• by Paul Gough , March 5, 2004

Martha Stewart Living Omnimedia said Thursday it was taking steps to ensure the success of the company following the imminent verdict in its namesake's trial--no matter what it is.

Stewart no longer has control over the company, although she remains a director and chief creative officer. Yet her name and design sensibilities overhang most of the company's products, from its licensing deal with Kmart to Martha Stewart Living magazine and the daily TV show. In the 22 months since Stewart's indictment on charges related to sale of Imclone stock, Martha Stewart Living Omnimedia has been on the outs with many advertisers, and some readers and viewers.

And now, as a U.S. District Court jury enters its third day of deliberations in New York, the company has started to see the light at the end of the tunnel, even if Stewart is found guilty.

"We have done the appropriate contingency planning," Chief Executive Sharon Patrick said in a conference call with analysts Thursday afternoon. But Patrick was short on specifics about what those plans would include, and a company spokesperson didn't return phone calls Thursday afternoon seeking clarification.

"We believe that our assets place us in a good position, whatever the outcome," Patrick said. "In short, we are ready to manage through" the current crisis for the long-term future of the brand.

"The contingency planning obviously needs to address a number of outcomes. The trial conclusion--depending on what outcome it is--is going to affect the work that is done," Patrick said. She said it would include focusing on the impact of a verdict on consumers and advertisers.

Either way the verdict comes back, it will be tough for Martha Stewart Living Omnimedia to regain its once commanding and lucrative position. If she's found guilty, then Stewart could face jail time or a stiff fine. If she's found innocent, then Stewart can set about the task of recovering her reputation and her prestige, which have weathered intense storms since the allegations became public in 2002.

Martha Stewart Living Omnimedia might have a tougher time getting advertisers to come back because there are other alternatives in print, TV, and in retailing.

"The contingency plan is how you migrate around Martha the human being and turn what you've got into a label. The negative effects that they've seen over the past 22 months are basically due to the fact that the brand is imbued 100 percent into a human being," said Robert Passikoff, founder of New York-based consultancy Brand Keys Inc.

While it wasn't discussed in the conference call, one possible contingency would be to remove all traces of Stewart's name from the company, the magazine, the TV show, and the product line. But Passikoff doesn't think that's going to happen.

"They don't really need to. What they need is to have less bad news," said Passikoff, whose company has been tracking Stewart's travails to determine the effect of the bad news on Martha Stewart Living Omnimedia's profitability. "What you see is that they were singularly unsuited to compete in a marketplace where they essentially had their brand taken away from them," he said.

James Follo, chief financial and administrative officer, said that it's reasonable to assume that if the jury returns a positive verdict, it would do a lot to convince controversy-shy advertisers to return to the fold. Ad pages and revenues have plunged since the allegations came to light.

"Many advertisers are reluctant to get involved in the kleig lights of a trial environment," Patrick said. She said advertisers were waiting for the verdict before going back to Martha Stewart Living magazine and the TV show.

"It's hard to predict when the pickup of advertising would begin," Patrick said.

But now there are so many other alternatives, both in print and on television, for advertisers to spend their money on that Martha Stewart Living Omnimedia faces a challenge in getting them back.

"Advertisers were not sitting around with bags of money under the bed, waiting for the verdict," Passikoff said. "Vindication opens the doors again for advertisers to think they won't be tarred with an indictment brush, but I don't see it happening right away."

Patrick acknowledged that it could take several months for Martha Stewart Living Omnimedia's contingency plans to take effect.

"That timetable is very much affected by the outcome," Patrick said. "We are still operating in this uncertainty I'm talking about, and we're just going to have to wait until there's a verdict and go from there."