Q3 2020 AMC Networks Inc Earnings Call
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Ladies and gentlemen, thank you for standing by the AMC networks Conference call will begin in a few minutes. Thank you.
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[music], ladies and gentlemen, thank you for standing by and welcome to the AMC networks third quarter Conference call.
Name is Charles to know their conference operator today.
As a reminder, all lines will be placed on mute to prevent any background noise.
In order to ask a question. Please press Star then the number one on the telephone.
Fine during todays conference if you need further assistance please press star zero.
I'll now hand over to culture host for today Mr. step Saslow sure the floor is yours.
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Thank you good morning, and welcome to the AMC networks.
Third quarter 2020 earnings conference call.
Joining us. This morning are members of our executive team Jaci pads, President and Chief Executive Officer, Ed Carroll, Chief Operating Officer, and Donna Coleman interim Chief Financial Officer.
Following a discussion of the company's third quarter 2020 results, we will open the call for questions.
If you don't have a copy of today's earnings release. It is available on our website at AMC networks Dot com we.
Please take note of 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.
Those are cautioned that such forward looking statements are not guarantees of the future performance or results and involve risks and uncertainties that could cause actual results to differ please.
Please refer to the Companys 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 provides you with useful supplemental information concerning the company's ongoing operations and is appropriate in your evaluation of the company's performance.
For further details please refer to refer to the press release and related footnotes for GAAP information and a reconciliation of GAAP to non-GAAP information, which we'll refer to on this call with.
With that I would now like to turn the call over to Josh.
Well good morning, and thank you for joining us I'll take a few minutes to touch on several of our operational highlights before turning the call over to our interim CFO Donna Coleman.
Oh no dollar for many years to the work at Madison Square Garden, and Cablevision to me feel very fortunate to have you with us and have the benefit of her considerable wisdom and expertise until we did permanent CFO.
And she networks delivered solid results in the food Court he said it better than expected performance against several key metrics.
Continue to maintain a strong financial profile and increase our financial flexibility.
The solid balance sheet, very good liquidity and healthy levels of free cash flow.
Our financial flexibility allowed us to recently complete modified Dutch auction tender offer which took a significant number of shows that the market at a very attractive place something that Tony will provide more detail on in her remarks.
We continue to make very good progress in many respects we are accelerating.
Around four key priorities, we outlined on prior calls.
They are one expanding distribution going subscribers for our subscription video on demand services.
Growing our digital AD revenue business.
<unk>, increasing what pet ownership and optimizing content franchises and for maintaining the high value.
Your networks.
Our successful execution in these areas is how ordinary dude.
<unk> fundamentals remain.
Reid constitute the revenue mix what company most notably.
Revenues from our subscription streaming services.
No its fastest area.
I'll touch briefly on these areas starting with this one.
As flawed business continues to outperform our expectations with AMC networks fast, becoming the global leader in subscription video on demand services for targeted audiences.
To recap for you what this business is consistent.
Yes for targeted asphalt services Acorn TV shuttered Sundance now.
That's true because find audiences two rig program.
Our subscribers purchase services as it complements or not.
Not a replacement for the.
The larger general entertainment offerings that you didn't pursue that did member households.
We also had a new subscription bundled offering called AMC plus which.
Which is available on Comcast dish and sling.
And it just launched a few weeks ago on Apple TV Amazon Prime video.
AMC plus has added reprogramming from our entertainments entertainment networks like AMC and she didn't know.
It also includes shudder Sundance now.
Yeah, so centric asphalt often called I have some thoughts on limited as well as select library shows such as whole seven seasons a bad.
[laughter] all these services are performing very well for us we're seeing very positive growth rates and we also exceeded.
Earlier stated targets across several metrics, which if I may.
In terms of subs smoky corn, so there's some bad snow, yes targeted subscription services.
On our last call. We told you that these services and we were at the higher end of that.
Three and a half to 4 billion some wage and we now expect to end the year with over 4 million subscribers.
As a reminder, this is a goal that previously didn't anticipate reaching until the end of 2022.
So we are fully two years ahead of plan has far exceeded our earlier expectations.
The addition of M.C. plus offerings I just described in terms of total subscribers across our company for asphalt.
No we expect to end the year slide five enough sales well you.
Total subscriber range.
More than doubling our asphalt subscribers in just one year.
And in terms of revenue.
2020, our streaming business will generate approximately $200 million exactly.
