Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the AMC networks first quarter 2020 earnings call I would now like to hand, the conference over to your Speaker for Seth Zaslow Senior Vice President of Investor Relations.
And your line three new life.
Thank you good morning, and welcome to the AMC networks first quarter 2020 earnings Conference call.
I've got this morning are members of our executive team.
Sapin, President and Chief Executive Officer at Carroll, Chief Operating Officer, and Sean Sullivan, Chief Financial Officer.
Hi, good discussion of the company's first quarter 2020 results, we'll open the call for questions.
I don't have a copy of today's earnings release. It is available on our web site at AMC networks Dotcom.
We think noted the following today's discussion may contain statements that constitute forward looking statements. The meeting of the private Securities Litigation Reform Act of 1995.
Investors are cautioned that any such forward looking statements are not guarantees for the future performance or results and involve risks and uncertainties that could cause actual results to differ.
Please refer to the company's filings with the Securities and Exchange Commission for a discussion of risks and uncertainties.
Company disclaims any obligation to update the forward looking statements that may be discussed during this call.
Further we will discuss non-GAAP financial information.
We believe the presentation of non-GAAP results provide you with useful supplemental information concerning the company's ongoing operations and is appropriate and your evaluation of the company's performance.
For further details please refer to the press release, and where we did footnotes for GAAP information a reconciliation of GAAP to non-GAAP information, which will refer to on this call.
With that I would now like to turn the call over to Josh.
Well good morning, everyone and thank you for joining US we hope that you your families and your colleagues are safe and healthy.
Well take a few minutes to give a brief overview of how we're managing our business operations. During this challenging period and touch on key operational metrics before turning the call over to Sean Sullivan.
For more details on our financial results.
Sure leave you ended the first quarter broad unprecedented challenges to our business.
Well in what is going to talk and unique operating environment. We have generated significant levels of free cash flow and we remain well capitalized strong balance sheet and strong what do you.
Our company's key areas of focus which we've detailed on previous calls your me.
Creating strong content and valuable IP.
Diversifying revenue.
Particularly by growing our targeted subscription video on demand services.
And maximizing the value or for linear channels.
Our investments in these areas over the last several years, along with her very strong balance sheet and our ability to manage expenses with discipline or enabling us to navigate this challenging time from a position of strength.
And we'll continue to serve us well when this environment stabilizes and as we look beyond this period as a remainder of 2020 and it had to 2021 and beyond.
The most immediate significant factor.
For our business in this period has been on our AD sales.
Strictly the categories that have been most affected by sheltering at home mandates.
These include travel auto restaurants and theatrical exhibition.
In addition, we've had to postpone production and post production work on a number of shows resulting in some scheduling shifts between now and the ended the year, which were also managing through.
The current environment, a little produced several opportunities for new reimagine content showcasing or talent.
Proven appealing to consumers in this environment.
There are several examples include the your home edition of our talking that after show a new series called Friday night in Morgans, featuring the walking dead Jeffrey be Morgan and tell them from we TBS Love. After Lockup series series Celltrion videos about what it's like to be isolated and what steps to take.
Our current writers rooms are now operating is virtual writers means.
The rooms that produce season 11 to be walking dead and the final season to better call Saul.
So that work continues.
During this time companies in our industry is affected by varying degrees, depending on their exposure to different categories of business.
We have relatively less direct exposure to certain categories that have been particularly severely impacted.
Hi, social distancing protocols and that depend on large gatherings sections distribution of large theatrical film sports and life events with the exception of or majority interest in Liberty Entertainment Group, which operates comedy clubs in the U.S.
As we look ahead to the second half of 2020 and its 2021.
If we planning for how wouldn't when we will begin to normalize our operations.
Pending on the economy reopening and improving at different points in time.
[laughter].
As many of you are aware sometime we've been operating very targeted subscription video on demand services that appeal to the screen and distinct audiences.
Is targeted at spot services had to radically different economic profile.
Those are the general entertainment as fraud services with ours have been relatively modest content and marketing investment.
Since mid March from many Americans began sheltering at home, we have seen strong growth across those services Acorn TV shuttered Sundance now and you and she urban movie channel.
We now anticipate ending 2020 in the range of three and a half a million paid subscribers in AG.
Across those services.
That is two years ahead of her previously stated target, reaching this milestone by 2022.
