Crown Media Profit Doubles in Fourth Quarter

Revenue up at Hallmark channels

By Jon Lafayette -- Broadcasting & Cable, 2/22/2013 11:02:53 AM

Updated 2:15 p.m. ET

Crown Media, which runs the Hallmark networks, reported a big jump in profits in the fourth quarter.

Net income more than doubled to $70.1 million, or 19 cents a share, from $29.9 million, or 8 cents a share, a year ago.

Revenue rose 3% to $102.3 million. Ad revenue was up 2% to $83.1 million, and the company expected bigger gains in the first quarter. Subscriber fee revenue increased 7% to $19 million.

"We implemented a number of strategic initiatives and reached some key milestones in 2012 that positioned our business for strong results in fourth quarter and for the full year," Bill Abbott, president and CEO of Crown Media Family Networks, said in statement.

"Fourth quarter culminated in another highly successful run of Hallmark Channel's 'Countdown to Christmas' campaign, which garnered record ratings and positively impacted advertising sales revenue," Abbott added. "On the Hallmark Movie Channel side, the network continues to show impressive growth, recently reaching the key distribution benchmark of 50 million subscriber homes. At the outset of 2013, we have a strong foundation from which to further develop our business and monetize the gains we are seeing in ratings and distribution."

The company said that programming costs fell slightly in the quarter, while marketing cost increased by $2.2 million to $8.5 million.

In the fourth quarter, ad revenues for the Hallmark Movie Channel rose 23% to $11 million, reflecting a 21% increase in viewership among 25-54-year-old women. The gain offset a small decrease at Hallmark Channel.

Speaking on the company's earnings call with analysts and investors, Abbott said that the TV ad market was slow in the third and fourth quarters as political sales didn't trickle through to the national level. "We see a healthy first quarter," he said. "It's still off from 2011, better than it was in the third and fourth quarter of 2012. "

Both Hallmark Channel and Hallmark Movie Channel have nearly completed negotiation with clients who buy upfront on a calendar year basis and revenues are up 15%. Abbott said that while the calendar upfront represents only about 4-5% of the company's ad sales, it's a good indicator of advertiser sentiment at this point.

In the scatter market, Hallmark Channel is pacing above 2012 in volume, while pricing on a cost per thousand viewers basis are showing a 24% increase over the upfront, although incumbent clients are paying increases only in the single digit range. Scatter sales are also pacing ahead of 2012 at Hallmark Movie Channel, and prices are up 21%.

"We have seen a very significant pickup," Abbott said. "I think that inventory is tight in the first quarter, which is always a good sign," he added. "Second quarter is still pretty much a wild card."

One analyst asked how Hallmark, which as a relatively small programmer with little leverage, is doing with distributors, who are complaining about programming costs and looking to cut underperforming networks.

"We feel we have the best value equation in the cable business," Abbott said. "At the end of the day, that value proposition that we offer is one that is significant and one that we think is worth significantly more."

Abbott said that none of Crown's distribution contracts expire this year, but that contracts representing about 20% of its subscribers have option clauses that would allow distributors to drop the channels.

Hallmark Movie Channel doesn't get subscriber fees from distributors, and Abbott told the analysts that the company's priority is to get its networks into more homes in order to grow ad revenue.

The company's networks have been off AT&T's Uverse's system, with its three million subscribers since 2010. "We are always talking to AT&T," Abbott said, but he had nothing to report.

Despite record earnings, some investors on the call complained that Crown Media's stock price is still significantly below the level it was at when the company was refinanced in 2011. One noted that the company paid executives $3 million in cash in performance bonuses in the fourth quarter and would have preferred the company pay the executives in stock and use the cash to pay down debt.

Abbott said management has been building value in the company, but has no control over the stock price.