Reader’s Digest Revamps Amid Topsy-Turvy Fiscal Forecasts
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.”
