AMC Networks Quarterly Earnings Exceed Estimates

Better Call Saul Season 4 Episode 7 - Publicity - H 2018
Nicole Wilder/AMC/Sony Pictures Television

The company, led by CEO Josh Sapan, aired such originals as 'Better Call Saul' and 'Fear the Walking Dead' in the third quarter, with international operations leading the growth charge.

AMC Networks, the cable networks company that operates The Walking Dead home AMC, as well as IFC, WE tv, BBC America and SundanceTV, reported better-than-expected third-quarter earnings on Thursday and said it has completed its acquisition of RLJ Entertainment, which operates streaming services.

AMC Networks, led by CEO Josh Sapan, posted a profit of $111 million, or $1.93 per share, or adjusted earnings of $2.15 a share, compared with $87 million in the year-ago quarter and earnings per share of $1.68. Wall Street analysts had on average expected earnings of $1.78 per share.

The company's original series in the third quarter included Better Call Saul and Fear the Walking Dead.

On an analyst call, Sapan touted the RLJ Entertainment acquisition, which adds streaming services like Acorn TV and UMC and around 1 million more direct-to-consumer subscribers to his stable of digital platforms. The RLJ deal, he argued, "furthers our direct to consumer strategy, and accelerates our interest in VOD services that we own and control."

Sapan told analysts that niche streaming services with appealing content could survive and thrive amid more general offerings like Netflix and Amazon, as virtual multichannel video programming distributors (MVPDs) proliferated in the emerging video market amid cord-cutters and cord-nevers.

"This market is evolving. Not everything will work. But certain offerings will work and we think this is an area where we are well suited to grow," the exec insisted.

Third-quarter earnings at AMC Networks benefited from a 7.5 percent increase in revenue, partially offset by higher operating expenses, primarily due to higher programming expenses. Programming expenses included charges of $11 million related to the write-off of programming assets, as compared to charges of $8 million in the prior-year period. The company didn't immediately specify which programs caused the charges.

AMC Networks' international and other segments led the charge with a revenue gain of 34.6 percent, while the U.S. unit dubbed National Networks recorded a 3.5 percent increase.

In the U.S. unit, third-quarter distribution revenue rose 5 percent. Advertising revenue increased 0.9 percent to $200 million. The increase in advertising revenues principally related to higher pricing, partially offset by lower ratings.

Sapan on the analyst call talked up the stickiness of his network channels like AMC, Sundance TV and BBC America in an evolving media and entertainment marketplace, given AMC Networks offers The Walking Dead and other top-rated dramas like Better Call Saul and Fear the Walking Dead on ad-supported cable, with added appeal for virtual MVPDs.

"We wouldn't suggest we're becoming Netflix, but we have an interesting opportunity ... that suggests sustainable growth and sensible profits and endurance. When attached to our cable and studio businesses, this also represents a very appealing new dimension to the AMC business," Sapan said.

At the same time, the AMC Networks topper fielded questions from analysts on weaker ratings for the recently launched ninth season of The Walking Dead, with implications for advertising revenue going forward.

"While we're very well aware of the linear TV performance, The Walking Dead represents more than a TV series. It is a universe," Sapan said, as he pointed to licensing and gaming ventures, among other spinoff revenues. "We're planning to manage it, and grow it, for many years to come," he added in his comments on the Walking Dead franchise.

The season nine launch marked the first time that the company made the show available prior to its linear release on an advertising-free basis on AMC Premiere, its premium streaming platform that costs $4.99 per month. Sapan told analysts that move gave a bump to signups for AMC Premiere.

Nov. 1, 10:30 a.m. Updated with comments by AMC Networks CEO Josh Sapan made during an analyst call.