Crown Media Holdings Announces Revenue Increase of 50% for Second Quarter of 2005

Operating Highlights for the Quarter

-- Revenue growth. Crown Media's net revenue in the second quarter of 2005 increased 50% to $45.7 million, from $30.4 million in the prior year's second quarter. Advertising revenues for the quarter totaled $38.1 million, an increase of 44% from the second quarter of 2004. Subscriber fee revenues increased 41% to $4.2 million as free carriage periods expired for certain subscribers.

-- Subscriber increase. Hallmark Channel U.S. subscribers increased 13% to 68.5 million as of June 30, 2005, from 60.6 million subscribers as of June 30, 2004. The tremendous success of our grass roots efforts campaign in 2005 combined with the appeal of our original programming generated growth in subscribers through launches on new systems as well as expansion on existing systems.

-- U.S. ratings success. For the second quarter of 2005, Hallmark Channel delivered its second highest rated quarter ever, with strong double digit increases in all of its key demographic groups of adults and women in both total day and prime time. The quarter was boosted by a record breaking month in June, which was marked by an increase in household coverage rating from 0.8 to 1.1 in prime time and the eighth consecutive month that Hallmark Channel has been a top ten cable channel in total day ratings.

-- Strong showing from original programming. Hallmark Channel's ratings for the quarter were driven by a strong slate of movie premieres. Three new Hallmark Channel Mystery movies were aired on Sunday nights averaging a 1.3 household rating and building upon the success of these franchises established in the first quarter. In addition, three original movies delivered top rating performances, including a 2.6 household rating for the premiere of Out of the Woods.

"Our results to date reflect the Hallmark Channel as a nationalnetwork with strong entertainment value and appeal," stated DavidEvans, President and CEO of Crown Media. "We offer more hours oforiginal movies and mini-series than any other ad-supported cablenetwork, which translates into our ability to attract more viewers andadvertisers. The second quarter was one of our strongest to date interms of ratings, and the second half of the year is off to a greatstart with July delivering our highest monthly ratings in thechannel's history. Advertising revenues demonstrated solid doubledigit growth as compared to 2004, continuing the trend we havedelivered every quarter since the channel's launch in 2001. Oursponsorship solutions unit has 15 new projects committed for the newbroadcast season, up from eight projects in the current season.Subscriber fee revenues are increasing as the free carriage periodsexpire with some of our distributors, driving these revenues up by 65%for the year-to-date. We continue to roll out the Movie Channel, andhave received commitments for national advertising to support this newservice.

"As we look ahead to the remainder of the year, we have a strongslate of originals to drive further ratings growth. The firsttelevised biography of Pope John Paul II will air exclusively onHallmark Channel in a few weeks. We will have new Hallmark MysteryMovies premiering in August, and over 30 hours of additional originalmini-series and movies airing before year-end. With 69 millionsubscribers at the end of July, we are confident in our ability to endthe year with over 70 million subscribers across the U.S."

Financial Results

Historical financial information is provided in tables at the endof this release. In connection with the sale of the internationalbusiness which was completed on April 26th, 2005, the operatingresults of the international business have been classified asdiscontinued operations in the accompanying statements of operationsand for all cash flow information contained herein for the three andsix months ended June 30, 2005.

Operating Results

Crown Media reported revenue of $45.7 million for the secondquarter of 2005, a 50% increase from $30.4 million for the secondquarter of 2004. Subscriber fee revenue in the second quarterincreased 41% to $4.2 million, from $3.0 million in the prior year'squarter, primarily as a result of the ending of free carriage periodsfor certain of our domestic distributors. Advertising revenueincreased 44% to $38.1 million during the quarter, from $26.5 millionin the second quarter of 2004, reflecting growth in domesticsubscribers, an increase in U.S. ratings and higher advertising ratesand volume. Licensing fees for our film library increased to $3.2million during the quarter, from $963,000 in the prior year's quarter.Generally, our library sales are condensed in the second half of theyear as this coincides with our customers' purchasing for the upcomingprogramming schedules.

Crown Media reported revenue of $86.3 million for the six monthsended June 30, 2005, a 35% increase from $63.8 million for the prioryear's period. Subscriber fee revenue for the six months ended June30, 2005, increased 65% to $8.8 million, from $5.3 million in theprior year's period. Advertising revenue increased 43% to $72.0million during the six months ended June 30, 2005, from $50.2 millionin the prior year's period. Licensing fees for our film librarydecreased to $5.3 million during the six months ended June 30, 2005,from $8.3 million in the prior year's period. During the first quarterof 2004, the Company signed a significant library sales agreement withone customer, which was not replicated during the first quarter of2005.

