With new owners set to take over the company in early 2007 – shareholders will vote to approve the sale in February – industry analysts weigh-in on how the Reader’s Digest Association can return to profitability and how its flagship magazine can reinvent itself.

The purchase of Reader’s Digest for $1.61 billion by an investment group led by private equity firm Ripplewood Holdings was the biggest consumer deal in 2006. Although recent reports show Reader’s Digest could have walked away with a lot more money had it jumped on Ripplewood’s offer sooner, the billion-dollar purchase of a company that has been losing money for the past couple of years is confusing to some.

Although the publishing company has had some success through its 2002 purchase of Greendale, Wisconsin-based Reiman Publications and the popularity of its Every Day with Rachael Ray magazine, its struggled with its 84-year-old flagship brand, Reader’s Digest. “I’ve always enjoyed the magazine and I think it really does appeal to all ages, but they’re having a tough time chasing that younger readership,” says Drew Lawler, managing director of A.J. Lawler Partners. “And that’s going to continue to be their challenge in this age.”

Lawler says the company should not only look for ways to make Reader’s Digest more appealing to all age groups, but also needs to continue growing through launches and acquisitions. “They’re also going to have the infrastructure and expertise to do that,” he says. “Anytime you spend that kind of money to buy a product your best rate of return is through organic growth and acquisitions.”

Mark Edmiston, managing director of AdMedia Partners, says the merging of the assets of the Reader’s Digest Association with assets of Ripplewood-owned Time Life Books and My Weekly Reader could spell a recipe for success. “The original idea behind Reader’s Digest was to use it to get the names of subscribers and sell them records and books,” he says. “I think what Ripplewood is seeing is that Reader’s Digest didn’t have any more products to sell. Back in the ム90’s, they didn’t spend a lot of money on new products. So Ripplewood sees this as an opportunity to invest in new products for Reader’s Digest and market its Time Life and My Weekly Reader products to subscribers.”

Even though Reader’s Digest has had some down years, DeSilva & Phillips managing partner Reed Phillips says it was the best time for a company like Ripplewood to come in and buy it. “I don’t see it as a head-scratcher at all,” he says. “They’ve had some problems in the past, but the time to buy it is now before it starts to show great results and I think that’s what was about to happen.”

Like others, Phillips says challenges remain with repositioning the Reader’s Digest brand for growth. “I think its management team has done a terrific job developing its brands, especially Rachel Ray and Reiman, and there’s a lot of opportunity for growth in the future,” he says. “I think the challenge continues to be with the core brand and what you do with it. But when a company like Ripplewood buys a company like Reader’s Digest, you have to have a strategy. And I think they have a pretty good idea of where they’re going to take the business.”

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