Martha Stewart has a knack for transforming dated rooms into design showpieces. Now she's undertaking another major renovation: the Hallmark Channel.
Beginning Monday, Stewart will provide eight hours of programming each weekday as part of an ambitious revamp of the Hallmark Channel. After pinning its fortunes on the broad appeal of sentimental made-for-TV movies and reruns of such classic shows as "The Golden Girls" and "Little House on the Prairie," Hallmark plans to focus on home and lifestyle improvement and cooking shows.
Hallmark certainly needed a new recipe. Studio City-based Crown Media Holdings Inc. — which is controlled by the Donald Hall family of Kansas through its privately owned Hallmark Cards Inc. — has spent nine years and burned through $2 billion trying to come up with a viable strategy for television.
"This is a smart association for Hallmark," said Brent Poer, managing director of the Los Angeles division of advertising agency Media-Vest.
"Channels need to create clear definition for their brand so they can rise above the cacophonous clatter of the cable landscape. Martha brings something unique to Hallmark," Poer said.
The opportunity at the same time allows Stewart to broadly expand her television boot print, which could spur sales of her magazine, paint, housewares, bedding and other branded merchandise. Her company, Martha Stewart Living Omnimedia Inc., posted an operating loss last year, dinged by the recession, a slowdown in advertising, slipping ratings for her syndicated show and the end of her deal with retailer K-Mart.
Stewart's moving into the Hallmark house is the first phase of Crown Media's efforts to sustain itself as an independent in a world of media giants.
Hallmark had the for-sale sign out for a long time. Potential buyers were chased away by Crown Media's heavy debt load, low fees paid by cable operators and legions of gray-haired viewers who loyally tune in to the brand's comfort programming. Advertisers prefer youthful audiences, making it more difficult for Hallmark to command top dollar for commercial time on its two channels.
"Nobody wanted to buy the company when they had all of that debt," said television analyst Derek Baine of consulting firm SNL Kagan. "It also was bad timing."
Crown Media recapitalized $1.1 billion of its debt this summer, a transaction that prompted a lawsuit. An investor alleged that a low-ball valuation was placed on Crown Media that "unfairly diluted the voting interests of minority stockholders," according to the lawsuit, scheduled to go to trial Sept. 21. The recapitalization boosted the Hall family's ownership to 90.3% of the television enterprise, up from about 66%.
Hallmark also has been hobbled financially because it initially paid cable operators to secure carriage on their systems. That's the reverse of the industry convention in which cable, satellite and telephone operators pay fees to entertainment companies for the right to distribute their cable channels. For five years, Crown Media was the one cutting the checks, and even though it has ended that practice it has nonetheless struggled in negotiating higher fees for the Hallmark Channel and Hallmark Movie Channel.
One such wrangle boiled over last week when AT&T U-Verse dropped the two Hallmark channels when it failed to reach a new carriage agreement with Crown Media. Now, instead of being available in 90 million homes, the Hallmark Channel can be found in 88 million homes, or about three-quarters of U.S. TV households; and the Hallmark Movie Channel is available in about 37 million homes, down from more than 38 million.
"You look at the quality of programming that we are bringing to the screen — we are one of the few true suites of networks that provide family-friendly programming — and yet it is unbelievably disappointing that our value is not being recognized in the marketplace," Crown Media Chief Executive Bill Abbott said. "We need to take advantage of our value to be viable."
Abbott, who became CEO in June 2009 after working for nine years as Hallmark's advertising sales chief, wants the channels to better capitalize on the relationship with Hallmark Cards, in part, by acquiring programming that "celebrates" holidays. Programming changes in the recent past aimed at attracting younger viewers resulted in a drop in viewership, as the Hallmark Channel tumbled out of the cable top 10.
"We made a concerted effort to target a younger demographic, and as a result we lost some of our overall audience," Abbott said. "This is a long-term journey that we are embarking on."
In January, Abbott unveiled his blockbuster deal to bring Stewart to the channel.