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Crown Removes Hallmark’s 'For Sale’ Sign

4/21/2006 8:00 PM Eastern

Despite the difficulties of life as an independent network, the parent of Hallmark Channel last week took the service off the block.

Crown Media Holdings Inc., after nine months of trying to find a buyer, said it had decided to continue operating Hallmark Channel and its spinoff, Hallmark Movie Channel, as well as their on-demand and high-definition TV services.

Crown Media faces significant challenges this year and next for Hallmark Channel, since its affiliation agreements with eight distributors, representing roughly 83% of its carriage, are expiring.

But Crown Media CEO David Evans expressed optimism during an analysts’ call last week, citing Top-10 ratings, ad success and carriage growth to 72.5 million homes.

“We believe the underlying fundamentals are in place for our company to continue to grow and enhance the success we’ve been able to achieve to date,” Evans said. “We will be implementing cost-savings strategies and continuing our efforts to grow our audience and skew younger with original programming and marketing campaigns.”

Company officials said they expect to trim $5 million to $10 million in costs “on a run-rate basis” on the operating side. A Hallmark Channel spokeswoman said it’s premature to say if and how any cost-cutting measures might effect programming. Crown Media will also pursue opportunities to improve its capital structure, according to Evans.

As a standalone, Hallmark Channel lacks the leverage and cost efficiencies of programming companies with large portfolios of cable networks.

Natexis Bleichroeder Inc. last week estimated that by remaining a public company, Crown Media has $20 million to $30 million “of incremental overhead above a more integrated cable network.”

Robert Routh, an analyst at Jefferies & Co., expects that Crown will try to sell its Hallmark film library and use the proceeds to pay down debt.

“Our viewpoint on the stumbling blocks for the sale is that both the library value is questionable and that general-entertainment networks are less desirable than niche networks,” Routh wrote in a report.

Routh downplayed the significance of Hallmark Channel’s need to strike new contracts with distributors, claiming it was unlikely any of them would drop such a high-rated network Even if it lost carriage, the network collects so little in license fees, roughly $20 million a year, the impact would be minimal, Routh said.

Crown also disclosed that Chris Moseley, executive vice president and chief marketing officer of Hallmark Channel, would leave the company at the end of the month.

September