-By Anthony Crupi

Ratings erosion and a continued decline in direct-response advertising dollars put the squeeze on Hallmark Channel’s third-quarter results, as the basic-cable network saw ad sales revenue decline 7 percent versus the year-ago period.

For the three-month period ended Sept. 30, Hallmark Channel took in $46.3 million in ad sales revenue, down from just under $50 million in the third quarter of 2009. Sequentially, Hallmark was down 11 percent versus Q2, when the network secured $51.9 million in sponsor dollars.

Affiliate revenue in large part offset the drop in ad sales revenue, as sub fees grew 12 percent to $16 million, up from $14.2 million in the prior-year period. Overall revenue fell 3 percent to $62.8 million in the quarter.

Speaking on Crown Media’s Q3 earnings call Thursday, president and CEO Bill Abbott told investors the results reflected a decline in household ratings, which led to an increase in audience deficiency units. Abbott noted that the Hallmark ad sales team was able to hold the line on CPM rollbacks in the 2009-10 upfront, adding that the network added a number of new sponsors during the annual bazaar, including: Colgate, Revlon, Mutual of Omaha and Maybelline.

Despite general economic pressures, Hallmark in Q3 was able to write scatter business at a 46 percent premium versus last year’s upfront levels, Abbott said.

Hallmark averaged 984,000 total prime time viewers in the quarter, a drop of 24 percent from the prior-year period, when it delivered 1.29 million nightly viewers. Per Nielsen ratings data, the target demo fell 14 percent, as Hallmark averaged 165,000 women 25-54.

Parent company Crown Media pared its net loss to $10.2 million in Q3, down from $17.9 million in the year-ago period. Programming expenses were cut 14 percent in the quarter to $31.7 million, while marketing costs were slashed 93 percent to $339,000, versus $4.63 million in Q3 ‘08.

Abbott said the holiday season should bring some relief, as the last several weeks of the year traditionally have been Hallmark’s time to shine. Last month, the network rolled out a Holiday Countdown initiative designed to brand Hallmark Channel as TV’s primary destination for holiday-themed, family-friendly programming, while driving traffic to Crown Media’s 3,200 retail outlets.

In late-morning trading Thursday, Crown Media shares were up 12.7 percent, or 18 cents, to $1.60. In the last 12 months, the company’s stock price has fallen 42 percent.