Well these numbers or smaller relative to the service services engaged in the so called screaming boards that are looking for massive share opportunities and that dominate industry conversation.
They are nonetheless quite meaningful for AMC networks against the backdrop.
Our radically different economics, and our overall business.
As we've stated on prior calls we believe the overseas market opportunity.
Is targeted at spot services significant particularly overtime.
Acorn TV the largest of our services focuses on international mysteries, and dramas and we're seeing increasing momentum for it globally.
We recently launched the service in the UK, an important market for a corn.
As well as on Apple TV channels in Australia, and in Latin America, two markets that also represent good opportunity.
If I may.
I want to advertising for a moment.
As I mentioned earlier, well, we are seeing short term impact from marketers, reducing pausing or shifting add investments.
Your heavy active conversations with our AD partners to help expand their media marketing mix and buys to.
Reflect viewership trends and consumer behaviors and to map out audiences across our LTE networks as well as nonlinear platforms now into the Pluto sling and many others.
Requirements that are ready to help them. We are moving ahead with upfront conversations.
We've created an online sales portal called upfront connect that brings together all of our original content and acts as a single resource for all upfront communications around our marketing partnerships advanced advertising and digital distribution to make it easier.
Or facile and more convenient for clients to engage with us during this quite unusual upfront season, and then beyond.
Turning for a moment to content.
As I mentioned earlier, we've been doing a number of things from a programming standpoint in response to this moment with many of our view we're staying at home.
This concludes debuting the much anticipated third season of the MB and Golden Globe Award winning series, killing E. Two weeks early much to the delight offense and critics.
The career, which was simulcast on AMC and BBC America.
Buck industry trends and show growth from season to averages across the board in total viewers and in all key demographics.
And in response to high demand were seeing for natural history programming on BBC America. We ended the second day devoted to nature content.
Which we were area under a banner titled Wonder smoke.
At the AMC channel the absolutely remarkable fifth season to better call. Saul ended on a very high note within outpouring of critical acclaim and strong ratings.
The walking dead season, 10 also produced very strong continuing to rank as the number one show on AD supported cable in key demos.
With better call Saul New walking dead AMC continues to be home to the top five dramas on AD supported cable.
Its audience has continued to consume television in new ways. We recently agreed with two new AMC projects that showcase.
How we're experimenting with new genres and formats to command the attention of audiences.
The first project called National Anthem is a family drama combined with a musical element. It comes from a long time created partner Mark Johnson.
He is the Oscar winning producer who has been the top executive producer on many of our shows such as breaking bad better call, Saul rectified and halt and catch fire.
We've also green, but our first animated series for the AMC channel called Pantheon.
It's a sorry five drama based on short stories like authored can lose one of science fiction is most celebrated writers working today.
2021, 22 and beyond.
As it relates to distributors.
As quality scripted drama becomes ever more scarce on basic cable.
We are increasingly one of the very few purveyors on basic cable this type of high quality material.
We believe our strength and relevance in this area <unk>.
<unk> with our attractive wholesale price.
Will be an increasingly key differentiator that will position us well with the M.V.P. deans over the longer term.
We will continue with our targeted as spot services, which has I mentioned earlier are growing very nice trajectory with sensible economics, and we are exceeding our growth expectations.
We will be surgical about where we spend money on linear.
And they'll be increasingly monetizing advertising in conventional and novel ways. So that our core enterprise remains profitable.
With these opportunities before us and with our healthy financial condition and stable and strong management team.
We are very confident in our strategy and believe we are well position.
Continue to support all of our stakeholders and deliver value in these uncertain times and B.N. beyond.
Across the near the mid and but long term.
Without overview alternate the call over to Sean Sullivan.
For more detailed on our financial results. Thank you.
Thanks, and good morning, I want to begin with a few comments on our financial profile and the steps we've been taking to ensure that we whether the impact the probing 19.
The near to midterm.
Then I'll review the results for the first quarter and conclude with some comments on the impact of the pandemic on our businesses on her perspective basis.
Let me start with our liquidity profile.
Are strong balance sheet and financial flexibility position as well to withstand the car environment.
I was at the end of the quarter, we had access to over $1.2 billion in cash we had 700 million of cash in our balanchine in a 500 million dollar undrawn revolving credit facility.
In addition, we don't have any significant debt maturities, neither 2020 or 2021, we have very manageable payments on our term loan of 56, and 75 million in 2020 and 21, respectively.
