A risky investment in frisky over 50s?
If Mike Luckwell thinks it’s worth the effort to try to save Reader’s Digest from an apparently inevitable extinction, it would be best to pay attention, says Raymond Snoddy – but can he really make a profit from the ‘frisky over 50s’?
When it was announced this week that Mike Luckwell had bought what remains of Reader’s Digest in the UK for £1, the wags couldn’t avoid a predictable jibe.
“He’s overpaid,” said the Twitter jokers.
Only someone who had never heard of Luckwell could have made such a crack. Almost since his days as a London Stock Exchange “blue button,” or trainee stockbroker, in the early 1960s Luckwell has had an almost unnatural feel for the right moment to invest in a wide rage of media companies.
Even more impressive, and a really difficult trick to pull off, he has an equally uncanny instinct for when to cash in his chips and get out.
Luckwell made £25 million from his stake in Carlton Communications and then bought a five per cent stake in TV-am. He then sold when the share rise of the commercial breakfast broadcaster was at an all-time high – just before it lost its licence to GMTV.
Then there was the investment made in HIT Entertainment, owners of Bob the Builder. Luckwell made £33 million on his stake when HIT was sold to Apax for £489 million in 2005.
At one stage Luckwell had also been the largest shareholder in Sir Martin Sorrell’s WPP and doubtless made another pile of dosh when he sold.
Another success was a substantial shareholding in Riverside, the health and fitness centres group sold to First Leisure in 1997 for £61 million.
While there may – or may not have been – failures that have been quietly interred over the years, Luckwell’s personal fortune has been estimated at more than £135 million. He must have being doing something right.
When Mike Luckwell thinks it is worth both the effort and finance to try to save Reader’s Digest from an apparently inevitable extinction, it would be best to pay attention.
So what has he bought?
Certainly £1 has bought a declining circulation. Once the largest selling magazine in the UK with more than 1 million sales in 2000, Reader’s Digest was down to 186,000 in the second half of last year. The average annual rate of decline is running at more than 20 per cent so there is not much time to be lost.
The March issue features an interview with Timothy Spall on a new series of Blandings, Lord Adonis arguing that the House of Lords should be moved North – presumably to take advantage of his other great idea HS2 – and “Plane Crash in the Wilderness: an incredible story of survival from Alaska…”
There are also the usual time-honoured features such as You Couldn’t make it Up, Word Power, Laugh “and much, much more.”
One of the tough decisions Luckwell will have to take is how much to change an historic format in the search for circulation growth, without risking turning away the existing, if declining, band of loyalists.
He is on much firmer ground when he notes that RD has a database of more than 1.5 million names and that only nine per cent of them have bought a Reader’s Digest product in recent times.
Luckwell is also spot-on when he talks about serving the “frisky over 50s,” a 22 million-strong minority largely ignored by the mainstream media and marketing industries.
This group, increasing inexorable in number as the population ages, attracts only a small fraction of total advertising budgets and yet probably holds about 50 per cent of the assets of this country.
As Luckwell notes, the over 50s have a very different lifestyle than they did just 20 years ago.
“People over 65 are jumping out of aeroplanes now, it’s a younger type of audience with a ridiculously high proportion of the wealth and only 10 per cent of advertising,” says Luckwell in explaining his dramatic £1 investment.
The latest internet figures show that the over 55s even spend an average of 25 hours a month online compared to an average of 31 hours for all age groups.
How can one begin to explain the vast disparity between the disposable income of the over 50s and the 10 per cent of advertising directed at them?
Only with the greatest difficulty. There was the conventional wisdom that the people of a certain age are settled in their brand loyalties and that it is a waste of money to try to change their consumer behaviour. It may have been true once but no longer is. We are all as fickle, flighty and persuadable as the next person now – regardless of demographic.
The most obvious explanation is probably the most credible – that the vast majority of the people in the advertising and online industries are under the age of 30 and cannot conceive that old age is something that might creep up on them one day.
The same is also true to a considerable extent of those who commission television programmes.
Those who wake up to the yawning gap in the market between assets held and the increasingly hedonistic lifestyles of the “frisky over 50s” and the current cack-handed assumptions of the marketing community could make a great deal of money.
You can just see Luckwell salivating over the prospects of selling everything from car insurance and exotic holidays to financial services to the 1.5 million names on his newly acquired database.
He has already spotted that Saga has built a business worth hundreds of millions of pounds targeting the over 55s and yet has attracted very little competition so far.
The new owner of Reader’s Digest says he would be happy with a few crumbs dropping off Saga’s table.
After he has arrested the decline of the Readers Digest magazine in the UK, improved its online presence and extended the range of product offerings, there is another possibility.
Luckwell has the knowledge to launch a television channel aimed at the adventurous and ‘frisky over 50s’ who will always be with us – and in growing numbers.
The only racing certainty is that it would be very foolish to bet against Mike Luckwell succeeding, or to suggest that having stumped up a purchase price of £1 he has overpaid.