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‘The Walking Dead’ Powers Advertising Gains for AMC Networks in Q1

AMC Networks delivered a pleasant surprise in the first quarter with domestic advertising revenue gains that outpaced Wall Street expectations. But softness in distribution revenue still raised some concerns about the impact of the shrinking traditional MVPD universe on AMC’s long-term fortunes.

AMC Networks president-CEO Josh Sapan told analysts during Wednesday’s conference call that the company’s flagship AMC cable channel and others are reaping the rewards of being among the few outlets offering marketers the chance to put spots in buzzy high-end TV shows.

“AMC Networks stand out as one of the few and best ad-supported premium TV environments,” Sapan said.

AMC Networks delivered a 5.9% year-over-year increase in total revenue to $784 million. Adjusted operating income grew 8.8% to $293 million but net income fell 9% to $143 million.

Advertising at AMC’s National Networks unit housing AMC, BBC America, SundanceTV, IFC and WeTV was up 5.9% to $239 million even as Wall Street expected ad coin to decline in the quarter. Those gains came even as live viewership of “Walking Dead” dropped, although AMC had three more episodes of the show airing in the quarter than in Q1 2018. Sapan noted that despite the viewership decline “Walking Dead” remains the most-watched non-sports program in cable.

AMC has ordered a third “Walking Dead” series that is targeted to premiere in 2020. The fifth season of the first spinoff — “Fear the Walking Dead” — begins in June. The “Walking Dead” franchise is particularly lucrative for AMC because the shows hail from AMC Studios (although the original series has been wrapped up in long-running litigation from profit participants). The new addition and other projects planned in the “Walking Dead” milieu will “add vitality to the franchise for five, ten, 20 years and more to come,” Sapan said.

AMC Networks’ distribution revenue fell 7.4% to $377 million, which AMC attributed largely to a year-over-year decrease in content licensing revenue. But that was several percentage points lower than the Street expected, and it comes on the heels of major MVPDs reporting worse-than-expected subscriber losses for the quarter.

AMC’s International and Other unit — which includes IFC Films, international channels and its suite of specialty streaming services — delivered a 53% revenue gain to $171 million related to AMC’s recent acquisitions of Levity Entertainment Group and RLJ Entertainment. The unit’s operating loss narrowed by $3 million compared to the year-ago quarter to $14 million.

Sapan and AMC Networks CFO Sean Sullivan reaffirmed the company’s full-year guidance of low to mid- single digit gains in total revenue and low single-digit growth in operating income. Sullivan acknowledged that “macro trends” among MVPDs have forced them to “moderate our expectations” in affiliate revenue for the year, but in aggregate AMC expects to be on track with its original 2019 full-year forecasts.

Sapan addressed AMC’s strategy to compete in an environment where its rivals are getting bigger by the day. And he outlined AMC’s effort to grow in the streaming arena by focusing on distinct programming niches with specialized SVOD offerings such as Acorn TV, which offers British dramas, the horror-focused Shudder and Urban Movie Channel.

“The path we’ve taken is not to gun the boat at 100 miles an hour while sitting in the water but rather learn as we go,” he said.

Sapan emphasized that the services will ride the wave of interest in streaming in general. But by targeting narrow slices of a genre-specific audience, AMC will be able to make selective investments in programming that will hopefully pay off faster and drive subscriptions without forcing AMC to fight its way into the arms race for content.

“We’ve not taken the opportunity to be in general interest direct-to-consumer (streaming),” Sapan said. “We felt we could acquit ourselves very well in the specialized area. We thought that it could have different economics that would live alongside the adoption of broad direct-to-consumer services.”

Moreover, AMC is experimenting with release patterns for linear and streaming programming. Sapan cited the success of the drama “Discovery of Witches,” a British import that premiered in January on the SundanceNow streaming platform. It showed enough promise there to warrant airing as a simulcast on the mothership AMC cabler and BBC America.

Sapan alluded to the perception in the marketplace that AMC Networks is too small to stay status quo in the current environment by suggesting that it has the goods to “co-exist” with its larger rivals, akin to a prestige boutique competing against giant all-purpose department stores. He cited the heat of BBC America’s “Killing Eve” as an example of a hot property developed in-house by the AMC programming team.

“It illustrates how compelling content can break through and command disproportionate attention,” he said.

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