Print Ad Sales Improve but Post-Prison TV Shows Struggle

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A correction has been made in this story. See below for details.

NEW YORK ( -- Martha Stewart might be worth more to her company in jail than out.

Martha Stewart Living Omnimedia’s net losses increased to $78.7 million for the nine months ended Sept. 30, from $52.3 million for the same period in 2004.

Photo: AP
The value of Martha Stewart Living Omnimedia’s stock has dropped to less than half of what it was when Ms. Stewart was a federal prison inmate.
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For the third quarter, the net loss was $26 million, from $14.9 million for the same period last year.

The news sent the stock down 15.5% in early afternoon trading to $17.91, near its 52-week low of $16.82. The company’s 52-week high of $37.45 came just before Ms. Stewart was released from jail in February.

The multiplatform media and merchandising company saw another stock high at the outset of the new TV season in September. Stockholders banked on renewed interest in the home-crafts guru as a result of new TV shows. While Web traffic is up 50%, according to the company, the TV shows have struggled to gain hit status among TV viewers.

Although TV revenue was up, operating losses in the segment widened, with losses of $3.5 million for the third quarter, up from $1.76 million in same quarter last year. The TV division took a $10.8 million non-cash charge this quarter relating to warrants granted to TV producer Mark Burnett for his work on the NBC reality show, The Apprentice: Martha Stewart. That’s on top of the $16.8 million non-cash charge in the previous quarter. Mr. Burnett gains another set of warrants in the fourth quarter. MSLO has no ownership stake in the show but expected it would help promote the company.

Burnett’s stake up to 5%
Gary McDaniel, media and leisure analyst at Standard & Poor’s, said, "Remarkably, Mark Burnett owns 5% of [MSLO] through his 2.5 million shares. That's a huge amount of money for a TV show they have no ownership interest in. He did help to create the daytime show, but it is not appreciably different from what the daytime show was before."

While the company argues that the prime-time show is a great promotional platform, Mr. McDaniel wondered how many people in the U.S. were unfamiliar with Ms. Stewart.

Mr. McDaniel expected The Apprentice: Martha Stewart would have a much larger promotional role for the company and its products and noted lackluster sales of company merchandise at Kmart. He added that he expected things to look much more positive for the company in 2006, when he expects it will once again be profitable.

MSLO Chairman Charles Koppelman could also net up to $3 million in performance fees for his role as a judge on the prime-time show, if certain targets are met. The show ranked fourth among the 18- to 49-year-olds on its Oct. 27 outing, according to early metered market ratings. Revenue from the TV segment grew to $3.4 million, up 54.1%, and saw three weeks of contributions from the syndicated show, Martha, which debuted Sept. 12.

CEO Susan Lyne said ratings for the first five weeks of the syndicated show, distributed by NBC Universal, were below company expectations. The show is averaging a 0.5 rating in the 18-to-49 demographic, according to Nielsen Media Research figures through Oct. 16. Ms. Lyne said the show would be tweaked to include more instructional segments.

Getting behind print
Despite the disappointment with the performance of the two TV shows, advertisers have increasingly swung behind the print and online operations of the firm. Publishing revenue was up $27.6 million, a 24% increase for the period, with increased per-page-revenue at Martha Stewart Living and Everyday Food.

The company said it expects fourth-quarter ad pages at its flagship title, Martha Stewart Living, to double year-over-year. In the third quarter ad pages were up 48%.

The company did not reveal the precise increase in online ad revenue. Overall segment revenues for Internet and direct commerce were down to $1.6 million from $6.2 million. Year-on-year comparisons were difficult to make as the company catalogue operation was closed earlier this year.

Robert Passikoff, president of Brand Keys, a New York marketing firm, has tracked customer loyalty for the Martha Stewart brand since March 2002 when it indexed 120. In the past year, Mr. Passikoff said, the Martha customer loyalty index has barely moved out of the 96-98 range. The company saw a slight rise to 98 one week after the launch of Martha, but that dipped to 96 after the first outing of The Apprentice: Martha Stewart. Within Mr. Passikoff’s rating system, only profitable companies index at 100 or above.

James Follo, MSLO's chief financial and administrative officer, said revenue would be in the region of $80 million in the fourth quarter, including higher ad revenue in TV because of Martha. The company is expected to return to profitability some time in 2006.

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CORRECTION: An earlier version of this story incorrectly reported that MSLO's third-quarter loss was $78.7 million. In fact, that figure represents the nine-month loss for 2005.

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