For the second quarter of 2005, cost of services increased 100% to$55.5 million from $27.7 million during the same quarter of 2004.Within cost of services, programming expenses increased 42% quarterover quarter to $28.4 million, because of higher quality programmingfor our domestic channels, including M*A*S*H, Judging Amy, MysteryMovies and JAG, and the related amortization. For the three monthsended June 30, 2005, amortization of film assets increased to $13.7million from $1.3 million during the same quarter of 2004 primarilydue to an increase in the internal use of the library assets by theHallmark Movie Channel which began during the quarter. Subscriberacquisition fee expense was $8.7 million in the second quarter of 2005versus $6.1 million in same period of 2004. Our domestic subscribersincreased from 60.6 million at June 30, 2004, to 68.5 million at June30, 2005, and the Company incurred additional subscriber acquisitionfees for this increase. The Company amortizes these costs over theremaining life of the distribution agreement, which has resulted in a43% increase in our subscriber acquisition fee amortization expensefor the period ended June 30, 2005, as compared to the prior yearperiod. Other cost of services increased over 100% from $248,000 to$4.7 million for the second quarter of 2005, due to a $4.1 millionincrease in bad debt expense during the quarter. Selling, general andadministrative expenses increased to $14.6 million for the threemonths ended June 30, 2005, from $11.9 million in the year earlierperiod primarily due to an increase in consulting expense and auditfees associated with our requirements under Sarbanes-Oxley, as well asadministrative and legal matters associated with the timing of ourperiodic filings with the SEC and compensation expenses associatedwith restricted stock units. Marketing expenses increased to $7.4million for the three months ended June 30, 2005, from $6.2 million inthe year earlier period primarily due to the second quarter 2005Mystery Movie marketing campaign for the Hallmark Channel. In order tobuild upon the success of our 2004 Holiday promotion and assist withsales in our upfront season by driving up ratings, the Company has runthe Mystery Movie promotion during 2005. The prior year's marketingactivity was significantly less as there were not as many tent poleprogramming events in the second quarter of 2004.

For the six months ended June 30, 2005, cost of services increased57% to $100.5 million from $64.0 million during the prior year'speriod. Within cost of services, programming expenses increased 44%period over period to $56.4 million. For the six months ended June 30,2005, amortization of film assets increased to $19.3 million from $8.7million during the same period of 2004. Subscriber acquisition feeexpense was $18.2 million for the six months ended June 30, 2005,versus $12.0 million in same period of 2004. Other cost of servicesincreased 56% from $4.2 to $6.5 million for the six months ended June30, 2005. Selling, general and administrative expenses increased to$26.8 million for the six months ended June 30, 2005, from $23.1million in the year earlier period. Marketing expenses increased to$17.3 million for the six months ended June 30, 2005, from $10.3million in the year earlier period.

Adjusted EBITDA loss totaled $5.8 million for the second quarterof 2005, compared to an Adjusted EBITDA loss of $5.2 million for thesame period last year. Cash used in continuing operating activitiestotaled $85.0 million for the second quarter of 2005 compared to $6.5million for the same period last year. A majority of the increase incash used in operations was due to approximately $20.0 million ofsubscriber acquisition fee payments and $40.0 million of affiliateprogramming payments made during the second quarter of 2005. The netloss for the three month period ended June 30, 2005, totaled $56.3million, or $0.54 per share, compared to $40.6 million, or $0.39 pershare, in the second quarter of 2004.

Adjusted EBITDA loss totaled $13.5 million for the six monthsended June 30, 2005, compared to an Adjusted EBITDA loss of $7.5million for the same period last year. Cash used in continuingoperating activities totaled $97.8 million for the six months endedJune 30, 2005 compared to $15.7 million for the same period last year.The net loss for the six month period ended June 30, 2005, totaled$107.2 million, or $1.03 per share, compared to $82.1 million, or$0.79 per share, in the prior year's period.

