USA: REVOLUTION IN PLEASANTVILLE. - Wholesome, 1950s Reader's Digest has always resisted straying down the mass-market path of sleaze and glitz. Yet bitter power struggles within its ranks suggest some radical changes are in the offing.

by Matthew Lynn.
Last Updated: 31 Aug 2010

Wholesome, 1950s Reader's Digest has always resisted straying down the mass-market path of sleaze and glitz. Yet bitter power struggles within its ranks suggest some radical changes are in the offing.

Every New Year, according to company legend, a peculiar ceremony takes place at the headquarters of the Reader's Digest organisation, situated, appropriately, in a town called Pleasantville in New York State. With due solemnity, senior officials of the company stand around a safe that has stood in the building for as long as anyone can remember. Reaching inside, they rifle through a stack of envelopes. Checking the dates written on each one, they remove the envelope with that year's date stamped on it. Inside, on a sheet of paper, are set out their targets for the year, laid out in black and white by the company's founder, De Witt Wallace, before he died. Closing the safe, they know their strategy for another year.

It is a piece of company folklore that managers at GEC no doubt hope never percolates to Lord Weinstock. Management from beyond the grave is something many corporate dynasts would really like to achieve; it represents a kind of managerial immortality. None, however, has ever attempted to achieve it as thoroughly as Wallace. But then again, few organisations have ever been quite as weird as Reader's Digest.

The owner of the world's best-selling magazine, Reader's Digest is undoubtedly among the most successful global publishing companies. And yet it has achieved its success by seemingly breaking every rule in the book. Its publications are relentlessly homely and suburban, side-stepping the taste for sleaze and glitz that most publishers assume is the safest route to the mass market. It produces essentially the same product around the world, breaking every rule about local products for local markets. It is run along rigid principles, more suited to the 1920s and 1930s than today. It displays very little flexibility - and even less creativity. By all the normal standards, it should be a company in steep decline. And yet somehow it sails on regardless, seemingly impervious to everything that is happening around it - more of a relic than a thriving 1990s media conglomerate set to zoom down the fast lane of the information superhighway.

'Working there is like being trapped in some 1950s suburban time-warp,' says one former staffer in the UK organisation. 'It is a very claustrophobic, cloistered place.'

Now, however, the Digest appears to be engaging in a bruising confrontation with the modern world (or, at least, a condensed version of it). The latest indications suggest that not everything in Pleasantville is as pleasant as it once was. Staff cuts of some 15% have recently been imposed on the organisation worldwide. Some of its less successful publications, immune to the Digest magic, were recently put up for sale.

Meanwhile, the succession of top executives passing through the boardroom suggests a management whose members fight each other more than they fight the market. Gradually the company seems to be acquiring the casual brutality of most big media companies, and losing some of the quaintness that was perhaps the secret of its success.

To know anything about Reader's Digest, the magazine, it is necessary first to learn something about De Witt Wallace and his wife Lila. De Witt, or Wally as he was universally known around the organisation, launched the magazine in 1922, when he was just 23. It was always, paradoxically, aimed at people who did not like to read too much: De Witt's idea was to scour the press for articles most people would have neither the time nor inclination to read, and reprint them, usually in a ruthlessly condensed form (often the articles were cut by more than 75%). 'I simply hunt for things that interest me,' Wallace later recalled. 'And if they do, I print them.' If so, he had a fine ear for the interests and prejudices of the great swathes of smalltown middle-Americans who were to make up the bulk of his audience. Typically, Reader's Digest articles were light, sunny and uplifting; they were packed with quirky facts, self-help hints, breakthroughs in medical treatment, and so on. The horrors of the world, and the darker sides of human character that most publishers exploit, were rigorously excluded.

Though apparently naive, it worked - and worked well. The Digest became the bible of suburbanites, not just in America but around the world. By the post-war period, perhaps its finest era, it had a circulation of 17 million in the US, and was published in 32 editions around the world.

