AMC Networks Turns to ‘Hyper-Focused’ Streaming Strategy as Linear Growth Prospects Dim

AMC Networks CEO Josh Sapan outlined a shift in focus to growing the company’s niche subscription streaming services during a conference call with Wall Street analysts on Thursday. AMC Networks’ third-quarter earnings release underscored the economic headwinds facing the owner of AMC, BBC America and other cable channels.

Sapan told analysts that the company is re-thinking its approach to selling rerun rights to its shows to outside SVOD platforms. In the past, AMC Networks has struck output deals for multiple series at a time with partners such as Netflix and Hulu, but in the future every series will be evaluated on a case-by-base basis to generate the highest return.

AMC Networks is crafting “new monetization patterns” for its content and eschewing a “one-size-fits-all approach for each piece of content,” he said. AMC shares were down more than 6% in early trading Thursday but quickly recovered. Shares were down less than 1% at the close of trading to $43.55.

Sapan said AMC intends to hold on to domestic streaming rights to the third “Walking Dead” series that is set to premiere next year. “The series will be used to fuel our own platforms,” Sapan said. AMC has cut a deal with Amazon for international rights to the series, with exceptions to the markets where AMC has international channels.

AMC’s third-quarter numbers fell short of analysts expectations in the important metric of distribution revenue as both advertising and affiliate fees declined. AMC executives attributed some of the subscription revenue decline to an ongoing contractual dispute with an unnamed MVPD.

“Negative subscription revenues are about the worst thing that can happen to a cable networks company,” wrote Bernstein & Co. analyst Todd Juenger in a note Thursday.

Overall, AMC Networks delivered a 3.1% year-over-year gain in Q3 revenue to $718.6 million and a 2.3% gain in adjusted operating income to $168.4 million. Advertising at AMC’s core portfolio of U.S. cable channels fell 2.6% to $194 million. Some of that hit came from the fact that one of AMC’s tentpole series, “Better Call Saul,” has not been on the air this year.

AMC Networks’ dependence on “The Walking Dead” franchise was reinforced by the observation from Ed Carroll, chief operating officer, that the third still-untitled “Walking Dead” series will allow AMC to deliver some “40 Sundays of original zombie world premieres” in 2020. “That’s a consistency that’s not happened before,” he said.

Sapan emphasized AMC’s heightened focus on growing its collection of four subscription streaming services: Acorn TV, a showcase of British dramas; Shudder (horror and thrillers), Sundance Now and Urban Movie Channel. He described them as the kind of “targeted, hyper-focus SVOD services” that can thrive as complementary offerings to the broad-based services such as Netflix and the array of competition coming from Disney, WarnerMedia, Apple and NBCUniversal in the coming months.

Sapan noted to analysts that AMC’s focus on tailored services makes more sense for a company of its size than trying to compete in the fray of general entertainment services.

AMC’s four streamers at present are projected to end the year at more than 2 million subscribers in total. That’s projected to grow to 3.4 million to 4 million by 2022 and 5 million to 7 million by 2024.

“That’s a meaningful opportunity for a company of the size and scope and genetics of AMC Networks,” Sapan said. AMC also announced a deal with Charter Communications, the nation’s second-largest cable operator, to make the four services available for subscription through its Spectrum cable and broadband offerings. Sapan said the Charter pact is a sign of things to come for AMC and other distributors.

“The scope of this agreement represents a larger shift in our relationships with traditional and emerging [MVPDs],” he said.

Executives did not break out specific subscriber numbers for the four services, although they confirmed that Acorn TV has more than 1 million subscribers. Sapan pointed to the growth rate at Shudder being strong enough to warrant investment in original content. The original series “Creepshow,” produced by “Walking Dead” veteran Greg Nicotero, “has been the breakout for this targeted service, driving more subscriber acquisition than we’ve ever seen,” Sapan said.

AMC Networks CFO Sean Sullivan sought to reassure investors that AMC would be “prudent” even as it ramps up investment in original content for streaming. The investment horizon for AMC in building up its streaming business is still considerable. The company acquired Acorn TV and UMC through its acquisition last year of a controlling interesting in RLJ Entertainment. For the nine months ended Sept. 30, RLJ delivered to AMC an operating loss of $6 million.

Nonetheless, AMC’s core U.S. cable business delivered $88 million in free cash flow for the quarter and $318 million for the nine months ended Sept. 30. AMC executives positioned that haul as a cushion that will allow for investment in other areas.

“Our core linear businesses remain quite profitable and will continue to generate cash flow for many years to come,” Sullivan said.

(Pictured: “The Walking Dead”)

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