I don’t want to pile on a weak sister, but this week’s announcement that Reader’s Digest is taking a quarterly net loss of $462 million on revenues of only $479 million. Okay, there are writedowns, as usual, but this is a firm that was taken over by private equity to save the company, not deplete it.
We’ve seen this elsewhere. Sam Zell wasted no time migrating from Tribune savior to reviled bankruptor. Hachette’s long-term approach to magazines seems more focused on which titles to close this year. And how many weeklies still come out … weekly? Well, maybe that last trend is a good thing.
These disastrous declines will persist until owners and operators come to grips with three inter-related problems: they rely too much on advertising; they charge too little for subscriptions, so that they can push up rate bases to get as much ad revenue as possible; and they deploy content far too narrowly.
Cutting costs, while appealing, doesn’t get at any of these problems. Reader’s Digest is an iconic brand that its owners promised to reinvent. Losing a dollar for every dollar earned is far from reinvention.
Edited May 20 to answer the question: What titles will Hachette divest next?