Q2 2022 AMC Networks Inc Earnings Call
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Good day, ladies and gentlemen, thank you for standing by.
Welcome to the AMC Networks' second quarter 2022 earnings conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one one.
Please be advised that today's conference maybe recorded.
I would now like gender conference over to your Speaker host, Nick Seaberg, Vice President of corporate development and Investor Relations.
Thank you good morning, and welcome to the AMC networks second quarter 2022 earnings Conference call. Joining us. This morning are Matt Blank interim Chief Executive Officer, Chris Spade, Chief operating Officer, and Chief Financial Officer, and Tim Kelleher President commercial revenue on partnerships. Today's press release is available on our website at AMC.
<unk> Dot com, we will begin with prepared remarks, and then we'll open the call for questions.
Today's call May include certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Any such forward looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ.
These refer to AMC networks SEC filings for a discussion of risks and uncertainties.
The company disclaims any obligation to update any forward looking statements made on this call.
Today, we will discuss certain non-GAAP financial measures the required definitions and reconciliations can be found at the end of today's press release with that I'd like to turn the call over to Matt Matt.
Thank you Nick good morning, everyone and thanks for joining us before we discuss our second quarter results I'm delighted to share the news we announced early this morning.
Our CLO and CFO , Chris Spade has been named AMC networks CEO effective next month at which point as planned I'll step down from my interim role as CEO , which I've held for the past year.
I've known and worked closely with Chris for more than 20 years, and I had the pleasure of working with her again when I arrived here last September she has done a tremendous job leading the company's transformation in every respect driving our strong streaming subscriber growth jumps.
<unk>, starting our global expansion efforts optimizing our performance marketing and ensuring we are leveraging our strong linear business.
Our focus for driving her passion for this company can't be overstated and with her leadership skills and strong financial background I know she'll make even more significant contributions to our success as she leads AMC into its next chapter.
For my part it's been a pleasure to lead this company for the past 12 months, helping guide the strong pipeline of great programming and building on its IP and helping to develop and refine our differentiated streaming strategy with his company's unique collection of assets content strengths powerful brands and financial discipline as well as its talented people and strong.
Culture, I know, there's an incredibly bright future ahead.
This is a wonderful moment for AMC and for my long time friend and colleague, Chris So congratulations Chris and now let's get to our second quarter results.
While operating in what is a challenging and uncertain macroeconomic environment AMC networks delivered a solid second quarter with a consolidated adjusted operating income margin of 26%.
In the face of inflation and other economic headwinds, we're performing very well benefiting from strong subscriber growth for our differentiated and targeted streaming services, which in Q2 included expansion into Spain with several distributors.
We're seeing positive indicators for our upfront around pricing and volume and demand for our innovated at innovative advanced advertising offerings with our linear business, providing a powerful platform to launch promote and monetize our content and brands.
Our content creation strengths were on full display in the quarter with viewership records and widespread critical acclaim for new and returning series alike. We remain committed to the full year financial targets, we shared at the beginning of the year, including total company revenue growth of low single digits and free cash flow of approximately 100.
In 2022.
In the second quarter, we added nearly one 3 million net subscribers in aggregate across our streaming portfolio ahead of our forecast the growth was driven by global expansion as well as strong audience demand for our AMC plus offering and our targeted services Acorn all black high dive shut.
<unk> and Sundance now.
Launching our services globally has been a priority for us and with our efforts now taking shape, we're taking advantage of packaging and other opportunities across various markets, including in Spain, where we launched with several leading distribution platforms.
Representing a major contributor to our subscriber growth for the quarter.
We ended the quarter with $10 8 million total paying streaming subscribers and we're well on our way to our longer range goal, which we previously shared of 20 to 25 million subscribers in 2025.
In the second quarter, we grew our streaming revenues, 20% year over year with normalized growth growth of 36% driven.
Driven by our focus on improving our performance marketing outcomes, acquiring and retaining high value subscribers with a disciplined data driven and cost conscious culture.
Cost conscious approach in addition to refocusing our efforts on branding and promotion for our strong content.
With high viewer engagement across our services, we're maintaining a very advantageous churn levels and we remain focused on operating our services profit profitably.
We had a very strong quarter with respect to content and I'd like to spend a few minutes highlighting some of the great programming, that's driving our performance and demand from subscribers and viewers as well as advertisers and our distribution partners.
We said before that 2020 is the biggest year of original programming for our company in the second quarter saw the return of key shows while simultaneously launching exciting new series for the next chapter of AMC.
Our strong streaming performance underscores our ability to not just make the kind of high quality content. That's always been a key pillar for our brand, but to make true hits, the breakthrough and make a mark in the popular culture.
Let's start with better call Saul there's been enormous interest from critics and fans alike in the sixth and final season, which debuted in the second quarter and will complete its final run in just a few weeks.
The series ranks as the third most watched show in key demos for the current broadcast season.
And only Yellowstone and our own the walking dead and the series has been the biggest acquisition driver for AMC plus of any show in the history of the service.
And that was all before this week surprise return of Bryan Cranston, and Aaron call and their iconic breaking bad roles.
Last month's Emmy nominations saw the show Lance coveted.
