A new era of personal communications?

Hallmark Cards, Inc., the successful privately held greeting card giant based in Kansas City, MO, recently announced its intention to purchase two cable television networks — Jones Crown Partners of Onalaska, WI, and Cencom Cable Associates of St. Louis, MO — with a combined subscriber base of more than 700,000 customers. Both deals are expected to close by year’s end; terms were not disclosed.

The purchases make Hallmark one of the top 20 cable TV operators in the United States. One may well ask why a greeting card company is so interested in high-tech acquisitions so seemingly divergent from its core business.

A FAN OF NEW TECHNOLOGIES

In March of 1991, Hallmark formed Crown Media, Inc., with the purpose of acquiring and operating cable operating systems and cable programming companies. Crown Media is approximately 98 percent owned by Hallmark, with the remainder owned by Crown chairman James Hoak. Hoak is also the chairman of Heritage Media, in which Hallmark is the majority shareholder. Heritage owns six television and eleven radio stations, and it is also the largest company in the U.S. specializing in in-store advertising and promotion.

A family-run operation, Hallmark Cards has a reputation for good customer service and for embracing new technologies. Hallmark has put into operation its own “Innovation Center” in order to examine the possibilities that new technologies and digital media might provide for its core business.

The first products of the Center are now entering the market. Hallmark is installing interactive kiosks called “Personalize It” that print facsimile newspapers from a birthdate, complete with the year’s news headlines, movie schedules, sports news, etc., as well as custom greeting cards.

Outside its core business. By its own definition, Hallmark’s core business is “personal communications.” Hallmark spokesman Steve Doyal said it would be premature to speculate on how Hallmark would be integrating its core business into the new operations, or vice versa, but he acknowledged the company is looking at cable in two ways. One is as just plain cable, he said, and the other is as “a technological resource that may in the future have applications in the primary business” of personal communications.

Crown Media is structured as an entirely autonomous operation, separate from Hallmark’s Personal Communications Group, which is responsible for core business.

Looking for synergy. Bob Druten, who holds concurrent titles of chief financial officer of Crown Media and VP of corporate development for Hallmark, said that Hallmark was not looking for synergistic reasons to justify its entry into the cable industry. Its first goals will be “to effectively operate and program a cable company,” he says, and Hallmark does have experience in the production of television programming. Its “Hallmark Hall of Fame” has been generating broadcast and cable programs for many years.

According to Druten, synergistic development needs to be organizational in nature; a corporate structure needs to be established in order to bring different parties with different goals together to examine new opportunities.

This structure does not yet exist between Hallmark and Crown. But it is clear that the synergies exist. With recent changes in regulations allowing telephone companies into the information services business, the cable industry will not be standing by idly. Many cable operators are installing fiber-optic cable so they can offer increased services, interactivity and, yes, personal communications. Bingo — synergy!

Fixing cable’s bad rep. The cable television industry has a notoriously poor reputation when it comes to customer service. It is such a profitable cash-flow business that most operators have had to do little but provide the line and collect the money. With increasing demand for competition within individual markets, this may be changing. (Most cable operations have virtual monopolies in their markets, prompting calls from consumer groups for competition and government regulation.)

“Our cable companies will operate on a tough set of standards as laid down by Hallmark,” says Druten. “Our goal is not to change the industry, but everyone had better get their act together or Congress will do it for them, and no one wants that.”

Druten also believes that the new programming opportunities will be technology driven — created by the operator’s ability to provide more channels and hence more programming options — and Crown Media will be monitoring advanced technologies very carefully.

But it is only a matter of time (and not a long time) before the mass media operations come head to head with the personal communications operations, leaving Hallmark in the enviable position of having expertise, facilities and products in both arenas.

The Hallmark Channel. Given Hallmark’s historical affinity for new technology and its reputation for both service and novel products, its entry into the world of mass communications is a development to keep an eye on. This is a natural extension for Hallmark, and it seems to have picked quality partners and companies to grow with into a broad-based media company.

David Baron