Q2 2020 AMC Networks Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the AMC networks second quarter tiny tiny earnings conference call.

Sign all participants are in a that's in owning those.

After you get speaker presentation, there will be question answer session.

And you asked the question during the session you want me to press Star one on your college.

If you really quite Burger assistance, you Me press Star Zero.

With that that would now like Danny Conference a week your first speaker.

Sense, though thank you and please go ahead.

Thank you good morning, and welcome to the AMC networks second quarter 2020 earnings Conference call.

Joining us. This morning are members of our executive team Jaci Pan President and Chief Executive Officer had Carroll, Chief operating Officer, and Sean Sullivan, Chief Financial Officer.

Following a discussion of the company's second quarter 2020 results. We will open the call for questions. If you don't have a copy of today's earnings release is available on our website at AMC networks Dot com.

We think noted the following today's discussion may contain statements that constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Investors are cautioned that any such forward looking statements are not guarantees because the future performance for 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.

The 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 companys ongoing operations and is appropriate in your valuation of the company's performance.

Further details please refer to the press release and related footnotes for GAAP information and 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 John.

Good morning, everyone. Thank you for joining us. This is obviously a type of great transition to our company for countries will is for industry.

I'll spend a few minutes talking about the industry landscape and how we are pure play seem to and touch on several other operational highlights before I turn the call over to our CFO Sean Sullivan.

Detail on our financial results.

I missed a continuing challenges and uncertain environment, we delivered solid results in the second quarter.

Feeding our financial expectations for the quarter as well as or expectations on several key metrics, which I'll expand on in a moment.

We continue to maintain strong financial profile.

Solid balance sheet is very good liquidity.

We continue to generate healthy levels, the free cash flow into manager cost carefully during this time.

Overall, we remain focused on our strategic priorities and we're making progress on major initiatives, which include making great content and monetizing that content cost and expanding <unk> platforms.

Let's talk about subscription video on demand for a moment occurs.

These platforms include are targeted subscription video on demand services, which weren't increasing area of focus for our company.

Two rewind briefly several years ago, we saw that commercial free subscription video on demand services.

Be ascendant and while there would be several big players leading that charge. We believed that we could also premium.

Okay, so called [laughter] surfaces that could be purchased alongside the these larger offerings.

We launched several targeted escalade services.

Focused on very specific genres.

And approached consistent with other companies have asked and genetics and would do well, which is creating highly immersive quality content. We're just think audiences.

It's an approach that also fits with our companys financial structure and our size.

I'll remind you briefly what our asphalt services or.

Hey, corn creatures, British and international mysteries, and dramas shutter his or her focus service Sundance now has documentaries crime and more.

And you see is focused on black TB itself.

You need, particularly the progress through just Kobe superior.

Strong growth across each of these services during the period from March two.

Shuttered particular has had very strong growth in the second quarter was the biggest its history in terms of trials paid subscribers and amount of time spent on the surface for consumers.

As we mentioned on prior calls.

And on track and here.

Three and a half to 4 million subscribers range and we're now confident we will be at the higher end.

[music].

We also began to tap the overseas market.

Launch a corner, the second quarter, Terry and more overseas launches or.

When looking at this business, it's important to keep in mind scale and scope of AMC networks is much different.

There are companies, we don't need tens of millions of subscribers for it could be a meaningful contributor to our business.

And the overall economic superior track, particularly as compared to the something for everyone large as fund services, which as we all know program each and every member of the household everything from children's programming to Columbus to reality as they compete in the sheer battle in the so called Screaming Awards.

I'll note that more than 80% of our asphalt subs also subscribe to at least one other general entertainment as fraud services.

An important point because it underscores that we're not competitive.

With the large services, we are compatible with.

Our services have loyal audience.

Five of alongside the major asphalt services.

Who are less likely to churn out because they are passionate about the kind of content, but were often.

In terms of content, we are increasingly developing buying content with the mining.

How would live across all of our platforms and how the window it across as fun and linear.

I will note that while we are my reading or content sales to third parties by degree as we utilize our content on our targeted as fraud services.

Our still selling selected to the third parties overseas and domestic.

If I may I'll move on the subject of advertising.

You'll see that our advertising revenues numbers for the second quarter on a relative basis for strong.

We are particularly seemed demand from digital and at home centric businesses that don't require people together in this cold period.

There are other businesses that are challenged by the current environment and or advertising less or some not at all.

We do believe this dynamic out somewhat from the eventually return to more normal patterns of consumer behavior.

But underlying all of this is the fact that AMC networks holds now through unique position on basic cable you.

