AMC Networks Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 3, 2023

There are 11 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the AMC Networks Inc. Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded.

Operator

And I would now like to hand the conference over to your speaker today, Mr. Nicholas Siebert, Vice President of Corporate Development and Investor Relations. Sir, please go ahead.

Speaker 1

Thank you. Good morning, and welcome to the AMC Networks' 3rd quarter 2023 earnings conference call. Joining us this morning are Kristen Dolan, Chief Executive Officer Patrick O'Connell, Chief Financial Officer Kim Kelleher, Chief Commercial Officer and Dan McDermott, President of Entertainment and AMC Studios. Today's press release is available on our website at amcnetworks.com. We will begin with prepared remarks and then we'll open the call for questions.

Speaker 1

Today's call may include certain forward looking statements within the meaning of the Any such forward looking statements are not guarantees of future performance 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. Required definitions and reconciliations can be found in today's press release. With that, I'd like to turn the call over to Kristin.

Speaker 2

Thanks, Nick, and good morning, everyone. I'd like to begin today by sharing some strategic and operational highlights from the quarter that underscore our continued focus on 3 key areas programming, partnerships and profitability, which we believe are critical to the effective management of this company during a period of great Let's start with partnership. As we look at AMC Networks and the current landscape around content monetization and distribution, We're arguably in a moment when the value and impact of partners has never been more important and this applies to us, to the companies we partner with and to consumers. Our industry is undergoing a period of experimentation and innovation as consumer behaviors around content consumption continue to evolve. These changes are giving rise to new opportunities to collaborate with companies that have been longstanding partners and even those who until recently could have been viewed as competitors.

Speaker 2

Some of our partnerships are decades old and some are very recent, but they are all critically important to our company in terms of what we can do and where we can go. For example, this fall we partnered with Warner Bros. Discovery to put previous seasons of 7 of our original series on the Max streaming service for 2 months as a promotional pop up designed to raise the visibility of shows and promote sampling. This successful experiment just concluded It was affirming to see titles like A Discovery of Witches, Fear the Walking Dead, Dark Winds and Anne Rice's Interview with the Vampire Consistently occupying multiple slots on Max's daily top 10 series list. And as we anticipated, We saw viewership and acquisition spikes for several shows on AMC plus as a result of the increased exposure on MA.

Speaker 2

Partnering with another programmer in this way was a first for us and our ability as a pure play programmer to forge this kind of arrangement showcases many of our key strengths. We are nimble, adaptable, affordable and very much complementary to other offerings. Given these attributes and the success we saw through working with Mac, I'd say it's likely we will find imaginative new ways to work with other programmers in the future. As far as established Affiliate Partners, we have long standing and uniquely strong relationships that are rooted in our deliberate strategy to attend to and continually strengthen these partnerships, which again benefit from our unique characteristics, 3 of which include a small number of well defined networks that are offered at a low wholesale rate High quality programming, which we continue to feature on basic cable even as others have moved their marquee scripted shows to premium or streaming platforms, chipping away at the value of the traditional cable bundle. Also, our collaboration on innovative distribution models like AMC plus which was originally launched in partnership with Comcast and Dish Network and is now carried by all major cable providers in the U.

Speaker 2

S. I've spent most of my career working as a cable operator, so these affiliate relationships are particularly important and familiar to me. As such, I am quite excited by what Comcast and Charter are doing with Xumo and the potential of the country's 2 largest cable companies with tens of millions of customer relationships across video, broadband and phone to deliver a unified content offering to a new generation of customers. It's also worth noting these companies have large customer service organizations that can pick up the phone, roll trucks and solve problems, an increasingly novel concept today. We are pleased that our linear networks, streaming services and several of our fast channels are featured in Xumo and we're very much looking forward to being a part of the offering and seeing where this powerful combination goes from here.

Speaker 2

Moving to programming, it was great to see the WGA strikes to come to an end last month and we are hopeful SAG AFTRA and the As we've mentioned on previous calls, we have a robust supply of completed shows to fill our schedule well into 2024. We've also secured interim agreements with SAGG to complete production on 2nd seasons of 2 of our marquee shows, Anne Rice's Interview with the Vampire and The Walking Dead Daryl Dixon. Both of these successful series are now back in production in Europe. Our content continues to attract large and engaged fan bases and I'll mention just a few examples. Season 1 of The Walking Dead Dial Season 2 of this series will mark the return of the fan favorite Carol played by Melissa McBride.