It was often mocked. Walter Goodman once quipped: 'It is a magazine nobody reads, apart from its 30 million subscribers.' The legendary New Yorker writer, Alexander Woollcott, on being asked to contribute, remarked: 'Mr Wallace has destroyed the pleasure of reading. Now he is about to destroy the pleasure of writing.' (All the same, Woollcott took the money, which was far more than anyone else was prepared to pay.) And its relentlessly upbeat tone was once pricked by one wit in the stylish headline suggestion: 'New Hope for the Dead'.

In this country, John Major gave his early love, Jean Kierans, a subscription to the Digest as a parting gift after their affair ended; an appropriate present, since there could be no more typical Digest subscriber than the grey PM.

For all its detractors, however, the Digest proved to be a publishing rollercoaster. To strengthen the magazine's appeal to women readers, De Witt put Lila's name on the masthead from issue one, although she had relatively little to do with the running of either the magazine or the company. It was run along rigidly puritanical lines - opposing smoking, refusing to run any ads for alcohol and cheerleading for traditional family values.

(It was also very keen on putting fluoride in water.) Unsurprisingly, none of these values was upheld by the publisher. Wallace, privately, was a more conventional media magnate than he liked to pretend: he smoked heavily, enjoyed endless martinis, played poker and, throughout his 60 years of marriage to Lila, had many affairs, including one with his wife's niece. It was not the sort of lifestyle the Digest would have condoned.

The one element of consistency was its politics. The Digest was fiercely right-wing and reactionary, a keen cold warrior, like its publisher. Left-wing critics often accused it of being little more than a mouthpiece for the CIA and FBI, and it certainly had close links to both agencies, which would regularly be used as the sole source for its regular articles on communist infiltration.

Ironically, though he kept his publising empire under tight control, De Witt would not be able to do so for ever. He died in 1981, aged 92, Lila three years later, aged 95. They were childless, so there were no natural successors. Even before they died, control of the company had moved increasingly into the hands of professional managers. The founders spent much of their time giving money to schools, hospitals and art galleries. All the non-voting stock was passed on to charities before their death. After they died, the voting shares were bequeathed to two Wallace trusts. De Witt wanted to retain control.

During his life Wallace would warn his managers about the dangers of 'excessive profits'. It was not the money that motivated him particularly; it was more the spreading of the Digest's homely philosophy around the world. In the 15 years since his death, however, there have been striking changes in the way the company is run.

The most important figure was George Grune, a former marine, who began his career at the company as an ad salesman in the early 1960s, and became chairman in 1984. The business was thriving when Grune took the helm, but there were transparent problems. Diversifications into fields such as educational software and art-print collections had not proved successful.

Grune quickly sold several under-performing divisions, cut staff numbers by 20%, and shut down the Digest's Spanish and Japanese editions. Some of the paternalistic quirks of Wallace's company were also axed, for example, a bus that drove employees to work.

Grune recognised that the core of the company was a successful magazine and book-publishing operation. At the heart of both businesses was one of the world's most fearsome databases and toughest direct-mail operations.

The salesmanship of the Digest has always been legendary; the constant letters and offers of million-pound prizes have become the epitome of junk mail. But they also work. Subscriptions, delivered as a result of junk-mail campaigns, form the bulk of the Digest's circulation. 'There is nothing the company won't do for a subscription,' says one former staffer, 'and once they get someone they never let them go.'

Grune pushed hard to keep the marketing aggression intact, and even to heighten the manic intensity of its salesforce. During his reign, a musician was hired to write a company song. Called I Can Make A Difference, it was a hymn to the Digest; among the immortal lines were such gems as 'no life remains untouched' (of the magazine) and 'our joyful sweepstakes winners talk of hopes that have survived' (of the junk-mail campaigns). Cassettes and sheet music of the song were distributed to the staff so they could learn it at home, and employees, staffers say, got Brownie points for humming the tune along the company corridors.