Covenant nominations in major award categories, including outstanding drama.
Standing lead actor for Bob Oden, Kirk and a long overdue outstanding supporting actress nomination for RAC Horn.
We couldnt be prouder of this incredible show that's become a landmark piece of television history.
And how exciting is it that AMC favorite Bob owed and Kirk will be joining us again in a fabulous new series straight man that starts building this fall and our own John Carlo Esposito will star in our upcoming series parish, which goes into production this month.
So lots of new ways to keep that better call Saul audience engaged in the future.
Back to the quarter. The second eight episodes of the final season of the walking dead finished in the quarter as the most watched season on AMC clubs to date.
And as I just mentioned even at its 11th season, the walking dead ranked as the second most watched cable show of the broadcast season.
The series concludes this fall with a final eight episodes, bringing to a close one of the most successful and groundbreaking shows in television history.
But theres a lot more ahead for the dead franchise, we have a number of spinoffs featuring popular and fan favorite characters coming next year.
More on that in a moment.
We saw a very strong engagement for killing Eve fourth and final season, which was also a big acquisition driver for AMC, plus and it was wonderful to see costars, Jodie Comer and Sandra Oh, both recognized with Emmy nominations for their stellar stellar performances.
But it's not just returning shows that are driving our growth. We introduced three new series in the quarter that have captured the attention of audiences and critics alike.
Our western wire crime thriller Dark wins produced by AMC Studios and from executive producers, Robert Redford and George RR Martin ranked as the number two new cable drama of this evening season, having averaged nearly 2 million linear viewers per week and it's the number one new series launch and AMC plus history.
In terms of both subscriber acquisition and viewership. The series was met with glowing reviews that has maintained a 100 point score and Rotten Tomatoes, demonstrating critical as well as commercial success, we recently renewed it for season two.
Two other standing to other standouts, new AMC plus exclusive series. This is going to hurt starring Emmy winner, Ben Whishaw and Moon Haven, with Joe Man's yellow and Dominic Monaghan are among the best reviewed new shows of the year and both are driving meaningful subscriber acquisition and audience engagement for AMC plus.
And we've already renewed Moon Haven for a second season.
The performance of these freshman series reinforces amc's reputation as a hitmaker and is a testament to our ability to continue to bring audience content.
The pop culture conversation and commands attention in a very crowded and competitive landscape.
We're also seeing great success with the launch of our AMC plus film slate, which includes a new movie each week from our film labels direct from theaters and allows us to further maximize the value of our film content or Friday night exclusive movies are driving acquisition engagement and retention and many already have become among our top.
Film titles for the year.
A few weeks ago, there was a standing room only crowd of comic con in San Diego for the final panel of the flagship walking Dead series, where we also announced an exciting new spinoff series with iconic characters, Rick and Michelle which joins the spinoff featuring the Maggie and Negan characters that is currently in production the episodic and <unk>.
Apologies series tails of the walking dead and the Daryl diction show and our expanding walking dead Universe. We also saw some real early excitement for our next big franchise and Rice's interview with the vampire, which attracted thousands of enthusiastic fans.
Looking ahead to 2023, there is much more in the pipeline, including Anne Rice's Mayfair Witches, starring Emmy nominated Alexandria did Oreo mature spade with Clive Elven Owen and a new chapter in the orphan Black franchise, and a new series Damascus and an invitation to our bonfire, we couldnt be more.
Cited with where we are in terms of our current slate.
The combination of our high quality content and strong brands continues to be a very potent calling card with advertisers and Navy list, enabling us to maintain high value for our linear business beyond linear a linear pricing gains we're seeing demand for our advanced advertising initiatives as well as our expanding portfolio of Avon and fast.
Channels.
We're pleased to be joined today by Tim Kelleher, who leads our commercial revenue and partnership team and who will talk in greater detail about our digital innovations how the momentum we're seeing in the upfront is reflecting our strong position in the marketplace.
International expansion of our streaming portfolio remains a top priority for us and we're encouraged by the demand we're seeing for our differentiated offers offerings from consumers as well as distributors.
We've talked about the progress we're making in terms of beginning to scale our services overseas.
We have plans to expand with new partners and into new territories through the end of the year.
This is an opportunity we're just beginning to mine and represents an exciting area of growth for us going forward.
Before handing the call over to Chris I did want to mention was thrilled that thrilled that we've added land <unk> as our new president of marketing someone Kristen I worked with for many years at Showtime lends a great executive and is already beginning to evolve our efforts to accelerate subscriber acquisition and boost retention, while focusing on maximizing and elevating our distinct.
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So looking ahead to the second half of the year. We recognize there are great opportunities and we remain excited about our bit where our business is today and where we're headed.
We're building, our differentiated streaming businesses and optimizing our strong linear business and a steady disciplined and sustainable fashion as we position ourselves for future growth and shareholder value creation.
With that I'll turn the call over to Chris for more details on our results.
Yes.
Thank you, Matt and good morning, everyone I am so honored by my appointment to CEO I am truly passionate about all things AMC networks as a consumer I, just love our content and brands professionally the people and the culture here are second to none I have experienced during my career and every department people care.
