For Martha, It's Time to Do Time

By serving her sentence now, the domestic diva gives her company a better shot at reviving its badly damaged fortunes

By Diane Brady

Although more famous for her artistic instincts around the home, Martha Stewart knows her math, too. Faced with the prospect of five months in a minimum-security prison vs. another year of uncertainty while trying to appeal a guilty verdict for lying to the government, Stewart has opted for jail. It's a wise move that's just a first step in trying to revive the fortunes of her sagging brand.

Investors in Martha Stewart Living Omnimedia (MSO ) could take some small solace in Stewart's tearful Sept. 15 announcement that she has dropped her stay of sentence pending appeal and has asked to start jail time. (She has to serve another five months in home detention, too.) Her company's shares price rose 3% soon after the announcement and closed at $11.26 on Sept. 15, up 1.4% over the previous day. Still, that's far off the $20 highs it hit before news broke that Stewart was being investigated for suspicious stock trading.

For shareholders, what Stewart calls the "nightmare" surrounding her sale of ImClone (IMCL ) shares in late 2001 isn't over yet. MSO reported an operating loss of $19.3 million in the second quarter on sales of $44 million, down from an operating income of $1.5 million on $65.8 million when the scandal was at its height the year before. In particular, MSO has suffered from an exodus of advertisers, declining readership, and the hiatus of Stewart's popular TV show.


  Those problems wouldn't necessarily go away if Stewart had managed to clear her name quickly and reverse the conviction on appeal. The protracted scandal took its founder and one-person publicity machine out of commission at a crucial time in MSO's growth. While expansion plans were diverted, the trial further harmed her reputation with witness accounts of haughty behavior.

MSO has since moved to distance itself from its famous founder and is unlikely to start hawking Martha's name and image again anytime soon. In August, it bought Body & Soul magazine, as well as Dr. Andrew Weil's Self Healing newsletter for roughly $6 million in cash.

It's also playing up its Everyday Food franchise and nurturing new talents like pet-keeping expert Marc Morrone. The flagship Martha Stewart Living magazine no longer features her columns, calendar, or many images of Stewart herself. Those are wise moves for a company that has long acknowledged that its reliance on one person made it vulnerable.


  If the appeals court overturns the verdict after she's released from prison, Stewart could have the vindication she so dearly seeks: Having served her sentence, there would be no need for a new trial. So the saga would end with a sense for Stewart's own ego that justice had been served. It could even help pave the way back toward a larger role in her own company.

But lots of fans probably don't even care at this point. Many people think Stewart got a raw deal, even if she was guilty of doing exactly what the government says she did: panic and lie after taking what seemed to be an innocuous tip from her broker's assistant.

Others believe she got what she deserved and didn't like her, even before she committed a crime. And skittish advertisers have plenty of other places to put their money these days. Staying the sentence pending the appeal would have meant months, possibly years, more uncertainty.


  Now, America has to contend with the possibility of a holiday season without Martha. While Stewart told reporters she was very sad at the prospect of missing Halloween, Thanksgiving, Christmas, and New Year's Eve 2004, she noted that she's likely to be back in her garden in time for 2005 spring planting.

Faced with diminishing ad sales, weaker circulation, and her popular TV show on hiatus, a more daunting task upon her release will be to set MSO back on the path to growth.

is an associate editor for BusinessWeek in New York

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