The holidays can't arrive soon enough for Hallmark Channel. The network’s ballyhooed partnership with Martha Stewart opened as flat as a fallen soufflé, it has battled its distributors, and at a time when most other cable networks are printing money, its ratings and ad revenue are down. Even when its stock suddenly jumped 45% on Oct. 13, it was because the Motley Fool investment site believed the channel would be sold. Bill Abbott, CEO of Hallmark Channel’s parent, Crown Media Holdings, tells B&C Business Editor Jon Lafayette that the network intends to remain married to the Martha lifestyle and stay its independent course, even with an iceberg named Oprah on the horizon. An edited transcript of the interview follows.
The launch of the Martha Stewart daytime programming block got off to a weak start in the ratings, drawing fewer viewers than Golden Girls re-runs. That had to be a disappointment.
We were under no illusions that we were going to launch with robust ratings. We always knew it was going to take time. We always really built into our business plan the fact that the ratings in all likelihood would take time to grow and that it would take time for viewers to move out of the broadcast traditional syndication time slots and find it on cable. We’ve seen an uptick in the ratings over the five weeks it’s been on; I think we’re up 50% on women 25-54 this past week. The trend is in our favor.
You’ve cut the block back since the launch.
Yes. As we took a look at the competitive landscape, we thought that it would be easier for us to have a 10 a.m. to 3 p.m. block that was all original. It was easily promoted that way, and we felt it was strategically a better move for us to air that block now between 10 and 3 instead of 10 to 6. That was really the rationale for it and again, we’ve seen an uptick since we’ve done it that way.
Are you sharing the financial risk with MSLO, or have you just purchased these programs from Martha?
No, we’re both incentivized, which is the beauty of the deal in that they have as much on the line as we do in terms of ratings and the demo delivery and everything else.
So you didn’t spend programming resources that you might need in other dayparts in daytime, as opposed to spending them in primetime, where there’s usually more revenue?
Not on the Martha show, but we are committed to other programming in that time period, like Mad Hungry With Lucinda Scala Quinn, that we have a significant interest in. If you look at the compelling nature of 140 hours of original Martha Stewarts, 140 half-hours of Mad Hungry, that’s a significant amount of programming resources that we’ve devoted to that daypart. But having said that, we certainly have a robust primetime original movie slate. We have 13 original holiday movies this year, which is far more than any in our history. I think we had four last year. We also have Martha Stewart interview specials. We have the Martha holiday specials that we feel very good about, and they’re off to a good start with our Halloween special in terms of ratings.
On your last earnings call, ratings were down and ad revenue was down, which is unusual because other cable programmers’ ad revenue is soaring. Will your ad revenue be up in the third quarter, or will we have to wait for the fourth quarter, when your traditionally strong holiday programming comes online for a turnaround?
I think I’d have to shoot you if I gave you a preview into third-quarter earnings.
But we’ve got a preview of third-quarter ratings, which were down 20-30%, right?
Whenever you make a change like this, it’s not unexpected.
On that last earnings call, you also talked about some distribution issues. Your deal was up with NCTC, and since then you went off AT&T. What’s the deal with those two distributors?
I think the AT&T issue has been well-documented. We’re still in conversations, but there is a significant disagreement about what our value is. We anticipate that we’ll be having an announcement pretty soon on the NCTC front that certainly both parties feel good about.
Where were you when you saw your stock suddenly jump?
Believe it or not, we had a board meeting that day. It’s hard to predict the stock market, just as it’s hard to predict ratings and the weather.
The rise was based on speculation that the reason why Crown Media would be valuable again is because somebody would be buying it. Is that something that’s being considered?
Our principal owners have made it clear that the company is not for sale, and that strategically we are an important part of their future. And we feel good about our ability to operate and exist within that framework.
You've said Hallmark enjoys having enthusiastic viewers, but those viewers don't seem to be enthusiastic about the programming changes you've made. Will that be an issue when you try to introduce original programming in other dayparts?
