Crown Has Mixed Q1

Ad revenue strong, but lack of distribution deal impacts affiliate sales
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Crown Media Holdings, parent of the Hallmark Channel, reported mixed first quarter results Thursday, with advertising revenue up a healthy 9% but affiliate fees up just 4% in the period, impacted by the lack of a distribution deal with a major carrier.

Overall, Crown reported revenue of $73.6 million in the period, up 8% from the prior year. Advertising revenue, at $55.7 million, was up 9% in the period and fueled by a strong increase at the Hallmark Movie Channel, which recently began selling ratings-based ads. That switched nearly doubled HMC's ad take to $7.3 million from $3.7 million in the prior year.

Affiliate fees were up a modest 4% to $17.7 million from $17 million in the prior year, the result of some rate increases and offset by the lack of a distribution deal with a multiple system operator. Hallmark did not identify the MSO, but in its 10-Q quarterly statement filed with the Securities and Exchange Commission, stated that the company does not have a deal with AT&T U-Verse - Hallmark went dark on those systems in September -- resulting in a decline of about 2.5 million subscribers for the Hallmark Channel and 1 million for Hallmark Movie Channel. In addition, the 10-Q stated that Crown has not had an affiliate deal with Cox Communications since Dec. 31, although it was still carried on those systems during the quarter through extensions to the previous agreement. Cox represents about 5% of Hallmark Channel's subscriber base and 2% for Hallmark Movie Channel, according to the filing.

On a conference call with analyst CEO Bill Abbott said scatter market CPMs (cost-per-thousand) were increasing at a "blistering pace" (more than 40% above last year's upfront) and are expected to continue that momentum.

"As we head into the upfront negotiations, we expect continued strength in the scatter market to provide positive momentum, and we are very optimistic about our ability to leverage the advertising revenue opportunities for both channels," Abbott said on the call.