It's a big day for cable television — Martha Stewart, a queen of broadcast syndication, is moving to cable, kicking off a partnership with the Hallmark Channel. In a new five-year deal Stewart's signature show and other Martha Stewart Omnimedia programming will run on Hallmark Channel from 10 am to 6 pm. This speaks volumes about the business model for a brand like Stewart, and the changing television landscape.
Bill Abbott, the CEO of Crown Media Holdings and Hallmark Channels tells CNBC this is a game changer for the channel; it will immediately impact revenue and the bottom line.
As soon as Hallmark heard that Stewart was interested in moving to cable they perused her, seeing her brand as a natural fit for Hallmark's female audience.
Abbott tells us MSO and Hallmark will split the ad revenue, refusing to reveal any more financial details. But RBC Capital Markets analyst David Bank says he expects Stewart to retain the vast majority of the ad revenue; Hallmark's using Stewart to boost the channel's relevance for cable operators to protect its subscription revenue.
This deal is really about preserving Hallmark's subscription fees by building Hallmark into a lifestyle channel, helping it better compete with other cable rivals, and now also with broadcast networks. Now that broadcast affiliates are demanding payments from the carriers, cable channels like Hallmark need to up their game to retain their piece of the pie. Also demand payments from cable carriers. This also opens the door for Hallmark to branch out into multiple channels — perhaps creating a dedicated Martha Stewart network down the line.
So why is Stewart is making the move?
More air time should translate into higher ad revenue, as well as drive more sales of Martha-Stewart branded products, which is where the real margins are.
RBC Capital Markets' Bank tells me that the move should be pretty much a wash for Stewart in terms of revenue from her show — she's trading the lower audience on cable for a bigger share of ad dollars. A key piece for Stewart is having a consistent air time. Stewart's ratings have suffered from the fact that the show is hard to find in syndication — it airs at different times in different cities, making it harder to promote.
Stewart is the first of a parade of stars moving from broadcast to cable. Next up is Conan O'Brien, whose show launches on TBS this fall. Next up, Oprah Winfrey, who will launch a joint-venture cable channel with Discovery in January. Viewers don't distinguish between broadcast and cable when they're channel surfing, and stars don't either.
Crown Media Holdings, which owns the Hallmark Channel, is controlled by Hallmark Cards, which is private, and Liberty Capital. Crown licenses the Hallmark brand to NBC Universal , CNBC's parent, for the British Hallmark Channel.
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