The Reader's Digest Association, Inc.

1889–1929

The Reader's Digest Association, Inc. is a worldwide publisher and distributor of magazines, books, recorded music, and home video packages, which are sold through a variety of distribution channels, including direct mail, display marketing, direct response television, catalogs, retail, and the Internet. Its major publication is the monthly general-interest magazine Reader's Digest, which is the world's most widely read magazine with a global readership of more than 100 million, and is available in 48 editions and 19 languages. The company also publishes numerous special-interest magazines and books that include do-it-yourself, cooking, health, gardening, and children's titles. To market its many products, the Reader's Digest Association uses an extensive consumer database that is considered to be one of the largest in the world.

The Early Years

Reader's Digest was founded in 1922 through the joint efforts of DeWitt Wallace and Lila Bell Acheson Wallace. DeWitt Wallace was born on November 12, 1889, in St. Paul, Minnesota, to a father who was a college professor and who later became president of Macalester College. Throughout his years of early adulthood, DeWitt Wallace read widely, and got in the habit of making notes from his reading to retain ideas. In a job handling inquiries about an agricultural textbook, he began wondering if his reading notes might be useful to others if published. Thus, he conceived the idea of condensing magazine articles and reprinting them in a digest magazine.

In the early 1900s, Wallace produced a 128-page book on farming, providing information about agricultural bulletins available to farmers. He sold 100,000 copies of the book by traveling through five states in an old car, selling the book to banks and feed stores that would give the book to customers as a gift. Due to his success with the book, he saw a market for that type of publication among the public as a whole, and sought to publish condensed versions of articles in a magazine form.

World War I temporarily interrupted Wallace's plans. In October 1918, he was severely wounded in battle in France. During his months of recuperation, he focused on reading from a variety of magazines, distilling the articles down to their essentials. On his return home to St. Paul, he continued to work on digesting other magazine articles, putting together 31 summarized articles in a sample of the type of digest magazine he thought would sell. The cost of printing the sample was paid for with money borrowed from his brother and father. He showed his sample to several publishing houses with the hope that they would use his idea and hire him as editor, but all of them turned him down.

In January 1922, Wallace finally published the magazine on his own, aided by his wife, Lila Bell Acheson Wallace. Acheson had been born in Canada in 1889, but spent most of her early life in the United States while her father preached in a number of midwestern towns. In 1921, she married DeWitt Wallace, and together they began selling his magazine idea to readers by direct mail. The couple rented an apartment in Greenwich Village in New York City, with Lila retaining her job as a social worker to pay the rent. DeWitt Wallace sent out letters to potential subscribers, offering his magazine idea for sale and promising a money-back guarantee if readers were not satisfied. These solicitations brought in 1,500 subscriptions at $3 each, generating enough money to finance the first edition and possibly the second.

The first edition of Reader's Digest was dated February 1922, and contained 64 pages. Its small measurements, about 5.5 inches by 7.5 inches, allowed readers to carry it in a pocket or purse and was a unique innovation among magazines at the time. The lead article was by Alexander Graham Bell and was on the importance of self-education as a lifelong habit.

DeWitt Wallace spent much of the magazine's first year in the New York Public Library reading articles to summarize in future issues, while Lila Wallace kept her job. The first edition was judged to be a success when there were no cancellations of subscriptions after its release. By September 1922, the couple was able to rent a garage and apartment for their editorial offices, choosing to live in Pleasantville, New York, where they had been married in 1921. Additional promotional letters brought in new subscribers, and within a year of its first edition, circulation had risen to 7,000. After four years, circulation was up to 20,000, and by 1929 it had risen to an astounding 216,000 subscribers.

The Mid-1900s: A Growing Enterprise

These solicitations brought in 1,500 subscriptions at $3 each, generating enough money to finance the first edition and possibly the second.

1936–1990

Initially, Reader's Digest kept a low profile, partly for fear that envious magazines might stop allowing it to reprint their articles. DeWitt Wallace seemed to have a very good notion of what his readers wanted, and circulation continued to grow, reaching over one million in 1936 and three million in 1939. An edition began appearing in England in 1938. Due to the rapid increase in the size of operations, in 1939 the Wallaces moved their facilities to Chappaqua, New York, located close by, but retained their mailing address in Pleasantville, because of the euphonious nature of its name. The address has remained at Pleasantville ever since.

In 1950, condensed books under the Reader's Digest name first appeared. These books, which presented abbreviated versions of popular novels, were an immediate success. Therefore, nine years later the company diversified even further when a series of phonograph record albums of music that was culturally sophisticated yet broadly popular appeared under the Reader's Digest banner.

Foreign-language editions of Reader's Digest carried advertising from their inception, but in the United States advertising was not introduced until 1955. Furthermore, the magazine did not accept advertising for alcoholic beverages until the late 1970s, and it never ran advertisements for cigarettes. Instead, it began warning readers of the dangers of smoking, well before the surgeon general made his report in 1964.

