AMC Networks Earnings Rise; Lower Ratings, Absence of ‘Better Call Saul’ Hit U.S. Ad Revenue
AMC Networks, the cable networks company that operates AMC, IFC, WE tv, BBC America and SundanceTV, on Thursday surprised Wall Street with slightly higher third-quarter earnings that exceeded analysts’ estimates. But its U.S. advertising revenue fell 2.6 percent amid lower ratings a lack of new episodes of original series Better Call Saul, which AMC had aired in the year-ago period.
The company on Thursday also said that cable giant Charter Communications would launch its suite of subscription video on demand services, as well as AMC Premiere, the company’s premium ad-free version of its AMC channel, to Charter’s Spectrum customers.
“AMC Networks is well on its way to strategically transforming itself from a ‘cable channels company’ into a premier content company with a suite of focused and targeted video entertainment products that are delivered to viewers on an expanding array of platforms,” CEO Josh Sapan said. “The underlying strategic priorities fueling our transformation have been and continue to be creating and owning great content and valuable IP, expanding our targeted direct-to-consumer services, maximizing the long-term value of our traditional linear business, and diversifying our revenue by developing new avenues of content monetization.”
He added: “Recent successes include our Acorn TV streaming service surpassing 1 million subscribers, an outsize presence at this year’s Emmy Awards with a number of key wins, and a recent agreement with Charter Communications to launch our full suite of focused streaming services – Acorn TV, Shudder, Sundance Now and UMC – and our commercial-free AMC Premiere offering on their Spectrum platform. We are optimizing the value and reach of our content in a variety of ways and executing on a plan that will enable us to thrive in a very dynamic and competitive environment.”
On an earnings call, Sapan said the company’s focus on streaming services with “specific, targeted” offerings zooming in on appealing genres differs from industry giants. he said the company has been looking to position itself to do well in the age of cord-cutting and the streaming wars.
In that context, he also shared that AMC Networks won’t license the recently unveiled third series in the Walking Dead franchise. “Today we are in a position to optimize our content by using it in different ways without a one-size-fits-all approach,” he said, “strategically windowing each series.” Said Sapan: “The monetization plan for the new upcoming third series of the Walking Dead universe is this: we did a deal earlier this month with Amazon to distribute that series internationally outside of territories where our AMC global channels will air it. However, in the U.S., we are holding back rights that we have traditionally sold to third parties. So domestically we will not sell the SVOD rights to this third Walking Dead series, but rather the series will be used to fuel our own platforms, both streaming, as well as linear as we window it and take full advantage of the opportunities that it presents to us.”
Management later added that the plan is to air the show on the AMC network in the U.S., as well as AMC Premiere and Shudder.
Sapan also said that the firm would look for the best ways to generate revenue – via further licensing or use on AMC platforms – as its TV series come off Netflix, Amazon and Hulu and “come back to us, representing a new business opportunity.”
Addressing the recent return of The Walking Dead, whose ratings have continued to slide, he touted the show’s “very large and very loyal audience.” He highlighted that it “even in season 10 continues to be the number 1 show on ad-supported cable TV by a 2:1 margin ahead of American Horror Story, a ranking The Walking Dead has held for 10 years in a row among adults 25-54.”
AMC Networks on Thursday posted a third-quarter profit of $117 million, or $2.07 per share, compared with $111 million in the year-ago quarter, and earnings per share of $1.93. Adjusted earnings hit $132 million, compared with $124 million. Wall Street had been looking for earnings of $1.68 per share. Quarterly revenue increased 3.1 percent to $719 million as a 20.5 percent gain in the firm’s “international and other” business outweighed a 0.2 percent decrease at its National Networks unit, which includes its five U.S. channels and AMC Studios.
In this segment, operating income fell 3.0 percent to $182 million, and adjusted operating income dropped 1.0 percent to $208 million in the latest period. “Third-quarter revenues reflected a 1.1 percent increase in distribution revenues to $365 million,” the company said. “The increase in distribution revenues was attributable to an increase in content licensing revenues, partially offset by a decrease in subscription revenues.” Advertising revenue decreased to $194 million “primarily related to lower delivery, as well as the timing and mix of original programming partially offset by higher pricing.”
The company’s distribution revenue fell below Wall Street expectations, and Bernstein analyst Todd Juenger said, “we believe this is the first quarter where the company has specified in the press release a decrease in subscription.”
AMC Networks shares were up slightlyin pre-market earnings.AMC Networks last year acquired Robert Johnson’s RLJ Entertainment, adding its subscription video services Acorn TV and UMC (Urban Movie Channel).
AMC Networks had added 400,000 subscribers for its four special-interest streaming services as of mid-2019, and the company said this summer it was targeting 2 million in aggregate subscribers by the end of 2019. Sapan said Thursday that the firm is now “pacing ahead” of that target. He reiterated that Acorn TV recently passed the 1 million subscriber mark, and horror streamer Shudder is also seeing “very strong” growth. AMC Networks has forecast a 3.5 million to 4 million subscriber base by 2022, and by 2024 anticipates 5 million to 7 million subscribers and around $500 million in revenue from its four streamers.
The company said its third-quarter earnings growth “was primarily related to the increase in adjusted operating income, as well as a decrease in income tax expense” thanks to tax cuts. Operating expenses rose 3 percent to $550.2 million due to higher programming expenses. The latest quarter also included charges of $1 million “related to the write-off of programming assets, as compared to charges of $11 million in the prior-year period.”
The U.S. advertising weakness “stems from a tough comp this quarter, mainly driven by the absence of Better Call Saul this year versus eight episodes last year,” Bernstein analyst Todd Juenger had said ahead of the earnings report. AMC Networks’ original series in the latest period included flagship channel AMC’s Fear the Walking Dead, which had two more episodes than in the year-ago period, but ratings for the series were down sharply. Juenger said ratings per episode were down 34 percent compared with the third quarter of 2018. “Smaller shows, such as Humans, Lodge 49 and Preacher, also contributed with a mix of [fewer] episodes and lower ratings. The main positive contributor this quarter was NOS4A2, which had four episodes versus zero last year.”
International and other revenue for the third quarter rose, narrowing that unit’s operating loss by $5 million compared with the year-ago period to $12 million. Adjusted operating income increased $6 million to $13 million