We also continue to generate very healthy inconsistent levels of free cash flow and the first quarter, we delivered $182 million and free cash and while discuss our perspective outlook in more detail later in my remarks, we now expect to deliver full year free cash flow that is above 2019 levels.
Or balance sheet, and our strong pre cash flow of continued to allow us to opportunistically allocate Capitol you to date, we repurchase 4 million chairs for $103 million and in early March we completed the previously announced 200 million dollar debt redemption of a portion of our foreign three quarter percent nodes do in December 2022.
Further improving our maturity profile and reducing our interest expense.
In terms of capital allocation to four key tenets of our capital allocation policy remain unchanged. They are first invest organically and our core business and new businesses on projects that will produce attractive returns for our shareholders.
Continued to believe that the highest return for our capitalist to invest in content and repossession reposition our company for a more streaming focus landscape.
We are gaining increasing confidence in the strategy as Josh discussed are targeted s. five services have seen a significant increase and activity over the past six to eight weeks and we're looking to lean into this area of our business to improve our long term positioning.
Our second tenet tenant is to maintain leverage that is appropriate for the business outlook.
As of March 31st AMC networks had net debt and finance Lisa's of 2.3 billion.
Are leverage ratio based on L.P.M.A.Y. of 873 million was 2.6 times.
Well, we do expect to see our leverage ratio move upward over the next few quarters, we have significant amount of headroom on her covenants and don't foresee any issues with regard to them or our ability to service our debt.
Third make disciplined and opportunistic acquisitions to advance our strategic plan.
Fourth return capital to shareholders.
As I mentioned year to date the company has repurchase 4 million shares for $103 million as of last Friday, we had $386 million available under our existing authorization program.
We will continue to be opportunistic with the pacing of our repurchase activity and you should expect it to continue to very quarter to quarter.
Moving to our financial results for the first quarter our results in a quarter were generally in line with our expectations with the exception of advertising covert 19 to not have a notable impact on our performance in the quarter.
Total company revenue was 734 million and total company A.Y. was 222 million.
With respect to the performance of our operating segments as expected results. The national networks were impacted by the timing of programming in marketing.
Revenues decreased 8% to 567 million in a while I was 218 million a decrease of 21%.
Advertising revenue in a quarter declined 11% results were impacted by lower delivery as well as a two week shifting the sharing of the walking dead and it's related programming talking dead.
However increase pricing across our portfolio of networks as well as the airing a better call saw any M.C. and Doctor who on B.B.C. America help to partially offset the unfavorable items.
Around mid March we began to experience and impact from covert 19 in this had a modest negative impact on our year over your growth.
With respect the distribution as anticipated distribution revenues decreased and the first quarter.
The main driver the decline with subscription revenue.
Scripture net revenues were down in the high single digits as compared to the prior year period.
In addition to the quarterly fluctuations based on the timing of various agreements renewals and adjustments we continue to see a moderation mainly due to macro factors.
We continue to believe that our networks offer an attractive price value relationship to our distribution partners.
As for the content licensing component of distribution revenues. This line item declined in the quarter due mainly to the timing of the licensing of our scripted original programs in various windows.
Most notably results in the quarter reflected the <unk> availability of into the Badlands and happen Leonard and the prior year period, which was partially offset by the asphalt availability of the most recent recent season of the terror in the current year.
Moving to expenses and the first quarter total expenses increased 3% versus the prior year period.
Nicklin operating expenses decrease 1% to 238 million the variance primary related to the timing and mix of originals across our portfolio of networks.
S. G.N.A. expenses were $124 million in the first quarter and increase of 8% versus the prior year period. The variance primarily added to an increase in legal expenses as well as marketing costs due to the timing and mix of originals, most notably better call Saul.
Moving to the international other segment in the first quarter International on other revenues were essentially flat at $170 million.
<unk> primary reflected increase revenue from our targeted Espod services offset by a decline or international networks into a lesser extent declines that I have c. films and Liberty.
Oh, I was 8 million to decrease of 2 million versus the prior year. The decreases primarily attributable to an increase that are targeted escalade services offset by a decrease or international networks and levity.
Moving T.P.S. for the first quarter E.P.S. on a gap basis was a dollar and 22 cents compared to $2.48 in the prior year period.
