Hallmark Channel ? with a subscriber base that soared from 27.5 million to 43.5 million during 2001 due largely to a pact with DirecTV ? by 2006 will receive a license fee of 16 cents per subscriber per month from the direct broadcast satellite operator.
DIRECTV LICENSE FEES FOR HALLMARK CHANNEL
| year |
fee/sub/year |
| 2002 |
$0.00 |
| 2003 |
0.12 |
| 2004 |
0.135 |
| 2005 |
0.15 |
| 2006 |
0.16 |
| SOURCE: SEC FILINGS |
That's one of several details in a 10-Q/A filed Jan. 10 with the Securities and Exchange Commission by Hallmark Channel owner Crown Media Holdings.
DirecTV is receiving the channel free through 2002 and into 2003. Sometime during 2003, a monthly per-sub fee of 12 cents kicks in for a year.
Assuming 15 million DirecTV subs by late 2006 ? there could be many more if the merger of DirecTV parent GM Hughes and EchoStar Communications goes through ? about $2.4 million will flow monthly from DirecTV to Hallmark, based on the 16 cents per-subscriber fee.
DirecTV gets significant value in return.
The agreement calls for Crown Media to pay DirecTV ?on a quarterly basis, up to 15% of gross revenues from the license fees paid to [Crown] for the prior year, as reimbursement for expenses incurred by [DirecTV] during [the] year as national support for marketing, advertising and promoting? Hallmark.
Crown agreed to pay DirecTV a $500,000 ?one-time, upfront national marketing/launch support payment.?
It also agreed to provide marketing, promotion and advertising support both for Hallmark and for the DirecTV Family Package platform, at a ?monetary value?equal [to] at least $1 million per year? over three years.
The affiliation pact calls for the channel to give DirecTV two minutes per hour for ?commercial or other announcements.?
Perhaps of greatest value, DirecTV received 5.36 million shares of Crown Media common stock for $53,600 ? a penny per share.
Other contract details: Hallmark is permitted to air ?infomercials? only between midnight and 9 a.m. for the East and West Coast feeds.
Also: DirecTV and Crown agreed to ?use commercially reasonable efforts? to provide ?hot links? to each other's websites.
The filing included a ?side letter? between Crown and DirecTV dated Aug. 30, 2001. The letter refers to XM Satellite Radio, which launched nationally in November 2001 and by early January had 30,000 paying subscribers.
?Recognizing that DirecTV does not control XM Radio,? the letter states, ?DirecTV shall undertake in good faith to induce XM Radio to negotiate with [Crown] for the distribution of an audio service? owned by Crown or a Crown subsidiary.
The letter also calls for DirecTV and Crown to ?negotiate in good faith? agreements for: the pay-per-view distribution of up to ten motion pictures or miniseries per year from the Crown/Hallmark library; and DirecTV carriage of Crown's interactive V-Cards application ? short video messages that can be personalized.
From the Cable Program Investor newsletter.
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