marketing climate,
as well as a hangover from the deal last March with
attorneys general in 32 states, which forced Reader’s
Digest to alter the language and packaging used for
sweepstakes mailings. “The effect of this on our business
was far more negative than we had anticipated,” Ryder
told shareholders. All of which has hastened the global
“re-engineering” effort predicted to shave $150 million
off of costs over three years. As part of that effort,
two months ago the BHE operations were re-racked into
six strategic business units: entertainment, health,
home, reading, trade publishing, and Young Families.
Among the casualties, the company reported, 380 employees
were slated to “be separated” from Reader’s Digest over
the coming year, with the brunt of those cuts hitting
workers in the US.
The upshot for books? “This was a year where we were
very glad that we were global,” says spokesman William
Adler. “Overseas just about every book product was
up, and in almost all countries.” Half of the company’s
international markets, in fact, turned in double-digit
revenue growth, among them Spain, Russia, Mexico, and
Asia, with series products in Germany and Eastern Europe
singled out as top performers. In fact, during the fiscal
year the company sold more general books in Poland than
anywhere except the US, France, and the UK.
One-Shots
Out, Bob Dylan In
At
home, the company has shunned its dismally performing
one-shot products, looking instead to extend the franchise
of continuity lines — particularly the flagship Select
Editions, which Ryder called “our most profitable product.”
This series of condensed novels packed in a hardcover
volume is now published in 30 countries, and Ryder noted
that as many as 1.5 million new customers per year could
be brought into the fold due to new list acquisitions.
No doubt, business is booming. “We quadrupled our work
load in one year,” says Laura Kelly, VP and Global
Editor-in-Chief of Select Editions and Reading Series.
New products have been coming down the pike, including
several softcover debuts. Select Editions launched in
softcover in August, and last month saw the launch of
Nonfiction Bestsellers, a series of five condensed
books in a single, softcover volume (think Ghost
Soldiers and Son of a Grifter, but also watch
for a Bob Dylan bio). “We’ve tended to do collectible
books that go on the shelf,” Kelly says. “Now we’re
saying, these are bestsellers. They’re quick reads.
Let’s package them that way.”
In creating market-driven company pods, the re-engineering
effort has in some ways brought the group back to its
roots. “This company was founded on research and product
testing, so it has always been close to its customers,”
Kelly says. “Now we’re doing faster testing and faster
research to get closer to the marketplace.” Post-product
research is done on every title after it ships, including
interviews with 300 readers. Revenues from series books
in North America rose slightly for the year to $30 million.
Internationally, series books were up 4% to $97 million.
Mounting smaller, niche product lines has proved a big
challenge, however, because identifying pockets of readers
and getting to them through the mail can be painstaking.
To date, sallies in new directions include last year’s
launch of Best Mysteries of All Time, which was
the result of a survey editors sent to their readers
asking them to rank their favorite mysteries. The editorial
team then winnowed the list to what they considered
quality titles, and bingo: the company promoted it once
at launch, and is now 15 books into the series. There’s
also Life Touched with Wonder, the inspirational
series launched in March with content culled from the
Reader’s Digest magazine archives. Meanwhile,
testing continues with the romance series Of Love
and Life, a decided departure from staid Reader’s
Digest fare, what with its “spicy tales” and “zestful
romantic thrillers.” Hopefully for their sake, this
frenzy of activity will help rouse the Select Editions
line, which turned in revenues of $98 million for the
fiscal year, down 5%. But so far, it seems, so good.
“My whole team is energized,” Kelly says. “It’s great
to see one condensation used in four different ways.”
Business
also seems to be brightening on the trade side. “From
a combined trade point of view, it was a successful
turnaround year,” says Harold Clarke, VP and
Publisher of the trade publishing unit, which acts as
the “retail channel manager” for titles that have done
well on the direct marketing side. The trade program
handles 50 titles per year, typically illustrated reference
books that need the benefit of the international coedition
process. “All the books that we publish have to be used
in multiple channels,” says Clarke. The unit also originates
up to 20 of its own titles per year that are then sold
via direct channels or internationally. Meanwhile, the
Young Families division, which as recently as two years
ago was “a very unprofitable part of the company,” according
to spokesman Adler, has turned into “one of our very
fastest growing areas.” Selling mainly licensed children’s
books through direct mail, Young Families (under the
leadership of Heather Burgett) has doubled its
business in the past two years, a feat largely attributed
to its customer-oriented, team-based model, which has
since become a template for the other new BHE units.
“Historically, Reader’s Digest books were published
in a series of hand-offs, almost like an assembly line,”
Adler says. Now, the autonomous units have better market
intelligence and are also fleeter, with mail campaigns
now said to be developed in 13 weeks, when they used
to take nearly a year.
Another saving grace for book operations is Books
Are Fun, the profitable display marketer acquired
in 1999, which did about $250 million in sales last
year. Headed by Joel Feigenbaum, the unit uses
700 independent reps to conduct mini-fairs at schools
and businesses, where titles from a variety of publishers
are heavily discounted. Several divisions are developing
new products for marketing via Books Are Fun, and the
program has rolled out in Mexico, with testing under
way in France. The Books Are Fun unit, in fact, has
been a plank in Reader’s Digest’s bid to reinvent itself
as a “multi-channel powerhouse” that sells via non-sweepstakes
direct mail and direct-response TV. For instance, the
bestselling How To Do Just About Anything on a Computer
did wonders on QVC. The company is also looking
into email and even telemarketing, which already accounts
for more than 5% of all BHE sales worldwide, including
20% of Select Editions sales in Germany. Ryder has said
he expects 15% of BHE sales in the US to come in over
the telephone this year.
Despite these gains, the quiet revolutionaries clearly
have their work cut out for them. Company revenues are
still at their lowest point in a decade, far from the
$5 billion Ryder has vowed to reach by 2004. And company
stock trades around $18, down from a 52-week high of
$40. As the CEO confessed to analysts, “I don’t have
a clue when things will get better and, frankly, I am
concerned about them spreading to Europe.” Amid the
lowering economic clouds, however, certain quarters
of the book business seem refreshingly unfazed. “We’re
doing fine,” says Clarke, admiring the list in his latest
children’s trade catalog, which includes new licenses
for Disney and Hasbro. “When you look
at the books you’ll realize we’re having a good time.”
©2001
Publishing Trends
