By Diane Brady Few would dispute that Martha Stewart Living Omnimedia (MSO) could use a little help right now. But former ABC (DIS) executive Susan Lyne could face some tough challenges as the new president and CEO of the empire that Stewart built.
MSO announced Lyne's appointment and resignation of current CEO Sharon Patrick on Nov. 11. The news sparked some positive reaction from investors in after-hours trading, as they pushed up the stock almost 5%, to $19.50, about an hour after the announcement. Indeed, the stock has rallied of late, ever since its celebrity namesake began serving jail time. But the euphoria may be short-lived as investors begin to digest what MSO now faces -- and what it has lost with Patrick's departure.
THE BIG CHALLENGES. Lyne herself is a respected creative force, having played a hand in two of ABC's current hit shows -- Lost and Desperate Housewives, neither of which had aired before sagging ratings saw her leave under pressure in April as president of ABC Entertainment. Prior to her TV stint, Lyne worked for director Francis Ford Coppola's alternative weekly, City, in San Francisco, was managing editor of New York's Village Voice, and founded Premiere magazine in 1987. An eloquent and well-liked figure in the glitzy world of Hollywood, she came to the Martha Stewart board in June.
The question is: What Lyne will bring to the mix as head of the beleaguered MSO? Its founder, currently serving five months in a West Virginia prison for lying to investigators probing her ImClone (IMCL) stock transactions, will no doubt remain the chief creative force. Not only does Stewart own the bulk of the outfit's shares, she has vowed to come back stronger next spring, when she will have completed her jail sentence. More important, perhaps, she remains the brand's central personality.
What's needed in a chief executive is someone with impressive business acumen, who can understand how to craft market strategies, restructure the corporate model, and make smart acquisitions that will diversify. It also requires someone with understanding of the retail and direct-commerce operations that make up more than one-third of MSO's sales.
A MAJOR LOSS. Lyne may well be a fast study, and she certainly knows publishing, from which almost 60% of MSO's revenues are derived. But her background suggests little in the way of hard-knocks business experience or any interest in hands-on business management. Efforts to reach Lyne for this story were unsuccessful.
Patrick, on the other hand, has been a critical ingredient of Stewart's success since the duo met while climbing Mt. Kilimanjaro in 1993. The former exec at McKinsey and later at Cablevision Systems (CVC) helped shape MSO's vision, execute its business strategy, and take it public. While Martha conceived the content, it was Patrick who often honed the details and did the deals.
As a result, it's hard to imagine that she hasn't been steeped in frustration since the scandal over Stewart's stock-trading activities first broke more than two years ago. While MSO has tried to diversify with some smart acquisitions and successful product launches like Everyday Food, the core brand remains intricately tied to its founder. As Martha's fortunes declined, so, too, did her company's. Few can blame Patrick if, after all this time, she has simply had enough.
WANTED: NEW RECIPE. A lot of fans are betting that Stewart and her company will soon ride high again. Certainly, the recent announcement that she'll team up with TV guru Mark Burnett on a reality TV show has a lot of her fans dreaming of a huge comeback.
But MSO executives are facing more fundamental issues, such as how to woo back advertisers to a magazine now headed by a convicted felon. If Stewart really wants her empire to thrive long after she's gone, she'll need some strong analytical minds at her side to nurture a more sustainable business model.
Lyne has proven her chops in the creative and the publishing sphere. Now, she'll be treading new turf, trying to position a broad-based media and retail company for the long term. It'll be an interesting challenge. With Ron Grover in Los Angeles
Brady is a BusinessWeek associate editor in New York