That represents year over year growth looks to be 100%.
So we just 12 months, we've also doubled the amount of Uh huh.
Coming from the speaker business.
And we do think it's important to underscore that for companies our size the impact of 5 million subs today and.
And he or 20 million subs in the future.
It is very very significant in terms of transforming composition.
Our top line.
A streaming continues to be a powerful force shaping TV big.
Believe albertsons will continue to appeal consumers looking to go deeper in the content categories that they love and identified.
Continue to purchase a little alongside the general entertainment as possible.
Well, we're still in the early stages of growth.
Progress to date supports our conviction in the.
Tension of these specialized as possible.
Turning to advertising.
In terms of the outcome.
We are pleased with our performance and we've set a solid foundation for the fourth quarter and going into 2021.
We're in the middle of the calendar now the marketplace has greater momentum.
Hi, she is healthy and our fourth quarter programming slate is set and quite strong.
Who supports the AMC is annual Halloween themed programming that's cool.
Your pets.
As well as our show fear the walking dead.
The newest season than the walking dead people, it's pulled the walking dead will be on.
And our annual Best Christmas programming.
You'll see that our advertising.
Revenue for the third quarter.
Two bases or strong.
We continue to benefit from unique position, we hold in the basic cable landscape.
With four of the top five Ramos on basic cable to 2020.
Key demos we.
Really the only thing.
We're supposed diversified portfolio that consistently delivers high quality Guam is it a deeply engaging AD supported environment.
Our high concentration or hard to reach audiences are very attractive to advertisers and importantly, we're obviously not accessible on board can spin platforms.
Good.
Continuing area of focus for us to leverage her words in Quebec.
Partnerships the corporate view is a new way to consumer content and help our Alberta, our advertising partners capitalize on the system. So we've successfully debuted AD supported channels on people employed.
And recently added Amazon.
As an AD supported streaming partner.
These are in addition to recent spend centric initiatives would be ready Twitch all quarter, that's with multiple ways advertising clients to reach their audiences on all platforms.
The passionate fan bases, we had poor content, particularly around our content franchises.
[laughter] these partnerships and add distribution partnerships that little bit promising wasn't good results there.
Well overall digital AD inventory scaled the benefits become increasingly visible.
We have more AD supported platforms launching with a couple of months. We're looking forward to continued growth in this area.
Sales and.
Moving on to distribution in the quarter, we reached a long term Herge agreement.
With our partners and E T.
Our new comprehensive multi platform partnership.
It's extended distribution linear channels.
New distribution for asphalt services, including AMC plus in our targeted asphalt offerings.
With 80 in T., Directv now completed multiyear renewals.
Three of the top four traditional distributors over the last two months.
He's in addition to our recently expanded agreements with Amazon Apple TV, which as I just mentioned now carry AMC plus the addition to our Standalone targeted asphalt services.
These distribution agreements not only what the powerful strong constant but also I think the larger ships you know relationships with these values.
We're expanding our partnerships with him to include multiple products, obviously, our linear channels as well as our growing asphalt services and bundles now including guidance you close.
We think the book to be well suited to bring your content there.
Surface of MVP evolving.
The consultants for their businesses.
Capture opportunities not only in traditional bundled with video, but also to the broadband only subscribers would you go.
Turning to content.
Mentioned at Sea is home to the four of the top $6 on cable in 2020 to date.
Key demos adults 24, and adults 18 to 49.
Expanding walk you boost continues to be very popular.
[music].
Last month fear the walking dead between six.
The show is either.
And ranks number four cable drama for the year among adults 18 to 49.
And I mentioned earlier, the newest used the franchise called the walking dead.
The show follows the first generation to come of age.
After the zombie Apocalypse and with its strong performance in the story lines.
Thanks, <unk> number one freshmen cable drama here.
Both.
Demos and through its first.
So it's.
It is also performing well for us and our AMC channels overseas, particularly in Latin America.
We recently announced that the walking dead mothership.
We'll come to a close in late 2022.
We are planning an extended two years seasoned 24 episodes, which will mark the 11th and final season. This flagship series.
Its conclusion will be followed by another you'd see this one focus on the very narrow and no Kurt.
And fans won't be expressed enthusiasm in anticipation.
That chapter and the walking dead universe.
We're also developing anthology series called Hills with the walking dead.
Well offer great flexibility and the stories, we tell we did this universe.
