Cable Operators

Schleiff Flexes Crown Media Muscle

5/11/2007 8:00 PM Eastern

Crown Media Holdings CEO Henry Schleiff continued his thinly-veiled pitch for a buyer for the family-friendly network, telling analysts on a conference call May 10 that cable and satellite operators negotiating carriage fees for the channel should do so before it is acquired by someone with even more clout.

Schleiff, who took over the reins of Crown — parent of the Hallmark Channel — in October, said so far that stance is beginning to work. Crown has negotiated three new carriage deals so far this year, with Mediacom Communications, EchoStar Communications and the National Cable Television Cooperative. Its largest deals — with Cablevision Systems, Comcast, Time Warner and DirecTV — expire at the end of the year.

Schleiff said on the conference call that he is “cautiously optimistic” about securing affiliate fee increases in those negotiations, mainly because of Hallmark's strong ratings gains and moves in Washington to curtail programming with violent or sexual content.

“Based on the merits of our ratings and our distinctiveness, the importance of family-friendly programming in a universe in which the issues of sex and violence have become more apparent, I think we have a much better bargaining position,” Schleiff said.

Currently, Hallmark receives about 4 cents per subscriber per month in gross affiliate fees from distributors. But Schleiff has been alluding to even better bargaining power for the network if it were joined with a television broadcaster that has retransmission-consent rights. Given the battles that have erupted in the past two years around retrans consent — most notably between Mediacom Communications and Sinclair Broadcasting — Schleiff said that distributors would be well served to pay up now.

Although Schleiff said that Hallmark does not enjoy the benefit of retransmission-consent leverage now, “I do think the appearance of our ratings and the possibility that we could at some point be partnered with somebody with such leverage, or the equivalent thereof, has at least raised the specter favorably in these negotiations going forward, that it is in the other side's interest to make a deal with Hallmark Channel now that doesn't for the moment have that leverage. That has been a theme that we have raised in our discussions and negotiations and to date it is beginning to resonate.”

Hallmark Channel is now in more than 82 million households, an increase of about 6 million homes since March 31. Schleiff said the goal is to reach more than 90 million homes in the next few years, which would make the channel fully distributed. He estimated that Hallmark would end 2007 with about 84 million to 85 million subscribers.

Ratings at the channel were up again in the first quarter by about 13%, with the network finishing eighth among all ad-supported cable networks in prime time and eleventh in total day. Those increased ratings, coupled with additional households, helped push revenue at the company up 19% in the quarter to $53.6 million. Advertising revenue at the channel rose 20% to $46 million.

September