AMC Networks — the company behind such cable channel brands as AMC, IFC and Sundance TV, as well as such streaming services as AMC+, Acorn TV and Shudder — reported an 18 percent drop in third-quarter U.S. advertising revenue Friday, but returned to streaming subscriber growth after two quarters of declines.
On the company’s earnings conference call, management lowered its full-year 2023 revenue target from $2.8 billion to $2.7 billion. CFO Patrick O’Connell said this “reflects softness we are seeing in content licensing revenues, as well as the continuation of a difficult advertising environment.” But he highlighted that AMC Networks was sticking to its full-year bottom-line forecast. “Despite these headwinds, we are reiterating our 2023 adjusted operating income outlook and expect to be in the range of $650 million-$675 million, reflecting continued and better than previously anticipated cost discipline,” he explained.
Third-quarter U.S. advertising revenue fell to $147 million due to “anticipated linear ratings declines, a challenging ad market and fewer original programming episodes within the quarter, partly offset by digital and advanced advertising revenue growth,” the company said.
The latest quarterly U.S. ad revenue update followed a second-quarter drop of 17 percent and a first-quarter decrease of 20 percent. The company’s original series in the third quarter included episodes of The Walking Dead: Daryl Dixon and The Walking Dead: Dead City.
U.S. affiliate revenue decreased 13 percent in the latest quarter to $ million, “due to basic subscriber declines, including the 3 percent revenue impact of a strategic non-renewal that occurred at the end of 2022.”
The firm, led by CEO Kristin Dolan, also disclosed Friday that its streaming subscribers grew by 100,000 to 11.1 million as of the end of September from 11.0 million as of the end of the second quarter, returning to growth after recent declines. That marked a 1 percent improvement over the second quarter of 2023 and a 4 percent gain over the year-ago sub count.
In its first-quarter earnings update, the company had reported a decline from 11.8 million as of the end of 2022 to 11.5 million as of the end of March. The company explained the reason for the different first-quarter figure mentioned this way: “In the second quarter, we updated our subscriber definition to no longer include estimated subscriber conversions. This definitional change resulted in the removal of approximately 300,000 subscribers from our quarter-end subscriber count.” Compared to the updated first-quarter 2023 subscriber figure of 11.2 million, “second-quarter subscribers sequentially decreased 2 percent, reflecting our continued focus on higher value subscribers and promotional roll-off,” the company also explained.
AMC Networks said that in the third quarter it also “substantially completed” a restructuring plan started last November “designed to achieve significant cost reductions in light of ‘cord cutting’ and the related impacts being felt across the media industry as well as the broader economic outlook.” In the third quarter, the company “exited a portion of its office space in its corporate headquarters in New York and office space in Silver Spring, Maryland, and Woodland Hills, California.” In connection with exiting a portion of its New York office, the firm recorded impairment charges of $11.6 million.
Dolan, the wife of chairman James Dolan, took over the CEO role at AMC Networks at the end of February.
In Friday’s earnings update, she said: “During this period of experimentation and change in our industry, we continue to execute on our plan and effectively manage the business with a focus on high-quality programming, strong partnerships and profitability. In addition to introducing an ad-supported version of AMC+, we extended our leadership in TV advertising through the launch of programmatic buying on our linear networks, an industry first.”
The company during the latest quarter launched an advertising-supported version of AMC+, “bringing ads to the company’s entire distribution ecosystem and enhancing future bundling opportunities, AMC Networks highlighted. About its launch of offering programmatic ad buying on its linear networks, it spoke of “a major industry first that boosts the value and relevance of linear advertising and follows the company’s pioneering work in addressable advertising.”
The company also worked with Warner Bros. Discovery to add seven of AMC Networks’ series to the Max streaming platform as a limited promotional pop-up offer at no additional cost to Max subscribers. During Friday’s earnings conference call, Kristin Dolan lauded the “successful experiment” that led to “viewership and acquisition spikes for several shows on AMC+” and help promote the AMC brand and its visibility. In its earnings report, AMC Networks summarized the partnership’s impact this way: “increased exposure drove viewership increases on AMC+ across important franchises, including Fear the Walking Dead, Anne Rice’s Interview With the Vampire and Anne Rice’s Mayfair Witches.”
On the call, Dolan noted that AMC Networks’ focused brands, niche appeal and high-quality productions make the company’s content complementary to the portfolios of other entertainment companies. Given this and the success of the Warner Bros. Discovery partnership, she concluded: “It’s likely we will find new ways to work with other programmers in the future.”
In her call comments, Dolan also lauded the recent end of the writers strike and said she was “hopeful” for a resolution of the actors strike. President of entertainment and AMC Studios Dan McDermott highlighted though that “we are in great shape” despite the strikes. “We have a robust slate of content that is already finished and or being finished right now, (including the second seasons of Interview With a Vampire and The Walking Dead: Daryl Dixon). That will take us well into 2024. So we don’t expect any impact from the lingering SAG-AFTRA strike, which we also hope is going to be resolved in the coming days anyway.”
Overall, AMC Networks reiterated its forecast for cash content investment of approximately $1.1 billion for 2023 and “in the area of $1 billion” thereafter.
Before the market open on Friday, AMC Networks posted third-quarter revenue of $637 million, down 7 percent from the prior-year period, “largely driven by lower domestic advertising revenues and affiliate revenues, partly offset by streaming revenue growth.” Operating income of $121 million fell 20 percent, while adjusted operating income of $177 million dropped 9 percent, benefitting from what the company called “continued cost management measures.” Quarterly adjusted earnings per share declined 12 percent to $1.85.
In a first earnings reaction, Wells Fargo analyst Steven Cahall highlighted that quarterly revenue missed Wall Street expectations by around 8 percent, but adjusted operating income marked a 20 percent beat compared with estimates. “AMC Networks under Kristin Dolan is highly focused on costs, and adjusted operating income was an impressive 20 percent beat versus consensus.”
On the earnings call, analysts asked repeated questions about the content deal with Warner Bros. Discovery and AMC Networks’ new ad initiatives.
Addressing the launch of the ad-supported version of AMC+, the CEO said on the call that it was “important as we continue to forge relationships with advertisers that span both linear and digital platforms.” Having the ad-supported version of AMC+ will also make it “much easier for us to participate in innovative bundles that we believe will increasingly form the future of content distribution in the streaming space,” Dolan added.
About the launch, last month, of the ability to buy ads programmatically on AMC Networks’ linear networks, she said: “We already have several national brands across a wide range of categories taking advantage of this new capability. Programmatic buying offers enhanced targeting. Greater efficiency has been the preferred way to transact on digital platforms for years, but until now it has never been possible for national linear television commercials.”
Dolan concluded her comments by reiterating AMC Networks’ key strategies. “We remain laser-focused on managing our business responsibly, with a focus on cost, efficiency, profitability and moving quickly into areas where we see competitive advantages. At the same time, we continue to be nimble, opportunistic and flexible in leveraging our core strengths and seizing every opportunity to put our content and brands everywhere viewers are.”