It will focus on the Perkins fancy, it's back stories and other novel approaches.
All this activity led by Scott Campbell, our Chief content officer of the walking dead Universe all.
All of it was really quite excited about.
I talked about our AMC plus offering at the beginning of these marks to give you a sense of how views only agent she plus in the first few weeks that the service has been available.
Apple TV Amazon.
The most viewed series in subscription bookings guidance or the walking dead.
And.
Walking dead will want.
We use it to new AMC series.
Gangs of London, and the sells food poisonings.
As well as Flemming holdings be programming from AMC coffee goes to your question is.
Well on his promotion.
I'll note that those two acclaimed dramas gangs of London and celebrate poisonings.
AMC plus exclusives at launch.
And we'll talk to you on more linear that work until early next year.
In addition, the broad availability of BMC plus allowed us to make content from the walking dead universe available on AMC plus several days ahead of its many you're pretty.
So while it's still early days.
Plus as a powerful platform to reach fans of our content.
While most of the increase in capitalized on the screen printing Christoffel original programming as well as the granite about growing library of.
Content.
And on the production front I'm pleased to say that we are resuming production activity a number of their shows and we're doing so seafood and corn local health and safety guidelines.
And in cooperation with oil.
Unions builds.
We're currently in production on new episodes, the walking dead at our studios in Georgia.
Fear the walking dead touches and season, one of the new series quote.
Kevin can happen so I'm shooting for.
Okay.
Finally, turning to international.
We continue to expand availability or asphalt services into overseas markets with shorter now available in Australia, and New Zealand and Acorn TV, let's move on to Portugal.
Expanding its use.
[laughter] in Spain, we've leveraged our strong relationship with.
Long term distribution partners at leading Spanish pay TV ARPU the movie Star plus and we are Coproducing. The major mini series, you don't PMC studios become cold lots more to deal with.
Stellar cast, including Oscar going back to stem the teaching.
So to close out the third quarter demonstrated the strength of our increasingly diversified business and we continue to benefit from the positive momentum across those strategic initiatives in particular.
Progress, we're making in executing on our subscription screening business.
With that I'll turn the call over to Donna Coleman for more detail on our financial results. Thank you.
Thank you and good morning.
Third quarter total company revenue was $654 million.
And total company Allied with $185 million.
Both revenue and a library ahead of our expectations this quarter, primarily due to favorable topline performance, particularly at our international and other segment.
With respect to the performance of our operating segments at the National networks revenue was $462 million and a lie with $159 million.
Advertising revenue in the quarter declined 16% to $164 million.
As expected we saw an improvement in the overall health of the advertising market in the third quarter as compared to the second quarter. However.
However, our advertising performance was impacted by the timing of our originals in particular, the airing of fear the walking dead, which aired in the third quarter of 2019 that was moved to the fourth quarter this year as.
As well as the pandemic and lower delivery.
With respect to distribution.
Anticipated distribution revenues decreased in the quarter.
The main driver of the decline with the content licensing component distribution revenue.
This line item declined due mainly to the timing of the licensing of our scripted original programs in various when guidance.
Most notably results in the prior year period reflected the SBO day availability of the walking dead as well as the Sun and the international distribution of fear the walking dead and the care.
Astra subscription revenues consistent with our expectations subscription revenues were down in the low double digits as compared to the prior year period as we continue to see a moderation mainly due to declines in total pay TV subscribers.
As Josh discussed, we believe the strength of our content and our attractive wholesale pricing continues to make us a valuable service for our distribution partners.
Moving to expenses.
Total expenses decreased $48 million or 14% versus the prior year period.
Technical and operating expenses decreased 15% to $223 million.
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.
In the quarter, we recorded $20 million and charges related to the write down of various programming assets. This compares to write downs of $1 million in the third quarter of 2019.
As DNA expenses were $90 million in the third quarter, a decrease of 11% versus the prior year period.
Variance, primarily related to lower marketing and other administrative costs.
Moving now to the international and other segment.
International and other revenues were $199 million.
As I mentioned revenue with higher than expected Levy was the main driver.
Well the comedy venues remain closed production activity, we think sooner than we had expected.
Advertising at our annual at our International networks also improved more than we anticipated on a sequential basis.
Looking at our year over year, we tell you.
International and other revenue increased 9% versus the prior year as Josh discussed we benefited from strong growth from our targeted at Sidoti services.