We have a premium and diverse portfolio, we're increasingly the only place on basic cable consistently delivers high quality dramas and deeply engaging environments.

You have a high concentration of hard to reach audiences advertisements find very attractive <unk>.

Of course, not huge on large AD free streaming platforms.

In terms of the upfront.

Your hobby active conversations across the board with all of that major agency holding companies.

Importantly, we've expanded our digital presence partnerships with Zander open a P 65.

Interest in linear based data important advertising continues to grow among our client base.

Data continues to lead our efforts on the addressable advertising.

And we are participating in too much anticipated addressable linear pilot programs.

Coal project or allows participating programmers to deliver addressable advertising somebody with TV.

And we're the first media company to partner with the consortium, Comcast Charter and Cox Communications per a pilot program called on the Addressability.

We're also working with several eight bought partners and populating, some but the larger Vod services with our own branded channels.

We've successfully that you would screaming channels on to go and sling.

We're seeing strong revenue results from this activity.

You are on pace to deliver more partnerships.

In the any part of read it ended the year into 2021, and we think that's an excellent vital sign for the future of AMC advertising overall.

On the distribution side as many of you know we reviewed several of our mbps the agreements.

Within the past year, and we're pleased with those agreements.

One of our distribution partners are having challenges on the video side, but business as you also quite well aware.

We all understand the subscriber trajectory fees, which are particularly rough the satellite category, which operates without a broadband connection.

I'll note that as the business of or MPV partners involved our relationships with these partners is also evolving and reconstituting.

An example of this was a new product called AMC plus.

The next generation of our Mpvs centric AMC premier product.

It includes content from across our entertainment networks, along with several of our targeted as fraud services that I mentioned earlier.

We recently launched it with Comcast and fish.

If I may alternative content.

We recently had very nice acknowledgment that the Emmy nominations announced last Tuesday.

18 nominations, among our shows including two would be eight nominations for outstanding drama series for better call, Saul and killing me that represents fully a quarter or 25%.

Outstanding common nominations.

AMC networks is the only basic cable player to be recognized in this category demonstrating our continued ability to stand out in a crowded landscape.

Moving stories that drive the cultural conversation.

Okay.

In terms of production our ability to resume as safe as possible way, it's something we're obviously very focused on and we're closely monitoring the U.S. from overseas.

The most immediate production currently planned for include the second half solipsism six fear the walking dead to Texas.

Looking at late August for that.

A new series called Kevin connection cells, which is slated to start shooting in Boston and to temper.

And September 11th and seasonal 11 of the walking dead choose to resume production in Georgia in mid October.

We will continue to monitor and adjust accordingly, as different states and regions overseas experience different local circumstances as it relates to the pandemic.

I'd like to take a moment, if I made a talk about the walking dead universe.

During the season finale of the walking Dead Sunday October core.

Followed that same night.

The debut of the third series and the walking universe cruel world on.

Which follows the first generation raised in the post apocalyptic world.

Then the walking dead returns the following week for the first half of it six.

I'll note that the walking dead Horse series continues to outgrow LIBOR every other show on basic cable.

She demos, despite a diminishing audience.

This is the franchise that is expanding and described.

And as with any long running franchise, whether its startrak law and order we continue to mens various elements of it very closely including the cadence of when and where we have shows and how we manage span of excitement consumer interest.

Of course associated that economics.

I mentioned earlier, the recent growth from our student services and I think it's worth mentioning our targeted asphalt services are now beginning punch through with notable kits.

Putting a corn is pretty strong both dead water so David Tennant.

And Sundance now is highly acclaimed clinched cooler series called the Bureau.

A few other upcoming content highlights.

The first season of a new series called Soulmates, which we think is spectacular it's an anthology drama sites was about finding good who specific genetic soulmate.

Which we were able to complete before the pandemic March.

It will premiere this fall.

I mentioned earlier, a new am series called Kevin if himself.

Executive producers, but she could jones humor, and it's quite unique in that Melds single camera dramas.

Standard multi cam sitcom.

We also have a new very timely sees pulled 61st Street that is set to shoot early next year in Chicago.

It's a provocative court drama about a corrupt criminal justice system and it comes to us from executive producer Michael Jordan.

Before I turn the quote as shown on mentioned a couple of highlights from our international business.

MC networks International continues to exhibit against some challenges in the environment strong audience performance across digital portfolios.

Our business is adapting overall interviewer consumption patterns by introducing offerings, including a product called AMC select which offers thousands of titles and programming from across our portfolio all on demand.