And adjusted basis, E.P.S. was a dollar and 47 cents compared to $2.64 in the prior year.
You're you're variants in both gap gap and adjust the P.S. primary reflected the decrease <unk> as well as an increase of miscellany expense net of $17 million as the current period reflected an unfavorable variance in foreign currency transaction losses.
Terms of free cash flow as I mentioned, the company had a strong quarter and continues to deliver healthy amounts of cash we generated $182 million and free cash flow for the three months ended March 2020 for the quarter cash interests was 28 million tax payments were 4 million capital expenditures were 13.
<unk> and distributions to Noncontrolling interest with 3 million.
Program rights amortization for the three month period was 224 million and program rights payments were 222 million, resulting in a source of cache of $2 million. This compares to a source of cash for programming of 15 million in the prior year period.
In terms of the impact of covert 19 on her operations as we disclose Mary Kay eight K. that we filed them late March covert 19 in the measures to prevent it spread are affecting our business and and number of weights.
To the best of our ability we want it to provide all of you with an update on how the pandemic is impacting our company.
However, the ultimate impact of the pandemic remains quite fluid. It makes it unusually challenging for management to estimate the future performance of our businesses.
As a result, the focus of our comments will be on the second quarter.
On the second quarter, which is not in a position to predict when in where shelter and place restrictions begin to east or make assumptions about the economic conditions in the U.S. in globally and the impact they'll have on key variables, such as advertising activity and our ability to resume production.
With respect to the second quarter advertising revenue at the National networks is clearly seen the most immediate insignificant adverse impact.
While ratings have improved across our portfolio monetizing. These ratings has proven to be a challenge. In addition, our results in the second quarter will be impacted by the delay in the airing of the final season 10 of the walking dead as well as the premiere of World beyond This third series into walking get franchise until later in the.
A year.
As a result, we anticipate second quarter advertising revenue to be down in the range of approximately 30% year over year.
As for distribution revenue at the National networks.
With respect to subscription revenue, we anticipate that our results and the second quarter will be relatively consistent with what we saw in the first quarter of the year.
This is due to the timing of reporting from our N.V.P.D. partners as well as the anecdotal information that we've been able to gather to date.
With respect to content licensing revenue is the main driver performance will be the timing availability of our content to domestic and international platforms.
The extent that we shift the programming line up this will impact the availability and monetizations of content in Ansley windows.
For instance, in the second quarter, we an anticipated recognizing revenue from the international distribution of world beyond but that has been delayed to later in the year.
As for expenses, we expect total company expenses to be down in the low to mid teens and a percentage basis, you're every year.
The suspension of production activities and subsequent delays and the creation in availability content will have the most notable impact.
We expect a reduction programming amortization as a result of the shift and the timing of airing of our original such as the finale of sees intended the walking dead in the new series that I just mentioned well beyond.
In addition, we expect reduce variable expenses associated with lower advertising sell sales as well as lower marketing travel entertainment.
At our international other segment, we expect three businesses in particular to be impacted.
As Josh discussed are targeted as pod services are seeing a significant increase in activity both in terms of usage and subscriber acquisitions.
At Levity the comedy venues are close and the production activity a suspended so we're not expecting any meaningful revenue contribution from this business in the second quarter. However, we expect that a reduction and expenses will substantially offset the decrease in revenue, resulting in only a modest a way up high impact.
As for International networks, we are seeing similar dynamic on advertising revenue to what we're experiencing in the U.S.
Terms of free cash flow as I mentioned earlier, we revised we revised our full your outlook.
Now project full year 2020 free cash to be above 2019 levels as we expect the benefit from the deferral of programming spend as well as a reduction in cash taxes to more than offset the decline in <unk>.
So in conclusion overall, we feel confident are about our ability to whether the pandemic given our strong balance sheet and are healthy free cash flow. Our focus remains on position in the business to get through this period of uncertainty. While also taking advantage of pockets of opportunity that we see to further along from strategic initiatives.
And positioning.
He wants to join us in the Microsoft teams meeting feel free to go ahead. So thank you aren't.
Yeah.
<unk> today's practice call you may now disconnect.
Operator at this point I think we're ready to open the wind requested.
Ladies and gentlemen at this time, if you would like to ask a question. Please press start one under a telephone keypad again to ask a question. Please press start wine.
Your first Quest me from the line of <unk> with the Morgan Stanley.