Cutting back on the fat worked wonders for a time. In the early years of Grune's regime, profits grew from the meagre $21 million made under Wallace to $152 million. But the new chairman also expanded dangerously. He started buying magazines, including Travel-Holiday, The Family Handyman, New Choices For The Best Years and American Health.

In Britain it has bought magazines such as Moneywise, a personal finance publication. The theory was simple enough: to take the expertise built up at the Digest to other, similarly homely magazines pitched primarily at middle-aged, middle-Americans, or their equivalents, in Europe and Asia. The subscriber lists of the magazines it bought would also give the marketing demons at the Digest more names to feed into their databases, and allow them to spew out even more junk mail.

But the theory did not work so well in practice. Travel-Holiday, for example, has faced stiff competition in the US market, and, having bought the publication, it took Reader's Digest three years to make any editorial changes. With the acquired publications also spluttering, the special-interest magazine division started losing money badly.

'They know how to publish the Digest but it is a formula they have perfected over 60 years,' says one former staffer. 'Just because they are very good at that, it does not mean they know anything about general publishing.

The Digest formula doesn't work on any other publication.'

The truth of that observation was confirmed in January this year when the US papers reported that Travel-Holiday - whose ad pages dropped by 13% during 1995 - had been put up for sale. It also turned out that the other magazines were turning in disappointing results. New Choices saw its ad pages fall by nearly 4%, while its chief rival, Modern Maturity, soared. And American Health's ad totals dropped by more than 6%.

There have been other clues to the company's plight. According to insiders, the staff cuts of around 15% imposed worldwide were designed to salvage some of the losses made in the under-performing divisions. Last year, staff in the UK were not paid their usual annual bonus (worth about £2,000 per head) because the US head office decided the British subsidiary had not turned in sufficient profits that year (it made an estimated £27 million, a figure just short of the £28 million demanded of it by the head office). And, at its last set of results, in April 1995, the company warned that a combination of higher newsprint prices and problems within its European division meant that earnings growth would be below its 10-15% target for the year. In Europe, it said, there had been a poor response to mass mailings, while in the UK, fewer people had entered its prize draws after the National Lottery was introduced. In Germany, a mass-mailing operation had flopped.

It all added up to a picture of less than perfect financial health.

The company is now under more pressure from its founder than ever. Wallace always adamantly opposed going public, but his successors disagreed; it is not known if permission for a float was contained in one of the legendary envelopes. In 1990, the company listed 21% of its stock in New York, although the voting shares and control remain in the hands of the two Wallace trusts. The company now has to answer to shareholders, and earnings need to be pushed up relentlessly every year - a discipline Wallace never imposed.

Recent troubles have been reflected in the company's share price. After climbing steadily following the flotation to hit a high of $56 in December 1992, the stock plunged sharply in 1993, before recovering slightly; by mid-February this year the shares were selling for $49, a dismal performance during three years when Wall Street soared. At its last results, pre-tax profits had dropped from $463 million to $423 million.

Last July, Grune retired and was replaced by James Schadt. By the time he left, Grune was on a salary of more than $1 million, and is calculated to have received more than $10 million in stock and options in all. In September, Schadt surrendered part of his power to Kenneth Gordon, who took on the title of president, creating rumours that Schadt had been slapped down in a power struggle.

Whatever the truth behind these rumours, the move created the impression of division. 'The company has always been prone to infighting at the top,' says one insider. US reports have compared the management with a Medici court.

Yet there are no obvious signs of corporate turmoil.

The Digest is still the best-selling magazine in the US.

It is now the top-seller in Britain, with sales of 1.65 million (it took the top spot from Radio Times after competitors were allowed to publish TV listings). Worldwide, the magazine still sells 27 million, and with massive investments made in Russian and Eastern European editions, circulation may well grow further. Moreover, the appeal of the Digest's formula hasn't waned. Even so, the company's media ambitions seem stalled. And its confrontation with the modern world has still to be resolved.

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