AMC Networks Third-Quarter Profit Falls Due to Dish Dispute, Programming Write-Off
UPDATED: The cable networks company, led by CEO Josh Sapan, continues to draw strong ratings with such shows as AMC hit "The Walking Dead."
Cable channel company AMC Networks on Thursday reported third-quarter earnings of $37 million, down 8.4 percent from $40 million in the year-ago period due to an extended carriage dispute with satellite TV giant Dish Network.
Revenue at the company, led by CEO Josh Sapan, rose 17 percent to $332 million as an 18 percent gain at U.S. networks outweighed a 5 percent decline for international and other networks. Advertising revenue rose 9.1 percent, driven by AMC, which aired three originals in the latest quarter, compared with one in the year-ago period.
Adjusted operating cash flow, another measure of profitability, declined 10.9 percent to $110 million. But the results exceeded average Wall Street expectations.
The company, whose networks include The Walking Dead home AMC, IFC, WE tv and Sundance Channel, was hurt in the third quarter as Dish dropped its networks amid a carriage dispute. The companies recently settled the dispute and a legal case, whose costs also affected AMC Networks' latest results.
"The [Dish] termination had a material impact to revenues, adjusted operating cash flow and operating income in the current period," the company said without detailing the precise effect. Sapan on a conference call called the effect "quite significant," saying that operating profit and adjusted operating cash flow would have seen "healthy double digit growth" without the Dish showdown.
AMC Networks also mentioned that legal expenses were a drag on adjusted operating cash flow figures for AMC's international and other segment, which houses Voom HD, the focus of the Dish litigation. Sapan later said that his company's share of the litigation cost amounted to $5 million in the third quarter, with former parent Cablevision Systems also taking on some of the legal costs.
"We've enjoyed a long relationship with Dish Network and are delighted to partner with them again in bringing our channels and programming to their subscribers," Sapan said. "While the litigation and associated carriage dispute impacted our third quarter financials, that issue is behind us and we are fully focused on continuing our strategy of investing in quality original programming." He added that the company and investors can now focus their complete attention on the fundamental business.
Dish earlier this week said it swung to a third-quarter loss amid the litigation costs in the battle with AMC Networks.
The latest quarter also included a $8 million programming write-off for mini-series The Prisoner with Ian McKellen and Jim Cavezel that AMC co-produced with British network ITV a few years ago. Analysts have also suggested that the cancellation of AMC series The Killing could eventually lead to a write-down.
Sapan on the call said his team continues to push ahead with its focus on original programming, saying ratings for The Walking Dead would have been even bigger if AMC had been on Dish in the third quarter. Advertising rates for originals are getting "much closer" to those of Mad Men, he also said.
AMC currently has five scripted originals and several unscripted originals. "We are reasonably pleased" with the unscripted fare, Sapan said. Asked about two drama pilots the network ordered earlier in the year, he said they are currently in post-production and will be evaluated.
AMC for the first time ordered two drama pilots this spring. One of the projects is Low Winter Sun, a co-production with Endemol Studios that is described as a story of murder, deception, revenge and corruption in a world where the line between cops and criminals is blurred. The other is an untitled project from Richard LaGravenese (The Fisher King) and Tony Goldwyn. It is described as a legal thriller with political, personal and ethical stakes that revolves around a district attorney who finds new evidence that leads to the reinvestigation of a murder case.
Asked if the Sundance Channel could launch a more traditional ad model, Sapan said the company had "no plan to abandon the current sponsorship model." And he said the company likes the channel's mix of mini-series, such as the upcoming Restless, series and films. "We like what we're doing," Sapan said. But "we would like Sundance to become more poular, more meaningful and more viewed."