*Reader’s Digest Begins Net Strategy With $13M Investment in WebMD

The Reader’s Digest Association announced yesterday it will invest $13 million in WebMD, an Internet company that offers medical information to consumers and physicians at www.webmd.com.

Under terms of the deal:

*WebMD will help Reader’s Digest, Pleasantville, NY, develop a U.S.-consumer-focused health site for launch in the fall.

*Reader’s Digest will supply content to WebMD.

*WebMD will give Reader’s Digest magazine to its physician subscribers, buying a minimum of three million copies during the next three years.

*The two companies will cross-promote their sites on and off-line.

*WebMD will buy advertising in Reader’s Digest magazine to promote its site, and be featured in advertorial pages in the magazine including an “Ask WebMD” column.

*Reader’s Digest has the right to a seat on WebMD’s board of directors until WebMD’s pending merger with Internet BTB company Healtheon is completed, a pact which is estimated at $ 5.5 billion in value.

“The Internet is a key element in our strategy to expand in the areas our consumers care most deeply about, including health,” said Reader’s Digest chairman/CEO Thomas O. Ryder, who joined the company in 1998 with a mandate to revitalize it.

The WebMD partnership is the first Internet-related move Reader’s Digest has made since it said in February it would spend at least $100 million launching, buying and investing in Web sites as part of an aggressive push into the “home, health, family, finance and faith” markets.

The development also marks the start of phase three of a turnaround 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– an effort that resulted, for example, in the November auction of 35 sculptures, paintings and drawings from its art collection for $94 million at Sotheby’s in New York.

Calling the Internet “a means of tying together all the opportunities presented by the media we have at our disposal now in a way that reaches geometrically more people,” company spokesman Stephen Morello said more Internet partnerships will follow the WebMD announcement, declining to say when.

“This is the first step and the reason it’s WebMD is because we have so much equity in health,” he said.

According to Reader’s Digest, its mainly 50-plus audience has a propensity to buy health-related items. The company claims, for example, to have sold 400,000 copies of the book “The Healing Power of Vitamins, Minerals and Herbs” in the U.S. so far to year.

It is estimated that 33 percent of the U.S. population turns to the Internet first for health-related information, according to Reader’s Digest.

Separately under Reader’s Digest’s Internet strategy, the company recently overhauled its Web site at www.readersdigest.com.

Similar to the changes it made on its flagship magazine cover last May giving it a more modern look, the company has revamped its formerly corporate-brochure looking Web site to include cleaner graphics, content from the current issue of Reader’s Digest, opportunities for readers to submit questions to article authors, discussion forums, and an online store offering magazines books, videos and CDs.

The company has begun pitching free trial Reader’s Digest subscriptions on the site by greeting visitors with a pop-up window featuring the current issue’s cover and offering a free camera to new sign-ups. Morrelo said the site is getting about 500,000 unique visitors per month. He would not disclose how many subscriptions the online efforts have generated.

Also on the site, Reader’s Digest has begun building an e-mail list presumably gearing up for some outbound e-mail marketing.

The company is gathering electronic addresses using a sweepstakes offering entrants a chance to win $4,000. Morello also declined to disclose how many names the effort has garnered so far.

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