*Phase Three of Digest's Turnaround to Begin in Health, Finance Markets

New marketing initiatives in nonsweepstakes direct mail and direct response television and an aggressive Internet strategy are keys to a push into five markets under struggling Reader's Digest Association Inc.'s turn-around strategy, company chairman/CEO Thomas O. Ryder said Feb. 25.

In a short-on-details speech to employees and financial analysts, Ryder outlined a plan under which Reader's Digest, Pleasantville, NY, plans to expand into the “home, health, family, finance and faith” markets with an emphasis on the health market first.

“This strategy builds on the core strengths of Reader's Digest — our strong global brand, the unique trust we enjoy with our customers, our unmatched direct marketing capabilities and our skill in selecting, simplifying and presenting information for our customers,” Ryder said.

In the health market, he said, Reader's Digest is considering going into the direct mail pharmaceuticals and vitamins business sometime in fiscal 2000. The company said it's talking with unnamed potential partners and acquisition candidates. Reader's Digest also plans to “significantly” expand its health book and magazine publishing efforts and its health-related Internet presence.

Financial analysts for SG Cowen, New York, published a report predicting that Reader's Digest's stock could reach 40 in the next year and 45 within two years under Ryder's stewardship. Currently, it's trading in the low 30s. “In less than one year, he has made remarkable progress,” said the report.

Morgan Stanley Dean Witter also is bullish on Ryder's progress. “[We] continue to believe that the turnaround at Reader's Digest will be one of the great stories over the next two to three years,” the firm said.

Under Reader's Digest's Internet strategy, the company will spend at least $100 million launching, buying and investing in Web sites “that fit Reader's Digest's brand and strategy” and will drive traffic to them using its magazines and direct mail, Ryder said. The company also announced plans to enhance the content of its existing 20 Web sites to turn them into online communities. An online pharmacy at www.rdhealth.com is in the works, according to published reports.

In finance, Reader's Digest plans to partner with unnamed companies to endorse and/or offer co-branded credit cards and insurance. The company said it will name partners for those efforts in June.

Though Reader's Digest has been working to appeal to a younger audience — by, among other things, redesigning its cover — Ryder said the company's first priority in the health and finance markets will be on consumers 50 and older, the core of Reader's Digest's 100-million-name database.

“We celebrate our strength with this demographic,” he said.

Ryder said Reader's Digest will expand the merchandise in its catalog business to include more than just Reader's Digest products.

Reader's Digest also plans to expand its business in Eastern Europe, South America and the Far East. The company is working to form a partnership to launch a direct marketing book business in China in fiscal 2000.

The Digest has been struggling recently, with both revenue and profits declining sequentially during the first nine months of 1998. Average paid U.S. circulation at flagship publication Reader's Digest was 14.7 million in the first half of 1998, down 2.6 percent from 15.1 million in the first half of 1997, according to the Audit Bureau of Circulations.

Ryder's latest announcement was part of a three-phase turn-around plan that began with a reorganization in August. Phase two began in September when Reader's Digest began to identify and dispose of nonperforming assets.

Since joining Reader's Digest in April 1998 with a mandate to revitalize the company, Ryder also has announced plans to cut direct mail by 20 percent to 25 percent and eliminate several hundred jobs. The company also moved to improve its cash flow by slashing its quarterly dividend from 22.5 cents to 5 cents.

In January, Reader's Digest sold its entire South African operation — magazine, books, videos, music and office building in Cape Town — to Heritage Holdings Ltd. for an undisclosed sum.

In November, Reader's Digest took part of its art collection to the auction block, yielding $94 million in a maneuver meant largely to show Wall Street that it was willing to turn nonproducing assets into capital.

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