AMC Networks mounted an argument for its vitality in a consolidating media landscape, posting stellar first-quarter financial results that blew past Wall Street estimates.
Net income increased 28% to $2.54 per share on a diluted basis from $1.98 in the first quarter a year ago, far higher than Wall Street analysts’ $2.19 consensus. Revenue inched up nearly 3% to $741 million, $20 million ahead of analysts’ forecasts. The earnings and revenue figures were company records for the first quarter.
Investors cheered the quarterly numbers, sending AMC Networks shares up almost 6% to $56.25 in morning trading.
During a conference call with advertisers to discuss quarterly results, CEO Josh Sapan inverted the common critique of cable programmers — that they are melting ice cubes as the heat from streaming services continues to rise. Much of the “explosion” of TV programming, he said, is occurring on non-ad-supported networks like Netflix, HBO and Showtime, he said. Therefore, by positioning AMC, Sundance, IFC and BBC America as comparable sources of quality shows, only with commercial interruption, “Our ad-supported networks provide an increasingly rare opportunity for advertisers.” More broadly, Sapan added, “our size, focus and collection of assets are unique strengths in this environment.”
That said, domestic ad revenue declined 9% in the quarter, to $226 million from $248 million in the year-earlier frame. While that was a smaller drop than some analysts had forecast, proceeds from licensed content offered a much more encouraging number. Affiliate and distribution revenue increased 11% in the quarter, to $407 million.
With headwinds continuing in terms of cable advertising, the company has increasingly expanded into non-ad-supported arenas, in addition to ramping up its own production efforts at AMC Studios. AMC’s premium subscription service, first launched on Comcast’s Xfinity platform, is now headed for YouTube TV and the company aims to continue the rollout. It has also invested in alternatives to the traditional bundle such as digital platform Funny or Die and British-flavored streaming service Acorn TV.
“We are doing two things and they are both, we think, highly supportive of each other,” Sapan said. With ad-supported programming, “the viewer is highly highly engaged” and valuable for ad buyers. “Secondarily, a number of those people are happy to pay extra money to buy that material in an ad-free environment … and that’s a compliment to the content. … It allows us to live in two manners of economic exploitation and we think that is good for our health.” In a thinly veiled reference to rivals like Viacom, Sapan said, “You hear other companies say, ‘We have a lot of channels, but we want to focus on five.’ Well, we only have five. We don’t have 10 or 20.” That limited scale, he maintained, lends coherence to the company’s offering to advertisers, distributors and viewers.
About two-thirds of AMC Networks revenue, Sapan said, comes from distribution fees and sales of content to streaming services and networks around the world. The remaining one-third is advertising. “We will probably see that accelerate toward the non-ad-supported pieces over time,” he said.
Asked about the upfront marketplace and how AMC Networks programming stacks up with the biggest networks, COO Ed Carroll said the company increasingly enjoys broadcast-level CPMs for many of its shows. “With The Walking Dead, for 18-49-year-old viewers, there just aren’t other shows that have a comp,” he said. “The rest of AMC’s original programming slate, and increasingly BBC America’s is in the same neighborhood” as broadcast TV.
No analysts asked outright about M&A, nor did executives venture into that realm in their comments, but a question long hovering over AMC Networks has concerned its viability as a stand-alone company. With similarly sized cable programmers like Scripps Networks Interactive being rolled up by Discovery and telcos and tech firms ramping up in TV, the company is frequently mentioned as an acquisition target. And yet, even with missiles flying overhead among Comcast, 21st Century Fox, Disney, AT&T, Time Warner and others, AMC has stuck to executing its long-term plan, with a remarkably stable management team and asset portfolio since spinning off from Cablevision in 2011.
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