Success Story: Hallmark Entertainment

On 21 May 1999 a major article appeared on the front page of the Wall Street Journal discussing Hallmark Entertainment's dominance of the Event Mini-series and Movie of the Week television businesses.

Jaguar is proud to have provided the back office rights management, contract administration and accounting systems that support this phenomenal success story since 1991. In those early years, Marty DeGrazia, Senior Vice President Distribution, managed what was in effect a single user starter system. Spectacular growth and key contributions by Peter Von Gal, Executive Vice President/COO, Michael Carroll, Vice President Information Systems and most importantly Tricia Riccio, Information Systems Manager have brought Hallmark Entertainment from those modest beginnings to their present important role as a premier member of Jaguar's System 7 Design Council.

Just as the Journal sees a rosy future for Hallmark Entertainment in the television industry, we are extremely enthusiastic about the future opportunities to work together as technology partners in an era where entertainment is once again at the forefront of innovation in our society.


May 21, 1999 THE WALL STREET JOURNAL
--------------------------------------------------------------------------------
Profligate Producer Helps Hallmark To Corner the TV-Miniseries Market
By KYLE POPE
Staff Reporter of THE WALL STREET JOURNAL

LONDON -- At a massive production complex on the western edge of the city, Robert Halmi puts the finishing touches on epics that American TV viewers will be watching this season.

Mr. Halmi flits from building to building, overseeing the filming of "Cleopatra," a lavish four-hour production for ABC that is said to be the most expensive miniseries ever. Along with his staff of 20, he is also polishing the script for "Don Quixote," starring John Lithgow, and building the sets for a TV version of "A Midsummer Night's Dream." His team is also doing postproduction work on "Arabian Nights," which just finished shooting in Morocco and Turkey, and tweaking the special effects for "Animal Farm," based on the George Orwell novel.

At age 75, Mr. Halmi, a Hungarian emigre, holds the distinction of being the most prolific producer in TV history, with a film library of more than 300 hours. All told, he will churn out more than 40 hours of prime-time fare over the next year for the Hallmark Entertainment unit of Hallmark Cards Inc., which acquired his company in 1994 and hopes to use his library to build a much larger entertainment empire.

With so many channels scrambling for viewers, and ratings for network sitcoms and dramas continuing to plummet, Mr. Halmi's big-event programs, such as "Merlin" and "The Odyssey," are coveted by the big networks as sure-fire attention-grabbers. Though sometimes ravaged by critics -- Howard Rosenberg, TV
critic of the Los Angeles Times, branded "Noah's Ark" "a laughably bad, stunningly low-burlesque, excruciatingly slow two-parter" -- his epics draw in the viewers. More than 30 million people watched all or part of "Noah's Ark" for the two nights it ran earlier this month, making it the No. 2-rated show for the
week, behind "E.R."

Before the explosion of cable TV, networks would readily spend tens of millions of dollars on a single miniseries like "Roots" or "Shogun." But now, with a smaller slice of the advertising pie going their way, the networks can ill afford to launch such elaborate productions on their own. So they hire outside
companies like Hallmark Entertainment, which agree to carry much of the financial risk of producing a star-laden TV spectacle.

A $28 Million Spectacle

For example, in the case of "Merlin," the most-watched miniseries on NBC last season, Mr. Halmi charged the network $12 million, then delivered an epic with big-name stars like Martin Short and Isabella Rossellini, filmed in exotic locales around the world. Final budget: $28 million.

For this Sunday's "Cleopatra," Hallmark Entertainment was paid about $13 million by ABC. But Mr. Halmi spent nearly $30 million, hiring "Titanic" co-star Billy Zane to play Marc Antony at a cost of $2 million and building a quarter-mile-long replica of Alexandria in the Moroccan desert.

In fact, Mr. Halmi's formula, though a departure from the typical Hollywood business model, is fairly simple. Mr. Halmi goes into lavish productions knowing they will lose money in the U.S., gambling instead that he can recoup part of his budget through extensive international and video sales. To help attract
those overseas audiences, all of his pictures feature international stars and European locales. Last year, "Merlin" was the best-rated TV movie ever in Germany, Spain and England.

