• by Paul Gough , August 11, 2003

Martha Stewart's legal woes casts a long shadow on her namesake Martha Stewart Omnimedia, with print and television ad revenue continuing to tumble as Madison Avenue drifts away from the properties.

The company said Monday that it generated $39.6 million in revenue in the second quarter, compared to $47.3 million during the same period a year ago. Ad and circulation revenues fell at the company's flagship publication, Martha Stewart Living, mirroring a Magazine Publishers of America study released last week. Television ratings dropped although upfront CPMs rose slightly.

Second-quarter publishing revenues dropped 16.3% and although ad-revenue figures weren't available, chief financial officer James Follo said ad pages were down 34% to 312 pages during the quarter at Martha Stewart Living. Revenue numbers also included a new publication, Everyday Food, plus an extra issue of Martha Stewart Living and a Martha Stewart Wedding issue that wasn't published in the same quarter a year ago. Newsstand and subscription revenues dropped as well. Fallo told analysts that the company expected ad pages at Martha Stewart Living could drop

Television revenues fell 9.1% to $6.6 million in the second quarter, with lower ratings and advertising revenue for its syndicated show. While chief executive officer Sharon Patrick reported 70% inventory sold and mid single-digit CPM increases in the just-past upfront, the company expects the ratings to continue to drop as CBS moves Martha Stewart Living from daytime to late night although it will run during the day on UPN and independent stations in the same market.

The company told analysts and investors not to expect better results as long as Stewart's case remains unresolved.

"We believe that the Martha Stewart Living core brand will continue to be under significant pressure until a resolution of Martha's personal legal situation comes forward," Patrick said. "Our strategy until then will be to continue to invest to sustain our core brand equity, brand labels, and infrastructure and other assets of the company, including our talented people, and our core competence of editorial content, television production and product design."

Robert Passikoff, president of brand consultancy Brand Keys International, said Monday afternoon that it was clear that Madison Avenue and consumers were moving away from Stewart. And it has everything to do with her legal problems and nothing to do with the products.

"This is an issue where, both on the commercial side in terms of advertising, and the consumer side in terms of product purchases, people are reacting to the negative effects of the brand, and the brand is embodied in a single person," Passikoff said. Brand Keys has temporarily stopped measuring Stewart's brand equity but it had been down nearly 35% in an assessment.

Passikoff said that if Stewart is found innocent, the company will recover but not to the level it had once enjoyed. But he said that Martha Stewart Omnimedia's best bet might be to migrate away from its personality centered approach and toward brand labels. He said that the days of thinking that advertisers and consumers had only one place to go for this type of product are over, with the appearance of Oprah Winfrey's magazine and AOL Time Warner's Real Simple.

"There are perfectly acceptable alternatives to what she has to offer, and the thing that gave her the added value was that it was Martha Stewart," Passikoff said. "Now there isn't that value, that value is down by 35%. "

Martha Stewart Omnimedia's Patrick said that the company's competitive standing remained firm, despite the slide in ad pages.

"We believe that if we safeguard our principal assets during this period, our business will rebound significantly upon a positive resolution," Patrick said. "Obviously, in the event of a negative resolution, while achievable, that rebound will be more difficult, take more time, and require further investment."

Following her June 4 indictment on insider trading charges, Stewart resigned as the company's chairman but remains involved in editorial and other creative decisions as well as filming her TV show three days a week. President Sharon Patrick assumed the title of chief executive officer in June. Patrick said the company was firmly behind Stewart in her battle against government prosecutors. She said the company's fate is in part depending on what happened in the trial, which is scheduled to begin in early January.