Primarily to the increase in subscribers.
Why was $28 million, an increase of $14 million versus the prior year. The increase was primarily attributable to an increase at our targeted SBO de services, partially offset by decrease at our international networks.
Moving to me.
For the third quarter EPS on a GAAP basis was $1.17 compared to $2.07 in the prior year period.
On an adjusted basis, EPS was $1.32 cents compared to $2.33 in the prior year.
The year over year variance in both GAAP and adjusted EPS, primarily reflected the decrease in ally as well as an increase in the effective tax rate, partially offset by a favorable variance in miscellaneous net.
The reduction in outstanding shares as a result of our stock repurchase program.
The increase in the effective tax rate was due to an increase in a cap valuation in the current period, especially as a discrete benefit in the prior year period of some tax planning strategies related to investment tax credits and the reorganization of foreign IP.
The favorable variance in miscellaneous net reflected unrealized gains on equity investments.
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 $203 million in free cash flow for the three months ended September 2020, resulting in a nine month total of $595 million and free cash.
Nine months cash interest was $92 million tax payments were $60 million capital expenditures were $35 million and distributions to non controlling interests were $14 million.
Working capital also improved significantly year over year, primarily due to delays and production spending as well as the timing of collections related to receivables from the sale of advertising and content.
Turning to the balance sheet.
Our financial profile remains strong and we continue to take steps to ensure that we are well positioned to ensure them.
To weather the impact of the pandemic on our company about.
Our balance sheet and strong free cash flow have continued to allow us to opportunistically allocate capital.
In mid September we.
We launched a Dutch auction tender offer as a result of the tender, which we completed in mid October we repurchased 10.8 million shares for $251 million.
We were quite pleased with this transaction at that allowed us to repurchase a significant amount of our stocks.
Subsequent to the completion of the tender the balance sheet remains strong and we continue to have significant financial flexibility.
In terms of capital allocation, the four key tenets of our capital allocation policy remain unchanged.
They are first invest organically in our core business and new businesses on project the produce attractive returns for our shareholders.
As Josh discussed our targeted at the services have 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 it to maintain leverage that is appropriate for the business outlook.
As of September Thirtyth, AMC network had net debt and finance leases of $1.9 billion.
Our leverage ratio based on LTM AOCF of $833 million with 2.2 times.
Adjusting for the tender offer that I mentioned, a moment ago, our leverage at September Thirtyth would have been 2.5 times.
Despite the impact of the pandemic on our business, we do not foresee any issues with regard to our covenant or our ability to service our debt and continue to have significant liquidity.
Third make disciplined and opportunistic acquisition to advance our strategic.
Before I turn capital to shareholders.
Year to date, the company has repurchased 14.8 million shares for $354 million.
As of last Friday, we had $135 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 COVID-19 pandemic on our operations remained quite fluid. It makes it unusually challenging commanded to me to estimate the future performance of our businesses as.
As a result, the focus of our prospective comments will be on the fourth quarter.
With respect to that quarter, we anticipate continued quarterly variability as a consequence of both pandemic as well as the specific timing of our investments in content and the airing of Arsenal.
As for revenue at the National networks.
In terms of advertising.
All the advertising market continues to improve sequentially year over year results in the fourth quarter I expect it to be impacted by the timing of our original programming lineup, including a delay in the airing of the walking dead.
As a result, we expect a year over year decrease in fourth quarter advertising revenue to be relatively consistent with the percentage, we reported year over year in the third quarter.
As for distribution revenue at the National networks, we anticipate that we'll see significant sequential improvement in our year over year results in the fourth quarter compared to what we saw in the third quarter of the year.
With respect to content licensing revenue our performance will be impacted by the favorable timing of the availability and monetization of content and ancillary windows.
For instance, in the fourth quarter, we expect to recognize revenue from the international distribution of world beyond and fear the walking dead.
In terms of subscription revenue, we expect the decrease in the fourth quarter to be relatively consistent with the percentage we recorded year over year in the third quarter at the macro trends and pay TV subscribers continued to be the main driver of outperformance.
At our international and other segment, we expect revenue to be down modestly on a percent basis year over year we.
We intend to anticipate continued growth in our streaming services will be offset by declines at Liberty at the comedy venues remain closed and our international network due primarily to an adverse impact on advertising revenues related to the pandemic.
As for expenses, we expect total company expenses to increase modestly on a percent basis year over year.
