Spinoff Cablevision network group earns praise, piques buyers

It’s been about nine months since AMC Networks was spun off from parent Cablevision and investors could swap shares of the company that’s behind “Mad Men,” “The Walking Dead” and “Portlandia.” AMC stock had some extra sizzle from day one as Wall Street wondered if the spin could lead to an outright sale.

Timing was good. Flagship net AMC was hot and getting hotter, with five original scripted series on air this year. Others in the group also are making their mark: IFC is reinventing itself as a home for edgy comedy; WEtv is carving out a place among women with celeb-driven reality series under the rubric, “Every kind of family. All kinds of drama”; and Sundance Channel is serving up new shows alongside its eclectic mix of pics.

Ad revenue surged nearly 15% for the group in fourth quarter 2011, outpacing the industry, and has continued to be muscular into 2012. The company will report first-quarter earnings in May.

Wall Streeters and Madison Avenue types alike give AMC CEO Josh Sapan and his team kudos for cleverly defining all four brands in a cluttered, competitive market. Now he’s doing it as head of a publicly traded company, which adds a level of scrutiny.

“There’s more attention paid to what we do,” Sapan told Variety at AMC’s Gotham offices on Seventh Avenue across from Madison Square Garden. But boosting the profile of the company and its networks was part of the reason for the spinoff, he added.

The former Rainbow Media Networks went solo July 1. The stock trades in the mid $40s, well up from its 52-week low of $29.66 in August. It hit a high of $46.69 in March.

While it’s now come down a few bucks, some analysts, like David Miller of Caris & Co., think that’s still a bit rich.

Miller says AMC trades at about the same multiple, based on his 2012 earnings estimates, as Discovery Communications, which owns all of its own shows. Of AMC network’s five original series, it owns only “The Walking Dead,” which is a hit.

“They need more original series that they produce on their own, and I think that would help in terms of allowing the stock to grow into its valuation. It’s gotten ahead of where they really are as a company,” Miller says.

Sapan swears he likes dealing with Wall Street on a daily basis. He’s all for drumming up more content inhouse and has been moving steadily in that direction at networks that once showed movies only. And he says he runs AMC’s four networks with the same relative autonomy he’s had for years under Cablevision.

“It’s not terribly different than it was,” Sapan says. “Before, I reported in to Cablevision. Now I report in to the board of directors,” which is headed by Cablevision founder and chairman Charles Dolan.

Dolan’s son, Cablevision CEO James Dolan is also on the AMC board, along with three other members of the Dolan family, which is AMC’s largest shareholder.

The structure swayed investor perception from the get-go, since the spinoff was seen as a step by the cable operator to sell AMC outright, fueling takeover speculation that buoyed the stock; investors were let down when no deal seemed imminent. People familiar with Cablevision and the Dolan family say there are strategic financial as well as personal reasons why they could maintain the status quo for some time to come.

Some aren’t convinced. “AMC stands out,” says one fund manager. “They’ve done a good job of finding their voice. And everybody thinks they are going to sell it.”

To compare, in 2010, Cablevision spun off MSG, a former subsidiary that owns Madison Square Garden, the sports teams that play there including the New York Knicks and Rangers and the network that airs them. It’s run by James Dolan, and no one expects MSG will be sold.

AMC has a market cap of about $3 billion, making it a rare mid-cap media stock. But it’s very thinly traded. About 400,000 shares change hands each day — compared with 7.4 million shares of Time Warner, or 3.6 million shares of Lionsgate, which has a market cap half the size.

Analysts say they’d like the company to be a sliver more transparent and attentive to managing expectations — that very delicate dance between corporate execs and Wall Street.

AMC’s fourth-quarter profits fell short of analysts’ estimates because of an $18 million write-down for “Rubicon,” a conspiracy thriller on AMC canceled after one season.

“It was extremely well done, well crafted and had a strong constituency,” Sapan says, but despite nods from critics, it failed to connect with viewers. The write-down caught Wall Street off guard, and the company took a bit of a lashing even though such charges are inevitably part of the biz, and revenue was higher than expected.

“I think they are feeling their way of how to communicate with the Street,” one analyst says. “They’re newbies.”

But Wall Street is upbeat on AMC — for its strong management, robust ratings and advertising, the prospect of higher license fees as contracts expire, the underlying takeover possibility and its rare ability to create intense, HBO-like water-cooler buzz around the few shows it owns and the ones it doesn’t. Moreover, its position as a basic cabler enhances its penetration levels.

