Martha Stewart Living Omnimedia, L.L.C.
Martha Stewart Living Omnimedia, L.L.C.
Sales: $120 million (1997 est.)
SICs: 2721 Periodicals; 2731 Books; 5961 Catalog & Mail-Order Houses; 7812 Motion Picture & Video Tape Production
Martha Stewart Living Omnimedia, L.L.C. encompasses the varied publishing, broadcasting, and merchandising enterprises of its founder, Martha Stewart. With products reflecting the personal tastes and style of Stewart, these enterprises make up the Martha Stewart brand, which has been compared to such other brands as Calvin Klein and Ralph Lauren in terms of name recognition and quality. The company is comprised of three main divisions: publishing and online, television, and merchandising. The publishing division is the core of the company. Its magazine Martha Stewart Living offers Stewart’s decorating ideas, craft projects, instruction in gardening, and recipes. Also overseen by this division is the company’s web site, which provides a guide for Stewart’s television program, recipes and craft instructions, and opportunities for users to purchase merchandise. The television division produces a daily show also known as “Martha Stewart Living,” as well as the weekly appearance of Martha Stewart on the program “CBS This Morning” and a weekly 90-second radio feature called “askMartha.” The merchandising division handles the company’s “Marthaby Mail” catalogue and its marketing agreements with such retailers as Kmart and Sherwin-Williams paint stores.
1970s Origins As a Caterer
Although Martha Stewart bought the company that bore 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 then as 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 color photographs throughout and the large size and format of a so-called 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 that first book also proved to be a blueprint for how Stewart would build her image; she would continue to think big while maintaining her 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. Stewart’s books proved to have an enduring shelf life, as her backlist generated significant income and all of her books remained in print as of the late 1990s. By 1995, she had more than four million copies of her books in print, and once again, a successful enterprise launched the next phase of Stewart’s career. Book tours to promote her work led to paid lecture appearances; the lectures, in turn, helped promote the books and popularize the Martha Stewart style.
Then in the late 1980s came the first step toward making Martha Stewart a nationally known brand name. In 1987 Stewart signed a $5 million, five-year consulting contract with Kmart. Ostensibly, Stewart was to help create products for the retailer to sell, such as a line of Dutch Boy paint colors and a line of bath and bedding products. Stewart’s main role, however, was to lend her name to Kmart’s products and to make print ad, television, and in-store appearances for the company. “I thought they wanted me to make real decisions for them,” Stewart told Working Woman in 1995, “but it turns out I was really hired as a personality, not a consultant. So they acted on nothing I proposed.” Stewart allowed the contract to lapse in 1992, though Kmart continued to sell Martha Stewart towels, bedding, and paints.
Stewart Starts a Magazine in 1990
Around the same time, Stewart prepared to move in another new direction. In the late 1980s, she pitched an idea for a magazine to the publishing house of Conde Nast. The company’s chair, Si Newhouse, was wary of the idea for Martha Stewart Living, however, 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 one 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 reportedly not very lucrative for her. A writer for Working Woman, related that “a very reliable source says Time Inc. agreed only to give her an annual salary of $400,000 or so, with no equity in the magazine until it became profitable.” The stingy deal, this unnamed source suggested, stemmed from Stewart’s weak bargaining position after being turned down by other publishers.
By 1995, Martha Stewart Living was selling 1.2 million copies per issue. The number of advertising pages in the magazine (the major source of revenue for a magazine) rose 76 percent from 1993 to 1994, and ad revenues were up 87 percent in that same period. Despite these promising statistics, the magazine was not yet making a profit. In part, the magazine’s rapid growth was to blame for the loss. Time Inc. had upped its commitment by publishing ten regular issues and two special issues in 1995, thus significantly increasing expenses. That same year, Ad Age voted Martha Stewart Living its “Magazine of the Year.”
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. Time 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, and cooking, and featured Martha Stewart as the host. By 1993 the show was broadcast in 84 percent of the nation’s markets.
The Creation of MSL Enterprises in 1995
These 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 advisors, 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; neither party would reveal 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 published by Clarkson N. Potter, an imprint of Crown Publishing Group; the royalties from the sales of Kmart bedding, towels, and paints; and Stewart’s lecture fees.
Martha Stewart Living Enterprises had a staff of 140 by 1996. Because Time Warner only announced sales figures for its publishing businesses as a whole, not individual units, the value of the company was difficult to ascertain. Some industry analysts placed the value of the company at $70 million and estimated its 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 in the company and the power to expand in new directions. In April 1996, she reportedly asked for a 40 percent stake in Martha Stewart Living Enterprises and greater executive control.
With her simple, elegant style and practical, hands-on approach, Martha Stewart has become America’s leading lifestyle authority. Her artistic eye and enormous creativity, as seen in her magazine and Emmy-award winning television series, Martha Stewart Living, her numerous books, her syndicated newspaper column, her product line and her frequent lectures, have made Martha Stewart a household name throughout America.
