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March 3, 2005 - USA Today (US)

Martha [Stewart]: What's Next

By Marco R. della Cava and David Lieberman, USA Today

Return to Drug War News: Don't Miss Archive

When it comes to rejuvenating regimens, a week of massages and facials would do most of us wonders. But for Martha Stewart, the diva of domesticity, Canyon Ranch has nothing on the big house.

Stewart's amazing makeover wrapped up just after midnight, when she left the confines of West Virginia's Alderson Federal Prison Camp (where she scrubbed toilets) and headed for the rarefied sod of her estate in Bedford, N.Y. (where roads are unpaved in deference to the horses of tony townsfolk).

In a statement, she declared: "Certainly, there is no place like home."

Surprised at her rapid journey from convicted felon to reality TV star? Don't be. In America, the currency that counts is sizzle -- and right now, Stewart's smoking.

"It's all about whether you can create a hit," says veteran publicist Dan Klores, whose company has provided crisis management for Mike Tyson and Paris Hilton. "If Martha is once again a hit, everyone will want to do business with her and have dinner with her, and no one will talk about the past."

Officials at her company, Martha Stewart Living Omnimedia (MSO), hope there's no looking back.

"First and foremost, (Stewart's return) allows us to start the next phase of our growth," Omnimedia CEO Susan Lyne tells USA TODAY. "We've been through 212 to three years of uncertainty. Now she's coming back, unencumbered and with no distractions."

That journey began five months ago, when Stewart, 63, decided to go to prison while appealing her conviction for lying to investigators looking into her timely sale of ImClone stock. As the Martha-decorates-her-cell jokes flew, industry analysts questioned whether her empire could take the hit of an incarcerated founder. Even her magazine quietly downsized Stewart's block-lettered name on its cover.

Many wondered whether Stewart was yesterday's fish soup. But jail time, it turns out, is just what the career consultant ordered. Stewart has evolved from a scowling symbol of greed to a trim and contrite victim of overzealous prosecutors who did her time and now just wants to get back to work.

Though she'll be under house arrest for five months, Stewart is allowed to resume her magazine column immediately and will appear next season in not one but two TV shows: a syndicated homemaking program filmed before a live audience and, perhaps the ultimate stamp of pop culture approval, her own prime-time version of The Apprentice, mega-producer Mark Burnett's Donald Trump star vehicle.

Women are eager to see their New Jersey rags-to-global-riches heroine back in the game.

In a USA TODAY/CNN/Gallup Poll of 1,008 adults Feb. 25-27, 57% of women said they were sympathetic toward Stewart, compared with 37% of men. (Only 35% of women felt this way when Stewart was arrested in June 2003, hinting at the penance that jail time represents to many.)

More than half of female respondents said they hoped Stewart would succeed in her return to business, while more than half of men said they didn't care. And 41% of women (vs. 29% of men) said Stewart was treated unfairly because of her gender.

"She did something wrong, and I'm glad she did the time, but if it was anyone else, the sentence wouldn't have been as harsh," says Tracy Gallo, 30, a car dealership executive in Lisbon, Ohio, who says the magic was missing in Martha's absence. "The magazine seemed drab without her. They played it safe, and she was always full of fun ideas. I missed her."

That's music to the ears of executives over at MSLO, who hope that a re-energized customer base will help right a foundering ship.

Over the past 12 months, Omnimedia stock has appreciated nearly 135% to $33.95, close to its trading price when the company went public in the go-go market of 1999. This despite the fact that net losses last year grew to nearly $60 million from $2.8 million in 2003 on revenue of $187.4 million, which was down 23.8%.

But investors bet on the future, and many seem to believe that Stewart can turn things around. The founder has a strong incentive to do what she can: Stewart controls more than 30 million shares, or about 60% of the stock, which makes her investment in the company worth north of $1 billion -- up from $270 million last June.

Lyne, who took charge in November after a stint at ABC, where she cultivated Desperate Housewives, is upbeat. "Our ability to get back onto television in September is only because Martha is free to focus on it," she says. "And TV is a huge driver for all our businesses."

That said, Stewart's garden needs serious tending. With advice from ex-music executive Charles Koppelman, who joined the board after helping Michael Jackson and shoe designer Steve Madden out of financial and legal jams, Stewart is about to put her image -- and her brand -- to the test.

Turning Things Around

Among the problems affecting MSLO's portfolio:

Magazines: Readers lost interest in her flagship publication, Martha Stewart Living, as rival publications such as O, The Oprah Magazine came on strong. In January 2004, Living cut its rate base, or the circulation it promises advertisers it can deliver, by 18% to 1.8 million. Total ad revenue fell nearly 56% in 2004, to about $72 million. The magazine division's publisher, Suzanne Sobel, resigned this week to pursue unnamed opportunities.

But Lyne told analysts that the magazine "will see positive (ad) page growth and revenue growth in the second quarter," reversing a more than two-year downward trend.

Stewart herself will try to win back her fans by appearing more prominently in the magazine. She'll revive her "Ask Martha" column and introduce a how-to feature that tells readers how to handle different home projects.

And that, Lyne says, will help the company to "reintroduce the magazine to advertisers. It's a great magazine. I'd put it up against any magazine on the newsstand."

The company also is encouraged by the performance of its newest publication, Everyday Food. Though it is still losing money, its guaranteed circulation will hit 850,000 in July, up from 500,000 last year, and ad sales are rising. It's unclear, though, how much Stewart will be able to help a magazine that does not bear her name or image.