Lately about our content distribution and promotional success.
We all work hard and we have fun working together to deliver a great entertainment experience for our fans.
I'd like to thank Jim Dolan, and our board of directors for their support and vision as we drive long term growth for our streaming and digital offerings with premium content curation.
I want to sincerely, thank Matt for his leadership and support over this past year and throughout my entire career.
His knowledge of the business and his good counsel have benefited us greatly and that we appreciate your expert leadership this past year.
I'm also thrilled to welcome Patrick O'connell as our new CFO starting on Monday.
And I worked closely together to support the financial success at CBS Corporation. A few years ago is a proven highly skilled finance leader and I look forward to his partnership as we grow and evolve our businesses.
AMC networks occupies a unique space in the media landscape. We are carving out a very specific strategy that plays to our content curation strength and is enabling us to transform and grow in this dynamic environment, not just survive, but to flourish now turning to our second quarter financial results.
Amidst macroeconomic uncertainties in the first half of the year, we are successfully continuing to reconstitute our revenue mix towards streaming and digital platform to pave the way for ongoing long term revenue growth and profitability as such we are reiterating our 2022 and long term financial outlook as we continue to execute our strategy.
<unk> successfully.
Our investments in our people content brands and platforms combined with our focus on profitability, while prudently investing for growth and meet evolving consumer behaviors. All of this positions us well for long term success and growth in this dynamic and evolving environment.
The foundational elements of our value maximization strategy are the strength of our own content and the engagement of our passionate audiences.
<unk> duration allows us to identify and satisfy our subscriber communities with compelling and must watch content. This drive their multi platform monetization strategy growing global streaming and digital businesses, while strongly optimizing the performance of our linear business, which is supported by our strong distribution relationships.
An industry, leading advanced advertising initiatives.
Equally significant disciplined and efficient premium content investments drive our continued and future profitability.
We believe that our holistic approach one that focuses not only on the subscriber revenue aspects, but also the investment cadence and expense management is critical to value creation as.
As we continue to reconstitute our revenue mix toward greater streaming and digital platforms distribution. We are confident in our continued ability to effectively manage our content investment and expand our targeted streaming model all being driven by engaged audiences and communities.
Altogether, we expect to generate long term consolidated adjusted operating income margin in the mid to high 20% area.
The success of our model is evident as we ended the second quarter with $10 8 million paid streaming subscribers across our portfolio of services. We remain firmly on track to achieve our goal of 20% to $25 million paid streaming subscribers by the end of 2025, and we are pleased with our progress to date.
As Matt highlighted some of our strongest programming is still to come in the second half of the year, our programming combined with optimized and tactical marketing investments and the high value, we offer to subscribers resonate and breakthrough in the crowded streaming marketplace.
This gives us more confidence than ever that we are on the right path.
We are still in the early stages of the deployment of our streaming roadmap and our targeted streaming model continues to scale and efficiently evolve even amid the current market challenges.
We recently effected a $1 price increase on both Acorn in all black and both services continued to grow giving us confidence that our services continue to represent a tremendous value to the communities, we serve and that there are additional future pricing opportunities to come.
We are executing against our global growth opportunities in a disciplined and thoughtful manner. Our global product Roadmaps include launches of AMC, plus a New Zealand Latin America in several European countries as well as the continued expansion of Acorn across Latin America over the balance of 2022 and into 2023.
Well every new international launch will be different we will carefully balance the cost of entry against each return opportunity.
For our initial launch in a new market, we will generally partner with a local distributor during the initial launch phase to accelerate and promote brand awareness, while optimizing customer acquisition investments to scale more efficiently.
This strategy allows us to activate local markets quickly, while leveraging our local partner scale and decreasing our investment risk.
In June we launched AMC plus in Spain led by our partnerships with Orange, Vodafone and Amazon Prime video channels.
We approached the market with a multi pronged strategy launching not only Ala carte, but also on a package basis.
With our multi year packaged offering we rapidly established a foothold in the streaming services market, while simultaneously improving awareness of our brand.
It's an attractive distribution mix breath and demonstrates our ability to enter new markets thoughtfully with minimal investment and the importance of distribution innovation and flexibility.
Now, let's discuss our second quarter 2022 financial performance.
Consolidated revenue decreased 4% to $738 million.
Reported streaming revenue grew 20% from the prior year quarter, excluding the onetime beneficial impact of a distribution agreement renewal in the prior year quarter streaming revenue grew 36%.
Strong streaming revenue growth was offset by several timing impacts in the quarter, including expected lower affiliate content licensing advertising revenue and unfavorable foreign exchange translation. The result of the unprecedented strength of the dollar.
Consolidated adjusted operating income was $196 million with a margin of 26%, reflecting our planned content and marketing investments to drive subscriber and revenue growth.
Corporate expenses increased in the quarter, driven primarily by technology investment.
Adjusted earnings per share was $2 6 billion and free cash flow was $7 million for the quarter.
Domestic operations revenue decreased by 3% to $621 million as compared to the prior year.
Strong streaming revenue growth drove subscription revenue growth of 1%.
Excluding the impact of a distribution agreement renewal in the prior year quarter subscription revenue grew five 5% subscription.
