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AMC Networks, the cable networks company that operates AMC, IFC, WE tv, BBC America and SundanceTV, reported lower third-quarter earnings and said U.S. advertising revenue fell 15.5 percent after a 14.6 percent drop in the second quarter.
But management raised its streaming subscriber forecast and touted the upside of streaming service AMC+, which offers “the best from AMC, IFC, and SundanceTV, plus IFC Films Unlimited, Shudder, and Sundance Now.”
The company’s latest financials, disclosed early Monday, showed the continued impact of the coronavirus pandemic.
“The decrease in advertising revenues was primarily related to the timing of the airing of original programming as well as the impact of the COVID-19 pandemic, which resulted in lower demand,” the company said.
The company, led by CEO Josh Sapan, had previously predicted a U.S. ad revenue decline in the mid to high teen percentage range for the third quarter. Guggenheim Securities analyst Michael Morris in a recent report raised his advertising estimate to “down 15.3 percent (from down 16.5 percent prior), driven by the stronger than previously expected advertising market.”
Third-quarter total revenue dropped 9 percent to $654 million. Quarterly net income of $62 million was down from $117 million in the prior-year period. Adjusted operating income dropped 15.4 percent to $185 million. The company took $20 million in programming write-offs in the latest period, without providing further details, compared with $1 million in the year-ago period.
On Monday’s earnings conference call, management said due to the timing of original content, including a delay on The Walking Dead, fourth-quarter advertising declines over the year-ago period will be relatively consistent with the third-quarter drop.
While the pandemic has hurt the company’s advertising business, it has helped its streaming services. Earlier in the year, AMC Networks had said that it expects to reach 3.5 million to 4.0 million paid subscribers in aggregate for its four niche streaming services, namely Acorn TV, Shudder, Sundance Now and UMC, by the end of 2020, “a full two years ahead of the company’s original target of year-end 2022.” But on the firm’s second-quarter earnings conference call, Sapan said that his team was comfortable that it would finish the year near the “higher end” of the subscriber target range.
On Monday, the company said it would end the year with more than 4 million of these subscribers, and around 5-5.5 million subscribers when including AMC+.
On the earnings conference call, Sapan lauded the ratings of new original The Walking Dead: World Beyond in the U.S. and in international markets and the continued health of the broader Walking Dead franchise.
Discussing the return of original productions, Sapan said that AMC is currently in production on The Walking Dead in Georgia, Fear the Walking Dead in Texas, and season 1 of Kevin Can F*** Himself in Boston.
With AMC+, AMC Networks recently became what one analyst called “the first basic cable TV network group to offer all its content, including live programming, in an over-the-top app to consumers without a traditional pay TV subscription.” The AMC+ bundle, which contains AMC Network, BBC America, IFC, and SundanceTV, became available to Apple TV and Amazon Prime subscribers for $9 per month, including advertising-supported live linear feeds of the networks, as well as the ad-free on-demand libraries of each network.
Macquarie Capital analyst Tim Nollen wrote in a recent report: “This is a significant move, unthinkable a few years ago but seemingly inevitable now.”
Discussing early AMC+ usage trends on Monday’s call, Sapan said that the most viewed content on the service has included The Walking Dead season 10, World Beyond, as well as Gangs of London and The Salisbury Poisonings, which had exclusive launches on the streamer before coming to AMC later. And he described as a “super steroid targeted” service.
Sapan also lauded the low user churn of Acorn TV, which he said is the lowest across the streaming space. He said the cost of growing these services is also much lower than for such broad-based streamers as Netflix, arguing AMC Networks may be the world leader in niche, targeted streaming services, which he called a “wonderful business.” He described the dollar requirement as being “in a different league, nothing like you see and read about Netflix etc. spending on a per-hour basis. It is actually a different universe.”
Asked about plans for The Walking Dead and Fear the Walking Dead when current streaming licensing deals end, management said it should have more than 225 hours in zombies content. COO Ed Carroll said the company will have the freedom to use that on its own platforms, such as AMC+, or aggressively license it again. He compared the appeal of the franchise to Game of Thrones and The Sopranos, saying: ‘There will always be people who want to see that show” and aging into it.
He said AMC+ is also benefitting from this appeal to comic book fans. “It’s the Comic-Con crowd that has embraced our zombie series and shows like Preacher and Into the Badlands and A Discovery of Witches,” he said. He added that management determined that $8.99 per month for AMC+ “was the right introductory price point” and that the firm will be migrating people of the former AMC Premiere paying lower price points to the higher price over time.
Sapan in Monday’s earnings report said: “The company delivered solid results in the third quarter, and we continue to maintain a strong financial profile, with a solid balance sheet, very good liquidity and healthy levels of free cash flow.”
He added: “Our strong content also continues to resonate with viewers, with AMC home to four of the top six cable dramas in 2020 among adults 25-54, including our newest series in The Walking Dead Universe, The Walking Dead: World Beyond ranking as the #1 freshman cable drama of the year.”
Asked if AMC Networks could acquire or launch more streaming services, Sapan said the company is always studying the market and could do either if it makes sense.
AMC Networks shares in early Monday trading were up 3.9 percent at $22.07.
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