At the National networks expenses are expected to be relatively flat year over year due primarily to the timing of airing our original weeks.
We expect programming amortization to reflect the airing of originals, such as fear the walking dead well beyond soulmate.
At our international and other segment, we expect increased investment in programming and marketing to drive subscriber gains for our growing ethier de services.
In terms of free cash flow our production activity has picked up significantly assuming no significant interruptions in that activity as a result of the pandemic, we don't expect to generate meaningful cash flow in the fourth quarter. We remain quite pleased with the free cash flow characteristics of our business and expect to end 2020 at levels well in excess of 29.
Free cash flow.
So in conclusion overall, we feel confident about our ability to continue 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 opportunities that weekly to further our long term strategic initiatives and positioning.
With that we would like to move to the question and answer portion of our call. Operator, Please open the call to questions.
Thank you at this time she would like to ask a question. Please press star one.
And our first question comes from the line of Michael Nielsen Your line is open.
Thanks, Josh I have a question can you talk a bit about those four targeted services.
Maybe the need to your the balance of what is bringing in new subscribers is there enough healthy original programming is it library, a little bit about churn. So I'm just trying to get like a picture of how much you need to invest in original keep driving this and what the churn dynamics look like thanks, so much.
Oh sure Michael.
I think the answer is a little bit different for each one.
Because they have such discrete targeted audiences.
I will share with you that the larger still good corn, which is British oriented.
As a.
Best in deep library.
And a wide range of material we can license.
At the same time, you corn has been a rigorous co producer of material.
In the UK and.
Actually around the world so on a quarter to combination of very significant library and.
Oh productions.
And by the way as to as you called that business, we own significant participation in Agatha Christie intellectual property.
It happens to have Michael to see.
Among the lowest churn.
Subscription service in America.
That includes the biggest ones and that's a function of I think two things one is the sort of dedication and affinity that people feel with the material part of its demographics is it skewed somewhat older.
And although it is somewhat program dependent in significant part steady stream ability will be an opportunity for people to watch the pipe materially like.
Gives it is very low churn so it as frankly extraordinarily attractive.
Characteristics in terms of churn and therefore lifetime value.
Shudder I'm, sorry, because it's such a long answer.
But shuttered.
Yes people its something well go to the previously but shudder is interesting because we do have also library of good movies, but we've been able to produce and co produce.
There are two different areas in your illustrative in work for a moment.
Yes, first with our own AMC service or regular linear business. We co produced a series called creep show.
In that demo and all that sort of is sort of a monster.
And then this is illustrative Michael I thought you might appreciate it.
Did a movie during the pandemic cold host, which was done completely remotely. It was more is in those circles and it was a it was a pandemic movies that was a horrible.
It was lauded and that was electric amongst the shutter audience shudder had slightly higher churn waterbottles material and it's a dollar threshold for producing for it against the target audience is frankly, not that high a movie like hostess rather in expenses.
And they enjoyed it very well so the net of this if I were to summarize it is as compared to the general Asphalts.
The Dalai requirement is in a different league. It's nothing like you see and read about Netflix et cetera spending on a per hour basis, its actually different universe and it has different sets of economics that are very attractive and frankly much longer.
And so it's a wonderful business to be good and I think that we have advanced and refined our capability and how the spine target and retain those audiences as proven by the doldrums. So.
I wouldn't say, we're the worldwide leader in targeted you just bought rebate back either a worldwide leader in these target their spots. It's a nice claim to make I think it's legitimate.
Thanks, Josh.
Thank you next question comes from the line of Steven King Kong. Your line is open.
Thanks two.
Two for me, maybe first just tracking your distribution revenue. It does seem like that may be in addition to sub decline, there's a little bit of pricing pressure.
And so just wondering if it's logical for us to conclude that as you're renewing with MPPD easier launching these digital bundled is there a little bit of price pressure, that's working into your networks as as you make that pivot and that's the first one and then on the second I was just wondering about the life a series deal with Netflix fear the walking dead as you start to think about delivering the final.
Seasons of the walking dead, how do you think about that deal and you know we seen some legacy libraries like Mad men recently get repriced up as they come available. So you noted at the end of that show sort of reopen that deal with Netflix and if it does you know do you feel like that's that's more upside or downside to your licensing revenue. Thank you.
So oh I'll answer the first part of it.
And the first question and the first part the second about Alaska to participate on the distribution side there has been some.