Conference Call and Webcast to be Held Tuesday, August 9th at11:00 a.m. ET

Crown Media Holdings' management will conduct a conference callthis morning at 11:00 a.m. Eastern Time to discuss the results of thesecond quarter of 2005. Investors and interested parties may listen tothe call via a live webcast accessible through the investor relations'section of the Company's web site at www.hallmarkchannel.com, or bydialing (888) 339-2688 (Domestic) or (617) 847-3007 (International)and requesting the "Crown Media Second Quarter Earnings" call. Forthose listeners accessing the call through the Company's website,please register and download audio software at the site at least 15minutes prior to the start time. The webcast will be archived on thesite, while a telephone replay of the call is available for 7 daysbeginning at 1:00 p.m. Eastern Time, August 9, at 888-286-8010 or617-801-6888 (international callers), using reservation number19995102.

About Crown Media Holdings

Crown Media Holdings, Inc. (NASDAQ: CRWN) owns and operates cabletelevision channels dedicated to high quality, broad appeal,entertainment programming. The Company currently operates anddistributes Hallmark Channel in the U.S. to nearly 70 millionsubscribers. Through its subsidiary, Crown Media Distribution, LLC,Crown also distributes titles in the U.S. from its award-winningcollection of movies, mini-series and films for exhibition in avariety of television media including broadcast, cable,video-on-demand and high definition television. Significant investorsin Crown Media Holdings include: Hallmark Entertainment Holdings,Inc., a subsidiary of Hallmark Cards, Incorporated, Liberty MediaCorp., and J.P. Morgan Partners (BHCA), LP, each through theirinvestments in Hallmark Entertainment Investments Co.; VISN ManagementCorp., a for-profit subsidiary of the National Interfaith CableCoalition; and Hughes Electronics Corporation.

Forward-looking Statements

Statements contained in this press release may containforward-looking statements as contemplated by the 1995 PrivateSecurities Litigation Reform Act that are based on management'scurrent expectations, estimates and projections. Words such as"expects," "anticipates," "intends," "plans," "believes," "estimates,"variations of such words and similar expressions are intended toidentify such forward-looking statements. Forward-looking statementsare subject to risks and uncertainties, which could cause actualresults to differ materially from those projected or implied in theforward-looking statements. Such risks and uncertainties include:competition for distribution of channels, viewers, advertisers, andthe acquisition of programming; fluctuations in the availability ofprogramming; fluctuations in demand for the programming Crown Mediaairs on its channels; Crown Media's ability to address its liquidityneeds; and other risks detailed in the Company's filings with theSecurities and Exchange Commission, including the Risk Factors statedin the Company's 10-K Report for the year ended December 31, 2004 and10-Q Report for the quarter ended June 30, 2005. Crown Media Holdingsis not undertaking any obligation to release publicly any updates toany forward looking statements to reflect events or circumstancesafter the date of this release or to reflect the occurrence ofunanticipated events.

Use of Adjusted EBITDA

Crown Media evaluates operating performance based on severalfactors, including Adjusted EBITDA. Our measure of Adjusted EBITDAdiffers from the normal definition of EBITDA (earnings beforeinterest, taxes, depreciation and amortization) used by mostcompanies. We define Adjusted EBITDA as earnings before interest,taxes, depreciation, amortization, subscriber acquisition feeamortization and amortization of film assets, but inclusive ofimpairment charges. We believe Adjusted EBITDA is meaningful becauseit provides investors a means to evaluate the operating performance ofour company on an ongoing basis using criteria that are used by othercompanies in our industry and investment bankers and analysts whotrack our industry. We believe that Adjusted EBITDA is a meaningfulmeasure because it represents a transparent view of our recurringoperating performance and allows our management and investors toreadily view operating trends, perform analytical comparisons andbenchmark our company to similar companies in our industry. . Ourcredit facility also contains covenants that are based on an adjustedEBITDA measure. Consequently, management views Adjusted EBITDA as acritical measure of our operating performance to meet our debtcovenants and monitors this measure closely. We disclose AdjustedEBITDA so that our investors can have some of the same informationavailable to our management to evaluate their investment in ourCompany. We believe that Adjusted EBITDA provides an indication of theCompany's ability to generate cash flows from operating activitiessince the majority of our non-cash expenses are excluded from ourcalculation of Adjusted EBITDA. A significant portion of the Company'scost structure relates to the amortization of film assets andsubscriber acquisition costs, which are significant non-cash charges.The cash costs of acquiring programming and adding subscribers areessentially discretionary expenditures. The adjusted EBITDAcalculation allows the Company to assess how much is available to paydebt service and gives a further indication of how much remains tofund discretionary expenditures such as the acquisition of programmingor additional subscriber base. However, Adjusted EBITDA should beconsidered in addition to, not as a substitute for, historicaloperating income or loss, net loss, cash flow from operations andother measures of financial performance reported in accordance withaccounting principles generally accepted in the United States.

