The Changing Place of 'Media' at Martha Stewart Living Omnimedia

Martha Stewart Living Omnimedia is likely to find its next CEO outside the media and entertainment space, analysts said this week. "Virtually all of the company's cash flow is derived from its merchandising business," said Michael Kupinski, analyst at Noble Financial Capital Markets. "As such, it would stand to reason that the next CEO will come from the merchandising world." The company could use a CEO in the mold of Scott Flanders, who has helped transform Playboy from a magazine publisher to a brand-management company, according to David Bank, analyst at RBC Capital Markets. "Martha needs a licensing leader," he said. The company is searching for a new chief executive after announcing Wednesday that Lisa Gersh, a co-founder of Oxygen Media, was leaving after just five months as CEO. Without explaining her departure -- only the latest for a company that has gone through CEOs faster than most -- it argued that the change would play into a new emphasis on retail. The company said in a statement that it is focused on building its higher-margin merchandising business by expanding into new product categories, adding new distribution partners and entering new international markets. Merchandising revenue is expected to grow 15% in the current quarter, it said. The question is whether its diminishing presence in traditional media will slow its expansion in retail. The company recently said it will shutter Whole Living magazine and cease to publish Everyday Food as a standalone publication, instead making it an online publication and supplement, laying off about 12% of company employees in the process. It expects the moves to save between $45 million and $47 million annually. On the TV side, the Hallmark Channel's block of Martha Stewart programming did not meet expectations and the network declined to renew the daily "Martha Stewart Show" after this May. Ms. Stewart's TV presence now comprises the weekly "Martha Stewart's Cooking School" on PBS. The company says that the new series is attracting more viewers per episode -- more than 1 million, according to Martha Stewart Living Omnimedia -- than the Hallmark series, which it said averaged about 225,000 viewers. A spokeswoman said its media business continues to be a "core driver" for its brands, "creating the content from which everything else is derived." "Martha Stewart Living doesn't foresee content in any form -- video or editorial -- going away," the spokeswoman said. "Content is a way to whet the appetite for products. By seeing Ms. Stewart use products to prepare a meal or entertain, viewers can see how to use those tools. There's built-in branding." During her short tenure, Ms. Gersh attempted to future-proof the business, rolling out a video strategy that aimed to create content for digital platforms. The company's statement on Ms. Gersh's exit boasted that unique visitors reached a high of 8.3 million in November. "Martha has figured out that just because you are on a bigger, traditional platform, it doesn't mean you will make more money," Mr. Bank said, adding that he believes the digital video strategy could drive profitability. The company has merchandising deals with retailers such as Home Depot, PetSmart and Macy's , and struck a deal in late 2011 to enter JC Penney, an agreement that is now the subject of litigation by Macy's . The JC Penney deal is expected to start boosting revenue by early 2013, according to Martha Stewart Living Omnimedia.

The Changing Place of 'Media' at Martha Stewart Living Omnimedia

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