• by David Goetzl  @dgoetzl, May 11, 2007

Ad sales for the Hallmark Channel continue to escalate with help from a healthy scatter market, auguring a potentially strong upfront for the network now in 82 million homes. At $46 million, sales were up 20% in the just-completed first quarter compared to the same period a year ago.

The channel--which sells about half its inventory in the upfront--is currently drawing about $8 prime-time CPMs for its considerable scatter space--a 50% price jump over last summer's upfront, according to parent company Crown Media. The substantial leap could encourage incumbent advertisers to spend more with the network in the coming upfront in order to avoid another round of scatter increases, while enticing advertisers who are considering the network for the first time to place their dollars.

Crown President-CEO Henry Schleiff, prepping for his first upfront overseeing the network, said the company will be looking for double-digit CPM increases over a year ago. Traditionally, the network has garnered CPM jumps in the 5% to 8% range. "We feel very optimistic about our prospects," he said on a conference call to announce the company's first-quarter results.

The network's ad intake continues to rise for a variety of reasons, Schleiff said, ranging from higher ratings and the related increased distribution (now at 82 million homes with some recent deals), plus bringing in advertisers willing to pay higher rates while weeding out some incumbents who locked in low CPMs when the network's reach was considerably smaller.

New clients that have signed with the network in the scatter period include Macy's, New York Life and some Hollywood studios. The network--whose principal target is women ages 25 to 54--also does upfront deals on a calendar basis, and this winter inked deals with Dannon and Georgia Pacific for the first time, with CPMs up 36% compared to calendar-year sales in 2006, the company said.

The network's first-quarter ad sales increased at a higher rate compared to the same quarter a year ago, with the 20% increase topping 13% growth in 2006.

Ad sales accounted for 86% of money-losing Crown's first-quarter revenues, which increased 19% versus a year ago to $54 million. The net loss was $40.2 million, down from $47.2 million last year. Crown Media's stock closed Thursday at $6.41, a 52-week high.

The network's sub fees jumped 20% in Q1 to $7.5 million--a figure that could climb much higher a year from now, since carriage deals with top MSOs Comcast, Time Warner Cable and Cablevision, along with DirecTV, are scheduled to expire at the end of the year. Schleiff said the company has had preliminary discussions with distributors and is making a pitch for increases based on the stronger ratings and the need to carry "family-friendly programming" in the wake of Congressional pressure.

He also said he's made it known that deals involve negotiating with Crown alone for the time being, but somewhere down the pike could involve issues of retransmission consent payments--something distributors liken to the Plague. Under one possible scenario Schleiff cited, the independent Crown--which also runs the Hallmark Movie Channel--would partner with a broadcast station group that would be willing to grant distributors free carriage of its over-the-air channels in exchange for higher payments to Crown to offer the Hallmark Channel. Crown would then compensate the station group for giving it so-called "retrans leverage."

Lifetime employed a similar scenario in early 2006 when it partnered with the Hearst-Argyle group in a carriage deal with EchoStar's Dish Network. Dish received free carriage of H-A's local stations in exchange for paying sub fees to Lifetime (the women's network was arguably desperate at the time since Dish had blacked it out); Lifetime then compensated H-A. That deal, however, included some corporate synergy, since H-A is majority-owned by Hearst Corp., which owns half of Lifetime.