In the first quarter of 2012, AMC’s primetime aud rose year-to-year by a modest 6% in total viewers, but by a healthy 28% in adults 18-49 and a whopping 61% in adults 18-34 — buoyed by young-adult magnet “Walking Dead,” which typically ranks among the week’s top shows in all of television in key demos.

“AMC has a great lineup. It’s really developed a recognizable brand that viewers associate with leading-edge drama,” says Marla Backer of Hudson Square Research. “It’s hard to do that. It’s costly. There’s such a high hit-or-miss rate with content. But if you spend carefully, I think you can spread your risk over a growing portfolio.”

Its slate includes “Mad Men,” which has won the Emmy for best drama four years running, and popular zombie-fest “The Walking Dead,” along with “Breaking Bad,” “The Killing” and “Hell on Wheels.” After a 17-month hiatus, “Mad Men” returned to draw 3.5 million viewers last month for its season five premiere, up 41% from the season four launch.

“We started this trip six years ago, on a little show on a network that never made original programming. And here we are six years later,” said Jon Hamm, “Mad Men’s” brooding ad man Don Draper, as the show’s cast and producers rang the opening bell of the New York Stock Exchange.

That stock exchange stunt was part of a massive marketing campaign from magazine covers (Entertainment Weekly, TV Guide and Newsweek, which even extended the retro look to its editorial and some ad pages), to the “Mad Men” Makeup Collection from Estee Lauder, a Banana Republic Mad Men Collection and events like a Night of Classic Cocktails at the Plaza Hotel’s Oak Room in Gotham.

“Mad Men” belongs to Lionsgate, which means it will make AMC less coin than ones the network owns outright, like “The Walking Dead.” But the exposure is priceless. “Mad Men” creator Matthew Weiner called it a good moment for AMC and television in general as movie studios focus on megabudget tentpoles, where they perceive less risk.

“You can take risks in television because the audience is smaller,” Weiner maintained. “Adult programming with a niche audience is a business.”

Real-life ad execs are sunny too.

“We work on the ratings. We live by the ratings,” says Harry Keeshan, head of media buying at PHD. “But we’re also looking for buzz we can get as a lift to build a following.”

The four nets all started as movie channels and are evolving at their own pace. AMC is in about 90 million homes, with WE in 70 million homes, IFC in 60 million and Sundance in about 40 million.

IFC started taking commercials last year and is plowing the cash back into programming by planting a flag in offbeat comedy, building from the scripted hit “Portlandia,” about young hipsters in Portland, Ore. Earlier this month, it unveiled a handful of new original comedies including “Comedy Bang! Bang!” and “Bunk,” riffing on latenight talk- and gameshows, and a new inst
allment of R. Kelley’s “hip-hopera” “Trapped in the Closet.” Shows target what IFC calls “responsible rebels” — hipsters with good jobs, cash to spend and brand loyalty, who are searching for smart comedy.

IFC also has IFC On Demand; IFC Films to distribute indie fare; IFC Prods. to finance some; and IFC Center, a five-screen theater in Greenwich Village. IFC and Sundance prexy Evan Shapiro was just tapped to lead a new TV division for Participant Media.

Femme net WEtv, which focuses on celebreality shows, unveiled a pair of series, starring Cyndi Lauper and Playboy model Kendra Wilkinson, joining existing skeins “Braxton Family Values,” from Toni Braxton; the Rivers’ mother-daughter show “Joan & Melissa”; “Mary Mary,” starring gospel-singing sisters Erica Atkins-Campbell and Trecina Atkins-Campbell; and “Shannen Says,” toplining Shannen Doherty.

Sundance, still commercial-free although it works with sponsors, has a mix of original series including Jane Campion’s “Top of the Lake,” from the BBC; “Rectify,” its first wholly owned series, from “Breaking Bad” producers Mark Johnson and Melissa Bernstein; and non-fiction interview show “Iconoclasts,” as well as “Push Girls,” which follows four wheelchair-bound young women in Los Angeles.

Sundance’s focus on movies endures because it has a curatorial role, Sapan says. “You trust them to find something good that you haven’t seen before.”

What the Street and ad execs see is buzz, and that translates into potential coin down the road.

“The network has the ability and eye for creating good quality content, and that’s what we look for. This is a tough business, getting hits out there. But they seem to be very disciplined in their approach,” Keeshan says.

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