• by David Goetzl  @dgoetzl, May 11, 2006

Foreshadowing a potentially strong upfront, the Hallmark Channel is experiencing scatter pricing up 40 to 45 percent over upfront rates, according to company executives.

In a conference call to discuss first-quarter earnings Wednesday, top executives at Hallmark parent Crown Media Holdings said that first-quarter scatter pricing was up 40 percent over the upfront, and second-quarter prices are 45 percent higher.

"It gives us a pretty strong platform to go into the upfront," said William Aliber, Crown's executive vice president and CFO.

Aliber said the scatter increases are a result of greater distribution and higher ratings for the channel, but another factor could be the low rates some incumbent package goods advertisers pay the channel in upfront deals. Some of the channel's long-term advertisers pay prices well below the cable marketplace, since they locked in base rates when the network had a much smaller distribution.

The encouraging CPM increases comes in the midst of some troubling times for Crown Media. After failing to get the price it wanted, the money-losing company pulled itself off the auction block in late April. And yesterday, it announced that President-CEO David Evans would be stepping down.

Aliber said Hallmark will look to sell 55 to 60 percent of its inventory for the 2006-07 season in the upfront, but the amount will be determined by pricing. If CPMs are lackluster--which will be set in negotiations with both broadcast and larger cable networks--he said the company will "hold some juice for the scatter market."

"Clearly, we're not going to be the channel that's going to set the price parameters out there," he said. "There will be others that set it for us."

Last year, Aliber said that Hallmark--which brought in $90 million in the upfront--expected CPMs to be up 3 to 5 percent, but when executives saw they were only up in the 1 to 3 percent range, the company took a "calculated gamble" and held back inventory in order to take its chances on the scatter market. "We were willing to do that because we saw growing distribution and we saw growing ratings," he said.

Hallmark's distribution has increased by about 5 million homes to 73 million since last spring's upfront. And prime-time ratings this season are up 50 percent in its target adult 25-to-54 demo.

Aliber acknowledged that distribution and ratings growth may be limited going forward, and may play a role in the company's decision about how much upfront inventory to sell.

Crown Media, which also operates the Hallmark Movie Channel and a significant programming library, said Wednesday that it continues to bleed red ink--losing $47.2 million in the first quarter, which was lower than the $50.9 million loss in the same period a year ago. Revenue was up 11 percent to $45 million on the back of a 13 percent increase in ad revenues, to $38.4 million.

Outgoing President-CEO Evans--who said on the conference call that he had for some time been planning his departure--will leave June 16, three months before his contract expires. Paul FitzPatrick, executive vice president-COO, will take over on an interim basis. A search firm has been retained to search for Evans' replacement.