The battle over whether J.C. Penney Co. Inc. (NYSE: JCP) or Macy’s Inc. (NYSE: M) will win the right to market merchandise from Martha Steward Living Omnimedia (NYSE: MSO) is a sideshow. Martha Stewart, the public company, remains in a flat spin, due mostly to its decision to keep its publishing division, which loses remarkable amounts of money.

In 2012, MSO revenue dropped to $198 million from $221 million in 2011. Publishing revenue, 61% of the total, fell from $141 million to $123 million. On an operating basis, the publishing operation lost $62 million. Even with impairments backed out, the loss was $17 million. The primary culprit was print advertising, which dropped from $68 million in 2011 to $57 million last year. Digital advertising, which could have cushioned some of that drop, fell almost $3 million from the previous year to $21 million.

The company’s licensing business, into which Macy’s or J.C. Penney revenue would fall, made $39 million last year. However, the relentless drop in publishing results will continue to overwhelm that benefit in the future. It is worth noting that MSO broadcasting operations, the third leg of the firm, remain in a shambles.

The desperate company would need to do at least two things to survive long term, and perhaps regain a shred of support from Wall St.

First, it would need to exit publishing altogether, perhaps with the exception of a few coffee table books per year. If other publishing companies are a fair measure, MSO’s advertising revenue will continue to drop and may accelerate. MSO has absolutely no means to make up for that. Even if it did, the print operation died more than a year ago.

The second action MSO would have to take is not directly related to problems in publishing, but they are an albatross nevertheless. As her company implodes, Martha Stewart continues to be enriched handsomely. According to The New York Times:

All told, Ms. Stewart’s compensation was $9.8 million in 2009, $5.9 million in 2010 and $5.5 million in 2011, or $21.2 million over the last three years, even as the company was in a downward spiral.

The shut down of the publishing operations for MSO would be a terrible defeat and show how bad the company’s strategy has been recently. At least it would save Martha Stewart Living Omnimedia from a brutal end.

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