<unk> revenue growth was offset by the anticipated timing of lower content licensing and advertising revenue.
Paid streaming subscribers grew 46% to $10 8 million compared to the prior year quarter.
Quarter net subscriber additions were $1 3 million excluding.
Excluding the multiyear package subscribers associated with the launch of AMC plus in Spain at the end of June 2nd quarter net streaming subscriber additions surpassed 400000 and were in line with the second quarter outlook, we provided on our last earnings call.
On both a reported and normalized basis domestic operations affiliate revenue declined in the mid single digits, driven by subscriber universe declines and partly offset by contractual rate increases.
Domestic operations content licensing revenue of $72 million decreased by 13%.
To the expected timing of deliveries in the second quarter as the timing of full year content licensing revenue in 2022 is weighted more to the fourth quarter.
In regard to second quarter content licensing performance with our own theory dark wins, we are starting to see the realization of less content licensing revenue, partly due to the strategic decision not to license owned original series to other third parties and to only make the series available on AMC plus.
Domestic operations advertising revenue of coupons.
$202 million decreased 5% due to lower linear ratings.
Partly offset by higher pricing and digital growth.
AMC originals impressions grew year over year and advanced advertising revenue growth helped to offset the anticipated decline in linear ratings.
Domestic operations adjusted operating income of $209 million with a 34% margin decreased 16% for the second quarter of 2022.
Adjusted operating income performance was driven by revenue performance and investments in future topline revenue growth.
<unk> content investments and subscriber acquisition and retention marketing.
International and other revenue for the second quarter of 2022 decreased 9% to $126 million.
Primarily due to unfavorable foreign exchange translation, excluding the impact of FX revenue decreased 3%.
International and other distribution revenue decreased.
7% to $104 million, primarily again due to unfavorable FX on a constant currency basis distribution revenue decreased by 2%.
International and other advertising revenue decreased 16% on a reported basis and 7% excluding FX. The decrease in advertising revenue was primarily driven by FX in the quarter.
International and other adjusted operating income of $19 million decreased 24% driven by revenue performance and FX in the quarter, partly offset by continued and proactive expense management on a constant currency basis International and other adjusted operating income decreased by 21%.
Moving to cash flow and the balance sheet free cash flow for the second quarter of 2022 was $7 million.
We ended the second quarter with net debt and finance leases of approximately $2 $1 billion. Our consolidated net leverage ratio was two eight times and we remain comfortable with our balance sheet and current leverage ratio or.
Our capital allocation policy remains unchanged first we will look to invest organically in projects that provide attractive returns to our shareholders. This includes return based investments and the profitable growth of our streaming services and digital businesses.
We will maintain leverage that is appropriate for our business outlook.
Third disciplined and opportunistic strategic M&A and fourth opportunistic return of capital to our shareholders.
There were no repurchases of AMC networks common stock in the second quarter of 2022, we will continue to evaluate share repurchases on an opportunistic basis.
Moving to our subscriber outlook for 2022, we expect that our year end total subscribers will be approximately $12 million given the current growth pacing, we are experiencing year to date and the expected cadence of content premiers and strategic marketing initiatives through the rest of 2022.
This growth will come from strong content offerings, including the finales of better call Saul the walking dead and from the highly anticipated debut of an races interview with the vampire.
It will also be supported by continuing strategic investments and targeted marketing and technology for our streaming platform.
AMC plus is still relatively new having launched in October 2020, and has been experiencing strong and consistent growth we.
We believe AMC plot, along with all of our services are on a strong path for further expansion in the U S and globally.
Regarding our financial outlook for the full year of 2022, we continue to anticipate total company revenue growth in the low single digits continued streaming subscriber growth is expected to drive subscription revenue growth, partly offset by ongoing affiliate revenue trends from basic universe decline.
We continue to we continue to expect some full year growth in content licensing revenue with most with most of that revenue occurring in the fourth quarter of the year.
Timing considerations for content delivery.
As a result of macroeconomic factors and the soft scatter market. We now expect total full year 2022 advertising revenue to be slightly lower than the full year 2021.
We continue to invest in our streaming platforms and future growth by investing in owned content efficient marketing and technology. Additionally, we are investing in our international expansion as we launched streaming services in new markets around the world. We have included certain initial startup costs associated with entering these new markets into our outlook.
As previously communicated we expect the full year 2022, adjusted operating income to be in the neighborhood of approximately 10% lower than 2021.
Moving to our cash flow outlook, we expect to deliver free cash flow of approximately $100 million for the full year 2022, we.
We do not see the need to increase future content investments above current levels in 2022 dramatically overtime as our streaming revenue becomes more meaningful we will expect free cash flow to return closer to pre pandemic level.
In summary, with the strength of our premium content slate and development pipeline continued efficiencies from awareness and performance marketing and ongoing global streaming expansion, we are well positioned for the remainder of 2022 and beyond drive meaningful streaming and digital revenue growth our.
Our multi platform monetization strategy and targeted streaming model are succeeding as we continue to drive streaming growth, while optimizing our linear business, which will drive meaningful value creation over time.
With that I am pleased to turn the call over to Kim Kelleher to discuss our innovation and leadership in advertising in much more detail.
