magnetometer montcalm: Reader's Digest scraps DM division

Thursday, January 10, 2013

Reader's Digest scraps DM division

Thursday, January 10, 2013, 9:23
Uncategorized

Reader?s Digest has pulled the plug on its direct marketing division, which was at the forefront of its rescue plan, after private equity owner Better Capital started a major overhaul of the business sparked by financial meltdown.
The move, which has also resulted in three-quarters of its 120-strong UK workforce being made redundant, comes less than three years after the firm was rescued from administration and promised to ?return the business to its heyday?.
It is understood the financial problems have arisen from payments to the US arm; believed to be around ?2m a year for licence rights and another ?1m for IT rights. However, although the magazine has some 600,000 subscribers, there has been a major revenue shortfall.
The DM division spearheaded the recovery strategy, and was part of plans to transform the business from a publisher to a direct marketing company.
Not only did it promote a range of direct-sell CDs, DVDs and books, it also offered creative and data services to third-parties through Direct Marketing Partners (DMP). DMP was designed to take on suppliers and agencies by providing an end-to-end solution for brands to promote their products.
The division has now been placed into a company voluntary arrangement, a legal agreement that enables a company to write off some of its debts. Better Capital said the magazine was still trading profitably and would continue to be published and distributed as normal.
In a statement Better said: ?Very substantial early cost-cutting enabled an improvement in profitability. However, a faster than expected decline in the business?s direct marketing sales of CDs, DVDs and books has continued to make trading difficult. No easy route to long-term viability for the direct marketing business exists.?
Better said it had injected significant funds into the business ?without adequate returns?. It declined to state how much it had pumped in, although this is thought to total around ?23m.
The objective of the restructuring is to allow a smaller, profitable business based around the magazine to continue to trade whilst facilitating an exit from unprofitable direct marketing activities. The proposed CVA process is expected to take some weeks to conclude.
Along with Book Club Associates, Reader?s Digest was one of the first UK companies to embrace direct marketing, and was the stamping ground for many of the DM industry?s founding fathers. Its subscription marketing programme led the way in the Seventies and Eighties, although its reliance on prize draws and promotions did draw criticism from some quarters.