Slow Scatter Could Impact Hallmark Q3

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On the heels of one of its strongest quarters ever - revenue rose 14% and cash flow grew 40% -- Hallmark Channel parent Crown Media Holdings worried that a weak scatter market may impact its third quarter growth.
Hallmark reported revenue of $87 million in the second quarter, a 14% increase over the prior year. Net income was up 12% to $13.5 million or 4 cents per share and cash flow rose 40% to $35 million from $25 million in the prior year.
Advertising sales grew 15% in the period, the fifth consecutive quarter of double-digit advertising revenue growth.
But that string could be broken in the third quarter, where a weakened scatter market may cause growth to slow. Crown said that it still expects to achieve its previous overall revenue guidance of a high-single digit percentage increase for the full year.
Crown CEO Bill Abbott said that the scatter market is showing signs of softness after outpacing upfront pricing in the second quarter.
"We are concerned and we are doing everything in our power to ensure that we continue to put the best possible product on the networks, drive ratings, drive distribution [and] at the end of the day that will drive ad revenue" Abbott said on the call. "But the market[place is what it is and it is currently soft."
Crown recently signed a new multi-year carriage agreement with Charter Communications and the company has one more agreement, representing about 15% of its 87 million Hallmark Channel homes, coming due at the end of the year. While the company would not identify the distributor, executive vice president, legal and business affairs and general counsel Charles Stanford said the company anticipates no problems in getting a deal done.
Hallmark Movie Channel has become a factor in some recent retransmission consent negotiations - it was used to temporarily replace some Hearst Television ABC broadcast stations in its previous retrans scuffle with Time Warner Cable. Abbott said that is something the Crown distribution team is looking to do more of.
"The distribution team is extremely proactive and positioning the value every day," Abbott said on the call. We think it is a very encouraging sign that a cable group like Time Warner would look to us to provide high quality programming to replace broadcast networks. We are searching for every opportunity and leaving no stone unturned. We're getting very good reception in the marketplace and we will continue to look to take advantage of the opportunity that is out there."

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