Good morning, Josh could you talk a little bit about what you're seeing on E.S. five side in terms of engagement.
<unk>, there's a lot of a additional streaming happening right now, but I'm just curious if you could give us some sense of magnitude and also.
A little bit more about maybe they are poor trends in the business and yeah. I think you mention lead in to this idea with Sean.
Oh can you help us dimensionalize that are you are you ramping your investment in these businesses at this point or given the macro environment.
Are you being a little more careful and then you know for anyone on the call I. Just was curious on the subscription revenues down high a single digits in the first quarter <unk> was that impacted either positively or negatively by lapping contractual disputes you guys called out last year, because we thought that would have created a more favorable.
Or a favorable comparison to maybe it did but it just started ask if if that impacted the earlier growth rate it all banks.
Uh-huh.
[noise]. Thanks for the question dollar store it with the second one first if I may you subscription revenues from the first quarter were substantially a result of macworld factors [noise].
The as you're well aware [noise].
Subscriber declines <unk> satellite section of our business, that's not been bolstered by high speed data, we're using in the first quarter the packaging of that.
To be attractive and with the pandemic impact even more.
Even more impactful. So there are a macro factors related to people connecting or disconnecting or in some cases, taking different tiers and then there of course individual players in that arena, both not only the M.B. <unk>. So all that went into the.
Packed on A.M.C. networks, we did repaired renewals that are pretty consistent.
The board and we are pleased with the renewals they.
<unk> largely largely as we've expected.
And they had maintained their distribution in good shape across the board.
And we actually have expanded our relationships with.
Our M.D.T.D.'s in certain regards altered if I may to first part of your question and answer it.
Begin the answer and then turn it over to add it by me, who make who can offer some greater detail.
<unk> scared remarks.
We but a milestone that we identify book for ourselves and making sure everyone in the cold.
A couple of years earlier, that's nice news.
Of course, because we've been pursuing the targeted subscription approach, which is quite different.
And going for big share and and this is not meant to be disparaging and burning lots of cash along the way we've been balancing investment.
Performance and subscribers and mine pool of what we think total market opportunity is and piece of achieving that market opportunity. It has been pleasing to see us or pass what we thought was a milestone but had some ambition.
And.
Diagnosing whether that early take up or whether that is a greater market opportunities everybody anticipated is something that will have to wait at least some amount of time to see in the rear view mirror, but the trajectory is very good you asked about engagement and.
Top line it and then ask it to comment which is we it's a critical things your ass because people aren't buying blindly or taking trials blindly, they're actually using this stuff.
And spending more time on it so if I may outlast good comment on the engagement on our targeted as far as services.
Sure Josh <unk>, Hey band Yeah, We'll we'll look we're encouraged by the the level of engagement that we see as you know and the S. five format when people sign up where we're able to immediately discern what show or series. They go to first what their completion rate is how quickly they go on to the.
Next episode, what their total minutes dreamed of streamed isn't an average week or month. So we're seeing.
Oh, those all of those levels all those engagement levels in a very high place. So that's extremely encouraging when we pull back and and and look at the model. We certainly think we've put we'd pull forward some subs due to the isolation, but based on the engagement levels that we're tracking we anticipate.
That churn rate will not increase too much as the year goes on and we think we have significantly left the model forward for for all of our as fraud services are are cumulative subs and revenue.
Thank you guys appreciate it.
Your next question if I'm the lineup Bryant Goldberg with the Bank of America.
Oh, Thanks, I just had a couple that maybe I could follow up on me as five tracks and you're getting.
I'm curious at any changes in your outlook with respect to keeping streaming rights for exclusively use on your own platforms and.
Are there any changes in in the profit profile.
While you're at as flawed services, given the poll forward or or the acceleration is I'm, sorry, and then on the advertising side.
Excuse me I was wondering.
If you've seen any kind of changes or stabilisation on on the demand side and last week or two now that certain parts of the country or are starting to reopen and then I guess challenges you mention the outlook for advertising can be down 30% in the second quarter.
Was wondering how how much of this is driven by content timing versus your assumption on organic demand conditions.
<unk>.
Hey, Brian is add so let's see on the on the S. fraud.
You know, we as as I mentioned, we've accelerated our our subscriber growth we use content for for Acorn for shot or much of it co produced or originally.
Produced or license for those services.
