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Crown Takes Earnings Hit - Broadcasting & Cable

Crown Takes Earnings Hit

Ad sales down while waiting for 'Martha'
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Crown Media Holdings, which runs the Hallmark Channel, said
Thursday its losses widened as ratings fell, cutting into advertising revenue.

Crown's second-quarter net loss was $9 million, or 8 cents per share, compared
to $5.3 million, or 5 cents per share, a year ago.

Revenue fell 4% to $65.7 million in the quarter. Subscriber revenue was flat in part because the National Cable Television Cooperative has not renewed its agreement to distribute Hallmark Channel, while ad revenue dropped 4% to $49 million. Crown blamed the decline on lower ratings.

Bill Abbott, president and CEO of Crown, said he was looking forward to new
daytime programming the network would be adding from Martha Stewart Living
Omnimedia, including The Martha Stewart
Show
.

"We are very excited about the introduction of our new original lifestyle
programming on Hallmark Channel, and the unprecedented move of an original
series from broadcast network to cable," Abbott said. "This is an
ideal partnership in terms of brand, audience and content, and we are looking
forward to seeing our vision become a reality on September 13th. Early
indications from advertisers and distributors confirm our expectations of the
combined value and appeal of our new daytime format."

Ad time during the new Martha Stewart lifestyle programming block sold at rates 117% higher than programming that time period garnered a year ago, the company said.

Abbott also said that distribution, ratings and ad revenue were growing for
Hallmark Movie Channel. Since adding Nielsen ratings in the second quarter, the
network did $1 million worth of scatter business after doing almost none a year
ago.

In the upfront, it added 21 new advertisers and its ad rates as measured on a
cost-per-thousand (CPM) viewers basis were just slightly below those of
Hallmark Channel.

"Our results for Hallmark Movie Channel also support our strategy of
differentiating our channels," he said.

The company declined to identify the distributor that is out of contract.
During the company's conference call with analysts and investors, Crown CFO
Brian Stewart said that distributor was paying older rates and different rates,
and the negotiations were ongoing.

But according to Crown's 10Q filing, its agreement with the NCTC, which represents about 12% of Hallmark subscribers, expired in December, but the channel has continued to be carried through a series of extensions, the last of which expired May 7. Crown said in the 10Q it anticipates an agreement will be completed during the third quarter and that it continues to distribute the channel to NCTC member operators.

Crown said programming expenses decreased 3% in the quarter from a year ago,
and that it spent about $464,000 on marketing, about half of what it spent a
year ago.

Crown's conference call got a bit testy when investor Salvatore Muoio, who is
suing the company over the terms of its recapitalization agreement with
Hallmark Cards, got on the line to ask questions.

Crown executives declined to answer most of Muoio's questions, saying either
he'd sought those answers during the discovery phase of his lawsuit, or
directing him to the company's 10Q filing.

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