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Hallmark’s heavy crown

Despite ad gains, company still in red

NEW YORK — Buoyant ad sales coupled with significant U.S. subscriber gains helped Hallmark Channel parent company Crown Media realize a 35% fourth-quarter increase in revenues to $42.1 million. But a major restructuring and increased programming expenses pushed the cable net and programmer deeper into the red.

Net loss for the fourth quarter ended Dec. 31 was $169.5 million, up sharply from a net loss of $54.5 million in the same period the prior year. The hefty loss includes an $85 million mix of cash and noncash charges related to reorganizations, programming costs and asset writedowns.

And while its license fee tripled, subscriber fee revenue actually decreased 7%, as new carriage deals required longer promotional periods.

The big gainer for the 18-month-old general entertainment net is advertising. Hallmark Channel subs worldwide rose 12% to 98.3 million, 50 million of which are in the U.S. Company expects to reach 60 million by the end of 2003 once a long-term carriage contract with Comcast is reached.

But growth came with a cost, as subscriber acquisition fee expense rose to nearly $30 million in the 2002 fourth quarter, compared with $3.8 million in the same quarter in 2001.

For the full year, Crown Media reported net revenues of $161 million, a 50% jump over 2001, thanks mainly to an 84% increase in ad revenue to $69.1 million.

CEO David Evans noted that ratings were up in all key markets and that the channel was positioned to break even on a cash basis later in 2003. The company said its commitment to original TV movie production is a major driver of the ratings and ad sales boost and noted averages in primetime ratings were up 52% over the same quarter in 2001. In January, “The Last Cowboy” registered 1.9 million unduplicated viewers.

Evans said the company is in a strong position ratingwise going into the upfront market and has already secured $17 million in first-quarter scatter. Overall, Crown is forecasting net revenues of $40 million to $43 million for the first quarter.

Hopes for library

The company that admitted library program sales, at $8.5 million, were weaker than hoped for in the last quarter, particularly in the international market. But a bigger emphasis on larger buyers in key markets, as well as better use of packaging and bundling, is expected to boost library sales to $40 million for 2003.

Crown is negotiating a tax-sharing agreement with Hallmark Cards that will provide “substantial cash in 2003 and later years,” according to Crown’s year-end results statement. That, in conjunction with its line of credit and cash from operations, should meet the company’s funding needs for the next 12 months.

However, Crown also noted in its filings that it would consider pursuing other ways to raise additional cash, including equity sales or debt issuance, if needed.