Media Brands Bringing Licensing Dollars Home

MSLO, Better Homes Increasing Product Lines in Often-Tough Markets

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NEW YORK (AdAge.com) -- The beleaguered media business is still marching aggressively on at least one front: store shelves at a big retailer near you.

More and more media-branded consumer goods are squaring off against similar products from rival media brands. Earlier this month Martha Stewart Living Omnimedia announced a major home and outdoor line due exclusively in Home Depot next January, when its contract with Kmart officially ends. Kmart and Sears stores began selling more than 700 home products from Hearst Magazines' Country Living. And Meredith Corp.'s Better Homes and Gardens line at Walmart continues to grow, now numbering about 1,000 products after starting last year with half that number; Meredith said its total brand-licensing revenue grew 15% during the 12 months ending in June.

The recession is battering retail just like everything else, of course. But that's only making exclusive, established brand names more desirable to retailers and a diversified revenue stream more appealing to media brands. Rumors have even circulated that the top-to-bottom business review at Condé Nast could also foster a new openness to activities like licensing.

"When revenues tighten up, all of a sudden things you may have never considered before start to look more possible," said Martin Brochstein, senior VP at the International Licensing Industry Merchandisers' Association. "Licensing is definitely an area than can generate significant revenue, particularly in a time when magazines are under a lot of pressure on the revenue and advertising side."

And media brands actually have a renewed opportunity to earn shelf space right now, said Glen Ellen Brown, VP of Hearst Group brand development. "Three-plus years ago, retailers were thinking 'My goodness,' particularly in the home space, 'I need to be much more economical and build my own brands.'" Ms. Brown said. But the recession has made the costs and effort required to grow those brands look a lot less attractive, she said. "The cycle is turning a bit so the retailers are going back to developed brands that have real consumer loyalty and resonance."

Besting Kmart deal
Martha Stewart Living Omnimedia, for its part, needed to fill the void left by the expiring Kmart deal, which generated $1.6 billion in retail sales at its peak in 2002. It did that partly by getting into Macy's, but the Home Depot deal represented an important next step. "Between Home Depot and Macy's it's my view that we have the potential to have a much bigger business than Kmart in our heyday," said Charles Koppelman, executive chairman.

Wall Street will be watching: A J.P. Morgan analyst downgraded Martha Stewart stock after the deal was announced, partly because the Home Depot deal's "great potential" still didn't include minimum income guarantees like the Kmart deal did.

Home Depot has high expectations for the line, which is a departure of sorts because the retailer hasn't traditionally turned to celebrity or media brand partnerships. "We believe it will translate to additional top line sales," said Jean Niemi, a spokeswoman for Home Depot. "There's a level of credibility [Martha Stewart] brings." Ms. Niemi said a "robust" marketing campaign to introduce the line is in the works.

Perhaps retailers are hoping the tie in with trusted media brands will help. Sales of home goods were particularly lackluster for 2008, the latest figures available from The NPD Group. The bedding category sold $9.8 million, but that was down 10% compared to 2007; Bath sales were $4.2 million, off 9.5%; Bakeware sales were $211 million and cookware equaled $736 million, both down 4%; Dinnerware sales fell 12% to $488 million; and flatware brought in $199 million, down 11%. So far the first half of this year has been equally tough, with sales flat or down across many of the categories.

The deals can also be fruitful for media companies, which don't have to bear the cost of manufacturing products or operating a national retail chain. That means high margins when it's working right. Last year, for example, Martha Stewart Living Omnimedia collected $163.5 million in publishing revenue and just $57.9 million in merchandising revenue. But merchandising delivered almost $33 million in operating income, compared with just $6 million from publishing.

Pitfalls
While there can be significant rewards, though, licensing is hardly foolproof. Time Inc.'s Real Simple has been successfully selling home office products in Target since 2006 and is introducing calendars to Target, Borders and Barnes & Noble stores in the fourth quarter.

But it discontinued its home cleaning products at the end of last year, said Gary Ryan, VP-brand development and strategy at Real Simple. "We were up against some stiff competition from Swiffer and Clorox," said Ms. Ryan. " It was also a much more price-sensitive category than we were anticipating."

Licensing deals can be risky for retailers too, especially if the personality that once helped move product starts going negative. In an interview with CNBC, Martha Stewart seemed to blame Kmart parent Sears Holdings for the end of her company's partnership with Kmart.

Sears Holdings let the Martha Stewart Everyday collection lose its luster, Ms. Stewart alleged. "I would say it has been diminished," she said. "The quality is not what I am proud of."

Sears said she ought to blame herself for any problems. "Given that the product is designed by Martha Stewart Living Omnimedia, manufactured to their specifications and subject to approval by the Martha Stewart team, we think that Ms. Stewart should accept responsibility for her product," said Chris Brathwaite, a Sears spokesman.

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