Martha Stewart Living Omnimedia, Inc. Business Information, Profile, and History

Company Perspectives:

Martha Stewart Living Omnimedia, Inc. (MSLO) is the leading integrated content company devoted to enriching the changing lives of today's women and their families. Our community of how-to experts is committed to teaching, innovating, designing, and inspiring with ideas and products that make every day more meaningful, more functional, and more beautiful. We elevate the familiar elements of daily life, infusing them with the pleasure and confidence that come from the growing sense of mastery and discovery we foster in our customers and ourselves. Our products are stylish and distinctive, with a consistently high level of quality. Though our content is timeless, we deliver it in the most current ways: wherever, whenever, and however our customers need and want it.

History of Martha Stewart Living Omnimedia, Inc.

Martha Stewart Living Omnimedia, Inc. (MSLO) encompasses the varied publishing, broadcasting, and merchandising enterprises of its founder, Martha Stewart. With products reflecting the personal tastes and style of Stewart, the company's brands have been compared to the likes of Calvin Klein and Ralph Lauren in terms of name recognition and quality. The company is comprised of four divisions: publishing, television, merchandising, and Internet/direct commerce, though all units took a beating after Stewart was convicted of stock fraud charges and served time from 2004 to 2005. Stewart has long denied any wrongdoing and her attorneys have appealed her conviction. Back in the fold, however, Stewart has been buoyed by public support and has returned to work. A number of television projects were in the works in 2005, including two shows with Survivor wunderkind Mark Burnett as well as joint ventures with Kmart, Bernhardt Furniture, Sirius satellite radio, Sherwin-Williams, and others.

In the Beginning, 1970s-80s

Although Martha Stewart bought the company bearing her name from Time Warner and incorporated it in 1997, the beginnings of the business can be traced to Stewart's activities two decades earlier. Stewart's formal education consisted of a bachelor's degree in history and architecture from Barnard College, and, following limited success as a model and a stockbroker, she decided to make a career out of her passion for food preparation and presentation. In 1976 Stewart founded her own business, a catering operation headquartered in the basement of the historic farmhouse she lived in with her husband and daughter in Westport, Connecticut.

By the late 1970s, Stewart was running a successful, upscale catering business on the East Coast and contributing articles to The New York Times and House Beautiful. She was also hoping to parlay her expertise in party planning into a book on the subject. In 1980 she forged an agreement to write such a book for Crown Publishing, a division of Random House. Stewart reportedly had to fight for the lavish style she envisioned for the book, which included a multitude of color photographs and the large-sized format of a "coffee table book." Published in 1982, Stewart's Entertaining helped establish Stewart as an authority on taste; by the mid-1990s the book had sold over half a million copies. The production of her first book also proved to be a blueprint for how Stewart would build her image, and she continued to think big while maintaining a perfectionist's attention to detail.

Stewart authored several more books in the 1980s, including Martha Stewart's Quick Cook, Martha Stewart's Hors d'Oeuvres, Martha Stewart's Quick Cook Menus, and Martha Stewart's Christmas. The books proved to have an enduring shelf life earning significant income as backlist titles and remained in print well into the next decade. The next step in making Martha Stewart a nationally known brand name came in 1987 when Stewart signed a $5 million five-year consulting contract with Kmart. Stewart was hired to help create home products for the retailer, including a line of Dutch Boy paint colors and bath and bedding products. Stewart's primary role, however, was to lend her name to Kmart's products, to appear in print and television ads, and to make in-store appearances.

Creation of a Magazine, the Early 1990s

Back in the late 1980s Stewart had pitched an idea for a magazine to the publishing house of Condé Nast. The company's chairman, Si Newhouse, was wary of the idea for Martha Stewart Living, deeming a product dependent on one person as too risky. Stewart's idea was also turned down by Rupert Murdoch's magazine empire. In 1990, however, Time Inc. approved two test issues of Martha Stewart Living, with the first scheduled to come out in November 1990 and the second in March 1991. The public's response was strong enough for Time to commit to six issues a year. Although Stewart had achieved her goal of moving into magazine publishing, the deal with Time was not particularly lucrative, at least not until the magazine became profitable--reportedly because other publishers had turned down her concept for Martha Stewart Living.