MSL Omnimedia Created in 1997
The following year 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 vary according to different accounts. Time’s remaining stake in the company was generally estimated to be between five and ten 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 contracts called for big up-front payments and royalties. “We did it on cash flow,” Patrick told the New York Times, adding “We didn’t mortgage the company.”
The Kmart deal added to concern among market analysts that Stewart was clouding her image with too many endorsements and target markets that were too varied. One expert in branding and positioning, Clay Timón, speculated to Advertising Age that Stewart was in danger of spreading herself across too many categories and images. “You don’t want people asking, ’Who is Martha Stewart? Is [her image] rural, country, city? Williams Sonoma or Kmart?,” he explained. Stewart defended her move to expand her presence at the discount retailer, remarking in the New York Times: “Why not take good messages to less fortunate people?” The new Kmart deal was different than the first in that Martha Stewart Living Omnimedia retained control over the entire production process, from design to advertising, of a 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 and spelled out an agreement for Stewart to help design a Martha Stewart line of paints. Originally carried exclusively by Kmart, the paint line was offered by Sears beginning in March 1998.
Continued Rapid Expansion in the Late 1990s
Now 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’s Eyemark Entertainment, and Stewart soon left her biweekly appearance schedule on NBC’s ’Today” show to begin appearing weekly on the “CBS This Morning” program. In September 1997 the company launched a daily 90-second radio feature known as “askMartha,” which was produced in conjunction with a syndicated newspaper column of the same name. In October, the “Martha by Mail” insert in the Martha Stewart Living magazine was expanded into a direct mail catalogue. Also in 1997, the company introduced a web site that provided guides for the television show and magazine and published recipes and instructions for the projects presented on the show. The web site also highlighted items from the company’s “Martha by Mail” catalogue and allowed users to order over the Internet.
Stewart also had plans for the lucrative Kmart partnership. Total Kmart sales from the Martha Stewart Everyday line were up to $500 million a year in 1997, and Stewart hoped to build on that popularity by introducing new lines of cooking, gardening, and decorating merchandise. According to Steve Riman, a Kmart vice-president, these new products were expected to raise the percentage of Kmart revenues from Martha Stewart products even higher—to 70 percent by the year 2000.
In December 1997 the company completed construction on a new studio in Westport, Connecticut. The $4 million facility was designed for taping Stewart’s television and radio shows and included large kitchens for that purpose and state-of-the-art equipment.
Early in 1998, the company’s new and established ventures were going strong. The “askMartha” newspaper column was syndicated in 212 papers, and the radio feature was being broadcast on 135 stations. The “Martha Stewart Living” television program was getting top ratings and was offered on 197 stations across the nation. The 1997 circulation of Martha Stewart Living magazine was numbered at 2.3 million, 30 percent higher than in 1996. Kmart bed and bath merchandise sales for 1997 were estimated at $500 to $700 million and sales of Martha Stewart Everyday paint was estimated at $16 million. According to company executives, profits had doubled from 1996 to 1997.
Soon after taking over ownership of the company, Martha Stewart began talking about taking the company public. “I’d be very keen to do a public offering at some point... probably within the next three to five years,” Stewart told Advertising Age in February 1997. Consideration of that possibility continued into early 1998. Debate over the company’s ability to stand on its own ensued. “You have to ask yourself, if Martha Stewart got hit by a cab tomorrow, to what extent is there a viable company there?,” Linda R. Killian, an analyst and portfolio manager with the Renaissance Capital Corporation, explained to the New York Times. She continued, “Martha Stewart has created brand equity. I think it’s completely plausible that she has a viable public company. She’s been around for a long time, and she has gone beyond being a one-product company.” Others, however, questioned whether profits would be hurt by rapid expansion or whether the company could actually go on without Stewart. As for Stewart, she expressed confidence in the independence of her company to the New York Times: “It won’t die with me. I think we are now spread very nicely over an area where our information can be trusted.”
Dugan, I. Jeanne, “Someone’s in the Kitchen with Martha,” Business Week, July 28, 1997, pp. 58-59.
Frank, Jackie, “Martha Stewart May Spin Off Retail Stores,” Reuter Business Report, November 12, 1996.
Kasindorf, Jeanie Russell, “Martha, Inc.,” Working Woman, June 1995, pp. 26-35.
Kelly, Keith J., “On Her Own, Martha Stewart Eyes IPO,” Advertising Age, February 10, 1997, pp. 1, 48.
Pogrebin, Robin, “Master of Her Own Destiny,” New York Times, February 8, 1998, pp. 1C, 14C.
Pollack, Judann, and Alice Z. Cuneo, “Multitude of Deals Could Hurt Martha,” Advertising Age, November 18, 1996, pp. 26-27.
“Time Warner Says Stewart Talks Continuing,” Reuter Business Report, April 10, 1996.
—Susan Windisch Brown