Impasse: AT&T Drops Hallmark, Runs Starz Kids, TCM

by David Goetzl, Sep 1, 2010, 10:16 AM

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AT&T U-verse subscribers lost access to the Hallmark Channel early Wednesday during a "Golden Girls" episode and 12 days before Martha Stewart's daytime show debuts on the network. Hallmark parent Crown Media failed to reach an agreement with AT&T on how much the telco would pay to carry the family-friendly network and Hallmark Movie Channel. Both channels went off the air not long after midnight.

AT&T said in a statement that it had replaced Hallmark Channel with Starz Kids & Family, while Turner Classic Movies is airing in place of Hallmark Movie Channel. North of 2.5 million homes could be affected.

The negotiations carry added weight for Crown, which has invested heavily to bring Martha Stewart's weekday show and related programming to Hallmark Channel starting Sept. 13. The programmer wants to boost subscriber fees by leveraging the properties; the AT&T talks will help set a benchmark.

SNL Kagan estimates that Crown receives 6 cents per subscriber each month for Hallmark Channel, and 2 cents for the movie channel. A deal with AT&T would effectively be the second for Crown since the Stewart announcement.

Crown is finishing up a renewal with the National Cable Television Cooperative that is expected to be signed by the end of the month. The group represents 12% of Hallmark Channel subscribers.

AT&T makes up much less -- about 3% -- although the exact amount is unclear. Hallmark Channel is in about 90 million homes nationwide, while the Hallmark Movie Channel is in around 36 million.

At the end of 2009, Hallmark Channel was in 1.78 million homes served by U-verse. The service has since expanded its reach to 2.5 million homes, and perhaps more.

AT&T's footprint stretches from San Diego to upper Connecticut, and includes parts of large markets such as Los Angeles, Atlanta, Dallas, Houston and Detroit.

The distributor may have an edge, as Hallmark has suffered with lower ratings recently. By one measure, over the last year, the channel has fallen out of the top 20 among cable networks in household prime-time ratings. Stewart and related programming will air in daytime.

At about 10 p.m. Tuesday, AT&T indicated the two sides were at an impasse. It recycled a statement on its U-verse Facebook page, saying it is disappointed that Hallmark is looking to receive higher fees than other similar channels.

Then, on the AT&T site, a run of posts followed that were overwhelmingly in support of Hallmark. One woman wrote: "Please keep the Hallmark Channel! I just switched to ATT U Verse last month and if I can't have this wonderful channel to watch with my kids ..... :( Please don't send me back to dreaded cable!! :( PLEASE PLEASE."

With the so-called independent Hallmark off the air, Congress and the FCC could take a heightened interest in the potential impact of the proposed NBC Universal/Comcast merger.

Some independent programmers have expressed concern that the distribution-content leviathan will prove tough to deal with and subsequently hurt their ability to receive carriage.

With AT&T and Hallmark failing to reach a deal, Disney and Time Warner Cable were looking to avert similar trouble by hammering out an agreement Wednesday to keep ESPN and ABC on the air in homes served by the cable operator. Disney could opt to remove the channels at 12:01 a.m. Thursday, although the two sides have claimed progress in talks.

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