Thank you, Chris and congratulations on a very meaningful day.
Everyone, it's a pleasure to be on the call.
Let me start by first discussing our own commercial revenue performance relative to the macro environment.
Lee are AD supported networks and digital platforms are experiencing the same environment as others in our space. The scatter market has been soft the first half of the year as a climate of economic uncertainty has resulted in our marketing partners being more conservative with their spend.
And while the prevailing conditions are subject to Alex outside factors, our commercial revenue team is leading the industry in many critical ways that maximize the strength and potential of our existing linear TV business and at the same time building out the tools and technologies necessary for a very successful digital business now and into the future.
While we have been focused as a company on growing and developing our portfolio of targeted streaming platforms like AMC plus our AD supported television networks continue to leverage our strong linear presence.
Our offerings have become even more compelling as other programmers have moved away from the cable TV platform.
We're optimizing the delivery of premium content in a linear environment, while offering traditional and add an advanced AD placements and shows like better call Saul the walking dead dark wins and Anne Rice's interview with the Vampire just to name a few.
So we have a beachhead in the linear world that we're not only holding but expanding.
Our competitive advantage as other programmers fall away and shift their best content to add free or add light streaming services.
Working with partners like Canoe Freewheel, the trade desk 605, and others. We continue to combine the best and most coveted content in the high end scripted space with the most advanced AD Tech and software in the industry tools that didnt exist, just a year or two ago.
We have made our inventory even more valuable by leading the way in adopting advanced advertising products, most notably address ability.
We ran the industry's first national addressable campaign and continue to expand our linear addressable audience footprint, which now spans more than 40 million homes.
We offer addressable AD slots and every hour of original programming and run of network inventory on AMC and we TV.
Amazon was the first partner to embrace our ability to offer the most targeted and relevant ads on TV. This year and they have been followed by many as our leadership in this evolutionary space continues.
And even as we are focused on maximizing linear we have also been expanding the potential of our own digital distribution and importantly partnerships with third party <unk> and free AD supported streaming our SaaS platforms that carry our channels and select library content very intentionally for the emerging and rapidly growing connected TV environment.
Our initial SaaS partnership launch happened in the spring of 2020, we are executing on our viewers first philosophy, we want to make our popular and critically acclaimed programming available wherever a viewer might want to consume it.
With the freedom to make our shows available across the best and most watch platforms. In this very active space, we have fully embraced this compelling opportunity.
Now in 2022, we broadly distribute programming on several Avon platforms and operate 10 program channels and the fast environment.
Which are available across six leading distribution partners.
We are developing several new channels that will debut in the second half of this year and exciting new categories, including anime two new Spanish language channels and a channel featuring popular library programming from our all black streaming service and we TV called all Black Jen.
As I said, we program channels with intention for this environment to super serve and entertain the viewers wherever they are and we are committed to giving our AD partners the ability to shine alongside our premium content as we reach these audiences.
We don't see connected TV as a one dimensional strategy. It is fully integrated with everything else we're doing.
Our strong presence on both partner and our own digital platform has allowed us to finally move from the idea of selling linear inventory and digital inventory separately to selling all of the possible expressions of our content together seamlessly across our commercial relationships.
This unique strength serves us well in every conversation, we're having with existing or prospective ad partners.
As we look forward to the final episodes of the walking dead. This fall, we're not just selling spot. We're using this coveted woman of high demand to sell partnerships that go far beyond 30 to 60 and as a result, you're seeing some of the highest <unk> in the history of the series truly remarkable for a TV drama and until 11 season.
And as Matt mentioned earlier as the original series concludes this fall we will directly into a number of spin offs and the expanding universe around the walking dead that feature many of the most popular and iconic characters from the series.
These new shows are already garnering strong advertiser demand and the current upfront. So we're not missing a beat in terms of continuing to leverage the strength of this beloved IP, even while we build new franchises and universes around and rice orphan black and continue to serve the breaking bad and better call Saul fans with two new series from Bob Houghton Kirk.
And John Carlo Esposito.
I talked about how linear and digital can work together from a sales perspective, and I'd like to spend a moment on how our streaming services, notably AMC plus an all black are working with our linear networks to deliver stronger audiences and build their brands.
The combined power of streaming and linear networks enables us to strategically move programming around the different places viewers watch and this is a huge advantage in this fragmented environment and one that we're fully leveraging.
AMC pluses is using a multi platform windowing approach to expand viewership ever original content and benefit viewers. This can take a variety of forms depending on the individual title.
For example, we've used our linear networks as a catch up promotional vehicle for our previous season that premiered on streaming as we did in the case of gangs of London in a discovery of witches.
We have also used AMC plus to give viewers the opportunity to watch. The next episode of a series that is appearing on linear a week ahead of its next linear airing a strong acquisition driver. We did this with dark wins in the walking dead and in both cases, we saw very healthy Sunday night acquisition activity as viewers, who watched an episode on linear.
Lately, followed prompts to watch the next episode on AMC, plus without having to wait.
Are we TV linear network in all black targeted streaming service share leadership positions and serving black viewers.