By 1992 Stewart had become dissatisfied with her Kmart consulting and let the contract lapse, though Kmart continued to sell Martha Stewart towels, bedding, and paints. "I thought they wanted me to make real decisions for them," Stewart told Working Woman in 1995 about the Kmart deal, "but it turns out I was really hired as a personality, not a consultant ... they acted on nothing I proposed." While the Kmart venture may have been a disappointment, Stewart's publishing career ramped into high gear. By 1995 there were more than four million copies of her books in print, her magazine was selling over a million copies per issue and had been voted "Magazine of the Year" by Ad Age, and she began touring the country. Her book tours soon led to paid lecture appearances, which in turn kept Stewart and her products in the media, popularizing her inimitable style.

The magazine spawned several other new enterprises in the early and mid-1990s. Morning television's Today show agreed to fund the production costs of an appearance by Stewart every other week on the program. Stewart appeared at no charge and in return received free publicity for her magazine and books. Time, Inc. also began publishing books that made use of articles from the magazine, grouped according to theme; the first two were titled Holidays and Special Occasions.

Once again ready to expand into new areas, Stewart convinced Time to fund a television show based on the magazine, also to be called Martha Stewart Living. The weekly show covered home decorating, entertaining, gardening, cooking, and featured Stewart as the host. By 1993 the show was broadcast in 84 percent of the nation's markets.

MSL Enterprises, 1995 and 1996

New ventures and the continued popularity of her magazine led Stewart to renegotiate her relationship with Time. To help with her negotiations, Stewart gathered a team of lawyers and consultants: Allen Grubman, a prominent entertainment lawyer; Sharon Patrick, strategy consultant; and Charlotte Beers, chair and chief executive of Ogilvy & Mather Worldwide. With these three advisers, Stewart persuaded Time to create a subsidiary of Time Warner called Martha Stewart Living Enterprises and to name Stewart chair and chief executive officer. Time provided all of the funds for the company, and Stewart provided the ideas and her name. The new corporation was jointly owned by Time Inc. Ventures, a division of Time Warner Inc., and Martha Stewart, though neither party revealed the percentage of their ownership. The company encompassed Martha Stewart Living magazine, its spinoff books, the new television show, and Stewart's Today Show appearances. Outside the company's purview were the books Stewart had written between 1982 and 1995; the royalties from the sales of Kmart bedding, towels, and paints; and Stewart's lecture fees. In 1995 Stewart continued to expand her reach with Martha by Mail, which had begun as an insert in Martha Stewart Living magazine and was expanded into a full direct mail catalogue; a weekly syndicated newspaper column; and even a prime-time Christmas special featuring Hillary Rodham Clinton.

By 1996 Martha Stewart Living Enterprises had a staff of 140 and burgeoning sales. Because Time Warner only announced sales figures for its publishing businesses as a whole, the value of the company was difficult to ascertain. Some industry analysts placed its worth at $70 million and estimated annual revenues at $200 million. Stewart began pushing to renegotiate her relationship with Time again just a year after the formation of Martha Stewart Living Enterprises. She wanted a greater equity stake (40 percent) in the company and the power to expand in new directions as the firm flourished.

A New Name and Rapid Expansion, 1997 and 1998

In 1997 Stewart acquired majority interest in the company and renamed it Martha Stewart Living Omnimedia, L.L.C. With the continued help of Sharon Patrick, Stewart had arranged the purchase of at least 80 percent of the company for about $75 million, although figures varied according to different accounts. Time's remaining stake in the company was generally estimated to be between 5 and 10 percent, with the balance of the stock held by Patrick and staff members. The separation from Time was reportedly a friendly one. Don Logan, chair and CEO of Time Inc., agreed to join the new board for Martha Stewart Living Omnimedia. Stewart initially appointed Patrick president and chief executive officer, but soon took the helm as CEO, while Patrick remained president and COO. The buyout was financed in large part with new contracts from Kmart and Sherwin-Williams.

The Kmart deal added to concern among market analysts that Stewart was clouding her image with too many endorsements and target markets. The new Kmart deal, however, was different than the first in that Martha Stewart Living Omnimedia retained control over the entire production process, from design to advertising, of the newly named Martha Stewart Everyday product line. "Whether it's a hang tag on a dish towel or a label on a paint can, everything has to look as good as the magazine," Production Director Dora Braschi Cardinale explained to the New York Times. With such control, the company hoped to maintain a consistent brand image. The contract with Sherwin-Williams was signed in May 1997 for a line of Martha Stewart paints. Originally carried exclusively by Kmart, Sears began offering the paint line in March 1998.

