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Can Odyssey inspire cash?

Despite the current volatility in the stock market, the parent company of cable network Odyssey is hoping that investors will bet that that company can turn a collection of weaker U.S. and international properties into gold.

As of late last week, Crown Media Holdings was still looking to tap the public market for about $250 million in cash, expecting to price the deal Wednesday. Crown is currently a partly owned subsidiary of greeting-card maker Hallmark Entertainment. After the stock sale and some related acquisitions, Hallmark will control 49% of the company's equity but 90% of its shareholder votes.

Crown is composed of Odyssey, previously a religious channel in which the company invested two years ago to transform it into a broader family entertainment network. Crown also operates two international networks: the Hallmark Entertainment Network, a four-year-old international network with programming composed primarily of movies and other products licensed from Hallmark Cards TV production unit; and a 50% stake in The Kermit Channel, another international venture with The Jim Henson Co.

But losses are surging at all the operations as Crown substantially upgrades Odyssey's programming and distribution. At the same time, it's energizing the two international channels'push into more countries.

On their road show for investors, Crown executives are pushing the explosive growth of the international cable and satellite, plus the potential gains from a turnaround of Odyssey. But one media investment banker who has studied the deal called Crown "a collection of second-tier properties, all of which operate in crowded markets.''

A spokeswoman for Crown said she could not comment on the offering while the project is pending. Donaldson, Lufkin Jenrette is lead underwriter on the deal.

Although major players are involved, the one with the most riding on Crown's success is Hallmark. Its Hallmark Entertainment production unit is a clear success, but the Kansas City, Mo.-based company had messy problems buying cable systems and Spanish-language network Telemundo in the mid 1990s.

The deal calls for the sale of 12.5 million shares at $19 to $21 each. That represents about 20% of the company's equity. Odyssey is the biggest chunk of Crown Media, with securities filings showing that a pending buyout of its partners values the network at $650 million. That represents about 53% of the company's equity value.

Odyssey, was created in 1988 in response to the Jim Bakker and PTL Club televangelist scandals. Cable operators recruited a consortium of 70 religious groups to produce programming for the network, but on-air pitches for money were not allowed.

Viewership and revenues were uninspiring. Lean spending on programming and marketing kept losses small, but the network had no momentum. What few viewers the network lured were primarily over 55. Liberty Media Corp. had been lending money to the company and in 1995 converted $28 million in outstanding loans into a 50% stake in the network.

Hallmark and Henson Group stepped in as partners in 1998, each putting up $30 million for a 22.5% stake in Odyssey. That valued the network at $133 million.

With Hallmark primarily in control, Odyssey tapped former FOX Kids Worldwide Vice Chairman Margaret Loesch in 1998 to transform the channel into a family-oriented network, drawing on programming from the Hallmark movie and Henson Group kids libraries.

Loesch is aiming broad, putting Odyssey's target demographic on adults 18-54. Crown's reasoning is that the KIDS-TV market is crowded and won't lure adults.

Loesch's previous employer is attempting a similar transformation at FOX Family Channel. But like FOX Family, Loesch is stuck with a commitment to one of Odyssey's previous owners, National Interfaith Cable Coalition, to air low-rated religious programming, at least 30 hours weekly.

The transformation is pricey. Revenues actually fell 1% in 1999 because Loesch dumped many of the infomercials and the new programming hadn't kicked in. But operating losses soared from $3.1 million in 1998 to $56.2 million. "Not surprising," said one former Odyssey executive. "We had never spent money on programming before."

The network's subscriber count also dipped from 29 million to 27.4 million.

Nine months after the relaunch of Odyssey, the network boasts that viewership has surged among younger adults. But the ratings are still abysmally low, just 0.1 in the first quarter.

If the stock sale is completed, Crown will buy out the Odyssey partners, leaving Liberty with a 15% stake in Crown and the interfaith group with a 10% stake. Henson Group will retain its 22.5% direct stake in Odyssey.