We have recently turned Thursday nights on we TV into a branded block of all that all black programming, which is helping to grow viewership for its original programming in both places and driving all black subscriptions.
We Tv's love after lockup franchise has similarly benefited from exposure on the all Black service and has become one of the most popular titles on the platform.
We see our linear networks are owned and operated digital distributions and the platforms of our fast and Eva partners as a complete distribution ecosystem that we can thoughtfully use in a dynamic way to elevate our content and in keeping with our viewers first philosophy meet viewers wherever they are.
This is the time of year when many earth in the industry are focused on the upfront for our part I can say that we are very pleased with the volume and pricing registered for AMC networks will be working through plans over the next few months and we'll have much more to stay down the line.
In closing the power of our content combined with the technological foundation, we have laid for innovation in advanced advertising is differentiating anz's position in the marketplace and positioning us for accelerated and meaningful success into the future.
With that operator, please open the line for questions.
Ladies and gentlemen, I'd like to ask a question at this time you will need to press. The Star then the one one on your Touchtone telephone please standby, while we compile the Q&A roster.
Okay.
Now first question coming from the line of Thomas <unk> with Morgan Stanley . Your line is open.
Thanks, so much and congrats Chris on the new role.
The subscriber net adds came in really nicely for the quarter can you maybe help us frame how to think about the international component and how that fits within the long term $20 million to $25 million guidance, given the lower ARPA lower cost to achieve that you talked about how does that kind of net out in terms of return relative to your U S. Net ads and then.
Thank you for all the additional details on the linear advertising evolution that was really insightful, but AMC has been a big quarter in providing content to the SaaS channels.
Which contrasts a little bit I think with pulling back on the traditional syndication content licensing why is the philosophy on supplying avon different than at Bard peers is it viewed as less cannibalistic, maybe you can flesh that out a little bit.
And then maybe just squeeze in the last one that you referred to some programming that will keep the better call Saul audience around yes personally I'll watch anything Bob Bowen, Kirk and but wondering if you can talk about the churn behavior for joiners that are coming in on flagship content compared to the efficient programming you've been leveraging on targeted services AMC plus and naturally a higher.
Arne product how should we think about that thank you so much I'll.
Sure.
Thanks, Thomas I appreciate your kind words, and I'm excited to take over as CEO .
Relative to your first question about international expansion.
Aided with the foothold that we've now secured in Spain, we already have strong brand presence there with our linear presence, but our ability to partner with Orange Vodafone and Amazon video channels has paved the way I mean, especially the orange skinny bundle offering how that works.
It is packaged with as the Orange as part of the Orange Skinny bundle, which is offered to their pay TV broadband customers and certain mobile customers.
So again this is a great example for Spain that we're looking to build our streaming business with certain partners and then as we see it grow also have our Ala carte offerings as well so it makes sense.
Tim you want to take the fast channel question sure the Eva fast environment, it's really key to driving our.
Digital growth overall, the core of it is is our quality content and if theyre quality library content. In these curated examples of channels that we are building that are reaching these new younger audiences through these platforms and we're really using that as a closed loop, especially on the OEM to.
Drive awareness for subscriber service that our subscription services and and really kind of a pipeline across the six partners. We have now to drive awareness for the AMC properties and brands.
So it's really that closed loop piece that is that is our focus in this environment, while also being able to monetize this.
With advertisers as a brand safe environment for their messaging.
The other thing I would add to that Thomas because it isn't it is an important question is the windowing. So we closely look at the windowing of our content in <unk> fast is another unique window and as we think about owning our theories and oney owning original movie.
As we look at at premiering that content and then how it moves through the windowing cycle, we want to make sure we're monetizing and maximizing the revenue output as much as possible and there is a lot of power for US also to have exclusivity with the ownership of that content.
On the on your question, it's a good question.
We look look at this is first of all.
As we mentioned and we've talked about before this is the biggest original programming year in our history. Both in terms of returning on some great finales and new things, but as we look at our content going forward, we focus on genre, we focus one specific talent.
And <unk>.
Strategically we want to make sure we are always bridging audiences for various genre of programming and always have them have something to give them and that's key to.
Maintaining subscribers and giving them what they want in the future when you see things like.
Interview with a vampire.
We have reason to believe that that will that will really be attractive to a lot of the audiences that we've seen for much of our content in recent years. So that's a good example, we're all dealing with a constantly increasing refresh rate in this business and for US. It's all about making sure that that refresh rate is consistent with.
With our financial goals for the company. So we feel pretty confident that we can deliver for our audience is going forward with that.
Thank you all.
Okay.
Thank you and one for next question.
Okay.
And our next question coming from the line of Michael Morris with Guggenheim. Your line is open.
Yeah.
Thank you good morning, and congratulations Chris on the new role.
One ask one about international what about margins on International you gave us some more details about Spain, which is great and helpful.
Named a few new markets you are looking at this year as well.
Maybe you could talk about how to think about the success that you had in Spain in the template that you used in Spain for for what that might look like in other markets for for us to try to forecast how robust international expansion can be helpful to know.
If there are a number of other markets that you can follow the same sort of game plan and are or if we should be thinking of each one differently.
That would be great to hear about and then on margin.
