HD Movie Network In Cards at Hallmark

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Crown Media Holdings plans to launch a high-definition simulcast of Hallmark Movie Channel next year, and may need to fork over nearly $29 million to buy out one of its shareholders, officials revealed last week.

Crown Media, owner and operator of Hallmark Channel and Hallmark Movie Channel, will enter the HDTV business for the first time when it debuts Hallmark Movie Channel HD sometime in first-quarter 2008.

“Early next year, we will be launching Hallmark Movie Channel in high-def,” Crown Media CEO Henry Schleiff told analysts during a second-quarter conference call. “This will be a simulcast feed of the Hallmark Movie Channel and will include the presentation of many of our Hallmark Channel original movies in their pure high-def form.”

NICC PUT RIGHTS

But Crown Media had other news during its call, when chief financial officer Brian Stewart also disclosed that one of the company's investors and a programming provider for Hallmark Channel, the National Interfaith Cable Coalition, has a “put” right that it can exercise later this month.

The NICC, which offers faith-based content, and Crown have a programming partnership that is expiring at year-end, and both sides are in talks to renew it, according to Stewart.

“In the event that those discussions do not result in a renewed agreement by Aug. 29 of 2007, the NICC has the right to compel Crown to purchase their roughly 4.4 million shares in Crown Media,” he told analysts. “Crown is considering various options to finance and place these shares in the market in the event that the programming agreement is not extended.”

According to Crown Media's 10-Q, if NICC exercises that put right, it would cost Crown about $28.8 million, based on the stock's closing price Aug. 3, which was $6.61. NICC can exercise its put right from Aug. 30 to Nov. 1.

Schleiff told analysts that Crown Media didn't have a strong preference in terms of the outcome of NICC exercising its put option.

“As far as the opportunity, we're economically indifferent,” he said. “In terms of wearing a programming hat, I can tell you that there's certainly an upside financially, from our perspective across the board in our schedule, of having some of the periods that NICC has now programmed over the last several years. If that comes back to us, we see some upside opportunities there.”

But in its 10-Q securities filing last week, Crown Media said, “Our liquidity during the remainder of 2007 and our discussions and expectations regarding liquidity through Aug. 15, 2008, are highly dependent upon our ability to raise capital through external sources in the event NICC exercises the put right.”

In its filing, Crown Media also noted that it doesn't believe it would be required to purchase 634,000 additional shares, valued at $4.2 million, that NICC invested in Hallmark Entertainment, a major Crown Media investor.

IMPROVED TIME WARNER SLOT

Hallmark Channel has also won a better channel slot with Time Warner Cable in New York City: On Aug. 31, it will move from channel 107 to 84, “a more desirable position,” according to Schleiff.

“The networks surrounding us will be more attractive, including such similar and popular networks as HBO, Turner Classic Movies and TV Land,” he said. “We are delighted with this move.”

Hallmark Channel still has to secure contract renewals with several major distributors this year, including TWC.

The cable operator's decision to move Hallmark Channel to a lower channel slot in New York “is not part of our larger negotiation, which will take place most appropriately at the end of the year when the renewal is up,” Schleiff said.

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