Speaker 2

Early next year, we will premiere the set in Philadelphia. We just completed our annual Fear Fest programming event, which this year became a 2 month celebration of horror that ran across all of our linear networks and streaming services. This year's event was curated by our horror brand Shudder, one of the strongest horror brands in the world and Halloween was one of the biggest acquisition days in Shutter's history. The combination of Fear Fest and Shutter is a great example of the clear synergy Our targeted services and our linear networks and demonstrates our ability to utilize our content across multiple platforms to serve our passionate fans the WeTV launched a great new series with a lot of heart called Toya and Reginae, which saw linear viewership almost double over the course of the first season in its key demo and continues to perform remarkably well on our All Black streaming service. In terms of advertising, we continue to make great strides in expanding our revenue growth opportunities.

Speaker 2

During the quarter and ahead of schedule, We launched an ad supported version of AMC plus which allows us to offer additional flexibility to subscribers and also offer advanced advertising across our entire This is incredibly important as we continue to forge relationships with advertisers that span both linear and digital platforms with the same high level of relevance and targeting in both distribution channels. Having an ad supported version of AMC plus Last month, we started offering our advertising clients the ability to buy programmatically on our linear network, a major technological leap for the entire industry, and 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 has never been possible Our rollout of programmatic on linear follows our introduction of addressable advertising across our networks a couple of years ago, another first for the industry that significantly increases the value and relevance of our linear ad inventory. 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.

Speaker 2

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. Now I'd like to turn the call over to Patrick for a review of our financial results.

Speaker 3

Thank you, Kristin. I'd like to start by building on what Kristin discussed regarding partnerships, Then I'll review our financial results and outlook before we open it up for Q and A. Our relationships with our affiliates are important, long standing and mutually beneficial. We feel strongly that our tight portfolio of 5 well defined networks continues to offer strong value proposition to distributors and is well suited to maintain broad distribution in basic or expanded basic tiers going forward. Our network supported by strong programming and highly regarded brands are accretive to the overall value of the video bundle.

Speaker 3

Our best and highest value programming has remained on linear and as Kristen mentioned, We are one of the only remaining sources of high quality scripted drama in the bundle. That's reflective of our deliberate strategy to keep these affiliate relationships strong and hold our ground as the provider of a limited number of broadly appealing general entertainment brands that continue to bring value to our affiliates' video products. Our MVPD partners appreciate and are well aware of the value and performance our networks deliver. They understand that our content is compelling, Our networks are high performing and that our wholesale rate is low. Our networks account for a small slice of total industry affiliate fees and deliver almost 2 times that in audience share.

Speaker 3

That makes us a very efficient partner. Our partners also appreciate our ability to together on new initiatives that drive real economic benefits for us and for them, such as selling our streaming services, distributing our fast channels, collaborating on technical enhancements that improve the viewing experience and increasing the relevance and value of television advertising. We expect our relationships with our affiliates both old and new to remain fruitful and mutually beneficial for many years to come. Onto our Q3 consolidated financial performance. Consolidated revenue decreased 7% from the prior year to $637,000,000 Consolidated adjusted operating income decreased 9% to $177,000,000 representing a margin of 28%, which reflects our continued focus on operating efficiency and is consistent with the margin we delivered in the Q3 of last year.

Speaker 3

Adjusted earnings per share was $1.85 We delivered $99,000,000 of free cash flow in the quarter, which sets us up nicely to achieve our previously stated free cash flow objectives for 2023. Notwithstanding that, we continue to operate in a difficult environment as we navigate industry wide challenges impacting both the ad market and traditional pay TV ecosystem. During this period of market evolution, Driven by shifting consumer preferences, we have been pleased with our ability to continue to manage expenses while remaining flexible and collaborative as the industry works through this period of transition. I'll quickly touch on our segment financials. Domestic operations revenues 8% to $541,000,000 for the 3rd quarter.

Speaker 3

This was driven by an 18% decrease in advertising revenues and a 13% decrease in affiliate revenues, partly offset by streaming and licensing revenue growth of 9% and 7% respectively. Advertising revenues in the 3rd quarter continued to be impacted by lower linear ratings, a difficult ad environment and fewer episodes of original programming, which is the anticipated result of the rightsizing we have done to date in terms of programming investment. Digital growth remains a partial offset to these headwinds. That said, we continue to experience a similar advertising environment as our peers as scatter and direct response remain challenging given the economic climate as our advertising partners remain conservative with their spending. Affiliate revenue performance in the quarter was driven by continued declines in the basic subscriber universe and the 3% impact from the strategic non renewal of Fubo.

Speaker 3

We ended the quarter with 11,100,000 streaming subscribers, up from $10,700,000 in the prior year period and $11,000,000 in the Q2. We are pleased that our focus on higher quality subscribers is working despite significantly reduced promotional activity. In the Q3, we grew subscribers 4% year over year and 1% sequentially. Domestic operations adjusted operating income decreased 10% to $185,000,000 with a margin of 34%. The decrease in AOI was largely attributable to lower revenues and was partially offset by lower SG and A expense, the result of continued cost controls across the company.

