AMC Networks Earnings Call Insights: Affiliate Revenue Growth, Ratings

On Thursday, AMC Networks Inc (NASDAQ:AMCX) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Affiliate Revenue Growth

Michael Morris – Davenport & Company: Good morning, guys. Two questions first on the affiliate revenue growth, 8% in the first quarter, two things there. Number one, it is an acceleration from your full year rate from last year. Does that acceleration represent some – or is that primarily due to some of the new agreements that you’ve entered into, number one? And number two, does that represent a good growth rate for the balance of the year? Then I have a follow-up.

Joshua W. Sapan – President and CEO: On the 8% we think has a number of things in the quarter, so I think it is fair to say it represents the beginning of some of an upward trend in the more recent agreements that we have signed. As we have spoken to you about we believe that we are underpriced in the market and we’ve been looking to increase those rates. I think that we will see some trend upward. I think, in the near term that trend will be modest increases from where we’ve been.

Michael Morris – Davenport & Company: But that 8% in 1Q did it have anything one time in nature kind of on a quarterly basis for this year or does that represent what the growth rates will look like for 2012?

Joshua W. Sapan – President and CEO: I am sure that that would represent the growth rate for 2012 we have different components we have in different affiliate agreements, in some cases we have old agreements we have some marketing dollars are rolling then we had agreements where the rates are ticking up. So, I think the best summary I can offer I hope it is adequate for you is that we are seeing the beginnings of an upward trend that the 8% is not necessarily steady state from now on.

Michael Morris – Davenport & Company: And then second of all, if you look at the situation with Dish and the fear, I think, it stokes with investors is that your networks are not must carry and that’s the position that Dish is at least taking in our public comments. Obviously, your ratings on your originals have been outstanding. Ratings on some of maybe the library film content has been weaker as you look at your mix of programming do you feel right now with what you have that you are in fact must carry or when you look at this kind of pushback from a partner like DISH, do you think you’re going to need to increase your programming and your spend rather in some of your more unique programming versus that library content?

Joshua W. Sapan – President and CEO: Sure. So we believed pretty firmly that the activity of late and their statements of late are directly and absolutely related to the litigation, and that the activities that we detailed that occurred in the court and putting the most recent ones in which the destruction of evidence was appealed and that appeal didn’t work, is a reasonable significant turn in the litigation and there’s a big outstanding claim. So, we think that’s motivating the behavior of late. We have been over the past five years seeking to make our services stronger. That initiative, as we have increased investment and began several years ago, we think it’s more improved, we think that today AMC (NASDAQ:AMCX) in particular is one of the most popular services on the television dial, both in terms of ratings, popularity of individual shows, and viewer engagement. So, we think that there is a general dynamic of having to have consumer attraction as there has been increasing downward price pressure on wholesale rates because of margin compression for our distributors, both cable and satellite. So we’ve been seeking to make them stronger. I think that AMC (NASDAQ:AMCX) is among the most critical services one can have to succeed if you are a multichannel video provider. I might offer that if you’re in the business perhaps of selling IP telephony and broadband and video, I think it’s important. I think if you’re in the business of only selling video, it’s perhaps increasingly important – has increased importance. So, I think, that we are in a fairly strong position.

Michael Morris – Davenport & Company: So, you don’t see a need for change in your program spend mix, or an increase in your program spend in order to fortify that position?

Sean S. Sullivan – EVP and CFO: No, we think we need to continue to do what we’ve been doing, which is to develop program that is resonant and important. We have five series on the air on AMC (NASDAQ:AMCX). We think that both individually and in aggregate. They do become pretty meaningful when you take Walking Dead, Breaking Bad, Hell of Wheels, The Killing, Mad Men, and things that we have in development, we think that WE tv is developing very nicely. We have a couple of shows that are doing extraordinarily well. They’re actually targeted to an African American female community, so they may hit some people’s radar less, but they’re actually working extraordinarily well. I think, IFC is developing a comedy franchise beginning with Portlandia, which among its constituents is very well regarded, so we think we are on the right path. We’re think we’ll continue the pace of investment by a large degree that we’re pursuing today, and we think that we’ll become stronger over time.

Ratings

Richard Greenfield – BTIG: Couple questions. First just on ratings, Charlie Ergen was pretty bold on Monday, came out and said that they have very good set top box data, that basically ties to the fact that in their subscriber base which is significant, that your channel is actually substantially under indexed, and I was just wondering whether you had any color on whether that was actually a true statement, whether there was for shows like Walking Dead a substantial under indexing in the DISH (NASDAQ:DISH) footprint? Then two just on a housekeeping point, Breaking Bad I believe this is the last season, but you have extra episodes. Are you planning on running that over two years the way you do with some Walking Dead where it breaks over a year, so you get the benefit in ’12 as well as 2013. Any color on that would be great?

Edward A. Carroll – COO: This is Ed. So, on the topic of ratings, with the set-top-box data from any of our affiliates we obviously don’t have visibility to that. What we do have is the national ratings that are put out by Nielsen and we see a clear trend on AMC of increases in the first quarter on IFC and we double digit increases. We also see the Walking Dead frankly blowing away any other scripted series on basic cable with broadcast size ratings. So, we have absolutely no reason to believe that DISH’s (NASDAQ:DISH) results would be any different than the Nielsen results. It’s certainly a representative sample. So, again that leads us to a clear conclusion that what we’re looking at is all about the litigation. On Breaking Bad we have committed to 16 episodes. We know that the next season will be back next summer, but we do not at this time have a play schedule from that.

Richard Greenfield – BTIG: Just as an follow-up given how early Charlie and DISH (NASDAQ:DISH) are out trying to negotiate around dropping your channel. How are you thinking about programs given the content you have coming out this summer like Breaking Bad? How are you thinking about marketing programs with other distributors who might want to capture subscribers who want to access that programming?

Joshua W. Sapan – President and CEO: So I think in a certain sense, Rich, I think it’s probably early, if I may, in the activities – in this circumstances. The ruling came from the court on the 26th that’s fairly recent we will have a calendar related to trial with greater clarity presumably by next Tuesday and we of course have been contemplating the horizon both near term, and midterm and long-term as to what may occur. We think the litigation will significantly inform activities and the disposition. So, that’s an answer, but we are saying that we will see how it goes. We think that the potential absence of our service and services on any platform by definition creates a sort of competitive opportunity for another platform it is very competitive world for a multichannel video. So, we will watch it as it goes, of course, we are contemplating it and making all such contingency plans.