The Reader’s Digest Association, Inc.

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The Reader’s Digest Association, Inc.

Reader’s Digest Road
Pleasantville, New York 10570
U.S.A.
(914) 238-1000

Public Company
Incorporated: 1926
Employees: 7,700
Sales: $2.01 billion
Stock Exchanges: New York Midwest

The Reader’s Digest Association is a worldwide publisher of magazines, books, recorded music, and home video packages, all of which are sold by means of direct-mail marketing. Its major publication is the general-interest monthly magazine, Reader’s Digest, which by year end 1991 was produced in 41 editions in 17 languages, with a global circulation of more than 28 million. The newest editions of The Digest, added in late 1991, were a Russian-language edition in the Soviet Union and a Hungarian-language edition in Hungary. The company’s annual sales are prodigious: 21 million condensed books in 18 countries, 16 million general books in 22 countries, and 6 million special-series books in 13 countries. Annually it sells more than 5 million pieces of its music collections and 800,000 home video programs. In 1990, after 68 years as a private firm, a public offering of class A common stock was made. Two trust funds each own 49% of the class B common stock, the only stock with voting rights.

Reader’s Digest was founded in 1922 through the joint efforts of DeWitt Wallace and Lila Acheson Wallace. DeWitt Wallace conceived the idea of condensing magazine articles and reprinting them in a digest magazine. He was born on November 12, 1889, in St. Paul, Minnesota, of a father who was a college professor and who later became president of Macalester College.

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 were they to be published. He 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. He saw a market for this type of publication among the public as a whole.

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 in the hopes that they would use his idea and hire him as editor, but all turned him down.

In January 1922 Wallace finally published the magazine on his own, aided by his wife. Lila Bell Acheson was born in 1889 in Virden, Manitoba, Canada. Most of her early life was spent in the United States, as her father preached in a number of midwestern towns.

In 1921 the Wallaces began selling the magazine to readers by direct mail. The couple rented an apartment in Greenwich Village in New York City, with Lila Wallace 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 the Reader’s Digest was dated February 1922; it contained 64 pages. Its small measurements, about 5.5 inches by 7.5 inches, which allowed readers to carry it in a pocket or purse, was an 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. As there had been no cancellations of subscriptions from the first edition, it was judged a success. 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, 216,000.

Initially The 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. Because of 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 Reader’s Digest condensed books first appeared. These books, which present an abbreviated version of popular novels, were an immediate success. In 1959 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 The Digest carried advertising from their inception, but in the United States advertising was not introduced until 1955. The magazine did not accept advertising for alcoholic beverages until the late 1970s. It never ran advertising for cigarettes. Instead, it began warning readers of the dangers of smoking early, well before the surgeon general made his report in 1964.

The Digest owed its initial appeal and continued success to its ability to choose articles that reflected the values of its many readers. Many of those readers have told of the hope and inspiration they have drawn from the optimistic spirit that pervades The Digest. That spirit reflected the outlook of DeWitt Wallace, who based the magazine’s content on what he wanted to read. He retained strict editorial control.

When the magazine became successful, DeWitt Wallace kept up the task of editing it and managing its finances. Lila Wallace designed the corporate headquarters and purchased many artworks that are now 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.

In 1973 the Wallaces retired, although DeWitt Wallace kept in close contact with the editorial and corporate offices. He died on March 30, 1981. Lila Wallace survived him by three years. As the Wallaces had no children, most of their stock was willed to charities, including Macalester College. This stock was nonvoting, however, and almost all of the voting power was placed with the Wallace trust funds. Management owned 3%.

About the time of the death of Lila Wallace in 1984, George Grune became head of The Reader’s Digest Association. The company was not performing well, and in a successful effort to improve profitability, he began a cost-cutting program that included the termination of foreign editions of the Reader’s Digest that were losing money, selling off weak divisions, and reducing the work force 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 high profits, several of the charities that owned nonvoting 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% of the total stock was publicly held, these all being class A nonvoting shares. Nearly all of the class B voting shares were still held by the trust funds, 98%; the remainder was held by employees of the association.

As the 1990s began, The Reader’s Digest Association remained a global company, with operations located in 50 cities throughout the world. Reader’s Digest remained its premiere publication, accounting for 31% of revenues in fiscal year 1990. The Digest serves to introduce subscribers to other products the company sells. To maintain its subscribers’ loyalties, The Digest keeps coverage diverse and of high quality. It earns nearly 70% of its revenues from circulation, very high for any publication; most magazines rely heavily on advertising for revenue. This means that the content of The Digest does not have to be targeted to a market desired by advertisers, leaving editors free to select articles having the broadest appeal.

Books and home entertainment accounted for 61% of revenues in fiscal year 1990. Series books included such new product lines in the United States as the AMA Home Medical Library. General books included reference books, how-to books, cookbooks, travel guides, and others.

In the late 1980s the association acquired several special-interest magazines, 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 accounted for 3% of revenues in fiscal 1990 but showed an operating loss. Budgets Famille was suspended in May 1990, after six issues, because it did not meet circulaiton or advertising objectives.

Other operations of the association contributed 5 % of total revenue in fiscal year 1990. These operations included the subsidiary, QSP, Inc., which provides fund-raising services for schools and youth groups through the sale of subscriptions to magazines, music products, and candy.

Reader’s Digest remains the world’s largest-selling magazine. Despite the magazine’s popularity, it is the home-entertainment division that contributes the bulk of profits. The condensed books operation still dominates its market.

During the 1990s, as the global economy is restructured, The Reader’s Digest Association expects to keep pace. Its products are already well known in 11 of the 12 countries that will make up the European single market. The company plans to expand into the new markets of Eastern Europe that are now beginning to be important in world trade. When the Berlin Wall was opened in 1989, employees of The Digest started distributing complimentary copies of the German-language version of the Reader’s Digest and collecting names for a mailing list of potential subscribers. In late 1991 Reader’s Digest became available in Russian- and Hungarian-language editions to serve Soviet and Hungarian readers. In this way, the association continued to keep pace with an ever-changing world.