Free to pursue her vision for the company, Stewart led a rapid and varied expansion of Martha Stewart Living Omnimedia in 1997 and early 1998. The Martha Stewart Living television show moved from a weekly to a weekday schedule. The show was distributed by CBS and Stewart soon left her biweekly appearance schedule on NBC's Today Show to appear weekly on the CBS This Morning program. In addition, the company launched a daily 90-second radio feature known as "askMartha" and a web site with a wide range of information about the television show, magazine, and Stewart's books. The site also highlighted items from the Martha by Mail catalogue and allowed users to order over the Internet.

Stewart also had further plans for the lucrative Kmart partnership, hoping to build on her brand's name by introducing new lines of cooking, gardening, and decorating merchandise. Near the end of 1997 the company completed construction on a new $4 million studio in Westport, Connecticut, for taping Stewart's television and radio shows with large kitchens and state-of-the-art equipment. Circulation of Martha Stewart Living magazine had grown to 2.3 million for 1997, 30 percent higher than 1996. Total year-end revenues for 1997 came to $132.8 million, with earnings of $13.9 million.

In early 1998 the company's new and established ventures were going strong. The "askMartha" newspaper column was syndicated in 212 papers and the radio program was broadcast on 135 stations. The Martha Stewart Living television show had top ratings and was offered on 197 stations across the nation. Though Stewart had talked about taking the company public since gaining ownership, she became more serious about the issue in 1998. Market analysts debated whether the company had the ability to stand on its own. Linda R. Killian, an analyst and portfolio manager with the Renaissance Capital Corporation, commented to the New York Times, "If Martha Stewart got hit by a cab tomorrow, to what extent is there a viable company there?" Others questioned whether profits would be hurt by continued expansion. Stewart, herself, expressed total confidence in the independence of her company to the New York Times: "It won't die without me. I think we are now spread very nicely over an area where our information can be trusted." Consumers evidently concurred, helping MSLO bring in revenues of $177.2 million for 1998 with net income climbing to $23.8 million.

Martha Storms Wall Street, 1999 to 2001

Stewart took her road show to Wall Street in October 1999 with an initial public offering of over 8.28 million shares for $18 each. The offering generated funds of more than $132 million and amazed naysayers and fans alike. The new firm, Martha Stewart Living Omnimedia, Inc., under the ticker symbol MSO, became a favorite of Wall Street and consumers alike with stock prices rising as high as $50 a share. It was the perfect time to launch another new venture with the debut of From Martha's Kitchen, a half-hour cooking program to air on cable television's Food Network in late 1999. Martha Stewart Living Omnimedia, Inc. finished its maiden year as a public company with revenues topping $229 million.

By 2000 Martha Stewart Living magazine's circulation had reached 2.1 million and the homemaking publication went from 10 issues per year to 11, with plans for becoming monthly the following year. Its sibling publication, Martha Stewart Weddings, which had debuted in 1994, had gone from an annual publication to biannual then quarterly. Other special interest magazines had also joined the ranks, including Entertaining (which had also been the title of Stewart's first book in 1982), Martha Stewart Baby, Halloween, and Clotheskeeping. A new quarterly magazine for families, called Kids: Fun Stuff to Do Together was published in July 2001, filled with recipes, crafts, and games for kids aged three to ten.

Stewart also expanded further into home furnishings through a deal with Bernhardt Furniture Company for a Martha Stewart Signature collection in 2001, the same year MSLO signed with Japan's Seiyu, a retail chain of more than 200 stores. Seiyu was slated to carry a broad range of Stewart branded products, while the two companies were to collaborate on a new magazine called Martha, published in Japanese.

An error in judgment with devastating consequences also occurred in 2001. Whether Stewart willingly committed a crime or simply acted irresponsibly, she sold ImClone stock after allegedly receiving a tip from her friend Samuel Waksal, ImClone's chief executive. An adverse FDA report then sent ImClone stock tumbling, and soon Stewart, Waksal, and Stewart's broker Peter Bacanovic were questioned by federal investigators. As the case gained momentum, it became clear Stewart would face charges. While many called the investigation a witch hunt, few believed Stewart would ever face trial. Revenues for 2001 totaled $288.6 million as suspicion of Stewart's actions grew.

