READER'S DIGEST Magazine tries to reinvent itself

Circulation of the 81-year-old publication has been dropping in recent years.
NEW YORK (AP) -- This time last year, Reader's Digest Association Inc. was showing signs of life after years of struggle. It had just closed a major acquisition, new business segments were growing and a new editor was stirring things up at the 81-year-old magazine.
Since then, it's been a downhill ride. International business has dropped off, circulation continues to tumble and advertising is in a slump. To make matters worse, Moody's Investors Service downgraded the company's debt to "junk" last month.
Problems
Reader's Digest has had its share of problems over the years, not least of which is combating a belief that its time has passed. But now a number of different things seem to be going wrong at once, making this a key turnaround time for the venerable publishing company.
In an effort to right itself, the company's flagship magazine has replaced not just the top editor but most of the staff over the past two years. It has also updated its design and hired new writers and editors.
Bill Adler, a company spokesman, says the changes have been done gradually so as not to upset readers, whose average age is 49.
"Virtually every single job has changed," Adler said. "The magazine has literally been reinvented."
Reader's Digest has also been changing the way it sells itself. Once heavily reliant on controversial sweepstakes promotions for filling its subscriber lists, the company is now building readership through direct mail promotions, telemarketing and the Web.
Reader's Digest still boasts to be the most widely read magazine on the planet with a circulation of 11 million. But that's way down from 16 million a decade ago, and next year the magazine is once again lowering the circulation it guarantees to advertisers, this time to 10 million.
On the plus side, Reader's Digest says it now expects to hold that base at 10 million for at least the next five years, a relatively bullish estimate. That's important because besides selling magazines the company also brings in revenue by marketing books and other products to its magazine subscribers.
Evolving business
Even that part of the business is evolving. In the five years since Thomas O. Ryder took over as chief executive, the company has actually become less reliant on direct-marketed books, music and videos, which made up 60 percent of revenues in 1998 and 40 percent last year.
Ryder has made many other moves to shake up the company. He sold off art masterpieces from the company's Pleasantville, N.Y., headquarters and made two major acquisitions, Reiman Publications for $760 million last year and Books Are Fun, a book marketing business, for $380 million in 1999.
Reader's Digest declined to make Ryder or other senior executives available for interviews, citing restrictions on making comments during the "quiet period" ahead of reporting earnings July 30.
But analysts haven't been shy. In April, after the company reported a 42-percent decline in operating profit for its third fiscal quarter ending in March, Morgan Stanley analyst Craig Huber expressed disappointment with Reader's Digest's slumping fortunes in a report to investors.
"A short time ago, the story looked promising," Huber wrote, citing the Reiman acquisition and good performance over the past year at Books Are Fun and an educational fund-raising division. "Since then, not much has gone right."
The main problem has been a rapid falloff in international business. The company blamed an advertising slump, poor responses to marketing campaigns and execution problems in Australia and France. As a result, overseas earnings nearly disappeared in the third quarter.
Restructuring
Ryder announced a $16 million restructuring charge in April related to cutting 200 jobs overseas, eliminating unprofitable lines of business and taking other steps to reduce overhead by at least $70 million. Adler declined to disclose other specifics but said "every department in the company is going through belt-tightening."
Yet the troubles continue. Moody's downgraded the company's debt in late June, citing troubles at the magazine and other factors. Advertising pages -- a key measure of a magazine's health -- plunged 14 percent in the year to date through May, according to the Publishers Information Bureau.
What's next for Reader's Digest? For now, it's building a rapidly growing Spanish-language business, including Selecciones magazine, and ramping up QSP, a school fund-raising business. It has also started a weight-loss program, ChangeOne.
It is also launching four magazines based on the model used by Reiman, based in Greendale, Wis. Reiman has found huge success publishing magazines like Taste of Home that take no advertising and publish articles from readers. Reader's Digest says the first two titles may appear in Britain and Brazil.