Schleiff: Negotiate with Hallmark Now, or Else


Crown Media Holdings CEO Henry Schleiff continued his thinly veiled pitch for a buyer for family-friendly network Hallmark Channel, telling analysts on a conference call Thursday 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 Hallmark Channel parent Crown in October, said that so far, that stance is beginning to work.

Crown 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 Cable 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 due to Hallmark’s strong ratings gains and moves in Washington to curtail programming with violent and/or sexual content.

“Preliminary discussions with each of those [four operators], they recognize that Hallmark Channel is a very, very different channel than when it was launched and when those deals were initially made,” Schleiff said. “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.”

Currently, Hallmark grosses about 4 cents per subscriber, per month in 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 -- most notably between Mediacom and Sinclair Broadcast Group -- Schleiff said distributors would be well served to pay up now.

Although Schleiff added 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 is currently in more than 82 million households, an increase of about 6 million since March 31. Schleiff said the goal is to reach more than 90 million homes -- which would make the channel fully distributed -- in the next few years. He estimated that Hallmark would end 2007 with about 84 million-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 primetime and 11th in total day. Those increased ratings, coupled with additional households, helped to push revenue at the company up 19% in the quarter to $53.6 million. Advertising revenue at the channel rose 20% to $46 million.