Allegations, Court Time, and Prison, 2002-04

By 2002 Stewart was in the middle of a legal maelstrom. Waksal was arrested for insider trading and Bacanovic began cooperating with investigators. Federal prosecutors suspected not only wrongdoing but a coverup as well. With all the publicity affecting MSLO, Stewart cut back her involvement as the company began showing signs of the strain by the middle of the year. Consumer confidence in Stewart teetered despite her protestations of innocence; by the third quarter earnings had fallen and stock value was down by more than half. The end of the year brought revenues of a relatively strong $295 million, but income of only $7.3 million.

By the time Stewart was indicted in July and went on trial in 2003, she had resigned as chief executive and chair of her company, serving as a "creative" officer of the board. Revenues for the troubled year had fallen to $245.8 million and the company suffered its first ever annual loss of $2.7 million. Stewart's five-week trial ended in March 2004 when she was convicted on all charges. She was fined $30,000, sentenced to five months each of prison time and home confinement, and two years probation. She served her time from October 2004 to March 2005, and after her release was allowed to leave her estate for up to 48 hours per week while under house arrest.

While Stewart's legal woes certainly affected MSLO's performance (2004 revenues only reached $187.4 million with a hefty loss of $60 million), there was hope for a brighter future. New deals included broadening the company's branded product line with Bernhardt Furniture Company; extending its licensing agreement with Kmart until 2010; the purchase of Body & Soul magazine from New Age Publishing; and collaborating with pet guru Marc Morrone for a new television program called Petkeeping with Marc Morrone, which also included newspaper and magazine columns.

A New Era, 2005 and Beyond

In 2005 as Stewart returned to work, she was welcomed back by many of her colleagues and loyal customers. In her absence friend and stockholder Sharon Patrick had taken the helm but stepped down in late 2004, replaced by Susan Lyne, a former television executive, as CEO and president. With Stewart still under a cloud due to a Securities and Exchange Commission lawsuit, she was unable to lead the company in any significant way (her shares had been put in the control of her daughter Alexis while Stewart was in prison). Stewart was, however, front and center in several new television development deals, two of which paired her with Survivor and Apprentice producer Mark Burnett. Not only would Stewart host an hour-long live program featuring cooking and decorating, but she would also star in a new version of The Apprentice made famous by Donald Trump.

Other new ventures included a deal with Sirius satellite radio for a Martha Stewart Living radio program, and the cable television Style Network acquiring the rights to run previously-aired episodes of the Emmy-winning Martha Stewart Living twice daily along with a few newly produced specials. By the middle of 2005 both Stewart and her company were regaining lost confidence and making strides in all of MSLO's business segments. The television, publishing, merchandising, and Internet/direct commerce divisions were touting new products and partnerships. Though Stewart's legal problems were not over, she was more than ready to move forward and to once again make her empire "a good thing."

Principal Operating Units: Television; Publishing; Merchandising; Internet/Direct Commerce.

Principal Competitors: Advance Publications; Crate & Barrel; Home Depot, Inc.; Pottery Barn; Target Stores, Inc.; Wal-Mart Inc.; Williams Sonoma, Inc.

Chronology

• Key Dates:
• 1976: Martha Stewart founds a catering company in Connecticut.
• 1982: Stewart's first book, Entertaining, is published.
• 1987: Kmart signs Stewart to a five-year consulting contract.
• 1990: The first issue of Martha Stewart Living is published by Time Inc.
• 1993: Stewart begins hosting a weekly television show, Martha Stewart Living.
• 1995: Martha Stewart Living is voted "Magazine of the Year" by Ad Age; the Martha by Mail catalogue is launched.
• 1997: Stewart buys the company bearing her name from Time Warner.
• 1999: Martha Stewart Living Omnimedia, Inc. goes public on the New York Stock Exchange.
• 2001: Stewart sells shares in ImClone.
• 2003: Stewart is indicted on securities fraud charges.
• 2004: Stewart is convicted and asks to begin serving her five-month prison term early.
• 2005: Stewart is released from prison and welcomed back to her company.