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AMC Takes Post-Results Hit

3/19/2012 12:01 AM Eastern

AMC Networks stock took a hit after reporting
mixed earnings last week, dipping more than 4%
($2.04) after reporting mixed fourth-quarter results.

Revenue at AMC was up strongly in the period — 13.6% to
$339 million — but cash-flow growth at 7% missed most analysts’
estimates soundly. AMC blamed the shortfall on a onetime
charge to a programming asset ($18 million for canceled
drama Rubicon): otherwise cash flow would have risen about
25% in the period.

At national networks AMC, IFC, We TV and Sundance
Channel, revenue was up 12% to $305 million, but cash flow
declined 2.6% to $101 million. Again, AMC blamed the Rubicon
writedown.

Rubicon debuted in 2010 with the highest-rated premiere
episode in AMC history,
about 2 million viewers. But the
complicated drama, centered on
an intelligence agent who finds a
mysterious secret code, lost ground
as the series progressed. When it
was canceled, it averaged about 1 million viewers per episode.

“We thought the show might have value in replay and
other distribution platforms,” AMC CEO Josh Sapan said
on the earnings call last Thursday (March 15). “As we evaluate
that, it did not have vitality.”

AMC stock fell as much as 8% ($3.85) to $42.19 on March
15 before rallying to close at $44.

Miller Tabak media analyst David Joyce said he was encouraged
by strong advertising (up 14.7% in the quarter)
and affiliate-fee revenue (up 10%). He said the stock began
to bounce back from intraday lows on the hope advertising
revenue growth in the first and second quarters would
rise in the mid-teens. Part of the affiliate-fee uptick came
from AMC’s distribution pact with Netflix, which Sapan
said helped generate buzz around the return of critically
acclaimed series Mad Men, slated for March 25. Netflix
has rights to prior seasons of several AMC series, including
Breaking Bad, The Walking Dead and Mad Men.

Sapan also said AMC Networks is gradually adding
commercials to IFC, much as it did in
the past with AMC and We TV. IFC began
airing about 10 minutes of spots
per hour in January 2011 and that
should grow.

“Those experiences prove to us that
the injection and availability of a second
revenue stream was good for the
channels,” Sapan said. “In the case of
AMC, we were able take some of the incremental
revenue that came from advertising
and invest it in content, and
it gave birth to the scripted shows we
have on today. We are essentially pursuing
the same playbook with IFC.”

September