Pricing pressure downward rate of growth.
On our anti PD renewals.
[music].
You used to be double digits, it's lower now.
The most significant sector affecting the moderation of the line distribution revenue.
And it has a bunch of components as you know it includes content licensing revenue as well.
Yes.
Oh, it is subscriber declines, which unfortunately has taken place, particularly in the satellite sector, which were widely expose through 280 Mg and two.
There's been a moderation in the rate of growth.
Steel was deferred.
We've done.
We are focused on a holistic.
As I mentioned in my prepared remarks relationship.
With our MDP partners so.
No no.
Comcast was that helpful architect in what was first called AMC premiered than an M.C. plus dish and sling supports an ATM T support shouldn't carries it so.
We are focused on what our world looks like over 12, and 24 months in aggregate.
But we're also focused on frankly, we think we have among the most valuable basic cable services. There are out there with four of the top six rated drums and they're they're great. M.D. These were trying to both retain and you saw recent numbers from charter frankly grow standard video.
Subscribers.
My information was correct. So we're living healthy on both sides of the house.
Nice is that our company that we see.
Is that our cherished NBP partners are embracing.
Our linear offerings, and our asphalt offerings and they see us as a stable high quality reliable.
Integrated provider on both sides of the house, so as they live with more broadband only in their lives. We are a provider who's very well placed.
On the linear side and now has a margin opportunity on the asphalt side and allows them to vigorously b of the video business with that partner. So I think that's a sort of unique.
Very nice position to be able to your second question if I may.
Oh first distinguish that certain shows we oh, no because we produce them and the other ones. We license. So mad men for instance, we license because when we need it we were just getting into original programming. If you wanted to de risk and so we took on line as good as a partner and they were the only Robert so to put it on the service.
On AMC, plus which we did we get the license it and why is it we own.
The walking dead and we owned.
The majority of shows we've done over the past.
Eight or 10 years. So that's question of licensee is.
Not applicable because after shows do there.
Ron on asphalt deflation from two likes it Netflix they come back to us as the studio if I may Steve and I'll, just turn it over to Ed may amplify.
Quite a bit of the answer right.
Right Stephen So a several years after we stopped making and delivering new episodes of the walking dead all the Reits revert back to us from Netflix and so that it that will be over 170 zombie hours and then if you combine that with fear fear the walking dead, which comes off Kulu.
A few years after we stopped making in delivering it will have well over 225 hours and you know it's important because.
Because we will then have the freedom to use them on our platforms chicken.
She continue till to either share licenses domestically or continue to aggressively license them internationally and I think the point that you're scratching at is a good one with a show like walking dead I put it in a rare league like game of Thrones and Sopranos, there are always new people aging into that demo so.
They will always be people, who want to see that show. So so if we have that show and we decided to use it on our platforms or license it around the world or or share a license domestically, we have the option to do that.
And as Josh was alluding to is it dovetails nicely with the studio strategy that we've been talking about for the past few years, so shows like into the Badlands and halt and catch fire and rectify intern literally hundreds of hours are coming back to US and then we have our choice to exploit them on AMC plus or to come up with.
Their creative splits that are in our economic interest to do.
Hi, Brad.
Thank you next question comes from the line of Michael Morris Your line is open.
Thank you good morning, two topics for me first can you share your thoughts on pricing for the AMC Pluck service.
So specifically why do you have such a variance on at least on a percentage basis between say a comcast customer.
An apple or Amazon customer and then also that the $9 price point.
On on Amazon Prime and Apple fields fairly high on a relative basis. So why is that the right price and sort of what are the considerations. There and then secondly, you know as as your revenue stream do increasingly diversify how do you think about the long term hey, why margin compared to maybe what you've enjoyed on a pretty steady basis.
At the National networks basis.
Segment and that kind of mid to high Thirtys range, how do you think about it.
For the company overall over the longer term thanks.
Sure so on.
Kick it off Michael and.
They have something to add thought now start with the margin first which is.
Really.
Yes font services that we have really do as I mentioned earlier.
Earlier in the queue they have unusual.
Hi.
Expenses characteristics there unusual on.
The targeted services are a different species.
From.
An asphalt service that is striving to be in 15.
Million domestic homes, and 200 million worldwide homes and is looking to serve every member of the house for something from kids programming et cetera on.
So.
The the scalability and the labor.
