Hallmark’s Line on Cable’s Future

Sure the ‘80s are over and there’s no credit available for deals and takeovers. But exceptions always prove the rule, so cable television stocks are jumping on news of big money coming into the business.

Hallmark Cards Inc., the giant of greetings, said last week that it was buying into cable TV in a big way. Hallmark is taking a major interest in Cencom Cable Associates with an investment that ultimately could total $1 billion.

It’s a deal, say industry experts, that values cable systems at record prices--about $2,300 per subscriber--at a time when office buildings, shopping centers and broadcast TV stations have tumbled in value.

Hallmark’s move has inspired action in cable stocks. Comcast, TeleCommunications Inc. and Cablevision are up 15% to 25% in less than a week.

But more than a hot stock play is involved. Kansas City-based Hallmark, which last year sold roughly $2.7 billion in cards, ribbons and gift wraps, studied the cable business for a long time. It wanted to invest its money with long-term purpose, and being privately owned--two-thirds by the heirs of founder Joyce Hall--it didn’t have to answer to Wall Street for short-term earnings.

Hallmark’s commitment, therefore, says a lot about prospects for cable and about the future of marketing personal products. It can even teach a lesson in the economics of the information age, a time when computers are making individual service as economical as mass marketing.

Cable today, first of all, “is an excellent business,” says analyst Kenneth Berents of Alex. Brown & Sons, a Baltimore based brokerage. Cable systems’ cash flows--income plus depreciation--are rising 10% to 15% a year. Cable, which is installed in 60% of homes with TVs, is adding subscribers at a rate of 3% a year.

But particularly important at this time, cable isn’t losing subscribers in the recession. It’s a phenomenon first observed in the depressed 1980s in Houston: People who couldn’t afford to go out for a meal or a movie kept paying their cable bills rather than part with home entertainment.

Cable tomorrow may seem like science fiction, but it’s just around the corner. Cable operators have run experiments with 150 channels in the home. Analyst John Reddan of Moran & Associates, a Greenwich, Conn., institutional brokerage specializing in media, says such new technological wrinkles as digital TV, video compression and fiber optics will allow practically unlimited channels and uses for cable TV. “It will provide a video magazine rack,” says Reddan, “a shopping mall in the home.”

Hallmark, which sells 11 billion cards a year through 22,000 shops in malls nationwide, sees the business possibilities. Through interactive television, says Chairman Irvine O. Hockaday, customers could choose and order personal Christmas cards from the screen and pick them up at the Hallmark shop. Ultimately, customers will be able to design personal cards through computerized video in their homes.

They can do that today at 200 of Hallmark’s shops that are experimenting with a new system. Through a setup using two Everex computers, a touch-screen monitor and a Xerox laser printer, customers can specify designs and messages and add pet names and familiar references to personalize their cards. The service costs $3.50 per card--more than most greetings.

The added value is in the personalization, but it’s still an expensive delivery system. The computers and printer cost about $4,000 per store, with Hallmark footing the capital costs and charging the franchised retailer a monthly fee. With time and technical advances, the cost will come down. But the thought of getting closer to the customer won’t change.

Hallmark knows about appealing to different tastes--it sells 32,000 varieties of greeting card. But that such a company recognizes it must get even closer to the individual customer, and is committing as much as $1 billion during the next several years to do so, signals that we’re in the age of micromarketing. This decade will demand that advertising and selling be as narrowly focused on individual customers as 200 separate channels of television, and accelerating computer power, allow them to be.

It will be called the age of information, but it’s not really new. More useful is to think of the decade ahead as the continuation of an age of information that began more than a century ago with penny newspapers and public libraries. Since then, with each new advance in technology, more information and access to knowledge have become available. The result has been more choices for individuals--and more democratic societies.

And the trends of the future will mirror those of the past.

A Benchmark for Cable? Hallmark Cards has sent a big greeting to the cable television industry. After twoyears in which bank financing dried up and cable systems were bought and sold at declining per-subscriber prices, Hallmark is ponying up a premimum price-according to industry estimates-for its investment in Cencom Cable Associates.