Then we have then we have content such isn't us for our too where we're able to utilize on several of our platform to N.C.A.M.C. and shut it for example, and so we think that approach. We'll continue we think it's economically responsible and we're obviously seeing results in in the market as as a result of.
In terms of advertising I would say, it's a little too early we're in conversations obviously week to week in day to day, so I wouldn't yet draw any patterns other than to say.
We're working very closely with our partners.
I think the network has been as as flexible as it as it can be in terms of continuing to cultivate those good relationships.
Ward for that has been much of the money that has moved away from second quarter, we've been able to keep on the networks and the second half of the year. So that's a good development and we're now beginning to have even a front conversations with some of the marketers. We look at this self run we think it'll happen.
And on a more staggered basis than their friends, perhaps that were used to.
Individual conversations.
I think there is optimism that when the economy reopens marketers will want to spend and not lose market share, but I think it's it's gesture really for us to to to make any more specific.
Characterizations.
And in Bryant your to your last question you know as I highlighted the to shift of the walking dead World beyond certainly had an impact a as does the market factors that Ed referred to but.
You know I don't I don't know little unpack it more than that but that's a that's the outlook for the second quarter as we sit here today.
Thank you very much.
There next west missed when the line of Michael Naked thing with the <unk>.
Thanks.
One for Josh maybe <unk>.
So Josh question I'm happy with how do you even think about starting production I know you you have operations in Georgia, which is becoming open. So what is your best guess and how to even begin thinking about starting a production given how disordered the states are in allowing different types of opening so that's one for you.
And the second one would be is you guys have any type of content obligations. When she comes to distributors <unk> originals that that maybe impact your ability to see payments or anything around your obligations you have to just <unk>. Thanks.
Well, thanks, Michael [noise], we we do not have any content obligations as different than.
The sports Arena, particularly I think all of our business, where it where professional events or so central to value.
Right. The the businesses that were in that do not have any contractual obligations of any sort actually people have known what we've done for a long time.
And they I think has found us reliable in putting forward or exceeding what their expectations have been in terms of both form format and individual quality of shows so I think that they have sound not that they are or aren't always.
Testy this around negotiations, but could M.C. networks, as perhaps even overdelivered against affiliate expectations in the quality of her five channels.
What they put on a cross M.C.B.B.C. America.
Sundance I have seen the being so that is never good and issue is not.
ER contractual.
Relationships altering the specific question if you don't mind on.
Timing reopening virtual writers room safety precautions and the influence of states over to Ed Pardon me.
Okay.
Sure. Thanks asked so.
As Josh alluded to earlier, we we've made some adjustments already as a result of the impact the virus. When we moved the killing me from here up a couple of weeks that was perhaps opportunistic too.
To and the audience seem to welcome. It you probably aware, we we move the walking dead well beyond that's the third franchise back into fourth quarter. So we were finishing post on that that will be set to go we have a new show, which is quite a bit anticipated.
Coal soul mates, it's an anthology series from some of the writers of Black mirror that will be airing of the second half of the year and we anticipate having fear some episodes of fear season six in the second half of the year with welfare the walking dead as far as the walking dead goes your corrected shoots in Georgia.
As Josh imagine a writer's rooms are open.
And we will we will monitor.
A week to week, if not day to day.
You know the production schedule, we <unk>, we just don't have any information that we can pass along at this time. Other then we're monitoring it very closely.
Thanks, <unk> answer Brian's question.
About the negative 30, you're implying that some money move from the second quarter as originals move right took 30 down 30 may not be the organic number as seemed like there are some shifts of money out to follow the originals that are correct interpretation noise at the bottom.
Yeah, I mean, I I think we said a few things we had some timing shifts in our programming that's certainly a factor and as well there was a demand issue with us or it was certain categories wanting to pull back or move their money to later in a year.
Okay, that's with a prank guarantees they moved back thank you.
Next question based on the line of John you need is what the Wolf research.
Hi, Good morning, I think it two questions raid. One is how are you thinking about your business longer term post cobin are there longer term structural changes that you're taking it out.
Around the distribution programming geographic or expense front, and maybe a follow up on advertising can talk about the online south portal with some of that the last round production and the up front. How are you thinking about your fourth quarter in terms of the programming and then selling against that.
Sure.
John This is Josh long term.
The the trends that we have been skiing.
Or either remaining in place or accelerating.
We have been preparing for them.
