Reader’s Digest Bankrupt Plan

By Larry Teren

readersdigestReader’s Digest is a great magazine (or was?). It caters to those of us who like to exercise our brain muscles while waiting to be probed by a medical person. It has short articles, abridged versions of longer stories, humorous anecdotes, lessons in improving word power among other features. It is a toned down hand-sized piece of literature for those of us who don’t live in New York and cannot relate to the styling and inferences of a certain monthly periodical.

In the early 1970’s I was on the cusps of being called an adult. The same as any other baby boomer born in the early 1950’s. Visits to a doctor’s office were not so frequent as they occurred when I was a kid going for allergy shots. A doctor’s exam by then was usually precipitated by a sport’s injury. The exception to this, I guess you can say, was the annual trek to the dentist. I don’t think I ever sat waiting for a dentist without seeing at least one copy of Reader’s Digest on the table in the waiting room.

I wonder how many of us nowadays purchase the Reader’s Digest at a store that sells magazines? Or how many subscribe by mail? Here’s an interesting thing about the publication: Open your internet browser and do a search on Reader’s Digest and it results in two sites. One offers you an invitation to subscribe to the magazine that we’ve all grown to know and love (okay, like). The other address is a retooled online version that makes it come across like a hybrid between People’s Magazine and AARP’s publication. Which is the real Reader’s Digest?

Time out: I only look at the AARP magazine when I visit Ma. I’ll acknowledge that AARP can do something valuable for me when I hit 90. I’ll give them the twenty-five bucks then. As for People, the only time I accidentally come across it is at the barber and that’s only because the newspaper has been grabbed by someone else. Time in:

Reader’s Digest is going into bankruptcy for the second time in four years. The idea to make this work this time around is to convince the bankruptcy judge that they can successfully convert $435 million debt into equity for the same lenders (I was gonna say suckers) who financed them the previous time. They are confident that they can keep the day-to-day operations running smoothly if they are given a $105 million line of credit. They don’t need all $105 million upfront, mind you- only about 40 million or so. So far 70% of their creditors are amenable to erasing 80% of the debt. (Yeah, it’s the new math)

Reader’ Digest Association is a holding company for more than just the magazine. For the last quarter of business reported, it lost more than 25% in revenue which translates into over $100 million.

So, I have three questions:

1. Why would a new round of money help out a business that is hemorrhaging cash flow when it is not clear that the star product has a sustainable audience or readership?

2. Why would the same people be willing to accept equity in a company that is about to stiff them for the debt that they can never pay back anyway?

3. Why do people make these deals the first time around knowing that the amount of money being lent is not going to solve the problem?

(I was going to throw in a fourth question as to why Major League Baseball Club owners give ten million dollar contracts to pitchers who have 5-7 won loss records and an earned run average that hovers around 4.00? But, I’ll save it for a rainy day.)

The answers to these three questions would make a great condensed article on economics in an upcoming issue. Or would it be one of the humorous anecdotes?

One thought on “Reader’s Digest Bankrupt Plan”

  1. I read Reader’s Digest on my iPad with Zinio. I find it refreshing to read family-friendly content and humorous anecdotes. BTW, they switched to 12 issues per year starting in 2013 (it had been 10 issues for as long as I can remember).
    Your message about the validity of old media trying to survive in the digital age is valid for every publication, not just RD.

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