Hallmark, Martha Stewart Exploring New Lifestyle Cable Channel

Hallmark parent Crown Media in talks with Martha Stewart Living Omnimedia on wide-ranging mutlimedia joint venture

By Claire Atkinson -- Broadcasting & Cable, 3/29/2010 11:45:00 AM

Two of the most recognized American brands, Hallmark and Martha Stewart, may be joining forces behind a new lifestyle cable channel. Crown Media Holdings, the parent company of Hallmark, is holding preliminary talks with Martha Stewart Living Omnimedia about forming a new company jointly owned by both outfits. If the talks move ahead, the two partners may seek to bring in a third party such as a private equity partner to help fund expansion.

The rationale behind such a get-together is simple: Crown Media, which operates two programming services, Hallmark Channel and Hallmark Movie Channel, wants to tap Martha Stewart Living Omnimedia's digital expertise, while MSLO wants a bigger stake in the TV business. And if Oprah's getting her own channel, why not Martha?

Executives stress that the talks are in the very early stages. The result could be a much smaller joint venture deal that would have the two firms simply agreeing to launch a new joint venture channel, tentatively called Hallmark Home. According to sources, the partners have already been sounding out distributors about plans for the service.

A spokesperson for MSLO declined to comment. Representatives for Hallmark Channel were not immediately available.

The companies' first partnership was announced in January. The Hallmark Channel revealed a multi-year strategic partnership that has The Martha Stewart Show moving out of syndication and over to cable. NBC Universal was the distributor. Hallmark will air the Mark Burnett-produced show in September. In their dealings for the show, the two companies found they had much in common and talks grew to a second deal, involving access to the entire Martha Stewart programming library in the U.S. market beginning this month.

Starting March 29, Martha-branded shows will air on Hallmark seven hours a day. The two will also develop a series of specials throughout the year. The new shows will help Hallmark hone its brand as one closely tied to celebrations and feel-good moments, a theme that's likely to be an attraction for advertisers. The various shows will be sold jointly by the sales teams at Hallmark and MSLO, though one headache might be modifying the high CPM for a syndicated show to that of a cable property. Cable is typically priced more modestly than broadcast.

The talks with MSLO indicate Crown Media's decision to take a more long-term view of its businesses after several years of exploring a sale. The company previously had talked to numerous potential acquirers, but its debt had always been a turn-off with suitors. In May 2009, Henry Schleiff stepped down as CEO, while Crown executives said the services were no longer for sale. Schleiff was replaced by Bill Abbott, the former ad sales chief, who has been moving fast to reorient the service and broaden distribution.

Hallmark is moving many of its made-for-TV movies to its sibling Hallmark Movie Channel and trying to attract younger viewers. CEO Abbott is also retooling the flagship network to compete directly with other lifestyle services such as Scripps Networks Interactive. Ironically, repeats of The Martha Stewart Show and another, quirky show, Whatever Martha, were airing on Scripps' FLN, which is being relaunched as The Cooking Channel. The FLN-Cooking changeover sent the MSLO staff looking for a new TV deal.

According to SEC documents, Crown is planning to recapitalize its debt, with Morgan Stanley acting as its financial advisor. Crown Media is 70% owned by the Hallmark greeting-card company. Now that Crown is thinking more long-term, a bigger financial partnership with MSLO could dramatically raise the value of its two cable channels.

Crown Media Holdings recorded a net loss of $22.5 million in 2009, down from an annual loss of $37 million in 2008. Total revenue was $279 million in 2009, a slight decrease on 2008. Ad revenue was $214 million; Hallmark Cards spent $775,000 on advertising with Crown last year. Subscriber revenue was $63 million.

MSLO had a net loss of $14.5 million for 2009, a slight improvement on the 2008 loss of $15.6 million. Revenue from broadcasting was $46 million, and $17 million from Internet operations. MSLO also houses publishing and merchandise business segments.