Four years, meaning that.
They're pressure on the United States and to some in some places international P.T.V. subscribers or not new we and both pressures in terms of counts and also willingness to pay high wholesale rates. So in response to that we.
Hello.
<unk> careful about maintaining a portfolio five channels of having them praised appropriately and of delivering high value to the U.S. environment worldwide environment that certain pressures on it on the price side because that translates into retail at margin and also.
Trend.
Has some pressures on growth or lack of growth. So that's number one number two our content.
I'd like to say has been quite desirable to consumers.
So it has been a plan and activity to make it available.
In environments outsider conventional hey, T.V. universe is in the U.S. and outside of.
Outside of the country that takes a couple of different forms and flavors.
And.
Who's the sale content, which we continue to do to third parties, where there's a good deal.
And as Ed pointed out in what is that someone who wants to answer to the earlier question. We utilize some of the shows on linear and we utilize it on these targeted as flawed services.
Those have grown.
As mentioned above our expectations.
And that is a way to reach consumers and to realize additional revenues, which we've now hadn't place for several years and they've grown or as I mentioned above her expectations and we're reaching consumers directly and we're reaching consumers through retailers some of whom are are convention.
M.V.P.D. partners, who we're moving into the business of selling their high speed data customers packages of these commercial three channels that bear our names and bear new names shorter Sundance now Acorn. So that is a for us an excellent trend in.
Multiple ways. It makes her content receive yet another route of Monetizations.
That's you know harmony with the relationship and not not at friction with the distributors, whom we have longstanding relationships and Frankie reliant on so longer term.
We intend to pursue exactly that good content.
Multiple means of Monetizations I will add.
And Sean said it is prepared remarks that we are mindful.
The reward from the existing pay T.V. universe.
We're going to be careful and surgical about our management of costs associated with that revenue opportunity because of its pressures and we have organized and be organized the company now three times over the past several years and will continue to alter the manner in which we are.
Organized so that we can optimize those new distribution opportunities and optimized and be highly efficient.
Advertising opportunities increasingly using data to guide us so we're ever more specific.
And delivering more valuable to advertisers and that material that data is now available and we'll manage costs with excruciating care. So that they are in line with your rewards that are available and never had.
I think you're asked a question about online kills portable you don't mind, Oh, we have an on line two where do we think it's actually quite progressive I'm going to ask you had to comment on the specifics of it because it does represent a new way of doing business, it's rather encouraging for us.
Ah right, Yeah, I would say a general John we go into this up front and as as I've mentioned those conversations are are happening.
The factor is the factors that are very much in discussion we have an ad check.
Technology that allows for unique targeting.
Of the market segment for advertisers that continues to be something that's of high interest we have increasing digital impressions and you may have noticed a the launch of some of our content on on Pluto. The announcement against that this week. So we'll be selling impressions now not only on on T.V.E.N. on five but it'll be part of our overall.
Digital approach into the marketplace and then we have the high quality.
Scripted series on on basic cable, which is the audience profile and the level of engagement is unique to basic cable and so all those things are are factors as as we enter these conversations.
Like.
[noise]. Your next question is from the line that Steven <unk> with the lungs Fargo.
Thanks, maybe just a follow up first on the up front question is it your expectation y'all have less inventory committed this year and that a lot of your peers were as well just as marketer sort of sit out and see what the fall looks like and you think that's that's the transition the industry into something more like a calendar up for.
Or just more of reliance on scatter going forward the kind of change the industry. Because the covers 19, and then I've got a a big picture file.
Hey, Stephen It said you know I I think it's too early.
And it's it's a thoughtful question I I think we have to.
Look at what the third quarter looks like we have to look at how the different categories of of advertisers.
Hi, there how their appetite resumes in terms of their spending and we have to get further into the conversations that we're now having on on a sort of a market or by market or basis before I think we'd be comfortable commenting on if we think he'll be any last thing or or global shifts.
Okay, and then just a a big picture one for for Josh and Shawn you know you've got access about as much liquidity as your market cap and you generate a lot of free cash flow and the shares or it in all time, low and while that might not be deserve at the board has to be thinking about whether or not you're going to get fair market value.
In the public market. So how do you just think about the opportunity of of the company being private, especially as you're making this big direct to consumer transition and and just those different private versus public market evaluations.
