In Stormy Media Landscape, Hallmark Sends Greetings

Media stocks collapsed recently when second-quarter earnings fueled worries that ad revenue was declining, and distribution revenue was coming under pressure from subscriber losses and skinny bundles. So it was easy to miss the strong Q2 results posted by Crown Media Holdings. Net income was up 26% at Crown, which runs the Hallmark channels. Revenue was up 16%, including an 18% jump in ad sales. Wall Street is noticing the results; Crown shares closed Aug. 12 at $5.03, up 42% year-to-date.

Bill Abbott, CEO of Crown Media Family Networks, not surprisingly, thinks the cable network business is still a good one, and that the market was over-reacting to what are certainly big changes affecting the industry.

Nonetheless, he recognizes what the trends in the industry are, and how the relatively small Crown has been able to buck them. Most importantly, Abbott believes that the Hallmark networks are thriving because of their focus on their brands.

Abbott noted what FX CEO John Landgraf said at the Television Critics Association meeting about there being a glut of original series on TV.

“I think that a lot of our competitors have really jumped to try to replicate Mad Men and The Walking Dead and that success, and they’ve invested so much money, so much time and effort, so much blood, sweat and tears, not only in terms of actual dollar amounts and cost, but they also run the sprockets off these original series trying to gain awareness and drive audience,” Abbott says. “I think that’s hurt ratings overall because there’s been a move away from what’s been the bread and butter of cable for so many years.”

It Looks Familiar

Cable’s bread and butter has been familiar programming. Successful brands were built on popular off-network series and viewers knew what to expect when they tuned to a particular network. While original shows such as The Walking Dead have certainly done well, “the focus on trying to get the next hit took the focus away from really trying to develop a brand and being true to it,” Abbott says.

Crown Media’s size might also be an unlikely advantage vs. the bigger conglomerates in maintaining focus. “When you’re managing so many different cable networks like Comcast NBCU is, and you are shifting programming from USA to Syfy and Bravo to E!, you’re doing things that are actually diminishing both brands,” he says. “If you have Oxygen and you’re running an E! show on Oxygen or you have an Oxygen show and you’re putting it on Bravo, you’re creating mass confusion for the viewer in an environment where there are 500-plus channels. You don’t know what’s on to begin with; I think that has really hurt the overall business and ratings in a significant way.”

Crown Media has its own original programming strategy, which includes a push to grow its own second network. Abbott says Crown has been very gradual about adding series and both its series and movies have hewed close to the Hallmark brand. “We’ve stuck to our knitting and viewers really know what to expect,” he says. “They’ve come to expect that at Valentine’s Day, we’re going to be in that romantic comedy mode. And when we rebranded [Hallmark Movies & Mysteries] we really identify it with dramatic movies and mysteries. We don’t deviate.”

Abbott says the success of the rebrand of Hallmark Movie Channel has surprised executives there. “Ratings are up triple-digits and the mystery wheel has been really well received and done really well,” he says.

Crown Media also succeeded in what was largely a difficult upfront ad market. Abbott says the Hallmark Channels’ dollar volume was up by high-single digits, and that prices rose by low- to mid-single digits.

He said Crown did better than most of its competitors because “we have created franchises and events in and around their content that clients really want to be part of.”

Abbott, a former an ad sales exec, noted he’d expected the market to be down a bit. “Halfway through the upfront I think there was a little bit of panic that it was down even more than initially thought. But then at the end of the day a lot of money came back into the market and so we did even better than we had thought we would do at the start,” he says. “The ad market too is going through a lot of turmoil but at the end of the day television, or linear video around great brands and great content, still represents great value and the best way for advertisers to push out their message.”

Finding Their Share

As the ad market moves away from demo ratings and embraces data, Abbott expects the Hallmark channels, with their older-skewing audiences, will benefit. “We’ll monetize our impressions at a much better level actually in a world where you are paid for your viewership and not an arbitrary demographic,” he says. “We feel very good about a move toward a system where this additional research shows who purchases products and who the viewers are and what the overlap is.”

Abbott acknowledges that Crown Media’s size gives it little leverage with distributors. Also, because most new over-the-top players are aiming for younger millennial cord-cutters, Hallmark’s isn’t the first number they call. Nor is Crown Media itself much interested at this point in going direct to consumers or doing anything to upset a pay TV ecosystem that for now is paying off for it. But Abbott insists that, “in a world where great content wins and where great brands more than anything win, however things shake out we’ll be where we need to be to be profitable.”

On Crown’s second-quarter earnings call, both the financial results and the company’s stock performance were so good that there was little of the usual griping about the company’s relationship with Hallmark Cards, which owns a 90% stake in Crown Media. Hallmark Cards, which tried to sell Crown Media, had been expected to buy out minority shareholders or spin off Crown, but instead there has been only silence. “The stock has performed well. It’s hard to argue with the results and the earnings, and right now I don’t know what Hallmark’s plan is,” Abbott says. “Management isn’t in that conversation, but at the end of the day I think we’re providing great value across the board to Hallmark, to shareholders, distributors, advertisers and viewers.”

Jon Lafayette

Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.