Hallmark’s rising arc

Auds, advertisers drawn to cabler despite for-sale sign

What happens when a cable network plants a for-sale sign on its front lawn — and six months later no serious buyers have shown up?

According to conventional wisdom, morale is supposed to plummet, throwing a shroud over the network’s operations, from its programming buys to the sale of its service.

Tell that to the Hallmark Channel. It’s on a roll, coming off one of the best Nielsen-rated quarters in its five-year history. And Madison Avenue is one of Hallmark’s biggest cheerleaders.

Andy Donchin, senior VP of media buyer Carat North America, cites three reasons: “The Hallmark Channel is growing in ratings, more cable operators are picking it up, and its schedule is loaded with family-friendly programming.”

Finishing 16th overall among ad-supported cable networks during the first quarter, Hallmark shot up by 20% compared to the first three months of 2005. Among people 18-34, Hallmark rocketed by 33%; it grew by 11% with people 18-49, and by 4% with its targeted demo of viewers 25-54.

These Nielsen gains are expected to funnel a strapping $175 million in projected ad revenue to Hallmark’s coffers in 2006, a solid jump from the $146.1 million racked up in 2005, according to Kagan Research.

And Nielsen says Hallmark’s subscriber count climbed by 4.6 million in the past year, swelling its total to 72.5 million.

Where Hallmark has lagged is in license fees from cable operators and satellite distributors, which brought in a less-than-impressive $18.7 million last year.

Kagan forecasts an increase for 2006 — although the $32.8 million projected total is still nothing to boast about — as more cable ops start paying cash to Hallmark after benefiting from free carriage for the first one or two years of the contract. In average subscriber fees, Hallmark pocketed an anemic 3¢ a month in 2005, with a projected 4¢ in both ’06 and ’07.

Cable ops and satcasters can insult Hallmark with lowball offers because the network has very little clout in the marketplace. It owns only one other cable network, the sparsely distributed Hallmark Movie Channel, which gets into fewer than a million homes.

One logical conclusion to the almost embarrassingly puny license fees Hallmark manages to wrestle out of cable ops: There’s plenty of upside for a showbiz powerhouse looking to add the network to its portfolio.

The conclusion may be logical, but a report by Natexis Bleichroedercomes up with one explanation for why none of the cable-network-rich conglomerates (like Viacom, Time Warner, Disney, NBC Universal and News Corp.) have gobbled up Hallmark Channel.

According to the Natexis argument, it’s getting tougher to persuade big distribs like Comcast, DirecTV and Time Warner Cable to pony up hefty increases when cable-network contracts come up for renewal.

Natexis cites the January scuffle between Lifetime and EchoStar that darkened the net for a whole month. The squabble cost Lifetime Echostar’s 12-million subscribers for that month and forced it to back down from demands for big rate hikes to Lifetime and its Lifetime Movie Network sibling. Hallmark, Natexis says, may end up stuck for many years with subpar revenues from its cable and satellite distributors.

Robert Routh, media analyst at Jefferies & Co., says he values the network at about $1.5 billion, adding an additional $300 million to $400 million to a telepic library of some 4,000-plus hours, highlighted by miniseries produced by Robert Halmi such as “Lonesome Dove,” “Merlin,” “The Odyssey” and “Gulliver’s Travels.”

Hallmark has cut back on marketing and promotion to keep expenses under control. But Dave Kenin, the network’s executive VP of programming, says he’s continuing to greenlight expensive projects for 2007.

Hallmark will lay out $98.1 million on programming this year and plans to spend $103 million more next year. The network commissions more original movies — 30 in 2005, 24 this year and at least 24 more in 2007 — than any other cable network except Lifetime.

In pre-production, says Kenin, are two big-budget three-hour movies from Halmi’s company: “Marco Polo,” to be shot in Mongolia, and “Son of the Dragon” (working title), to be filmed in China.

Dick Van Dyke has signed to star in two more “Murder 101” movies as Dr. Jonathan Maxwell, a physician who solves crimes.

Kenin is trying not to be distracted by the Hallmark auction, he says, comparing himself to “a golfer playing through a rain shower. He’s got to pay a lot more attention to his swing, and he can’t care for one minute that he’s getting all wet.”