Yeah, Steve. The this is Shaun again, it's a great question, we have obviously a lot of confidence in the balance sheet accomplished a lot of competence in those for teaching plan and the pre cash flow nature of the business.
Obviously, a controlled company by the Doling family, and obviously Tosh and I don't speak for them. So you know I think that that that's a question that obviously, we think there's a dislocation in terms of what we believe the enterprises value to be versus what the market is valuing given the nature of our content.
And given the five channels and some of the targeted at spots and and the real growth in the as spot in the number subscribers. We have so as you saw at the beginning of the quarter. We bought 100 million dollar shares back as part of our capital allocation policy that obviously shows competence not only a in the management and in the controlling shareholder.
The plan, we have a and where we're going so we expect overtime will be recognized invaluable be recognized for the investments were making into monetization in the key attributes of the business, but beyond that obviously really can't comment on you know capital structure public versus private.
<unk>.
Thank you.
Operator, why don't we take one last question. Please.
Last question is on the line of Michael Moore.
Yeah.
I. Thank you good morning, I have a couple of digital related questions if I could.
The first one that has to do really with with thinking about the D.T.C. product for your core networks and I know that you you just address listed Johns question a bit but at this point. It seems like your distribution partners are raising their price to consumers at a faster rate than they're raising their payments to you on a per subscriber.
<unk> basis, so I I understand your interest in sort of protecting the ecosystem overall, but given that dynamic does that change your thought process going forward about making your no you're highly demanded content available all a car directly to consumers. So what do you think on that and then my second question.
Centers around your advertising video on demand.
When you make that content available like the walking that on Pluto, how do you make sure that that doesn't dilute the value to your subscription distribution partners and is that a a revenue license fee or is it in add share relationship how how does that that worked for you guys banks.
From like this is Josh you know and the first question. We we're very pleased with the harmony that we have with our distributors were pleased with the close trajectory are targeted as fun services.
We're pleased with the degree of content sharing I think a few examples were identified by a that are really illustrative of how we've been able to be efficient and economical and potent.
By acquiring and or producing material that finds its way onto multiple platforms. So we think that the approach of taking now and if the evidence.
The growth in D.C. subs I won't mention as as a trend because it's probably coconut related but we've seen enough ticket ratings during the last.
Period of time, and a great regard for channels player M.B.P.D. partners in the United States. So we think that are general plan is sensible and balance and careful and appropriate and it's so we are pursuing it for this period of time and.
And we like it and we have renewed all of our M.V.P.D. agreements and the terms you'd think it'd been reasonably good for them and for US. So we like our approach I'm going to turn the broad question, which is a good an interesting one over to <unk>, who can share with you.
Perhaps some detail on it I certainly understand exactly why you asked it.
And Michael so the.
Answer your question really has to do with a windowing and and and windowing specifically of our library content. So for example, you you mentioned the walking dead. So so the walking dead will be early season is only so on the linear network on A.M.C.
We now would utilize early seasons of the walking dead only at first stunting such as a weekend marathon. So so arguably that content is under under utilized we also provided the Spanish language a series of of the walking dead for for Pluto again.
Not something that that where are going to err on on A.M.C. linear. So that's one specific but significant example, and then and then full series that have run their course on the network. So for example, you'll see into the Badlands.
She was will be available on <unk> or you might see a classic.
Unscripted serious such as Brazil us from we T.V. that would be available on a lot. So that's really our approach. What we're doing is we are working with the platforms to create another window and additional window to bring in incremental revenue off of our library contact.
That's that's great is that it is that a licensing relationship or than an AD share relationship.
It it could be but we we probably won't go into the terms with a with any individual platform.
Okay, and just one last one if I could before I. Let you go can you share how many subscribers you had to across your your four targeted Oh T.T. services, either currently or at the end of the quarter any any updated number there.
So are you talking about R.S. fraud services I I think as we've said, we we believe we will and the year in the range of 3.5 to 4 million.
But we're not in the brackets of giving quarterly updates, but were you know, we're we're comfortable with that projection and it. It represents a significant increase in projections that we share in the past.
Okay. Thank you very much.
Well at this point I'd like to thank everyone for joining us on today's call and for your interest in A.M.C. networks.
We hope you all say safe and healthy and we look forward to speaking with you again next quarter. Operator, you can now conclude the call.
It's concludes today's conference call. Thank you for your participation you may now disconnect.
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