• by Paul Gough , May 7, 2004

Its founder may be on her way to prison, but Martha Stewart Living won't drop the name when the magazine undergoes several changes later this year.

The company, Martha Stewart Living Omnimedia, is still reeling from its namesake's conviction of lying to federal investigators about the sale of Imclone stock. Although it had nothing to do with her role at the company, Martha Stewart Living Omnimedia has suffered in the extreme ever since the investigation was made public. Advertisers and consumers left the brand, and it's clear they haven't come back yet.

Two months ago, Martha Stewart Living Omnimedia executives awaited the verdict in a lower Manhattan court and prepared for a future without the domestic diva. On Friday, the company outlined its strategy in a post-Martha environment. That would include changes to the flagship title as well as Everyday Food, a new strategy in television, and a belief that the brand can fare better now that the verdict is in. Stewart is being sentenced next month.

The changes will de-emphasize Stewart's name while keeping the home values that it embodies. The "Martha Stewart" label will soon disappear from "Everyday Food" magazine. Martha Stewart Living will retain its name, but undergo other alterations: Stewart's column will disappear by next month's issue, and the cover will be redesigned for the September issue.

"While retaining the name Martha Stewart--which connotes brand attributes of quality expert information and a unique sense of style--we will place greater emphasis on the name 'Living' as the brand label," Chief Executive Officer Sharon Patrick said Friday morning.

Patrick said that a survey found most readers felt it was too early to take Stewart's name off the magazine, but that it was important to make changes to the cover. The subscribers didn't seem to be put off by the verdict.

"These results demonstrate how much our subscribers value the key attributes associated with the name 'Martha Stewart,' and how much progress we have made in evolving the brand from expert personality to trusted brand attributes and brand labels," Patrick said.

It's been a little harder to keep advertisers from fleeing the magazine. Patrick said that while advertisers recognize the value of the brand, they're still skittish.

"For many advertisers, no matter how attractive the MSO audience, it's not over until it's over, and it's not over until final resolution is achieved and the media attention has moved on," she said. Seventy-five percent of ad buyers surveyed told Martha Stewart Living Omnimedia that they would consider buying ad space in the flagship magazine "when the uncertainty clears."

Executives have long cautioned that advertising--which continues to be in decline--won't return immediately. Advertiser defections have continued to be widespread. The company has already taken measures to stave off challenges from would-be successors to the domestic style category, including reducing the flagship magazine's rate base from 2.3 million to 1.8 million.

"We're taking steps that we think are going to bring back the advertisers, while at the same time maintain a passionate core readership," said Chief Financial Officer James Follo.

It was a harsh quarter, with a loss of $20.3 million/41 cents a share, compared to a loss of $4.5 million/9 cents a share in the first quarter of 2003. Revenues dropped from $58 million in the first quarter of 2003 to $44.5 million this year.

Martha Stewart Living Omnimedia's television properties remain hard-hit in advertising revenues and licensing fees for its syndicated program. Distribution for Stewart's primary show has been reduced from 94 percent of TV households to 52 percent with the departure of the CBS owned and operated stations. Patrick said that most of the television business would be focused on managing the library along with new, presumably non-Martha Stewart programming. "From Martha's Kitchen" will remain on Food Network, she said.