That launched in Spain, and will soon launch let tan.

Central Europe.

Represents a course of conversion to a matters, which people are increased are increasingly consuming our material.

Finally, as we continue to expand our distributor relationships, we're partnering with leading Spanish pay TV as far as operator, we start plus and doing a new series called Fortuna, which is a six part treasury thriller starring Oscar winner Stanley Tucci equal layer on AMC globally in the US next year.

With that I'll turn the call over to Sean more detail on our financial results.

Thanks, and good morning for the second quarter total company revenue was 646 million in total company alive was 225 million.

Revenue Aneel I, we're ahead of our expectations, primarily due to favorable domestic advertising performance and lower than expected expenses.

With respect to the performance of our operating segments at the National networks revenue was 496 million in April I was $210 million.

Advertising revenue in the quarter declined 15% to 187 million.

Heading into the quarter, we took a conservative view of demand given the uncertainty around the pandemic demand and then up stronger than we anticipated and therefore results were meaningfully ahead of our initial expectations.

On a year over year basis, our advertising performance was impacted by the PNM pandemic as well as the timing of originals in particular the delay in the airing of the final episode of season 10 of the walking dead in the premiere of World beyond the third series in the walking dead franchise.

However, these factors were partially offset by improved ratings across our portfolio of networks as well as effective inventory management.

With respect to distribution as anticipated distribution revenues decreased in the quarter.

Main driver the decline was the content licensing component of distribution revenues. This line item declined due mainly to the timing of licensing of our scripted original programs and various windows.

Most notably results in the prior year period reflect the asphalt availability of preacher and the terror as well as the international distribution of fear the walking dead and large 49.

As for subscription revenues subscription revenues were down low double digits as compared to the prior year period.

In addition to the normal quarterly fluctuations, we continue to see a moderation mainly due to decline in total pay TV subscribers.

Despite these macro trends.

We believe that our networks offer an attractive price value relationship to our distribution partners.

Moving to expenses in the second quarter total expenses decreased 82 million or 22% versus the prior year period.

As I mentioned expenses were lower than we expected subsequent to our first quarter earnings call. We shifted the timing of the airing of some of our originals, notably fear the walking dead knows for about two and one of our new shows called Soulmates.

Moving the premiere of these shows resulting in lower programming amortization and marketing expenses in the second quarter.

Looking ahead at our results on a year over year basis.

Technical and operating expenses decreased 25% to 203 million the variance primarily related to the suspension of production activities and subsequent delays in the creation and availability of content, which resulted in a reduction in programming amortization.

As seen in expenses were $95 million in the second quarter, a decrease of 16% versus the prior year period.

The variance primarily related to lower marketing cost as well as a reduction in variable expenses associated with lower advertising sales and travel entertainment.

Moving to the international another segment in the quarter International and other revenues were $161 million, a decrease of 19 million versus the prior year.

Results, primarily reflected increase revenue from our targeted escalade services offset by a decline at levity due to the impacts of the pandemic and to a lesser extent our international networks.

Oh, I was 15 million an increase of 3 million versus the prior year. The increase was primarily attributable to an increase our targeted as cloud services and international networks offset by a decrease at Liberty.

Moving TPS for the second quarter EPS on a GAAP basis was 28 cents compared to $2.25 in the prior year period.

On an adjusted basis, EPS was $2.39 compared to $2.60 from the prior year.

Year over year variance in both GAAP and adjusted EPS primary reflected the decrease in ally as well as an increase in the book tax rate, partially offset by a favorable variance and miscellaneous net as the current period reflected unrealized gains on equity investment of $15 million.

GAAP EPS also reflected impairment charges of $130 million as disclosed in our earnings release as a result of the continuing impact of the pandemic management assess the value of the goodwill and long lived assets recorded our books and determined it was appropriate to record a partial write down due to lower growth expectations over.

The long term at AMC networks International primarily related to our UK and lab and territories.

In terms of free cash flow as expected the company had a strong quarter and continues to deliver very healthy amounts of cash we generated $210 million and free cash flow for the three months ended June 2020, resulting in a six month total of 392 million in free cash.

Through six months cash interest was 68 million tax payments were 30 million capital expenditures were 22 million and distributions to Noncontrolling interest were 11 million.

Program rights amortization for the six month period was 415 million in program rights payments were 387 million, resulting in a source of cash and $28 million. This compares to a source of cash from programming a 25 million in the prior year period.

Turning to the balance sheet, our financial profile remains strong and we continued to take steps to ensure that we're well positioned to weather the impact of the pandemic on our company.

