Martha Stewart Runs Out of Time


Martha Stewart Living Omnimedia Inc. (NYSE: MSO) shuttered two of its small magazines ahead of earnings. It needed to close more, and probably included in that list is the firm's flagship, Martha Stewart Living. By holding on to old notions about how small media companies can make money, it has ruined its chance to recover. Martha Stewart Living has no future without a radical restructuring, much greater than the one it has just undertaken.

The company's Everyday Food publication will gamble it can prosper online as it shuts its print operation. This tactic has been used by many other newspaper and magazine firms. A second publication, Whole Living, will be sold or shut down. Most likely, it will be shut down. It is too small and relies too much on the parent company.

The actions will save the company $33 million to $35 million a year. Martha Stewart has set its hope on partnerships with Hulu, AOL Inc.'s (NYSE: AOL) On Network and FremantleMedia to drive some growth. But what is left of the publishing division still will drag results down.

Research firm MIN reports that, for the first eleven months of 2012, Martha Stewart Living lost 29% of its advertising pages, which totaled only 677 for that period. The drop is breathtaking and one of the largest, on a percentage basis, for any significant magazine published in America. Martha Stewart Living, the company, cannot survive while it operates Martha Steward Living, the magazine.

What would a real restructuring look like? The company would have to fall back entirely to its broadcasting and merchandising divisions. The merchandising division is highly profitable. Broadcasting breaks even, but with the Martha Stewart initiatives in video, the division's numbers may be improved.

From a staff level, Martha Stewart should cut at least 250 people on top of the 70 or so it just fired.

No matter how painful it may be, Martha Stewart needs to be kicked into the world of modern media, or it will become a company without any future at all.

Editor's Note: Martha Stewart Living Omnimedia this morning reported an earnings per share (EPS) loss of $0.76 on revenues of $43.55 million. The consensus estimate for the third quarter called for an EPS loss of $0.11 on revenues of $46 million. In the third quarter of 2011, the company posted an EPS loss of $0.18 on revenue of $52.2 million.

Douglas A. McIntyre

Filed under: 24/7 Wall St. Wire, Media, Old Media Tagged: AOL, MSO