Reader's Digest files for bankruptcy to trim debt

NEW YORK -- Reader's Digest Association, publisher of the iconic general interest magazine that began gracing American homes in 1922 and now reaches a worldwide audience of 130 million, filed for bankruptcy protection Monday as it faces falling print circulation in the Internet age and looming debt payments.

Known for its heartwarming stories about American life as other publications moved toward edgier fare, the company's flagship Reader's Digest magazine has seen its U.S. circulation drop from a peak of more than 17 million in the 1970s to just above 8 million last year.

Magnifying the publishing world's woes is an advertising slump that already has led to the closing of several high-profile magazines, including Conde Nast's Portfolio, Domino and Blender.

But Reader's Digest CEO Mary Berner has said that ad pages for the company's U.S. magazines are down less than 6% through the September editions. The publications' down-home feel instead of a high reliance on luxury and high-income tastes has an added attraction to advertisers in a recession that has hurt much of print media.

She noted that the company had several successful ventures, such as the magazine Everyday with Rachael Ray and cooking site AllRecipes.com. Berner, however, cited problems with two underperforming properties the company agreed to sell last year: Books Are Fun, a company that sells books at events and book fairs, and QSP, which assists with fundraising for schools and youth groups.

Still, weakness in ads, lower circulation and a mountain of debt all helped lead to the prearranged bankruptcy filing of the privately held company. The filing had been expected after the company said last week it had reached an agreement with a majority of lenders.

Reader's Digest said the prearranged bankruptcy filing, which only affects U.S. operations, would give lenders a 92.5% ownership stake in exchange for lowering its indebtedness to $550 million from $2.2 billion. The filing has gotten the approval of more than 80% of the company's senior secured lenders, critical for a quicker exit from bankruptcy protection.