Reader's Digest owed its initial appeal and continued success to DeWitt's ability to choose articles that reflected the values of its many readers. Many of those readers later told of the hope and inspiration they drew from the optimistic spirit that pervaded Reader's Digest. That spirit reflected the outlook of DeWitt Wallace, who based the magazine's content on what he wanted to read. Even as the publication grew in size and popularity, he retained strict editorial control.

When the magazine became successful, DeWitt Wallace kept up the task of editing it and managing finances. His wife designed the corporate headquarters and purchased many artworks that are still part of the company's collection. She also had a hand in selecting the graphics that adorned the back cover of the Digest. In 1956, she formed the Lila Wallace Reader's Digest Fund to support the arts and make them accessible to persons of all income levels. A DeWitt Wallace Reader's Digest Fund was also formed for the purpose of providing education programs for young people.

The 1970s and 1980s: The Changing Face of the Association

In 1973, after over half a century of work, the Wallaces retired, although DeWitt Wallace kept in close contact with the editorial and corporate offices. He died on March 30, 1981, at the age of 91. Lila Wallace survived him by three years. The Wallaces never had children, and therefore most of their stock in the company was willed to charities, including Macalester College. This stock was non-voting, however, and almost all of the Wallace's voting power was placed with the two Wallace trust funds, of which the association management owned 3 percent.

About the time of Lila Wallace's death in 1984, George Grune became head of The Reader's Digest Association. The company was not performing very well, and in a successful effort to improve profitability, he took the company public and began a cost-cutting program that included the termination of foreign editions of Reader's Digest that were losing money, the divestiture of weak divisions, and the reduction of the workforce from 10,000 to 7,500. He also decreased the rate at which advertising was being lost.

Members of the staff who had worked during the Wallace years became concerned that Grune's methods departed from Wallace's idea that the company was an association of readers and not just a for-profit venture. There was no doubt that Grune had improved profits; in five years profits increased sevenfold. After years of higher profits, several of the charities that owned non-voting shares of the association's stock sold some of their shares to the public in order to take advantage of the high price the stock would bring. After the sale, in February 1990, 21 percent of the total stock was publicly held, these all being class A non-voting shares. Nearly all of the class B voting shares (98 percent) were still held by the trust funds, with the remainder held by employees of the association.

1984–1995

As the 1980s drew to a close, The Reader's Digest Association remained a global company, with operations located in 50 cities throughout the world. Reader's Digest continued as its premiere publication, accounting for nearly a third of the company's revenues. The Digest also served to introduce subscribers to other products sold by the company, such as the condensed books and audio or video tapes.

To maintain its subscribers' loyalties, editors of Reader's Digest kept coverage diverse and of high quality. The publication was earning nearly 70 percent of its revenues from circulation, which was a very high figure given that most magazines rely more heavily on advertising for revenue. But because the Digest did not rely so much on its advertisers, its content did not have to be targeted to a market desired by the advertisers, leaving editors free to select articles having the broadest appeal.

In the late 1980s, the association acquired several special-interest magazines, such as Travel Holiday, The Family Handyman, New Choices for the Best Years, and American Health. In 1990, it expanded this line by purchasing the British magazine Money, which was renamed Moneywise, and by starting up a French magazine, Budgets Famille. The special-interest-magazine line, along with other Reader's Digest books and home entertainment, accounted for the revenues not brought in by the Reader's Digest magazine. The company's books were either released individually or in series. Series books included such new product lines in the United States as the AMA Home Medical Library, while general individual books included reference books, how-to books, cookbooks, travel guides, and others.

The 1990s and Beyond

As the global economy was restructured in the 1990s, The Reader's Digest Association made attempts to keep pace. Its products were already well known in 11 of the 12 countries that made up the European single market, although Budgets Famille was suspended in May 1990 after six issues because it did not meet circulation or advertising objectives. The company began formulating plans to expand into the new markets of Eastern Europe that were beginning to be important in world trade. For example, when the Berlin Wall was opened in 1989, employees of the Digest started distributing complimentary copies of the German-language version of Reader's Digest and collecting names for a mailing list of potential subscribers. Then in late 1991, Reader's Digest became available in Russian- and Hungarian-language editions to serve readers in those countries. In this way, the association continued to keep pace with an ever-changing world.

In 1991 the company boasted record sales figures, despite the fact that it was operating in a weak economic climate due to worldwide uncertainty caused by the Persian Gulf War. Aiding the Association in its success were two acquisitions made that year. Both David & Charles, a British book publisher and one of the United Kingdom's leading book clubs, and Joshua Morris Publishing, Inc., an international book publisher with a focus on children's materials, contributed to the Reader's Digest Association's strong financial standing in the early 1990s.

