Who Will End Up with Hallmark?

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There is “significant interest” from “quite a number of organizations” about acquiring Hallmark Channel, officials at the network’s parent company said Monday.

Executives at Crown Media Holdings Inc. offered a brief update about the potential sale of Hallmark during a third-quarter analysts’ call.

Crown CEO David Evans referred to the company’s announcement in August that it was looking into strategic alternatives for Hallmark and said, “This process is under way and we are pleased with the progress to date.”

Later on, during a question-and-answer session, Evans noted that Crown’s investment-banking firm, Citigroup Smith Barney, had been talking with potential suitors about Hallmark.

“We have attracted significant interest,” he told analysts. “And our Citigroup banking group has spoken to quite a number of organizations that have interest in the channel, and the discussions have gone well.”

The potential suitors for Hallmark reportedly include Time Warner Inc., Viacom Inc., News Corp., Comcast Corp. and Colorado billionaire Philip Anschutz.

Hallmark’s distribution is now at 71 million homes, and the network ranked in the top 10 in terms of total-day ratings in the third quarter, according to Crown officials.

In the third quarter, Crown’s net revenue increased 62% to $50.7 million from $31.3 million in the prior-year quarter. That was driven in part by an increase in ad revenue, up 37% to $33.6 million, and a 90% gain in subscriber-fee revenue, to $4.6 million.

One reason why license-fee revenue is up: Hallmark deals that called for free carriage are starting to expire, according to Crown chief financial officer William Aliber. The network’s per-subscriber monthly license fee currently averages about three cents to five cents, and that “effective rate will ratchet up” to five cents to seven cents next year, he added.

A number of Hallmark Channel’s carriage deals with major MSOs expire at the end of 2007, according to Aliber.

Subscriber-acquisition fees were $8.7 million in the third quarter, versus $6.8 million in the same period last year. In the third quarter, Crown posted a net loss of $65.8 million, or 63 cents per share, versus $105.8 million ($1.01) a year ago.

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