Profits Overseas

Because Hallmark Entertainment retains the rights to the movies it sells to the networks, it is able to sell them overseas and keep the proceeds; overall, less than half of its revenue comes from the U.S. In the case of "Animal Farm," which is budgeted at $23 million, Time Warner Inc.'s TNT is paying for 40% of the film
in exchange for the U.S. television rights. Hallmark, meantime, is releasing the movie in theaters in Europe in July, helping to defray about $10 million of its part of the cost. Finally, Mr. Halmi negotiated significant tax breaks for the film by shooting it in Ireland and saved money on actors because the film's biggest stars are mechanical animals.

In the end, all of Mr. Halmi's big miniseries have made money for Hallmark, say Mr. Halmi and his son, Robert Halmi Jr., 42, who together run the Hallmark Entertainment division as chairman and chief executive, respectively. Irvine O. Hockaday Jr., chief executive officer of privately held Hallmark Cards, declines to discuss the entertainment division's finances, but says Hallmark Entertainment makes a profit. (Mr. Hockaday is a director of Dow Jones & Co., publisher of The Wall Street Journal and the Interactive Journal.)

Mr. Hockaday, who admits that he is no Hollywood insider, says he has given the Halmis free rein to run Hallmark Entertainment on their own. "I've heard people say Hallmark just must be throwing money away," Mr. Hockaday says. "People tend to look at this from the point of view of a public company. We tend to try to build for long-term value."

Hallmark Entertainment helps bankroll Mr. Halmi's big-budget projects by churning out a number of less-costly but profitable TV movies. While Mr. Halmi's pricey epics get all the attention in Hollywood, they actually account for only about 20% of Hallmark Entertainment's output. The bulk of Hallmark
Entertainment's movies, most of which are overseen by Mr. Halmi Jr. and other
producers, are much cheaper and make much more money in the U.S., in effect subsidizing the marquee projects until overseas revenues are realized.

Viacom Inc.'s Showtime, for instance, has made more than 80 films with Hallmark, none of them huge ratings-grabbers. Hallmark has a children's programming division that produces animated shows for cable. And its "Hallmark Hall of Fame" series churns out highly rated but relatively cheap movies such as last year's "What the Deaf Man Heard" and "To Dance with the White Dog" on CBS.

Deep-Pocketed Partner

In Hallmark Cards, Mr. Halmi also gained a deep-pocketed corporate partner with a strong incentive to promote his productions. With the greeting-card business mature and under attack from the Internet, the Kansas City, Mo., company recently launched three cable-TV channels that depend on the Halmi library.
"They want to transition themselves from being primarily known as a card company," says Margaret Loesch, a longtime executive with News Corp's Fox network who was recently tapped to run the Odyssey Channel, a Hallmark cable venture co-owned with Jim Henson Co. "This is definitely the end game."

Hallmark Entertainment also has developed a growing business in Broadway shows, helping to produce "The Scarlet Pimpernel," "The Sound of Music" and "1776," and it is on the lookout for projects from Mr. Halmi that can be translated to the stage. Soon, Hallmark stores around the country will begin selling Mr. Halmi's movies on video.

One reason for Mr. Halmi's domination of the miniseries-production business has been a dearth of competition. But the networks, worried that he has developed a monopoly, are beginning to fight back. ABC balked at a planned three-hour version of "South Pacific" with Glenn Close because network executives thought Mr. Halmi's asking price was too high. The networks are beginning to look for
alternatives: General Electric. Co.'s NBC, for instance, has vastly beefed-up its own in-house TV movie unit; among its big hits was the recent miniseries "The '60s." ABC has begun airing TV movies developed by its parent, Walt Disney Co. makes its TV movies without depending on Mr. Halmi at all.

Mr. Halmi, for his part, dismisses the networks' ability to produce quality miniseries on their own. "Everything the broadcast networks thought they do well is now on cable, and it's better," he says. "I offer at least something different." He adds: "I tell them, 'You guys are always underestimating the intelligence of the American people.' "

As a result, he has made it his business to make prime-time hits out of the most literary of subjects. In addition to bringing Homer to Americans' living rooms in "The Odyssey," he has produced TV versions of "Crime and Punishment," "Moby Dick," "Gulliver's Travels" and this year's "Alice in Wonderland," with Martin Short.