In terms of capital allocation for key tenets of our capital allocation policy remain unchanged. They are first invest organically in our core business in new businesses on projects that will produce attractive return for our shareholders.

We continue to believe that the highest return for our capital is to invest in content and reposition our company for a more streaming focus landscape.

As John discussed our targeted at Svod services had performing had been performing quite well and we're looking to lean into this area of our business to improve our long term positioning.

Our second tenant is to maintain leverages as appropriate for the business outlook.

As of June Thirtyth thing, if she networks had net debt and finance leases of 2.1 billion.

Our leverage ratio based on LTM AOCF of 867 million was 2.4 times.

Despite the impact of the pandemic on our business, we continue to have significant liquidity.

Third make disciplined and opportunistic acquisitions to advance our strategic plan and for return capital to shareholders given the uncertainty related to the pandemic, we took a fairly conservative approach to repurchases in the quarter repurchasing 688000 shares for $17 million.

As a black Friday, we had $386 million available under our existing authorization program.

We'll continue to be opportunistic with the pacing of our repurchase activity and you should expect it to vary quarter to quarter.

Looking ahead as we previously discussed the ultimate impact of the Coven 19, pandemic and our operation remains quite fluid and it makes it unusually challenging for management to estimate the future performance of our businesses.

As a result, the focus of our perspective comments will be on the third quarter.

With respect to the third quarter, we anticipate continued variability as a consequence of both the pandemic as well as a specific timing of our investments in content endearing of our shows.

At the National networks in terms of advertising, while the advertising market looks to be improving our results from the third quarter are expected to be impacted by timing of our original programming lineup, including a delay in the airing of fear the walking dead.

As a result, we anticipate third cart quarter advertising revenue to be down in the mid to high teens year over year.

As for distribution revenue at the National networks, we anticipate that our results in the third quarter will be relatively consistent with what we saw in the second quarter of the year with respect to both subscription and content licensing revenue.

With respect to subscription revenue, we expect the macro trends and pay TV subscribers to continue to be the main driver of our performance.

In terms of content licensing revenues, our performance will be impacted by the timing of the availability in monetization of content and actually Windows for instance, in the third quarter.

We no longer expect to recognize revenue from the domestic as spot distribution of season 10 of the walking dead as well as the international distribution of season six of fear the walking dead.

As for expenses, we expect national networks expenses to be down the low to mid teens on a percent basis year over year.

The suspension of production activities and subsequent delays in the creation and availability of content will have the most notable impact.

We expect a reduction in programming amortization as a result of the shift in timing of airing of our original such as fear the walking dead and Soulmates.

In addition, we expect reduced variable expenses associated with lower marketing and advertising sales as well as travel and entertainment.

At our international other segment, we expect free businesses in particular to be impacted.

As John discussed our targeted asphalt services are seeing a significant increase in activity.

Both in terms of usage and subscriber acquisitions.

At Levity the comedy venues remain closed and the production activities are suspended so we're not expecting any meaningful revenue contributions from this business in the third quarter.

However, we expect that a reduction in expenses will substantially offset the decrease in revenue, resulting in only a modest ally impact.

As for our international networks.

We continue to expect an adverse impact on advertising revenue primarily related to the pandemic.

In terms in terms of free cash flow remain confident in our full year outlook. We continue to project full year 2020 free cash to be above 2019 levels as we expect a benefit from the deferral of programming spend as well as a reduction in cash taxes to more than offset a decline in a lot.

So in conclusion overall, we feel confident about our ability to weather the pandemic, given our strong balance sheet and our healthy free cash flow our focus remains on positioning the business to get through this period of uncertainty. While also taking advantage of pockets of opportunity that we see to further our long term strategic initiatives and positioning.

[music].

So with that we'd like to new to the question and answer portion of the call. Operator, Please open the call for questions.

Thank you this semi would like to take any questions you might have first today.

Andrew to ask a question you remove congrats star one then your telephone.

Good day, a week question, you press the pound or attached.

So you've seen battle, we can probably kidney roster. That's it only can you give him.

We have a first question comes from the Lion Steven Cahall from Wells Fargo. Your line is open. Please go ahead.

Yes. Thanks, So I think you said that Q2 demand for advertising was stronger than you thought does that imply it was a pretty strong scatter market add as you're doing your upfront negotiations I was wondering if you expect to have a lower percentage of inventory sold it to the upfront that's going to hit the back half.

For the year end, so should we expect that scatter pricing to be a much bigger component of of AD sales as you enter the back half a year.

