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Far from Hallmark's Best Moment


Hallmark Cards is having a moment that's anything but warm and fuzzy. A decade after plunging into the cable TV business, Hallmark is trying to dump its Crown Media Holdings, which owns the money-losing Hallmark Channel, among other properties. The parent, based in Kansas City, Mo., has hired a new CEO to sell Crown Media after it failed to find a buyer last year.

Hallmark's foray into the entertainment business is an object lesson in how not to run a media company. Since going public in 2000, Crown Media has lost nearly $1 billion, while its stock has fallen 72%. Last year the founding Hall family, which owns 67% of the company, figured it could get $2 billion for the company. But analyst Alan Gould of investment bank Natexis Bleichroeder Inc. says it might fetch $1.2 billion. Of that, the Halls would probably get about $800 million, barely enough to cover the cash they have lent the company to cover its losses. Says Gould: "No one is out there crying: ‘I want my Hallmark Channel.'"

From the start, the Hallmark Channel was a hard sell. To get the cable and satellite guys to carry it, at first Crown Media had to pay big money and promote the channel in some of its 4,000 stores, says former Crown Media Chairman Robert A. Halmi. The tactic helped the channel grow from 27 million viewers in 2000 to 74.7 million today. Still, the distributors pay Crown Media only 3 cents per subscriber per month. Even the lower-rated History Channel gets 19 cents a head.

Ironically, the Hallmark Channel is one of the most-watched offerings on cable—its ratings are in the top 10. But the median age of its audience is 60, hardly the demographic advertisers crave. The programming lineup, dotted with such golden oldies as The Waltons, M*A*S*H, and Matlock, generates an average daily ad rate of only $2.48 for every thousand viewers. That's a fifth of what the likes of TNT get, says Brad Adgate, senior vice-president at ad buyer Horizon Media.

The Halls, who declined to comment for this story, are like many wealthy clans: They lack the killer instinct to prosper in Hollywood. The family lost a bundle building and selling a Spanish-language network that eventually became the Univision colossus. In 2000 the Halls's Crown Media acquired the money-losing family and religious channel Odyssey and renamed it the Hallmark Channel.

But the Halls recoiled at spending hefty sums, and they were leery of programming they thought would harm the brand. Even today, the channel puts a disclaimer before When Harry Met Sally, with its famous fake-orgasm-in-a-deli scene. The Halls rejected Halmi's idea for a kids' channel based on Hallmark's Crayola brand crayons and were slow in rolling out the still-tiny Hallmark Movie Channel. Meanwhile, says an insider, cable operators began complaining that the channel was no longer being promoted at Hallmark stores. "I'm not sure [the Halls] ever liked TV," says former Crown Media CEO David J. Evans, who resigned last year. "They were so conservative."

Now the Halls have hired Henry Schleiff as CEO and asked him to sell the company. Good choice: Schleiff is a strong programming guy who fixed up CourtTV and sold it to Time Warner Inc. (TWX) last year. And he has incentive aplenty: $1 million in compensation, plus a $6 million "transaction bonus" if he can make the sale.

Schleiff wants cable and satellite companies to hike the 3 cents payments to 15 cents, though operators are resisting. After all, he can point to a recent ratings rise. But that's partly due to Crown Media's heavy spending to secure such big movies as March of the Penguins. Schleiff has a long list of potential buyers, including News Corp. (NWS), which offered a lowball bid last year. "There's value there," says Halmi, "as long as someone other than Hallmark is trying to unlock it." If a buyer emerges, he reckons, the first thing they'll do is dump the name—hardly the happy ending Hallmark programs are known for.

By Ronald Grover


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