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Hallmark Parent Halves Value of Film Library

8/09/2006 11:39 AM Eastern

Hallmark Channel parent Crown Media confirmed that it is seeking a buyer for its film library but revealed that it believes the library is worth about one-half of what it thought originally.

In a press release announcing its second-quarter financial results, Crown said it hired an investment banker to seek a buyer for the film library in the second quarter.

As a result of preliminary bids it received for the 640-title film library -- which includes made-for-TV movies like Lonesome Dove, Moby Dick, The Odyssey and Alice in Wonderland -- Crown said it was compelled to take an impairment charge of $184.9 million, pegging the value of the library at $179.2 million.

That’s a big change from the $360 million value originally placed on the library, which Crown purchased from parent Hallmark Cards in 2001. Analysts had believed that the library was worth about $300 million.

On a conference call with analysts to discuss second-quarter results, outgoing chief financial officer Bill Aliber -- he will retire Sept. 30 -- said that when Hallmark originally bought the library in 2001, it was the main source of programming for the channel. Now that Hallmark has shifted its focus to third-party productions and its own original programming, its use of the library has been significantly reduced.

Crown also used programming from the library for its Hallmark Movie Channel, which also now concentrates more on third-party and original programming.

It is the lack of that second distribution channel that prompted the change in value.

“The vast majority of buyers that we’re talking to now don’t have other channels in which to exploit the library,” Aliber said on the call. “The value they’re ascribing to it is really based upon third-party sales.”

Separately, Crown chief operating officer Paul FitzPatrick said Hallmark is in renewal negotiations with the bulk of its distributors and is moving forward. In Securities and Exchange Commission filings, Crown has said that carriage agreements representing about 80% of its distribution will expire on or before Dec. 31, 2007.

“We have initiated discussions with our distributors and are optimistic that we will renew all of these deals on favorable terms,” FitzPatrick said on the call.

Revenue at Crown was up 11% in the period to $50.5 million. Adjusted cash-flow losses also improved in the period, to $289,000 compared with losses of $2.8 million in the same period last year.

Crown also said subscribers for Hallmark increased 7% to 73.3 million in the period, while advertising revenue was up 14% to $43.5 million.

September