• by David Goetzl  @dgoetzl, August 10, 2006

In a lackluster cable upfront, the Hallmark Channel hopes to sell less inventory at higher rates. The goal is to bring in the same revenue as a year ago--some $90 million.

The 5-year-old channel expects to sell 40 percent to 45 percent of its inventory--down perhaps as much as 10 percent from a year ago--at CPM jumps of 5 percent. If landed, the significant CPM increases would place Hallmark well above the industry at large, where price rollbacks to slight increases appear to be the norm.

Executives at Hallmark parent Crown Media spoke on a conference call Wednesday to release second-quarter results. They said they expect to press incumbent advertisers to pay higher rates due to ratings jumps. They also want to broaden the network's base of advertisers to include those in categories willing to pay higher CPMs. Hallmark has been looking to swap long-term advertisers that pay below-market rates for higher-paying blue chips.

"The Hallmark Channel strategy continues to be one of holding firm on price and driving increases in CPMs, which for the Hallmark Channel remain below the industry average," said CFO-in-waiting Brian Stewart.

In the second quarter, the channel saw ad revenues increase 14 percent over the same period a year ago, to $43.5 million. Ad revenue also increased 14 percent for the first half of 2006, to $81.9 million.

Despite ad dollars on the rise, the channel's parent Crown Media Holdings continues to lose money with a burdensome film library. In April, due to soft demand, the company pulled itself off the auction block. The company is also searching for a new CEO and its stock has plummeted over the last year.

Going forward, the channel expects to benefit from ratings increases, such as a 50 percent jump for its target adult 25-to-54 demo in prime time last season. Ratings could continue to rise, thanks to an expected distribution increase to 75 million homes by year's-end. (Distribution is up 7 percent to 73.3 million, versus a year ago). Executives expect the recent acquisition of 39 films from Warner Bros., including Oscar-winning documentary "March of the Penguins," "Troy" with Brad Pitt, and "Miss Congeniality." to help bolster ratings.

With upfront deals expected to close in the next several weeks, Stewart said the network would bring in $85 million to $90 million in the upfront, which he described as "comparable to last year." Several months ago, outgoing CFO William Aliber said the network sold $90 million in 2005.

In May, Aliber also said Hallmark would look to sell 55 percent to 60 percent of its inventory in the upfront. Now, the weak market appears to have persuaded executives to sell only 40 to 45 percent--perhaps 5 percent to 10 percent less than a year ago.

Executives appear to be betting on a strong scatter market. Aliber said Wednesday pricing in the second-quarter scatter market is 40 percent to 50 percent higher than prices in the 2005 upfront.

One potential warning sign: deals with distribution carriers delivering the channel to 80 percent of its subscribers will expire by the end of 2007. But COO Paul FitzPatrick said the company is "optimistic we will renew all of those deals on favorable terms." However, as an independent channel unaffiliated with a corporate parent that offers multiple channels either in cable or broadcast, Hallmark negotiates without the leverage provided by related assets.