AMC Networks Posts Higher Quarterly Profit, Takes Programming Write-Off

4:08 AM PST 02/27/2014 by Georg Szalai
Gene Page/AMC
"The Walking Dead"

UPDATED: The operator of such cable channels as "The Walking Dead" home AMC reported a 31 percent gain in U.S. advertising revenue, but wrote off $52 million for cancelled shows "Low Winter Sun" and "The Killing."

AMC Networks on Thursday reported improved fourth-quarter core earnings, but adjusted operating cash flow declined amid a $52 million programming write-off.

The owner of cable channels AMC, IFC, WE tv and Sundance Channel, also posted an 18.7 percent revenue gain to $435 million, driven by a 31 percent U.S. advertising gain, boosted by the strong performance of AMC hit show The Walking Dead.

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Quarterly earnings from continuing operations of $35 million were up from $15 million in the year-ago period. Adjusted operating cash flow, another key metric of profitability, in the fourth quarter amounted to $98 million, down from $103 million. The latest period was weighed down by a $52 million write-off that the company described as being related to "the write-off of programming assets."

On an earnings conference call, CEO Josh Sapan said that the write-offs came for crime drama Low Winter Sun, which AMC late last year canceled amid weak ratings for its first season, and The Killing, which was canceled after three seasons.

The company has been expanding its lineup of original series, and Sapan on an earnings conference call said originals continue to drive the firm's performance.

He touted the strong ratings for Walking Dead, which managed to outperform ratings for the Winter Olympics in Sochi and has seen
season-to-date ratings rise 25 percent over last season across all demographics, Sapan said.

The CEO also touted the upcoming return of Mad Men in April and the summer's return of Hell on Wheels.

And Sapan said that the company's development pipeline is "more significant than it has ever been," citing, among others, the planned November premiere of Breaking Bad spin-off Better Call Saul. Management got some analyst questions about what kind of ratings new originals would need to hit to be a success, but executives would only say that this depends on the cost and other factors.

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Sundance Channel, meanwhile, is quickly establishing itself with original scripted shows, Sapan said.

In early February, AMC completed its acquisition of substantially all of Chellomedia, the international networks arm of John Malone's Liberty Global, for $1 billion.

Sapan for the first time shared more in-depth thoughts on the opportunities following the deal. He said AMC Networks is exploring alternatives for Chellomedia's advertising sales arm, which has lower margins and may not fit into the company's strategic priorities. Hinting that everything from a sale to a partnership were on the table, he said the company was looking at all options.

Overall, he said the integration of the Chellomedia business is in its early days, but management is excited about the opportunities.

Sapan on Thursday also said that with the now more global reach of the company thanks to Chellomedia, his team plans to premiere original shows simultaneously across the company's networks around the world.

AMC Networks' international and other operations saw fourth-quarter revenue rise 7 percent, with operating cash flow losses rising 91 percent amid fees from the Chellomedia deal.

E-mail: Georg.Szalai@THR.com
Twitter: @georgszalai

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