A Parade of Hits From Reader's Digest

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PERHAPS the best-kept secret in American music is found in offices here in Midtown Manhattan. At a time of profound change within the US music industry - marked by widespread consolidation and restructuring - the record division of the Reader's Digest Association on Madison Avenue is quietly going about its own independent way while garnering substantial revenues.

In terms of revenues, Reader's Digest is now believed to be the seventh largest music company in the world - and one of only three major US publicly-held record companies that has avoided takeover by an overseas firm.

In fact, Reader Digest's music division may soon be one of only two left in American ownership. In recent weeks, MCA has been involved in takeover talks with Japan's Matsushita Electric Industrial Corporation. The phenomenal growth of the Digest's music division is a case study of the deep changes occurring in the industry, as companies scramble to introduce new products and new performers.

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The merger and takeover game that has swept through corporate America in general has also rushed through Tin Pan Alley. There are still many small, privately held US record companies. But the best-known and largest labels are now mostly in foreign hands: Japan's Sony Corporation owns CBS Records; the Netherland's Philips Corporation owns Polygram, A&M, and Island Records; Germany's BMG Corporation owns RCA; and Britain's Thorn-EMI owns Capitol. Only Warner, owned by Time-Warner; Geffen, owned by MCA Inc.; and Reader's Digest are left among the major US-owned, publicly held record companies.

A takeover of Time-Warner and Reader's Digest seems unlikely, experts say. That is especially true for Reader's Digest. The company, which calls itself an ``association,'' is perhaps the quintessential American corporation, although it likes to think of itself as a global entity. But its domestic impact is clearly evident: In the US alone the Reader's Digest magazine reaches 17 percent of all households. The association's secret weapon? It has a little mailing list of 50 million addresses, laughs Edward Murphy, director of the Digest's home entertainment division.

In a report by Paine Webber Inc., stock analyst Alan Gottesman wrote last month that ``there are so many things to like about [Reader's Digest Association] that the problem is what to list first.'' As the report notes, the Reader's Digest record line is highly successful, in part because of the growing shift toward audio compact discs, which means that record buyers have to buy new albums to maintain their collections. Digest recordings now come out in all major forms - records, cassettes, discs.

Within the US music industry sales for music products (discs, tapes, records, and music videos) rose 15 percent, to $3.5 billion, in the first half of 1990, says Patricia Heimers, a spokeswoman for the Recording Industry Association of America, in Washington. Some industry officials fret that sales for the second half may not be as strong, reflecting the economic slowdown.

Record company officials at the Reader's Digest, however, remain upbeat about sales prospects. For the fiscal year ending June 1990, the digest sold music products worth $240 million, up from $215 million for the year-earlier period. A direct-mail marketer, Reader's Digest records are now available in 16 nations.

``We are constantly identifying different genres of music based on very intensive market research,'' says Simone Bedient, director of product development for digest music. The digest issues some 14 new collections a year, says Ms. Bedient, most of them packaged as ``mood'' collections, representing such categories as nostalgia, light classics, and country.

Unlike many record companies, the digest controls no artists or major orchestras. It will either have renditions made for it by contract performers, or it will buy the release rights of old standbys. According to Martha Molnar, a spokeswoman for the digest, its popular sellers include ``The Great Band Era''; ``Glenn Miller Live!'', and ``The Heart and Soul of Rock 'n' Roll.''

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