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Hallmark pays premium in DirecTV deal

Desperate to boost its distribution, the relaunched Hallmark Channel is ponying up about $11 per subscriber to boost its carriage on DirecTV by 7 million subscribers.

Hallmark's parent company Crown Media Holdings Inc. is giving DirecTV 5.4 million shares, worth about $80 million, in exchange for upgrading from the DTV's Family Tier, where Hallmark had 750,000 subs, to the more popular Total Choice package. The upgrade will take place in September.

That's far more than the $5 per subscriber launch fee typical of startup networks. Lehman Brothers analyst Stuart Linde says the deal helps former Odyssey network get closer the critical 40-million subscriber threshold. "If you're an independent network, it becomes more difficult to roll out more subs. The independents have zero leverage, while the MSOs are getting bigger," he said.

It's the first time Hallmark has exchanged equity for subs, but Crown Media President and CEO David Evans says the net would consider a similar type of exchange with a cable operator. "A stock deal is attractive because it lessens the cash drain," he said. Hallmark still needs carriage on Cablevision, Comcast and Cox.

The deal also includes potential pay per view offerings of Hallmark programming and interactive initiatives. But there are no guarantees these extras will materialize. Under the terms of the six-year deal, DirecTV is not obligated to pursue any of these extra initiatives, only roll out the new tier.

Insiders say the deal could pay off handsomely for Hallmark if Rupert Murdoch's News Corp. acquires the satellite provider from Hughes Electronics because Murdoch is expected to aggressively increase subscribers. "They [News Corp.] will throw money at this thing and in one year, 18 months that 7 million will double," said one executive.

The Hallmark Channel relaunched on August 5th with a family-oriented mission and a library chock full of Hallmark originals. It currently reaches about 31 million American households. - Allison Romano