Hi, Stephen It's Ed So on your question on the second quarter, Yes, we did see the this the scatter market was relatively healthy in different categories. There was some categories that were on the sidelines as you would expect but there were others that were quite aggressive in the marketplace.

Generally we saw our pricing hold up it was healthy and we sold our ratings hold up and when we think we did a good job of working with our advertisers move flatting around where where appropriate and partnership and to manage our inventory. So for the upfront as as Josh mentioned in his remarks, where end Congress.

Patients with all of the major agencies were having productive conversations it won't surprise you Stephen when I say this will be a different upfront then.

Variance in the past its it's clearly slower developing and I think.

The agencies are inclined.

They're aware of.

Tightening inventory concerns that they're in their inclined to put their money on an issue. They have is not all of their clients have revealed what their budgets will be a duty the uncertainty of the times. So I think that means for the upfront. We're in good conversations it will be a longer stretch we just don't have.

Tremendous visibility right now into what kind of volume we will close in it.

Thanks, and then maybe a quick follow up for Ah for Josh our for for Sean If you look at the free cash flow generated in the first half and if we think about what that implies kind of fully realize to your yield. It makes you wonder if you could realize a lot more value as.

As a private company and I know I've asked this question before but between a public filing cost than having to deal with folks like us just I wonder how the board is thinking about public versus private benefits at this point.

Hey, Steve It's Sean I'll take that so I'm not going to comment obviously on a public versus private.

Maybe just to highlight some of those things you mentioned around free cash flow, obviously very strong first half.

Obviously as we look forward to the second half.

Josh talked about the resumption of some of our main production. So I still I still think third quarter will be healthy in terms of free cash flow as I look at the fourth quarter I think we'll be in hopefully.

We will be in full swing in light of the schedule that Josh said in terms of investment in programming et cetera. So I feel very good about where 2020 looks like and I think it sets us up well for 21.

You know so again I think a you know very attractive as you know these that we're in it and were on certain times, we're launching new products I guess, we're hopeful for normalized business conditions.

Were at a time, where I think the capital allocation hopefully.

We'll resume and a more normal cadence, but obviously, we're approaching this with an abundance of caution right now.

So I'll leave it at that.

Thanks, a lot.

We have or next question comes from the line of Micom lives from Guggenheim. Your line is open. Please go ahead.

Thank you good morning, two questions for me. Please the first is on the pace of subscription revenue at National networks, the down double digits low double digits that you experienced in the quarter.

Can you talk about but the pricing versus the subscriber dynamic there it seems to be a pace, that's actually a bit below what we're seeing more broadly in the number of a pay TV subscribers I, even if we adjust for you or virtual relationships. So my question is.

How is what's going on with pricing. There are you seeing actual declines in the pricing and your relationships as it is a mix of of where the subscribers are coming from and what gives you confidence that you'll be at that same level next quarter, given that pay TV subscribers continued to decline.

And then secondly, I'm curious if you can provide any more detail about AMC plus.

It seems like a compelling product in light of the fact that your your distribution partners are very focused on their broadband product how.

Are you in different whether you have a relationship with a customer through a traditional sort of distribution relationship or an AMC plus relationship is it beneficial and.

As a better if they come into AMC, plus and what can we expect in terms of you promoting that product and putting content on that product going forward.

Sure, Mike I'm, sorry, I think.

Yeah in terms of the first part of your question.

Components of what we're seeing in subscription is the biggest variable is the subscriber trajectories.

And as you're well aware the biggest.

Element.

There is the challenges that are.

Satellite companies had head.

With subscribers as they don't offer a hard line broadband connection at a time when not only is moving is occurring but.

People are focused on all things.

That have to do with speed and internet capability and secure so that is that is.

The big factor.

We are some moderation price in our renewals as.

As you know, it's a chunky business.

We had a sort of steady state renewals that come up.

Chunky meeting different size companies and the contracts go generally anywhere from three to five years, there's some element contracts that can have an impact.

On price related to.

Certain very specific elements of position. So that's the portrayal of what's occurring in our world interesting if I may though segway, Mike Your second question.

Which is good for us is very encouraging sign there.

Oh, the future of our business is your question about AMC plus.

The two companies that have initiated the deployment of AMC plus our Comcast there, it's going to be platform and dish.

And that opens up our world to the quote broadband only.

Which is many more subscribers.

So.

It's attractive to us now how.

Oh multiple product relationships with Andy Pvs, they are not just offering or linear channels. They are actually the premier distributors.

And C plus and they have lots of motivation to succeed with it.