Dramatic Life

Born in 1924 in Budapest, Mr. Halmi was the son of a playwright mother and a father who was the official photographer to the Vatican and the Hapsburg empire. After the war, he says he worked in Hungary for the U.S. precursor of the Central Intelligence Agency. In 1947, he was put on trial by the Communists for blowing up bridges and was sentenced to death. He says he was saved only after his father arranged to have him kidnapped: He was given a bicycle to get to the Austrian border, and escaped from Hungary by hiding in a potato truck.

For a time, he continued his intelligence work in Salzburg, helping to spread American propaganda in Eastern Europe. His travails were chronicled in a seven-part series in the Saturday Evening Post called "Trial by Terror," which was later made into a movie for 20th Century Fox.

He came to the U.S. in 1950 with a camera and little else. Borrowing from his father's legacy, he ultimately landed a job at Life magazine as a photographer. He developed a name for himself in adventure photography. After seeing a stunt man at a county fair climb into a box and blow himself up with dynamite, Mr. Halmi replicated the trick, setting up a camera to capture the moment. In another act of derring-do, he was airlifted onto a glacier to take pictures, only to have the glacier break and drift off, leaving him stranded from the mainland for 10 days.

Getting Into Showbiz

He left Life magazine when it folded in the mid-1960s and moved to California, where he used his photography contacts to get into the movie business, filming a documentary about an African tribe. He then raised money to produce a TV movie based on a Hemingway short story, "My Old Man."

His business took off in the 1980s with a string of hits leading up to 1989's "Lonesome Dove" for CBS. In 1994, he produced a miniseries version of "Scarlett," the "Gone with the Wind" sequel for which Mr. Halmi paid a then-unheard-of $9 million for rights to the book.

Today, his unorthodox upbringing shines through in his work. He shot "Crime and Punishment" in Budapest because of his fondness for the city, and made "Animal Farm" because he had read and reread the book when he was in prison in Hungary. "That book almost saved my life," he says of the allegorical story about the failures of communism. "It told me there was hope out there."

Mr. Halmi, who walks with a cane since breaking his hip last year while scouting for locations for "Crime and Punishment" in Hungary, keeps up a frenetic pace, sleeping no more than four hours a day. He lives primarily in London, but has homes in New York and Kenya, as well as a houseboat in Spain, which he loans out to stars as an incentive to do his movies.

The Micromanager

Unlike other producers, who hire actors and directors but don't bother with the details of their projects, Mr. Halmi is a micromanager. During a recent 10-hour workday, he picked out the T-shirts for the crew of "Cleopatra," ordered a set of 2,000-year-old coins used by Julius Caesar for the major stars (they cost
$600 apiece), and reviewed set designs for "A Midsummer Night's Dream." He even auditioned a dog to star in a coming epic for NBC. Told by the dog's owner that the mutt would be neutered before shooting began, Mr. Halmi intervened, saying he thought it was inhumane and that he would refuse to hire the dog if the procedure was done.

Mr. Halmi has his own watchdog: his son, whom he calls Robbie. The pair talk twice a day and own homes next door to one another in a suburb of New York City. The senior Mr. Halmi admits that their relationship is somewhat reversed, with the father spending as much money as possible and the frugal son reining him in.

"He's sort of playing the crazy cop, with me playing the sane cop," says Mr. Halmi Jr. "He likes to just go out and say it's going to be the greatest show of all time, and it's going to be very expensive. Then I come in and work it out in the trenches."

His father is currently planning an eight-hour version of the Bible, complete with a "Star Wars"-style beginning of the universe, as well as "10th Kingdom," a 10-hour miniseries to be shot in New York and Europe that encompasses nearly every children's fairy tale into a single story. Hallmark Entertainment is
getting paid $24 million by NBC for "10th Kingdom," a record for a miniseries. And, Mr. Halmi says, he will spend at least $20 million more before the show makes its way to television.