I must admit to being a fan of "Matlock," "M*A*S*H," "Murder She Wrote," and a number of other television programs of yore that have found their way into the stable of the Hallmark Channel. Why, just a couple of days ago I contentedly watched Angela Lansbury (a.k.a Jessica Fletcher) solve the mystery du jour on Hallmark. Sadly, the mystery of Hallmark's decline is also an open-and-shut case.
As its name implies, the Hallmark Channel and its sister Hallmark Movie Channel are owned by an affiliate of Hallmark Cards, Crown Media Holdings (NASDAQ:CRWN). On Thursday, Crown Media reported the results for its third quarter. As is typically the case with the company, those results were difficult to comprehend for investors accustomed to following an income statement from top to bottom, beginning with revenues and ending with earnings per share. In Hallmark's case, the revenues are there; earnings aren't.
In the most recent quarter, for example, net revenues were $47.3 million, down from $50.7 million a year ago. And with a classification called "cost of services" increasing to $90.4 million, from $77.9 million last year, the company's net loss widened to $84.3 million, from $65.8 million. The largest culprit in raising the cost of services was programming expenses, which jumped 20% to $35.1 million.
There's a difference between Crown and the cable multi-systems operators (MSOs), such as Comcast (NASDAQ:CMCSA) and Time Warner's (NYSE:TWX) cable unit (which the parent is preparing to spin off). While the MSOs' earnings may be slim or even nonexistent, those companies generally can point to robust EBITDA, a metric that investors have learned to accept. But EBITDA also is decidedly negative at Crown.
And there's yet another mystery afoot at Crown, one that may require the services of Jessica Fletcher to solve: In recent months the company's CEO, COO, and CFO all have resigned. And so, in the face of an obvious paucity of quality television programming, I'd advise occasional viewing attention to the Hallmark Channel; investments should probably be funneled into other cable operators.
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Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He welcomes your comments.
