Hallmark Channel No Longer In The Cards, Crown To Greet Bidders

You can't be an island in the TV world, and Crown Media Holdings--whose primary asset is cable network Hallmark Channel--has apparently just found this out.

The company Thursday said it is looking to sell out to another entity or enter into a licensing deal for the 70-million-subscriber cable network, the Hallmark Channel. The reason: Crown Media doesn't feel it can continue to operate primarily as a single cable network in a world where media companies have multiple media assets such as cable networks, broadcasting networks, TV and radio stations, and other media.

David Evans, president/CEO of Crown Media, stated: "After considering various factors, including the strong performance of the Hallmark Channel and the prevailing current economic realities of being a one channel business in our industry, the Board unanimously determined that now is the time to look at all alternatives."

Analysts believe Hallmark could fetch $5 billion to $7 billion.

Companies like Viacom, Time Warner, Walt Disney, Comcast Corp., and even Scripps Howard Television have economies of scale when it comes to programming, distribution, and advertising overhead, because of the many media assets that can cross-promote and cross-program. Analysts say that few can make it on their own.



"This is something that was expected for some time," said Dennis McAlpine, managing director of McAlpine Associates. "It takes a fair amount of overhead to run these things. The same overhead can run two or three of these channels. ESPN has shown that it has some muscle with cable networks because it has many channels."

As one of the largest independent cable networks, Hallmark's valuable 70-million-subscriber network would be a prize asset for bigger media companies looking to add to their stable of cable properties.

Hallmark had built a reputation as a cable channel for advertisers looking for safe family programming. It originally started in 1998 as a partnership between Hallmark and Jim Henson Productions named the Odyssey Channel, which grew out of an interfaith religious network started in 1988 called VISN (Vision Interfaith Satellite Network).

McAlpine believes that Scripps Howard Broadcasting Co. would be a good buyer for Hallmark. Because of Scripps' cable networks--HGTV, Fine Living, DIY, and Food Network--and their audience of female viewers 25-54, McAlpine says Hallmark would be a perfect fit because of its similar demographic skew.

Sony Pictures Entertainment is another media company that may be a good marriage for Hallmark--since it has one primary cable network, the Game Show Network.

Time Warner could also be in the hunt, since it has a number of general interest entertainment networks--TNT and TBS, as well as CNN and Headline News--which also skew somewhat to older viewers.

Viacom Inc. probably wouldn't be a good fit, given that media company's plethora of young-skewing cable networks, such as MTV Networks, Comedy Central, and Spike, although Hallmark could pair up nicely with a still-older viewing network, CBS, which already airs the Hallmark Hall of Fame series of movies.

Liberty Media might be a buyer as well, as it already owns a small piece of Crown Media Holdings. Other significant investors include: Hallmark Entertainment Holdings, Inc., a subsidiary of Hallmark Cards; J.P. Morgan Partners LP; VISN Management Corp.; and Hughes Electronics Corporation.

Back in June, Crown Media Holdings' first-quarter loss widened to $50.9 million, against $41.5 million in the first quarter of 2004. The group said revenue rose 21% to $40.6 million. Advertising revenue rose 43% from the first quarter of 2004.

Crown Media's stock closed at $8.85 a share--down two cents on the day.

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