Adjusted EBITDA differs significantly from cash flows fromoperating activities reflected in the consolidated statement of cashflows. Cash flow from operating activities is net of interest andtaxes paid and is a more comprehensive determination of periodicincome on a cash basis, exclusive of non-cash items of income andexpenses such as depreciation and amortization. In contrast, AdjustedEBITDA is derived from accrual basis income and is not reduced forcash invested in working capital. Consequently, Adjusted EBITDA is notaffected by the timing of receivable collections or when accruedexpenses are paid. We are not aware of any uniform standards fordetermining EBITDA or our Adjusted EBITDA and believe presentations ofEBITDA may not be calculated consistently by different entities in thesame or similar businesses.
Crown Media Holdings, Inc.
Selected Second Quarter Unaudited Financial Information
($ in thousands, except per share data)

Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
--------- --------- --------- --------
Subscriber fees $ 4,193 $ 2,971 $ 8,803 $ 5,344
Advertising 37,635 26,013 70,968 49,401
Advertising by Hallmark
Cards 482 444 1,025 794
Film asset license fees 3,169 963 5,252 8,253
Other revenue 213 - 213 -
--------- --------- --------- --------
Total revenue 45,692 30,391 86,261 63,792
Cost of services:
Affiliate programming 10,202 7,845 20,093 15,235
Non-affiliate programming 18,211 12,208 36,342 23,841
Amortization of film assets 13,664 1,347 19,345 8,677
Subscriber acquisition fee
amortization 8,695 6,091 18,203 12,032
Other cost of services 4,730 248 6,526 4,173
--------- --------- --------- --------
Total cost of services 55,502 27,739 100,509 63,958
Selling, general &
administrative expenses 14,619 11,856 26,771 23,107
Marketing expense 7,420 6,215 17,250 10,336
Depreciation and amortization 1,182 1,627 2,532 3,311
--------- --------- --------- --------
Loss from continuing
operations before interest
expense (33,031) (17,046) (60,801) (36,920)
Interest expense (17,444) (14,393) (34,340) (28,611)
Income tax provision (6) - (6) -
--------- --------- --------- --------
Loss from continuing
operations (50,481) (31,439) (95,147) (65,531)
Loss from discontinued
operations, net of tax (4,425) (9,148) (10,666) (16,532)
Loss from sale of discontinued
operations, net of tax (1,349) - (1,349) -
--------- --------- --------- --------
Net loss $ (56,255)$ (40,587)$(107,162)$(82,063)
--------- --------- --------- --------
Net loss per share, basic and
diluted $ (0.54)$ (0.39)$ (1.03)$ (0.79)
--------- --------- --------- --------
Weighted average shares
outstanding, basic and
diluted 104,551 104,533 104,542 104,533


Crown Media Holdings, Inc.
Unaudited Consolidated Balance Sheet Data
(In thousands, except per share amounts)

As of As of
June 30, Dec. 31,
-----------------------
2005 2004
-----------------------

ASSETS

Cash and cash equivalents $ 5,570 $ 12,102
Accounts receivable, less allowance for
doubtful accounts of $3,345 and $6,695,
respectively 57,946 75,459
Program license fees - affiliates 29,621 40,048
Program license fees - non-affiliates 61,305 78,823
Subtitling and dubbing - 1,143
Receivable from affiliate 22,017 16,644
Receivable from buyer of international
business 2,542 -
Prepaid and other assets 9,466 13,887
-----------------------
Total current assets 188,467 238,106
Accounts receivable 8,756 6,798
Program license fees - affiliates 60,864 59,987
Program license fees - non-affiliates 144,920 135,372
Subtitling and dubbing - 1,583
Film assets, net 438,250 599,013
Subscriber acquisition fees, net 99,651 120,013
Property and equipment, net 20,301 32,829
Goodwill 314,033 314,033
Prepaid and other assets 13,556 5,034
-----------------------
Total assets $ 1,288,798 $ 1,512,768
-----------------------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

