• by David Goetzl  @dgoetzl, August 12, 2010

While Crown Media is banking on Martha Stewart to lift Hallmark Channel this fall, executives believe the company's other network could cook revenues after a 300% gain in distribution. In around 9 million homes two years ago, the Hallmark Movie Channel finished June in about 36 million, leaving it in position for increased affiliate payments.

HMC also recently became Nielsen-rated, allowing Crown to offer guarantees to advertisers. Along with the increased distribution, the ratings helped drive HMC ad sales up 63% in the second quarter.

Crown said Thursday that it believes HMC will finish 2010 in 40 million homes, up from 14.5 million at the end of 2008.

Solid ratings among women 25 to 54 at the channel, combined with a strong scatter market, could leave HMC in prime position to benefit, having sold only 37% of its inventory in the upfront.

Crown is also accelerating production of original movies for HMC, while looking to carve out a separate identity from the flagship Hallmark Channel.

"Over the next several years, our focus will be to continue to grow distribution, gain awareness of the network and drive the critical mass necessary to maximize our advertising-revenue potential," said Crown CEO Bill Abbott on an earnings call.

"Each network is developing an independent and unique voice, while staying true to the overall message of family values and entertainment that is defined by our brand," he said.

The success of the Martha Stewart gambit at Hallmark Channel can't be understated as a barometer for the company. Stewart's eponymous daytime show moves to the Hallmark Channel in September, airing weekdays at 10 a.m., while other Stewart-influenced programming will infuse daytime.

Daytime ratings have suffered at Hallmark Channel, with the company noting a decline in total-day performance; by one measure, it dropped from 14th among networks to 23rd.

Prime time has also been a sore spot, where some metrics have ratings down 22% in the female 25-to-54 demo for the period from late September 2009 through early this month.

The ratings softness hurt ad revenues in the April-June quarter, which fell 4% to $49.8 million. A better ad economy, however, looks to have led to advertisers exercising considerably fewer options to cancel buys made in the 2009 upfront. This year, cancellations covered 3% of inventory, down from 21% a year ago.

Total revenue at Crown in the second quarter dropped 4% to $65.7 million. The company posted a loss of near $9 million, more than the $5.3 million a year ago.

Marketing expenses were down 81% to $464,000 as the company kept its powder dry for a major push behind the launch of Stewart's show. It already has a promotion running in conjunction with Valpak and Delta Air Lines.

Hallmark Channel is expected to be in 91 million homes by the end of 2010 and is on track to air about 30 original movies this year.