Television: There seems to be nowhere to go but up since the company's syndicated daily TV show left the air in September.

Stewart's new show has been picked up by stations that collectively reach about 85% of all viewers. Some of them may see Stewart as a potential replacement for Jane Pauley's struggling talk show.

But some analysts are skeptical that Stewart will fare much better. Her show will run mostly in the late morning or early afternoon periods when relatively few people watch TV. As a result, the company "probably isn't going to make enough to have it pay off the first year," says McAlpine Associates analyst Dennis McAlpine. "This doesn't sound like a big winner."

He also notes that the company at large will not profit from The Apprentice: Martha Stewart. Stewart was hired to appear on the program, which will be produced by Burnett, NBC and Trump.

But Lyne says the syndicated show will be a success. Indeed, the license fees that local TV stations are paying for it "are about double the highest license fees we got for the old show." And The Apprentice "is a 16-week opportunity to showcase everything we create."

Home Goods: There's trouble in merchandise. The line of Martha Stewart Everyday goods, including sheets, gardening tools, kitchen utensils, paints, candles and artificial Christmas trees, is sold primarily at Kmart. At stores selling Stewart goods for at least a year, sales fell 5.9% in 2004 -- a year in which Kmart cut back on promotions and discounts while it sorted through its own financial problems.

Lyne says she's hopeful that things will improve once Kmart completes its planned merger with Sears. The retailer may decide to offer Stewart-branded merchandise in Sears stores as well as Kmart.

Yet here, too, McAlpine's doubtful. After the merger, the retailer probably will close several stores.

Comeback 'Hers To Screw Up'

Stewart's efforts to revive her company may be complicated by her negotiations with the Securities and Exchange Commission, which filed a civil suit charging her with securities fraud. If the SEC wins, Stewart could be prevented from reclaiming the CEO job, though both sides are discussing a deal that might let her return.

Whatever the outcome, Stewart is facing a tightrope walk.

Stewart's underdog status "is a great benefit, as it tends to make people give her the benefit of the doubt. Given that, this (comeback) really is hers to screw up," says Jennifer Aaker, professor of marketing at Stanford University, who has studied the effects of corporate mishaps on brand loyalty.

"What she has to watch for is a backlash," Aaker says. "She's going to have an extremely public presence in the coming year, and her likability was a problem before. But anytime you have a company this tightly associated with an individual, those are the risks."

And precisely because of that symbiotic existence -- Martha Stewart equals MSLO -- Stewart almost has no choice but to step into the limelight and brave the wrath, or adulation, of the crowd.

"Normally, after an incident like hers, I would tell my clients to lay low, take a vacation, disappear. But Martha is the business of being Martha. She can't duck," says Eric Dezenhall, whose company, Dezenhall Resources, advises corporate and entertainment stars how to deal with career derailments. His advice: Let them see you sweat.

"As a nation, we've always wanted to see our sinners suffer in the town square," he says. "Once we have seen that and savored that, we let you go. So most folks will probably love to see her on TV. But resurrecting her whole empire, that's another matter."

One person who also ran afoul of the SEC says Stewart would have done better to pass on becoming TV's The Martha.

"I admire her for taking her medicine, but these TV deals just say to society, 'Hey, you do something wrong, it's really not that big a deal,' " says R. Foster Winans, a ghostwriter who did time for a stock scandal involving his Wall Street Journal column.

"I was deeply ashamed, and it was a long, slow process to come back from that," he says. "With Martha, well, we haven't even heard an apology for having lied."

The Prison Life

What we have heard of is Stewart's time behind bars, thanks to a letter from editor Margaret Roach in the March issue of Martha Stewart Living. In the gushing note -- a surprising about-face from the magazine's recent minimize-Martha stance -- Roach writes about how Stewart was "never idle or distracted or down" and passed the time by making to-do lists; decorating the prison's chapel for a memorial service with objects found in nature; and mastering microwave cooking.

Stewart read Bob Dylan's Chronicles: Volume One, crocheted holiday gifts for her dogs and taught yoga to inmates. She even devised a cramped prison-cell version of the classic downward-facing-dog pose, called "wall dog."

Over the holidays, Stewart urged her fans to think of the 1,200 women she was living with, saying in an open letter on her Web site,, "They would be much better served in a true rehabilitation center than in prison, where there is no real help."

She concluded, "I look forward to being home, to getting back to my valuable work, to creating, cooking, and making television."

Soon enough. First stop, Bedford, a posh community of successful Manhattan power brokers and celebrities with a fondness for horses.

Stewart's neighbors include Richard Gere and Ralph Lauren. Her property is anchored at the corner of Girdle Ridge Road and Maple Avenue, where a new stone stable is the gateway to 153 acres of rural splendor custom-made for a day of equestrian wanderings.

A group of riders recently rode down unpaved Maple Avenue. They confirm the word on the street: Stewart's OK. Since buying the property in 2000, she has employed many locals in the rebuilding of her estate and impressed the gentry when she stopped by a planning board meeting with freshly baked cookies.

Stewart often locked horns with residents of her old hometown in Westport, Conn. This could well be a winning recipe for a fresh start. "If you pay the price, it's over," says rider John Tyrrell, guiding his horse past Stewart's house. "We're thrilled to have her back."

Contributing: Martha T. Moore in Bedford, N.Y.

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