LIABILITIES
Accounts payable and accrued liabilities $ 24,801 $ 40,228
Accrual for payment of restricted stock
units 6,833 13,649
Subscriber acquisition fees payable 10,622 35,223
License fees payable to affiliates 2,905 -
License fees payable to non-affiliates 66,875 79,815
Payables to affiliates 15,551 13,512
Payable to buyer of international business 8,673 -
Credit facility and interest payable 179,162 479
Capital lease obligations 585 2,276
Deferred revenue 1,160 612
Deferred credit from technical services
agreement 1,020 -
-----------------------
Total current liabilities 318,187 185,794
Accrued liabilities 25,178 21,617
Subscriber acquisition fees payable - 678
License fees payable to affiliates 138,261 151,980
License fees payable to non-affiliates 127,936 111,761
Line of credit and interest payable to
HC Crown 83,449 81,067
Payable to Hallmark Entertainment
affiliates 100,000 100,000
Payable to buyer of international business 10,100 -
Senior unsecured note to HC Crown,
including accrued interest 484,553 460,930
Credit facility - 310,000
Capital lease obligations 16,484 22,817
Company obligated mandatorily redeemable
preferred interest 12,846 11,488
Deferred credit from technical services
agreement 5,709 -
-----------------------
Total liabilities 1,322,703 1,458,132
Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIT)
Class A common stock, $.01 par value;
200,000,000 shares authorized; 73,936,925
and 73,863,037 shares issued and
outstanding, respectively, as of
June 30, 2005 and December 31, 2004 739 739
Class B common stock, $.01 par value;
120,000,000 shares authorized; 30,670,422
shares issued and outstanding as of
June 30, 2005 and December 31, 2004 307 307
Paid-in capital 1,387,505 1,365,450
Accumulated other comprehensive income - 3,434
Accumulated deficit (1,422,456) (1,315,294)
-----------------------
Total stockholders' equity (deficit) (33,905) 54,636
-----------------------
Total liabilities and stockholders'
equity (deficit) $ 1,288,798 $ 1,512,768
-----------------------


Crown Media Holdings, Inc.
Selected Second Quarter Unaudited Financial Information
($ in thousands)


Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
-------- --------- --------- --------

Net loss $(56,255)$ (40,587)$(107,162)$(82,063)
Loss from discontinued
operations 4,425 9,148 10,666 16,532
Loss on sale of
discontinued operations 1,349 - 1,349 -
Amortization of film assets 13,664 1,347 19,345 8,677
Subscriber acquisition fee
amortization 12,120 8,854 24,838 17,481
Depreciation and
amortization 1,472 1,627 3,111 3,311
Interest expense 17,444 14,393 34,340 28,611
Income tax provision 6 - 6 -
-------- --------- --------- --------
Adjusted earnings before
interest, taxes, depreciation
amortization and
discontinued operations $ (5,775)$ (5,218)$ (13,507)$ (7,451)
-------- --------- --------- --------

Restricted stock unit and
stock-based compensation 2,831 3,472 5,243 5,811
Programming, subtitling and
dubbing amortization 28,167 20,456 56,640 39,882
Provision for allowance for
doubtful account 2,063 (2,045) 1,117 (1,014)
Changes in operating assets
and liabilities:
Additions to program
license fees (19,226) (10,547) (85,229) (27,915)
Additions to subscriber
acquisition fees (2,933) (8,544) (4,426) (13,319)
Decrease in subscriber
acquisition fees payable (22,843) 7,557 (25,278) 9,796
Interest paid (3,282) (3,229) (8,079) (6,743)
Changes in other
operating assets and
liabilities, net of
adjustments above (63,954) (8,401) (24,292) (14,730)
-------- --------- --------- --------
Net cash used in continuing
operating activities $(84,952)$ (6,499)$ (97,811)$(15,683)
-------- --------- --------- --------


Crown Media Holdings, Inc.
Selected Second Quarter Unaudited Financial Information
($ in thousands)

Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
--------- ------- --------- --------

Net cash used in continuing
operating activities $ (84,952) $(6,499) $ (97,811) $(15,683)
Net cash provide by (used in)
investing activities 215,826 (619) 215,578 (683)
Net cash provided by (used in)
financing activities (130,495) 9,300 (109,252) 33,600
Net cash used in discontinued
operations (9,761) (965) (14,758) (12,509)
Effect of exchange rate
changes on cash 206 19 (289) 479
--------- ------- --------- --------
Net (decrease) increase in
cash and cash equivalents (9,176) 1,236 (6,532) 5,204
Cash equivalents, beginning of
period 14,746 8,274 12,102 4,306
--------- ------- --------- --------
Cash equivalents, end of
period $ 5,570 $ 9,510 $ 5,570 $ 9,510
--------- ------- --------- --------