In 1992, as Reader's Digest celebrated its 70th anniversary, the company updated the strategic plan that had been set in place when Grune first took over in 1984. Even greater emphasis was placed on expanding into new markets around the globe, with use of the Reader's Digest magazine as an entry tool. The company committed to the idea of releasing at least one new edition of the magazine in each of the following years. Also emphasized in the newly updated plan were cost control measures which led to a 10 percent workforce reduction at the company's headquarters in Pleasantville in 1993. The structure of the company itself was also reorganized into three main operating divisions: Reader's Digest Europe, Reader's Digest U.S.A., and Reader's Digest Pacific, each of which became responsible for the business in its own market area.

The corporation's rejuvenation efforts soon began to show evidence of success. In 1993, after 55 years in the United Kingdom, that edition of Reader's Digest became the area's bestselling and most widely read magazine. That same year, Fortune magazine called the Reader's Digest Association the United States' most admired publishing company. In the United States, the ABC television network aired a special program entitled "Reader's Digest: On Television," which helped the company's books and home entertainment segment begin to flourish once again, after a slump during the previous few years. Furthermore, in a move designed to coincide with the world's progression into the information age, Reader's Digest began to pursue the development of interactive CD-ROM products.

By 1995, James P. Schadt had succeeded Grune as chairman and CEO of the Reader's Digest Association. Schadt, who moved up from the rank of president upon Grune's retirement to fill the new leadership role, had been with the company throughout its restructuring phase. His position as president was filled by Ken Gordon, a longtime Reader's Digest employee and the head of the U.S.A. operating division. Together, the two continued to focus both on strengthening Reader's Digest's business in the United States, and expanding throughout the world.

1995–2004

The year 1995 also offered unique opportunities for Reader's Digest to participate in cooperative endeavors with other companies. Reader's Digest teamed up with the Meredith Corporation, known widely for its Better Homes and Gardens and Ladies' Home Journal products, as a means of expanding its consumer database. The company also entered into partnerships with Microsoft, to produce CD-ROMs based on Reader's Digest reference books, and with Dove Audio to produce audio books.

Other operations of the association contributed to the company's total revenue. These operations included a subsidiary, QSP, Inc., which provided fundraising services for schools and youth groups through the sale of subscriptions to magazines, music products, and candy. Nearing the end of the century, Reader's Digest remained the world's best-selling and most widely read magazine. Despite the magazine's popularity, however, it was the books and home-entertainment division that generated the bulk of the association's profits by the late 1990s. Furthermore, with the increasing popularity of the Internet, an entirely new avenue of product development and distribution was opening up for Reader's Digest.

Downsizing and Restructuring at Century's End

New leadership arrived at Reader's Digest as it entered the late 1990s, and the assessment of the association's condition was bleak. In April 1998, Thomas O. Ryder, who was recruited from American Express, was appointed chairman and chief executive officer, ushering in an era of sweeping change at the nearly 70-year-old company. Ryder discovered an organization suffering from bloated overhead, dwindling profits, weak product offerings, poor pricing decisions, and a litany of other ills that prompted him almost immediately to launch a program for recovery that would stretch into the 21st century. Ryder's cost-cutting measures began in July 1998, aimed at trimming between $300 million and $350 million in expenses by 2001. His measures substantially increased operating profits, but in January 2001, as Ryder wrote in the association's 2004 annual report, "suddenly everything went wrong." When the dot.com industry collapsed, Reader's Digest incurred heavy loses because it had invested sizeable sums in Internet-related businesses. Ryder also blamed the effects of 9/11 and the anthrax scare for inflicting damage on the association, but the most devastating development of the year came after regulatory agreements forced Reader's Digest to abandon its sweepstakes promotion business. In 2001, 32 states fined the association for misleading consumers with sweepstakes promotions. Subsequently, the use of sweepstakes marketing was eliminated from all U.S. editions of Reader's Digest.

On a more positive note, the years of restructuring also saw Reader's Digest complete several important acquisitions. In 1999, the company acquired Books Are Fun, Ltd. for $380 million. A profitable and fast-growing company, Books Are Fun operated traveling book fairs in office buildings and schools. In 2002, the company completed the largest acquisition in its history, paying $760 million for Greendale, Wisconsin-based Reiman Publications. A publisher of cooking, gardening, country lifestyle, and nostalgia magazines and books, Reiman was expected to add $300 million in annual revenue to Reader's Digest's total volume. Reiman published 12 bimonthly magazines with an aggregate circulation of 16 million subscribers. The company also maintained a 32-million-customer database, 19 million of whom were not in Reader's Digest's database.

As Reader's Digest entered the mid-2000s, Ryder continued his restructuring efforts, endeavoring to create a company that could look forward to a profitable future. Much work needed to be done, but there were signs of improvement, including a $10 million increase in operating profits by the company's North American operations in 2004. Another encouraging sign was the expansion of the company's non-core business, a goal of Ryder's when he took over and the motivation for the acquisition of Books Are Fun and Reiman. In 1998, Reader's Digest derived 8 percent of its revenue from its non-core operations. In 2004, the company derived 35 percent of its revenue from its non-core businesses. In the years ahead, the success of the company depended heavily on the effectiveness of Ryder's measures, making his tenure of management arguably as important as the legacy of the Wallaces.