Again I think you look over the course of the last couple of years certainly and over the course of cable overall, original programming is tricky. You look at some of TVLand's launches over the past 18 or 24 months. They did very well with Hot in Cleveland, but overall it's very, very difficult to make a change where you are bringing in a different audience and doing something that's a little bit unexpected. But when you stay with it and you're consistent and you have a high quality offering, at the end of the day, that wins out and so certainly again we're confident in our direction.
Have you had to do make-goods with advertisers in daytime?
We're a little bit below where our estimates are, but we have enough inventory to make everybody good. The confidence of the ad community in Martha and the show is really robust. We are thrilled with the way it was received in the upfront, with the way it's still being received in scatter
Let's talk about primetime, which drives the majority of revenue.
Primetime definitely suffers from the change because you're changing your daytime and you're changing your flow into primetime, so we view it as something that we've accounted for in our business plan and I think that at the end of the day when our full slate of numbers are published we'll feel pretty good about where we are from a revenue and earnings point of view.
Do you feel like you need a breakout program to create an identity for the network, like AMC with Mad Men?
I think once we give this whole block some time and we combine it with holiday programming and we really become more on brand with what Hallmark is all about, then a lot of that takes care of itself. Then your break-out hits become your day-to-day 140 premiere live original episodes of Martha Stewart, which is something that no cable network is really embarking on, certainly in daytime. We look at this as a long term effort and a long-term play and our focus isn't necessarily on developing a 13-episode original series that's a one-hour drama that might not have that same sustainability around our brand that this type of lifestyle, occasion, holiday programming certainly does.
Will that lifestyle programming start to work its way into primetime?
Potentially, we'll look at projects for primetime. The Martha Halloween special was very successful in primetime and certainly I think there's an audience that would like to see some type of migration of that type of product into primetime, so I certainly would not rule it out.
No one looks forward to the holidays more than the Hallmark Channel. What can we look forward to this holiday season?
Last December we were a top five network on weekends during primetime and we're looking to that whole countdown effort 24 hours a day this year from November 15 through January 2. And we think that given the original product, given some of the acquisitions we've made on the holiday movie front, that we'll have a tremendously successful high rated again period of time. So we look for stellar results.
Are you getting support from the Hallmark Crown stores?
We're working very closely with them to determine how we can help each other and mutually benefit from the relationship. There's nothing really to announce, but I hope that moving forward in 2011 we'll have a more coordinated effort that will yield good results for both of us.
Sponsors usually jump on board your holiday programming. How are you doing this year?
You look at the retail area, certainly. What environment would be better for Christmas creative than an advertiser might have with our holiday messaging and themes and movies and events? So retail is a strong category for us as well as credit cards and home improvement has been not surprisingly significantly stronger given our migration to lifestyle. Those are three categories I would name that are very strong, as well as automotive to a degree. They've come back into the marketplace and been more active in terms of targeting families and consumers in the fourth quarter.
Once we get through the holidays, what's your top priority for 2011?
It's really staying the course. Continuing to focus on how we break out in this area and how we continue to be consistent and being on brand with what Hallmark's all about and continuing to expand our MSLO partnership. We have a number of exciting projects that we discussed to make that bond even stronger. There's a lot of talent at MSLO that's under radar, not unlike Oprah who really nests some great talent within her show. There is a lot of talent there that we have to mine and work with and develop, so we're looking at developing pilots for 2011 around a couple of those personalities and we're very much looking forward to taking that relationship to the next level and continuing to grow the awareness of the audience.
Speaking of Oprah, are you concerned OWN is going to be going after the same lifestyle audience you are?
I think they've made it clear they're more on the aspirational front than they are necessarily the core of what we're looking to do. I think that candidly more original content in daytime in cable benefits all of us. It benefits the entire industry in that viewers will become more accustomed to leaving the syndicated or broadcast side of GMA or the Today show or whatever it is that they watch that lead into Ellen and other programming and the more you have cable migrating to original programming in daytime the better off well all be. It's sort of like you see the progression over the years where the kids market began migrating to cable from broadcast, then you saw it in sport. You see over the years a progression of top quality product moving to cable. Daytime is the last frontier in terms of original high-profile product existing on cable, and so I think the Oprah and OWN really only support that effort.
E-mail comments to jlafayette@nbmedia.com and follow him on Twitter: @jlafayette
