Maximizing Hallmark Channel Is Key to Crown’s Recovery

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There has been plenty of action at Crown Media Holdings Inc. recently, and the box score looks something like this: Cost-cutting is up and losses are down, the head of the company is out and the Hallmark Channel is off the block.


The reality, however, hasn’t changed for the Studio City-based media firm major challenges remain. Among them:


The company is saddled with about $900 million in debt, though Crown just renegotiated $220 million that was due at the end of the month to a lending group led by JPMorgan Chase. The agreement extends the due date until May of 2007 and adds $20 million.


Its flagship Hallmark Channel suffers from a lack of cable siblings and skews to an audience that is older than most advertisers want to target. Though its ratings for its key audience of women and adults are in the top 10, they’re strongest on the older end of the 25-to-54 demographic.


David Evans, Crown’s president and chief executive, whose contract was set to expire in September, said last week that he was leaving in June. That move comes in the wake of the exit of Chris Moseley, the Hallmark Channel’s veteran executive vice president and chief marketing officer. The company’s stock fell 28 cents a share, or 7 percent, to $3.67 on the announcement of Evans’ departure.


Still, there are some reasons for optimism.

Last week, the company reported that it had cut its first quarter losses on an 11 percent increase in revenue and identified $10 million in annual cost savings. Crown lost $47.2 million, or 45 cents a share, on revenues of $45 million. For the same quarter last year, the company lost $50.9 million, or 49 cents a share, on revenues of $40.6 million.


The departures of Evans and Moseley offer a chance to invigorate the company with fresh leadership. Paul FitzPatrick, executive vice president and chief operating officer, will assume Evans’ responsibilities until a CEO is named.


Dennis McAlpine of securities research firm McAlpine Associates said the departures would not affect the firm. “It’s a little too early to consider a sale again,” McAlpine said. “Some other single channels, like the Outdoor Channel, are on the market, too, and taren’t getting a lot of attention.”


The company took itself off the market last month with executives citing record TV ratings, subscriber growth and strong revenues for the Hallmark Channel. News Corp., Comcast Corp. and billionaire Phil Anschutz explored buying the company but balked at the $2 billion price.


Hallmark Channel subscribers rose 6 percent to 72 million, up from 68 million at the end of the first quarter 2005. Crown’s deals with its cable system operators which make up 83 percent of the total Hallmark subscriber base will be on the table soon. “Those deals don’t expire until the end of 2007,” said Mindy Tucker, vice president of corporate development. so we have just started initial discussions. But we’re optimistic.”


One of Hallmark’s selling points may be its family-friendly programming, a solid niche amid the ongoing decency debate. Tucker said that the company also is exploring a sale of its librarys. The 600-title archive is presently valued at $380 million, and is highlighted by television series and made-for-TV movies such as Larry McMurtry’s “Lonesome Dove.”

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