I appreciate the view of the long term.
Kind of high <unk> mid to high <unk> margin.
Can you talk about the margin on the streaming product in particular I feel like what we're hearing across the industry is more like a low twenties sort of level of resistance or even 'twenty. When you think about that long term margin how much of that is mix of sort of linear and midstream business how much of it is the opportunity there.
You see on the streaming side, where you can be a higher margin product just by nature of the sort of structure you have there. Thank you.
Thanks, Mike.
Relative to the first question on international.
Spain example is actually a good bellwether and a template for how we are approaching everything on a country by country basis.
Amazon continues to be a strong partner and Apple internationally for us. So those are our two primary partners when we look to each market, but then.
As you probably already know we do have strong foothold in our linear business globally.
So the orange opportunity and Vodafone et cetera, really came out of our relationships. We have already established in Spain. So in the countries, where we are fully established on a linear basis. We will continue to pursue our strong partnerships. There. So that we really are starting from the standpoint of.
Maximizing the results from our distribution partnerships and then we have the tech stack in place that we can we can pretty quickly and rapidly copy it and obviously certain rights requirements et cetera has to be unique to each country.
But the tech stack is transferable, so that for our Ala carte direct to consumer offering we can.
Can also pretty quickly get that up and running so we're excited about the future. It is going to be important for us to look at it country by country with the value proposition and what the profitability can be all countries are not created equal.
But we do think having said that that we can have significant and meaningful global growth long term.
On the margin front, we really view look at it holistically.
When we look at a show and we look at what we're going to deal with it we again, what I said earlier, we look at the content.
Production process the development process what titles can we make that we feel are super premium content that will work along all windowing lines to maximize that result in monetization.
Of our revenue impact.
So as things progress so the other thing I can say about that is as.
As we learn more and as AMC plus for example scales and grows even more and gets to be a much more meaningful subscriber number our strategy. There will evolve also we're already talking about how we now window things, where we would just have it exclusively on AMC plus first and then as a second window it.
Beyond linear Moon Haven is actually a good example of that where for mood Haven, which had a strong freshman showing for its first season, it's only available exclusively on AMC plus but then we're looking to put it on linear next year right before the second season would come out.
So we have had early success with doing things like that on a one off basis with the walking dead and dark wins, where we made the next available episode that night.
And that as Kim had mentioned had healthy success with what we were seeing as subscriber additions.
Great. Thank you Chris I appreciate it.
Thank you.
Okay.
Thank you and our next question coming from the line of Michael Nathanson with Moffett Nathan Your line is open.
Thanks, Chris again, congrats on the move and Matt.
Miss your quote.
I'll use for how long going forward.
Thanks, Joe Good copy Matt.
Thank you.
Youre welcome.
Can you talk I appreciate the color on Spain. This quarter can you talk a bit about just thank you all through that youre getting in.
In Spain, and maybe your.
<unk> for the first tranche of launches on the <unk> side, and then more generally if you look at how others have launched internationally. They've all picked these wealthier English language fluids broadband in rich countries to go after like why aren't you following that path versus going the path to go on now and more.
Latin and South America, and then yesterday Paramount your former company made made some mention of trading the <unk>.
Economics are linear distribution to get a foothold in digital all outside.
Outside the U S. So there it looks like they are basically trading linear economics to get on carriage.
For the digital tiers are you seeing any of that is that something that you come up against and how prevalent do you think that will be going for or if you did make some tradeoffs too to get faster adoption.
These digital services.
Thanks, Michael appreciate the kind words, and we will still get some one liners for Matt and I have no fear.
We all the time, but I'm sure I'll have to I'll have to give him attributions come up with the one liners.
Yes.
Relative to your first question about our <unk>. So I think as we think about the evolution of our mix of subscribers and where the distribution comes from.
We had a healthy strong start with AMC, plus with Amazon and Apple as our key partners in the U S and our direct to consumer offering is performing strongly and continues to grow significantly. So as we think about the future it's going to come from them further global expansion further growth in the U S and our <unk>.
<unk> strategy, depending on you know obviously, if it's in our card offering whether it's through our direct to consumer service or Amazon or Apple partnerships. It's still customer decision on a daily basis am I going to stay subscribed to AMC plus for example, or a corner all black and so we manage those diner.
<unk> very closely.
And that <unk> structure, obviously is different than a package structure and we think that both are going to have to work very closely in combination we're not going to put our put subs out on a package basis, where we don't feel strongly that we're not going to have a strong market foothold and have strong value proposition for the future of profitability.
The second your second question about why not be on the path of the English speaking language countries more so we actually are on that path, but again, it's tied to where our partners are going to launch and then we ride that wave, we don't want to be out there on our own just offering our Ala Carte service and not have a strong <unk>.
Partner to kind of see how the market takes shape.
And then the last question about trading linear for digital.
It really goes back to how we think about the windowing of our content and how we monetize for the future. So as I think about our margin for our company as we evolve when we're targeting mid to high 20% margin. There is going to be some tradeoff that happens as things evolve that the linear as we know is going to continue to decline.