And we are certainly motivated so it puts us in a actually wonderfully harmonious position with these MVP ease as we go forward.

Really the changing they ever changing nature of your video business.

The nature of it for satellite is arguably more urgent.

Then it is for a wire line, but we are in lockstep harmony and in fact.

Really it was Comcast.

Accomplishment to them who.

With the early days at AMC Premier, which is certain assessed in a certain senses the predecessor.

Product of AMC, plus but only in a certain says it was with Comcast got it was hedged. So now we find ourselves I would say in I'll be a little exuberant, let's say the wonderful position.

Having made a certain amount of headway with the targeted asphalt services that we mentioned in the prepared remarks, some of which are being packaged up with AMC content in AMC, plus and now our lead distributors are the companies that.

Our looking for ways to have a video product, it's meaningful change world and I'd like to think that we're there first big allies and doing that and so you asked a question about our preferences.

You can puts it in your question was sort of an economic preference which of course.

We count the money, there's also a relationship sort of.

I wanted to all this because as we look at 21 20 to 23 24 25 for AMC networks.

We can see a portrait in which the pressures on linear video offset not in substantially.

By the deployment of AMC Cros and streaming services that we are operating in lockstep with those NBP days and that is are very very attractive picture.

For our future.

Thank you Josh.

We have our next question comes from the line of Michael needing to come and research. Your line is open. Please go ahead.

Yes, Thanks, Hey, Josh I have to want to answering Mike's question about the rate on subscriber volumes you used the phrase called elements are positioning.

So just help me understand what does that mean that some new phrase I mean, certainly wrote down and then on 80 Vod.

There's been a.

Flow some of your competitors are buying a lot of platforms themselves. How are you thinking about going into that business do you need a larger platform.

And how you're approaching the advertising sales component of that are you holding onto your inventory or letting.

On other platforms. So you know some inventory for you at this point.

Sure. So it might take the first maybe I'll I'll answer the Avon question, and then turn it over to you on the distribution question. If that's all right.

So so on the Avon as you know we're on we're on Pluto and were on dishes slaying. It is early days, but we are very much viewing that as an opportunity to monetize our which library of content. So we have shows their ranging from scripted like into the Badlands. We have the walking dead early season is in English.

In Spanish language, and we have thousands of hours from our we TV library of shows like right villas I won't go into the specifics of each of those deals, but I will say, we feel very favorably about those deals in terms of control of the salability of of our inventory so again.

We have a rich library of content. This is a growing way for us to monetize it and I don't think we feel like we have to own a platform I think we have a strategic advantage to have our strong content on on growing platforms throughout the industry in wearing a meaningful talks with everyone that you would anticipate.

Towards that end.

Had cats a follow up how are you seeing the benefits of those relationships hitting your.

Your European L. now is that that part of the stretching and advertising or a better better growth in our present from Avon coming through.

Well, we do see it a rolling into our revenue now, but it is early days, we're building impressions, we will see it increasingly going forward.

Okay.

Hey, Michael you I potentially much I make too much Ado, if you will add if something that's really very very minor.

Just to restated the most most significant impact on.

Our distribution revenue, our subscriber counts and that's what you're seeing reflected in our reporting the in passing comment I made had to do with.

As you may be aware some of our channels have historically been carried on tiers as opposed to on fully distributed basic cable.

If that if if if a channel like I have seen its not carried universally on basic cable, but has superior distribution if that tier saw a slight erosion in numbers it could impact the overall tank in a particular period of time, it's pretty minor, but if you're looking at our.

We look at these are the math of it which will be better off than me.

Small minor.

Yes.

To your penetration could ultimately influence the numbers of it.

Okay. Thanks, Josh that's I needed. Thank you.

We have our next question comes in the line of could go in my Rollup from RBC capital markets. Your line is open. Please go ahead.

Great. Thanks for taking the questions two if I could first if you don't Monday and trying to dig in a little bit more on subscription revenue I appreciate that it might be two quarters too early to asked this but when we think about 2021, given accelerating pay TV subscriber declines and some moderation pricing that you said, you're seeing should we expect.

Subscription revenue declines next year to accelerate or is there anything you could share with us in terms of the affiliate renewal pipeline or nuanced expectations on pricing that could prove to be an offset and then have follow up thanks.

Sure it's some.

Let me do my best to sort of give you a comprehensive answer.

We I think shared with you the renewals that we've done over time, there. So clearly we're pretty careful about managing the timing of these renewals each one.

Certain census, and event you read about them with us and distributors you read about them another distributors and they tend to have.