In our expense base is relatively very attractive to where we run rate profitability and and all that stuff with 4 million subs in aggregate is something that is indicative of what it costs to actually served with great satisfaction with consumers who are buying.
They're critical they're making decisions and we are satisfying them.
With that level of expenses. So it takes is you have to be relatively good at it.
Both programming and marketing, but that's what we've been doing now for its going on six and a half seven years.
On M.C. plus we also had the benefit and the sort of share appropriate share programming between linear service Susan as Bob. So if we replace a third party as the outlet for asphalt and we enjoy the benefits of it ourselves and we also own.
So that is an attractive proposition.
For us economically so I wouldn't make a margin prediction for us.
36 to 48 months out I would say that we'll have a we hope is radically different top line.
Our diversified revenue coming from multiple different sources, which is already underway doubling asphalt subs and doubling as far as revenue.
In 12 months is a reasonably healthy.
Rate of growth, obviously, and the margin profile in aggregate of our company I think will be very attractive overtime.
Which has not been seen anyone period, there won't be some fluctuations.
As it relates to your other question on price off of one I'll turn it over to if I may.
Perhaps be more authoritative go ahead.
Hey, Mike I'll, just remind you we had established a price point in the market for shutter, which was a 599 and that said that has exceeded 1 million subscribers and we have a price point in the market for Sundance now at 699, and then we had AMC premiere on Comcast and Comcast really with a co architect of.
That concept of taking AMC content and making it available in a premium commercial free sort of been friendly format and that was about a five dollar price point, so with all that value as you would imagine we did a fair amount of modeling and determine that that 899.
The REIT introductory price point and will be migrating some of those AMC premieres at lower price points to higher price points over time it might help you.
If I give you a little information about the programming model.
With AMC plus the viewing data and it's early days, but in the in the few weeks we've been out there the power of the broad offering on the walking dead eyes is proving very compelling to subscribers and so when we combine that with shutter and then the scary movies and original series such as creep show we.
Have a lot of experience programming into this John right and into fans of the genre content. It's the comic con crowd.
That has embraced our zombie series and shows like preacher and into bad lines industry I meant the badlands and discovery of wishes and it's broad. So we think the combination of AMC content combined with the offerings of some of our targeted at spots I'm talking about a.
Shutter and Sundance now, it's a sweet spot, it's still a targeted product, but its one with a significantly higher ceiling.
So the genre is is it is a big aspect Western program. It to hit those comic con fans that have great reference for our shows the other major track is the prestige side of AMC spread so.
So that's exemplified by shows like Mad men and killing even in better call Saul and that we think is reinforced by the indie films in the series from Sundance now and I actually felt so both on the genre and the prestige side. It's a lot of good content at an attractive price point.
We're off to a fast start it's early days, but we really like the trajectory that we're on.
Great. Thank you both.
Thank you next question comes from the line of could be morale. Your of your line is open.
Great. Thanks for taking the questions two if I could first sticking with AMC Pos that previously size. The total addressable market for each of the four targeted services to be over 10 million in the U.S. alone your updated as spot cyber targets today imply fairly encouraging adoption of AMC plus Peter for EXFO.
The dish sling were now through Apple and Amazon. So how are you thinking about the longer term subscriber potential for a and C class I assume the service accelerates your slide revenue expectations as well I'm not sure if you'd be willing to update your previous 2024 outlook or if maybe we should wait for year end and I know you.
Talk about the relative.
Track the cost structure of your asphalt services overall gig NC plus shifts the path or timeline to profitability and Haddon Hall.
Well.
You answered it so it's a good question I'll give you a couple of answers on the answer to the ceiling of market opportunity is.
Substantially we are dramatically higher.
When we spoke to you about targeted Asphalts, we were talking to you about those four.
Shudder Sundance now you won't see an acorn and AMC plus I, if I can I think Ed said it is targeted and these what I would say it's super.
Super.
Steroid targeted and if you have four of the top five very part for four of the top students at five forgive me for the top 10.
10, or 20 shows of the past four years, which have not been widely expose that John we're oriented you're not in that 10 million subscriber opportunity range. You are even sort of superior targeted range. So the market size opportunity radically different.
When we spoke to you for the launch of AMC, plus now going to sell.
Several months or a year plus ago. So that is a new development in our.
In our activity, it's a new development in our expectation and it's a new development for the extra perspective look the overall company I can't dramatize it enough.
