AMC Networks, the cable networks company that operates AMC, IFC, WE tv, BBC America and SundanceTV, on Wednesday said it swung to a fourth-quarter loss amid lower U.S. ratings, higher U.S. programming costs, higher expenses at its streaming video business and special charges.
The company, led by CEO Josh Sapan, posted a fourth-quarter loss of $9 million, or 15 cents per share. The results included the impact of $107 million of impairment and related charges at AMC Networks International, including $98 million for the partial write-down of goodwill associated with the unit and $9 million related to “the disposition of certain businesses” that the firm didn’t specify, as well as $11 million in restructuring and other related charges.
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During a morning analyst call, Sapan said AMC Networks will focus on content creation where it retains the ownership rights and targeted subscription VOD services to position itself in a fast-changing digital space. “We now increasingly own it (content) and put it in our own library if you can imagine it, where we can deploy it later. We have a very smart and responsible plan for growth,” he answered when asked about recent distribution renewals, including AMC and satellite TV provider Dish Network signing a new long-term carriage agreement that covers Sling TV, Dish’s over-the-top streaming video service.
The AMC boss argued the fast-growing streaming market for his offerings like Anglophile-focused Acorn TV and the horror-centric Shudder service did have to compete against new entries, even though they are meant to “complement” Netflix and Amazon Prime and other generalist services, rather than go head-to-head. Here Sapan described as “breathtaking” some of the subscriber projections for Apple TV+ and Disney+ with the “rapid proliferation and adoption” of streaming services.
But Sapan argued his niche services had better economics because of less price pressure and churn due to a closer relationship with loyal subscribers. And as the streaming market inevitably bundles up in a shifting market, Sapan added AMC was well placed with its popular programming to position itself in the direct-to-consumer digital world.
“Our view is that we need to have great material that is extremely well priced and super sticky on basic cable, and we need to own the rights so we can navigate and move where they go, and we can make the decisions selectively and with control about what we sell off and what we deploy on our own platforms,” Sapan said.
And AMC’s targeted streamers also have international potential as direct-to-consumer offerings or as part of existing distribution platforms. AMC COO Ed Carroll said the company was looking first to English-speaking territories for overseas launches of its niche SVODs, and also parts of Europe and Latin America.
During 2019, as it unveiled its latest financial results, AMC said it had started “various restructuring initiatives related to our management team,” which it had talked about in the past. As a result of these initiatives, the firm recorded the $11 million in charges for the fourth quarter and $41 million for the whole year.
Adjusted for onetime items, AMC Networks posted a profit of $96 million, or $1.69 per share, compared with $72 million in the year-ago quarter, or $1.24 per share (or $111 million, or $1.92 a share, on an adjusted basis). Wall Street had been looking for earnings of $1.79 per share.
Fourth-quarter revenue increased 1.6 percent to $785 million as international growth of 6.5 percent, driven by higher streaming revenue, offset a 0.6 percent U.S. decline. The company previously had said that its four main streaming services had passed the 2 million subscriber mark.
U.S. advertising was down 7.8 percent in the fourth quarter amid “lower delivery, partially offset by higher pricing” and U.S. distribution revenue was up 5.5 percent. The quarter included the start of season 10 of The Walking Dead on flagship network AMC. Quarterly operating income at the U.S. unit decreased 12 percent to $156 million, with adjusted operating income down 13 percent to $182 million. The drops were driven by lower revenue and an increase in operating expenses “primarily attributable to higher programming expenses.” Programming expenses included charges of $23 million related to the write-off of programming assets, as compared to charges of $29 million in the prior year period. The company didn’t detail what programming those write-offs were for.
AMC Networks’ “international and other” unit, which includes its streaming unit AMC Networks SVOD, saw its operating loss expand by $69 million to $118 million, while adjusted operating income increased 75 percent to $15 million. The company cited an “increase in operating expenses” primarily attributable to “an increase at AMC Networks SVOD.”
AMC Networks in December said that its four niche streaming video services — Acorn TV, Shudder, Sundance Now and UMC (Urban Movie Channel) — have passed 2 million combined subscribers.
Feb. 26, 7 a.m.: Updated with comments by top AMC Networks execs made during an analyst conference call.
