AMC Networks U.S. Ad Revenue Rises Despite 'Walking Dead' Ratings Drop

The Walking Dead _ Season 9, Episode 11 - Norman Reedus- Publicity- H 2019
Gene Page/AMC

Execs at the cable networks company on an analyst call talked about an upcoming spinoff series for its flagship zombie drama, which is closing in on its tenth year.

AMC Networks, the cable networks company that operates The Walking Dead home AMC, as well as IFC, WE tv, BBC America and SundanceTV, on Thursday reported better-than-expected adjusted fourth-quarter earnings and discussed restructuring initiatives designed to reduce costs.

The company, led by CEO Josh Sapan, said its U.S. advertising revenue rose in the latest quarter despite ratings challenges. Wall Street analysts had predicted lower U.S. ad revenue due to lower ratings for The Walking Dead, which the network recently renewed for season 10, and due to the network having no new episodes of Fear the Walking Dead, several episodes of which had aired in the year-ago period.

AMC Networks execs during a morning analyst call talked about a new Walking Dead spinoff series, without offering many creative clues as to where it will fit in an expanding Walking Dead universe. AMC Networks COO Ed Carroll said the third series is "in active development," after new creative had been hired and, led by series showrunner Scott Gimple, are pitching new storylines.

"We feel very good about the development of that series," Carroll told analysts. He remained tight-lipped about premiere plans for the third Walking Dead series, or about partnerships in international territories and ancillary windows. "There's a healthy appetite for it [a third series], and we've had discussions with a number of partners," he said.

The growing Walking Dead slate includes the flagship series, now in its ninth season and having shown a steep viewership decline, while remaining the No. 1 show on cable TV in adults 18-49. That audience decline was addressed by AMC execs during the analyst call.

"We are well aware that when a show has been around for nine years, you'd expect the viewership to be declining. But we've managed it," Carroll said. And AMC Networks CEO Josh Sapan reiterated that his company would continue to leverage the Walking Dead franchise for years to come as the flagship series closes in on its tenth year.

"The world of The Walking Dead is strong and vital and filled with potential in many, many different forms," he said. AMC Networks CFO Sean Sullivan also shed light on the network's $43 million restructuring charge recorded during the latest quarter, which included a "termination of distribution in certain territories."

Sullivan told analysts that those territories were in Asian markets and represented "small feeds, small channels, not a lot of money."

As it unveiled its latest financial results, AMC Networks stressed it is well positioned, despite being smaller than others in the sector, which has seen consolidation in recent years. "If there’s one headline for the year, it’s that AMC Networks continues to be a company that punches above its weight on almost every count, with a long history of having outsized impact and influence among our most important constituents, all to the benefit of our shareholders,” Sapan told analysts.

Besides the Walking Dead franchise, the exec pointed to success with BBC America’s Killing Eve, as his network ended 2018 with AMC having three of the top six dramas on basic cable.

AMC Networks posted a fourth-quarter profit of $72 million, or $1.24 per share, or adjusted earnings of $1.92 a share, compared with $145 million in the year-ago quarter and earnings per share of $2.33. Wall Street had been looking for earnings of $1.86 per share. The decrease in unadjusted figures was "primarily related to a $57 million net tax benefit recorded in the prior-year period, as well as a $43 million restructuring expense recorded in the current year," the firm said. Adjusted for those factors, earnings rose to $111 million from $105 million.

The charge of $43 million in the fourth quarter was due to the restructuring initiatives. For the full year 2018, the company recorded restructuring expenses of $46 million.

Fourth-quarter revenue rose 6.3 percent to $773.0 million, compared with the Wall Street consensus estimate of $757.6 million. At the company's U.S. unit, advertising revenue rose 1.4 percent as higher pricing was partially offset by lower ratings. U.S. distribution revenue in the quarter fell 5.1 percent to $320 million due to "a decrease in content licensing revenues, partially offset by an increase in subscription revenue."

"The fourth quarter was another difficult start for AMC's flagship AMC channel, with the main programming driver this quarter being the eight comparable episodes of The Walking Dead, with average ratings down over 40 percent year-over-year," Bernstein analyst Todd Juenger had said in his earnings preview report, predicting a 7 percent U.S. advertising revenue drop in the latest quarter. "Deliveries for the AMC channel then skyrocketed in December. There were no new original programs, but the channel ran a holiday special AMC Best Christmas Ever, with holiday movies from Thanksgiving to Christmas. This was the first season of this stunt, but this had been planned in the works, and was in the expectations when the company last provided guidance."

AMC Networks late last year closed the acquisition of RLJ Entertainment, which added streaming services like Acorn TV and UMC and around 1 million more direct-to-consumer subscribers to the firm's stable of digital platforms. Said Sapan: "The strength of our balance sheet allows us to continue to pursue smart and strategic investments that are changing our business, including our acquisition last year of RLJ Entertainment, which includes the Acorn TV streaming service, and is meaningfully advancing our direct-to-consumer interests, a key priority as we continue to diversify our revenue and grow our business."

Feb. 28, 9:30 a.m. Updated with comments by top AMC Networks execs made during an analyst call.