Martha Stewart Needs to Close Its Magazine

Martha Stewart Living Omnimedia Inc. (NYSE: MSO) faces the same dilemma many multimedia firms do: it has a print division. Print is no longer a viable medium for these firms in many cases. Though a shutdown of the print operation — in Martha Stewart’s case its magazine — would be considered a public defeat, in fact, it would be a victory for shareholders.

Shares of Martha Steward Living Omnimedia have drifted back toward $3, well below their 52-week high of $5.19. Viewed over a longer period — five years — the stock has dropped almost 80%.

In the quarter that ended June 30, Martha Stewart revenue fell to $47.9 million from $54.9 million in the same quarter last year. The net loss for the quarter was $2.7 million, compared with $2.9 million a quarter ago. Publishing revenue fell from $34.1 million in the second quarter of last year to $28.0 million in the second quarter of 2012. The operating loss for the segment dropped to $5.0 million from $1.9 million. The publishing division’s operating loss for the first half puts it on track to lose $16 million this year. That should easily wipe out the operating profits from the firm’s two other divisions — broadcasting and merchandising.

The magazine’s situation has worsened recently. Media Industry Newsletter reports that Martha Steward Living advertising pages fell 40% in its September issue to 60.4 pages. For the first nine months of the year, ad pages have declined 32% to 499 pages.

Martha Stewart Living Omnimedia has several other problems. The first among these is it recent relationship with JCPenney Co. Inc. (NYSE: JCP). If there was a worse department store partner for MSO’s merchandising business, it would be hard to find one beyond the disintegrating JCPenney. Put another way, the Martha Stewart operations outside publishing have not thrived and will have trouble doing so in the near-future.

Martha Stewart has only one way to remake itself into a viable media company. It must close its magazine.

Douglas A. McIntyre