Book-of-the-Month Club, Doubleday Direct to Form Joint Venture

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Two of the country's largest operators of mail-order book clubs last week announced an agreement in principal to form a joint venture to better leverage their resources in the face of increasing competition from rival online booksellers.

The Book-of-the-Month Club, New York, and Doubleday Direct, Garden City, NY, would retain their brand identities, but a new umbrella entity would be created to derive efficiencies by combining printing, manufacturing and marketing efforts.

"A combined entity will have a much better chance of achieving these kinds of investments than either company could on its own," said Markus Wilhelm, CEO of Doubleday Direct. "We are competing against a lot of Internet booksellers that do not make money and do not seem to have the objective of making money because they are selling books at an extremely low price to build market share. Wall Street doesn't seem to mind, but our shareholders do mind if we do not make money."

Wilhelm said that combining the clubs also will be enable them to cross-promote books to each others' databases more effectively and explore opportunities for more niche book clubs.

The specific terms of the joint venture were not disclosed. The companies said a definitive agreement was expected by the end of the year, and a transaction was expected to close in the first quarter of next year, when a new chief executive of the combined entity will be named.

BOMC is a unit of Time-Warner's Time Inc. subsidiary, and Doubleday Direct is owned by Bertelsmann AG, the international media conglomerate based in Gutersloh, Germany.

BOMC has more than 4.5 million members in several book clubs, most of which are targeted at specific niches, such as the History Book Club or the Science Book Club. BOMC oversees nine such clubs, in which consumers buy a certain number of books for a low price, such as four for $1, and in return agree to buy several more books at regular prices. A monthly selection is shipped to club members automatically unless they return a mailing indicating that they do not want to receive that month's selection.

Doubleday Direct, which has a similar level of membership in its 30 different clubs, operates in a similar manner. The clubs are marketed through direct response ads in magazines, newspapers and literary journals and through direct mail solicitations. The clubs also operate Web sites.

The only two clubs in which BMOC and Doubleday compete head-to-head are its flagship, general interest clubs: BOMC's Book-of-the-Month Club and Doubleday's Literary Guild. They appeal to somewhat different audiences, however. Membership in the Literary Guild is 90 percent female, while the Book-of-the-Month Club membership is more evenly divided between males and females, according to Wilhelm.

According to the Association of American Publishers, book clubs experienced a sales increase of 5 percent through October of this year, compared with sales from the same period a year ago. In all of 1998, book club sales totaled $1.2 billion, a 5.8-percent increase over 1997 sales totals. Mail-order books, which are counted separately, have suffered a much greater impact from the Internet, according to the AAP. Mail-order sales were down 18 percent through October, compared to the previous year.

Judy Platt, a spokeswoman for the AAP, said she thinks book clubs have an edge over some other channels because of their editorial expertise that is put to use in determining each months' selections.

"They are popular because of the niche aspect," she said. "With all of the publishing going on, I think people appreciate some guidance from sources they respect."

Malka Margolies, vice president of corporate communications for BOMC, agreed.

"As a book club, we like to think that we have this huge editorial staff that's really knowledgeable in their respective fields."

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