Line, we're going to try to optimize that and advanced advertising is a good example that if we didn't have our advanced advertising initiatives that Tim Kelleher and her team have been leading and if we didn't have this strong digital partnerships that we've been launching with Avon fast for example on that Josh reader and his team are also have a <unk>.
In.
We would we would have lower AD revenue than what we have and so one of the key things that is for us to really continue to think about how do we grow AD revenue for the future and continue to you know.
Untether a bit from the decline of the linear business, because we know that's inevitable.
But we have powerful initiatives that are just getting started really so we feel good about our ability to influence and grow our AD revenue for the long term and more to come on that.
Thanks.
Thank you.
And as a reminder, ladies and gentlemen, I'd like to ask a question. Please press star one one.
Yeah.
And our next question coming from the line of David <unk> with Jpmorgan your.
Your line is open.
Question and I'll add on to the congratulations for Chris.
You've noted price increases at some of your services recently and an opportunity to do more going forward. So would be interested to know about any impact of churn and then how you think about economic risk as it potentially limiting factor to price raises at least for the near term.
And then I was hoping to get your updated thoughts on the potential for advertising across your streaming services.
Seeing real momentum now from some of the larger streamers in this direction.
As the industry reaches critical mass on I was just wondering if that changes your view on introducing your answers. Thank you.
Thank you David on.
On the price increase question, it's an interesting question because when we raised the price by one dollar for Acorn in all black.
We had minimal churn was almost like a non event.
Almost made me wonder if we should raise it to dollars, but we don't want to do that to consumers. So the value proposition there is real.
And the other thing we're seeing is that when you're super serve fans and it's a targeted base obviously, its a smaller subscriber base, but there's much more stickiness because you're super serving the fan so the refresh rate that Matt talked about is critical to make sure that continues.
But I think from a pricing standpoint, having seen that that that dollar increase.
<unk> had minimal effect, we will continue to price test.
Going forward because it's also not just about trying to see where the ceiling is we have to manage all of the dynamics.
But again the soup the targeted services.
Specificity helped with some price resilience there.
And then ill turn it over to Kim for the AD supported question. Thanks, Chris.
We have significant.
Existing infrastructure when it comes to advertising I say that because we.
When you look at we really like the types of varied streaming offering we have today, so avon fast in the CTV space, our innovations in advanced advertising and addressable I think as our offerings continue to evolve we're going to continue to be very thoughtful about considering all types of offerings, including at <unk>.
Ported ones on our asphalt services, but that's going to be something we watch and and make measured decisions around.
Thank you.
Okay.
Thank you and one moment for our next question.
Yeah.
And our next question coming from the line of Steven Cahall with Wells Fargo. Your line is open.
Yes. Thanks.
I'll, maybe start by asking a prior question a slightly different way the walking dead and better call. Saul are great shows what we've seen with a lot of year periods. It sometimes there's great shows and they get to their for now as they have kind of a big churn sign ups. So I'm just wondering as we think about the journey from.
Year to $20 to 25 million subs is it reasonable to think that you could have kind of this mini peak. This year driven by these big finales, and then as you cycle into new content it sort of flattens out and then it grows again or with a lot of the international launches is it going to be more of kind of a linear progression to that target and.
And then.
Chris So congratulations you've taken over the role I think.
The big question that investors are going to wonder about is how do you kind of get the company back to AOI growth.
Cause after on hot for content, there is pressures going on as you make the pivot on the revenue side. So how do you kind of see that trajectory of getting AMC back.
Back to the nice compounding of OE than it was that when maybe media was a bit more stable place. Thank you.
I'll start and let Chris answer some of the specifically, but again back to these big shows.
Yeah.
The way I think of it and strategically as their beginnings not ends and that has been true consistently with the walking dead season to season.
Look for ways to bring that audiences.
Two.
Various new shows in that franchise and we continue to do that and we'll continue to do that for the next couple of years, but we can also do that with talent as I said before and we're doing that with the Sol franchise as well as the fact that we have a few shows that coming that we believe can.
We can continue this tradition of really being shows that are in the culture change the culture and play off of the types of audience.
Successful in the past so.
There's no other option than to think of what we're doing the content areas extended to continuation of what we've done in the past.
And even enhancing our ability to serve those audiences and the streaming universe.
To your second question, Steven how do we get back to AOI growth I mean, right. Now we are an important period of investment AMC networks is at a crossroads from the standpoint of driving and growing meaningful new revenue.
Platform growth and our streaming services and our digital initiatives global expansion. So from the standpoint of where do you think about our.
A trajectory of growth.
We're in an important building moment right now and we'll continue to monitor the cadence of that the other thing is we're not going to recap with our margin in general So we're going to do it in a thoughtful way, where our margin will still start with it too and from that standpoint, we're looking to thoughtfully and deliberately and <unk>.
First as we need to to make sure. Our tech stack is in the right place to make sure. We have the refresh rate of the content that we need to succeed and that our marketing strategy is done in a way that is targeted but also focused on both retention and acquisition and then global expansion.
Great. Thank you.
Thank you.
Okay.
Thank you and I'm showing no further questions at this time I would now like to turn the call back over to Nick <unk> for any closing remarks.
Thank you for the time today. This concludes the call.
Okay.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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