Generally not surprisingly.

There's a bit and then ask and sometimes those beats MBS hit the public arena.

Because.

With subscribers to celebrating their some sort of 10 theres been tension in the system now not just here this year, but for the past several years. So as we look forward.

We will have a regular cadence of renewals there likely as they always are to have degrees of drama as they are cross and others associated with them.

It's very hard for me to give you a clear answer about.

How they will roll out.

Yes, you are what I would say is that.

We.

Had been pleased with all the deal done we do have and I think almost in arguably.

The best value in terms of content placement.

On a basic cable dial.

So wholesale parts that third party information is available you can look it up.

Again, and you can look up bigger reports on consumer perception of value, what you will see pretty unequivocably.

Is that our price is extraordinarily attractive.

And our content is not only highly skewed.

That perhaps that's important but.

Equally important because it's highly valued people care about it a lot they are not in different to what we show comes and goes so we've been of the view that this will be a sustaining.

An important element of our future for long time.

And I'll put aside conversations about retransmission consent.

The other issues and just say that we are money for the valley.

And values the money forgive me and and and that is widely acknowledged and recognize and I think over time, we'll be recently.

Oh valued and recognize as some of the extraneous elements of the commercial relationships.

Frankly have let's hope they did if they're not central actual business performance.

And then I would add to that what I mentioned earlier, if I may which is that as we increase answered with these NBP. These are launching now asphalt products that I think I can say our distributors centric.

We are.

A friend of the farmer.

Because we are not at odds with them rather we are operating in concert with them and so I think that that will further strengthen our relationship with them and they've said it as we identified multiple ways that they can benefit and profit from video.

That's very helpful. Thank you so much and if I could just on as spot you're clearly seeing continued subscriber men momentum there that said there seems to be an under appreciation of the path to break even or profitability thereafter, and so understanding that you may not want to provide a financial update every quarter.

Can you help frame, how you're thinking about their economics over the next few years for your as fraud services and if we could expect these services to be maybe profitable exiting this year or heavy international Rollouts pandemic and program acquisitions like Mad men ship that timeframe a little bit. Thank you.

Well well add this is Ed to reiterate you know we said on the last call that we would end 20 between 3.5 and 4 million subscribers and we've said on this call that we're comfortable with that range and actually.

Feel we will end the year if at the higher end of it so.

So you are right in your assumption that we we don't expect we would update the financials before year end I would guide you to in the past. We've said by year end 2024, we anticipated 500 million run rate and five to 7 million targeted thats five subscribers, we think were signal.

Efficiently ahead of that pace.

So we feel good about the progress we feel good about the economics, we continue to make content investments that we view as appropriate and strategic and to share that content. Among our platforms are Rs ffive networks, and our linear networks I just want to mention of note returning on our asphalt plant.

Forms anticipated next year will be discovery of which is and creep show so subscribers keep growing our churn rates are favorable and improving and our economics will reflect that.

Thank you both.

We have a next question comes on line of Brett Feldman from Goldman Sachs. Your line is open. Please go ahead.

I think you've taken the question and I like to stick with the the conversation route as spot.

You talked about this is a a growing skill set for the company. Its repeatable you can leverage some of the investment you've made how are you thinking about broadening out the portfolio to include new targeted services and what are the key criteria you think through to determine when that makes sense. So for example, our do you see an opportunity to increasingly target Europe.

Listing as five subscriber base with new Svod services or are you thinking more about trying to reach consumers you haven't reached before and is it increasingly important that you leverage either content or technology investment that you've already made because until you do a version of that now with AMC plus thanks, yes.

Thanks for your question.

Yes.

How about this yes to everything you said.

But really that's meant.

To be light hearted.

We set out and it was some number of years ago.

And it was our premise was that there would be.

Reasonably widespread adoption.

[music].

Our subscription commercial free services.

And so we launched our first one.

Actually many years ago, and we were in the early days of streaming with.

Something that was the predecessor of Sundance now it became Sundance now, which is prospering today and then we added that the harder one which is actually doing extraordinarily well now on in fact, it could be perhaps described as a super nish, if you'll allow that terminology and.

In principle this to describe what we did.

He does begin with defining audience appetite audience segment.

Serving.

Because they're making independent decisions about what they like it or not what do you need to be attractive about targeted subscription services.

Which is somewhat less true of.

Something for everyone Big asphalt services is there might be less individually show dependent so.

I do believe that Youre your anecdotally conversations among particularly younger people say well my favorite shows off that subscription service, so I'm going to quit and I'll be subscribe when it comes back on a moving on into these services.