In terms of cost go up there's a few things to consider we will find opportunities to invest I think.
We're agrees a disciplined and also with degrees of efficiency that will come organically from the situation would and bill there, they're coming to see different flavors first.
First and foremost what Ed you said is named the list two shows they each have expirations on their best Swag licensing and they are over and then they come back to our library, we own them.
What is interesting this phenomenon is and you see it is that.
What do you see that come of age and are of interest in that material has not seen or heard them.
So, they're they're neutered and they discovered them and we own so that will be that will create a level of efficiency for us to expand and raise the ceiling on that market opportunity.
Number one and number two.
We we produce for AMC networks AMC.
BBC America Sundance I have c., we can produce for our asphalt services and linear services that will certainly give us a.
Her and.
Quantum that in our approach to what we're doing so we're going to need to be great. We're going to need to sort of audiences, we're going to need to excite.
But we have two fundamental characteristics that give us cost advantage as we mine that much more significant opportunity.
No. That's very helpful. Thank you and second if I could just on buybacks. The tender offer was a very clear and impressive expression of the board's confidence in business you know.
That said there still appears to be plenty of dry powder, given the strong balance sheet ample liquidity and free cash flow generation I. Appreciate that this would be a board decision, but should investors expect buybacks will continue to remain elevated shares remain range bound in the mid to.
Lower $20 range.
Hi, Donna I think you know outlined in our prepared remarks, we are we feel we have a very good balanced approach to investing in the company maintaining our leverage levels.
And returning capital to shareholders. So I think that we are going to continue to be opportunistic in our decisions on on buybacks, we'd have $135 million left in our existing authorization from the board as you point out we're very optimistic about the future of the company and the strata.
Gee that Josh Josh laid out so we're quite pleased with the way the Dutch auction.
Worked out, but I think that going forward, we're going to maintain our four tenants that I outlined in our script can continue to.
We continue to be opportunistic and call to investing in the company and doing share buybacks.
Thank you both.
Operator, we have time for one last question. Please.
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Thank you Sir.
Next question comes from the line of Brett Feldman Your line since then.
Thanks for squeezing me in you know you you continue to make the point you're demonstrating your performance that managing these targeted svod services as a real core competency of the company and you've talked about is 10 plus million addressable market for the services you have I would imagine that if you were to come up with a theoretical list.
Targeted escalade services that could meet different demos or it could be much more extensive than for services and so have you thought about you know trying to cultivate a fifth or sixth I got to imagine you get pitched ideas a lot and as just noted the last question you have plenty of financial resource available to you. So I was just hoping you maybe you could just expand.
And on how you think about diversifying that service portfolio over time. Thank you.
Sure Yeah, I think that's it thanks for the question. We you know we started.
Shudder.
Several years ago, we started Sundance now several years ago, and almost R&D basis.
We put it and we work to move away from our mainstream activity in order to feed it and give it to support that it needed.
And then we did have our eye on other targets. We had experienced just to give you a little history. We had experience you appeal frankly.
British oriented were produced programming through our partnership with the BBC and so we were happy to be able to acquire.
The services Acorn and U.M.C. and we were familiar with black oriented programming through re TV and so we had distinct attraction too and was on our list.
British and urban oriented black oriented content.
To your question, but expansion, although when asked to US we launched very recently something called I have she comes on limited.
Which is a targeted indie film service.
It had some reasonably good uptake rather rapidly and.
And we do studied the market and do study pricing and we do now have increasingly available data.
To understand really different price points, what people will buy and as you might imagine we're of course, where everything that's in the marketplace. That's operating today, particularly in the us.
What the ownership is what the subscriber performance art and got to look at.
Patrick sorry, so without saying anything without conviction without no conclusion, we're studying the marketplace will determine whether there are opportunities either for organic or M&A activity in this area.
I think we have reached a place where we have degrees of competency if not confident plus and how to market bring these things to market how to organize them how to work with distribution partners, both digital and mbps and how to discount rate.
Change and sell and retain so the answer is yes, we can.
There may be opportunities to grow we just want to make a course right calls right moves and have the right ROI.
Great. Thanks for taking the question.
Well. Thank you everyone for joining us on todays call, we apologize for the delay at the outset of the call, but we do appreciate your interest in AMC networks. Operator, you can now conclude the call.
Thank you, Sir ladies and gentlemen. This concludes today's conference call. Thank you for participating human now disconnect have a great day.
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