Betting On The Buzz

In a fame-crazed culture, Martha Stewart plays the celebrity card

Martha Stewart's return poses one key question: Exactly how much can celebrity overcome?

Like you have to ask.

Martha Stewart's home confinement does not end until early August, but this has hardly fenced her in. In July, Stewart announced a deal, worth $2 million, for a book called Martha's Rules, due in October. She appeared on the cover of Vanity Fair for a feature detailing her post-prison life via lavish photo spreads and thousands of words. On tap is the Martha-branded channel on Sirius Satellite Radio (SIRI ); ditto a new furniture line with Kmart Corp. (SHLD ) and a line of DVDs. In September her two new TV shows, both produced by reality-TV titan Mark Burnett, will debut. "There is buzz about Martha," says an ad executive. In classic celebrity-journalism terms, "people want to know what's going on" with her.

The trick is to monetize this buzz, to make liberal use of Stewart's celebrity pixie dust to undo the damage her legal woes did to her company. Martha Stewart Living Omnimedia (MSO ) is betting this will work. Company CEO Susan Lyne came on board in November promising a stronger focus on Martha, the brand. "Martha is key here," says Lyne. This is in sharp contrast with Lyne's predecessor and longtime Stewart associate Sharon Patrick, who took a minimize-Martha approach. (Thus, the words "Martha Stewart" still appear on magazine covers in microprint, if at all.) Patrick calculated that it was risky to stake the future on The Martha, and instead sought to wreathe multiplatform strategies around several brands. She even bought a newsletter business created around alternative-medicine avatar Dr. Andrew Weil -- which, viewed through today's lens, seems a seriously left-field move.

PATRICK'S INITIATIVES, understandable at the time, needn't have been so defensive. The fundamentals of Stewart's tattered empire began to revive shortly after her release from prison in early March. In its July issue the flagship Martha Stewart Living -- which accounts for about one-third of company revenues -- posted ad-page gains for the third issue in a row. According to Mediaweek, the issue's 83 ad pages more than doubled from last July's, which closed in the aftermath of Stewart's resignation from her company's board.

But it will take more than a few positive months to fix things. Last year the company's net loss topped $59 million. Revenues for 2004 were $187 million, vs. 2002's $295 million. The flagship magazine hemorrhaged ads in ways unseen since the dot-com bubble burst: More than 65% of its ad volume disappeared between 2002 and 2004. Analysts expect the company to lose money in 2005. "They've got a big hole to climb out of," says Morgan Stanley (MWD ) analyst Doug Arthur.

Still, the company's stock is trading at around $28. Standard & Poor's (MHP ) analyst Gary McDaniel says this is an enormous multiple -- more than 60 times its peak earnings of $22 million in 2001. And the company is not in the same time zone as its past earnings' peak.

There's no celebrity index or other yardstick that values column inches, TV segments, and Vanity Fair covers. No one's quantifying, say, how much weaker Mr. & Mrs. Smith's box-office take would be had stars Brad Pitt and Angelina Jolie not morphed into a one-name couple. But it's hard to argue with the free publicity Brangelina netted, and similarly, all the "coverage the company gets, and Martha gets personally, certainly adds to the momentum," says Lyne.

A naysayer can point to one example of how personal celebrity may not shift business dynamics. Donald Trump's appearances on The Apprentice gave him personal prominence as never before, but his casinos still slid into bankruptcy. Stewart's company, however, is a different beast. It's explicitly tied to the deeds, tastes, and experiences of its founder, who has die-hard fans Trump can only dream of. More important, Stewart's name long ago proved scalable to a wide range of products and price points.

Up next for Martha Stewart Living Omnimedia is a ferocious bout of celebrity wrestling -- with celebrity itself squaring off against harsh business realities. Anyone who bets against fame seriously miscalculates the state of pop culture circa 2005, this silly season of our souls.

By Jon Fine

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