The subscribers to the Brigus service Acorn or to shutter have less of that dialogue going on they actually identify with entered interested in the steady flow of material there, which is not to say, we don't have hit spike degree, but they're not generally as.

They don't create as much absolute indices, who show or Cds dependent equally subscription.

That is a genetic.

Quality that I think it's extraordinarily beneficial economically.

In the subscription world because it means you're not running high rates of churn Sac cost is.

Subscriber light is better.

And that you.

You are frankly, not is ending on bidding for the next show and writing a bigger that are more miraculous check in order to command the attention of the world and so if you speak to these people who subscribe to shutter, it's quite a little experience, though speak with extraordinary passion about.

And things that I have a whole lot less familiarity with and I know the Robert reasonably well. So in answer to your question. We really go to the consumer first and the data that comes from how big the market opportunity is what the price and if it is what the availability of.

Content that pre existing and doors that we can manufacture and then to your last question I hope I'm answering it.

I think that and I just mentioned last answer we cant selectively manufacturer who do shows.

It really work well on linear.

Like notes Paracatu and are extremely successful on for instance, I'm talking about show a lot.

Shuttered service and.

Or creep show, which is we're a bit of a mini hit if you want to call it that on ER.

On shorter and also it goes well on linear by the way out bore you with examples.

A French series called the Bureau believe it or not which is among the certain constituency frankly, its own goddamn game of Thrones.

Because I happened to be proximate to that.

Group of people I've spent the last several days.

Providing access and helping people in my demo get there.

So.

It's a smaller group, but they're really quite pacsun about it. So we can move content, who the cycle of linear and escalade and we can have opened up new board track that Matt.

Economics in the way that we operate.

I was great color. Thank you so much.

Myra why don't we take one last question. Please.

Okay. So you having next question comes from the line of John Hodulik from you'll be at your line is open. Please go ahead.

Great. Thank you.

Got you talked about about leaning into to the DTC business and moderating sales to third parties of content.

Can you put some numbers around that I mean, I appreciate the third quarter commentary about that content spend but are those the kind of.

Declines we can expect going forward and then maybe for Sean I'm, just putting up a finer point on the on the free cash flow commentary.

Obviously, you're above where you where last year already year to date.

You guys, just being conservative and not changing the guidance or.

Is that the ramp in content spend in production and what you're seeing on the advertising side, giving you pause to in terms of potentially being sort of flattish free cash on the second second half. Thanks.

Thanks.

Hello.

Sorry about that guys technology problems. So let me take the second one first so on free cash flow John I think I made the comment a and one of the earlier questions about having meaningful free cash flow in the third quarter I'm, taking a more cautious incurred service of approach.

To the fourth quarter only because of the production cycle. The Josh articulated again, that's our best information today in light of the pandemic, it's hard to know so.

I think again I'm, just being cautious for the year. We are we've obviously withdrawn guidance I'm trying to be as helpful. As I can at least in the upcoming quarter and certainly as it relates to free cash flow I guided for the year. So.

Again, when we returned to normal business conditions.

Ill certainly update that.

As it relates to your first question on content licensing I wouldn't read into the declines I think what you're seeing in the financial results is really a result of the shift in the timing of production and the shift in timing of delivery, whether it be international or whether it be to domestic as svod platforms as you know.

So a lot of the revenue recognition is tied.

At least internationally to the current premiere of the current season and on the domestic platform. It's often tied to the premiere of the subsequent seasonal to show. So we're going to see quarter to quarter Lumpiness in light of the delays and the shows that a transition I think we've addressed a few of them in the in the comments today, you're seeing it.

Shift and I don't think we've taken and I think we've said this on prior calls we're not taking a.

Binary view, either not selling it or selling I think it really depends on the specific show. There are a bunch of shows that are returning that we'll continue to be exploited in exhibit in monetized on both international and domestic platforms I think world beyond was one example of one where we have held back the rights.

Too so it's not necessarily an overarching.

We're either we're not selling anymore to those platforms, it's really show by show and it really is business dependent on the traction we're seeing on all the new products, whether it be AMC plus or otherwise in terms of our ability to monetize our content. So I wouldn't read into.

The quarter to quarter variability in content licensing because it really at least in the current period is more result of the timing and delays in production now hopefully that's helpful.

Perfect picture.

Well. Thank you everyone for joining us on todays call and for your interest in AMC networks. Operator, you can now conclude the call.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you all for participating and you may now disconnect have a great.

[music].

[noise] [noise].

[music].