Speaker 3

Looking at our International and Other segment. For the Q3, revenue and adjusted operating income each decreased 2% to $98,000,000 $13,000,000 respectively. Moving to the balance sheet. We ended the 3rd quarter with net debt and finance leases of We have substantial financial flexibility And total liquidity in excess of $1,350,000,000 including $955,000,000 of cash in the balance sheet and our undrawn $400,000,000 revolving credit facility. As noted in our earnings release this morning, we are redeeming our 2024 senior notes at par First, we look to support the business with a particular focus creating compelling content that resonates with our audience, while balancing overall profitability and cash flow generation.

Speaker 3

2nd, we remain focused on the balance sheet and addressing upcoming maturities. Lastly, strategic M and A and returning capital to shareholders remain further down our priority On to our outlook for the year. In terms of our revenue outlook, given the industry pressures I discussed earlier in my remarks, We are now expecting consolidated net revenue to be closer to $2,700,000,000 for the full year 2023, down from our prior of approximately $2,800,000,000 Our decision to reduce our full year revenue outlook reflects softness we are seeing in content licensing revenues as well as the continuation of a difficult advertising environment. Despite these headwinds, we are reiterating our 2023 adjusted operating income outlook and expect AOI to be in the range of $650,000,000 to $675,000,000 reflecting continued and better than previously anticipated cost discipline. We are also reiterating our expectation of 2023 free cash flow in the range of $120,000,000 to $140,000,000 Note that our free cash flow guidance contemplates $115,000,000 of one time cash restructuring payments.

Speaker 3

Excluding these restructuring payments, Our free cash flow would be in the range of $235,000,000 to $255,000,000 We also continue to expect to grow free cash flow going forward. Recall that this year our free cash flow will reflect the $50,000,000 tailwind from the Hulu transaction we discussed last quarter. So to be clear, our expectation of free cash flow growth going forward is growth off of the base range of $185,000,000 to $205,000,000 We continue to expect cash content investment to be approximately $1,100,000,000 for 2023 and expect cash content investment to be in the area of $1,000,000,000 thereafter. Before I close, I would like to again note that our financial approach is rooted in 3 foundational principles to ensure maximum flexibility going forward. The first is ensuring that we maximize the monetization of our content across all available avenues and platforms while preserving brand affinity.

Speaker 3

Christian highlighted some of the ways we have recently done this, including our pop up with Max and the launch of an ad supported version of AMC plus The second is operating as efficiently as possible. This is a must for all content companies and we remain focused on managing a lean and adaptable business on this front. We are pleased with our performance since we began implementing changes around this time last year. The third is being highly disciplined when it comes to Capital allocation, including remaining opportunistic and flexible as we continue to maintain our healthy balance sheet. This includes being responsible with our content investments and reducing our quantum of gross debt, which we are doing today through the notice of redemption on our 2024 senior notes.

Speaker 3

We live and breathe these financial principles throughout the organization, which allows us to manage this business profitably and sustainably, while retaining flexibility to move quickly as we leverage our core strengths and seize new opportunities. Operator, please open the line for questions.

Operator

Thank One moment please for our first question. Our first question will come from Michael Morris of Guggenheim Securities. Your line is open.

Speaker 4

Thank you, guys. Good morning. 2, if I could. First, maybe for Kristen, I'd love to hear some more detail on how the programming, The programmatic linear advertising works specifically, how does it sort of fit with your direct sales Organization and what kind of mechanics does it take to deliver targeted advertising To a linear audience, how what other partners do you have to work with? And I guess how does that work exactly That's my first question.

Speaker 4

And then second, maybe for Patrick, you talked about softness in licensing revenue impacting the full year guide. There seems to be a very strong appetite for license content, especially during the strike right now. So maybe you can help us understand how much of that has to do with Timing availability and how much of that has to do with end market demand? Thanks guys.

Speaker 2

Great. Thanks, Michael. You're making my day by asking about This particular topic because it's very near and dear to my heart, maximizing the capacity that we have on all of our advertising. And My history recently in data and analytics like this is a super enthusiastic area for me. I'm going to let Kim Kelleher speak So programmatically, you're just on the technicalities of it, but also coupling that with And national addressable is really kind of a 1, 2 punch.

Speaker 2

So Kim, you want to get into the specifics a

Speaker 5

little bit? Sure. Thanks, Michael. We're really excited about this, as Kristen just said. So in simplest terms, what we've done is we've enabled biddable programmatic buying capabilities within our linear inventory, which was mentioned as an industry first.

Speaker 5

This is something we've been working on for a long time. This means digital advertisers can now purchase our national inventory programmatically using the traditional buying platforms that they use today to buy all of their digital. So what this opens up is a lot of incremental audience and reach And it maximizes the value of our yield on our linear inventory. So it brings us it brings accessibility to a longer tail of advertisers within the same campaign in Lanier using an automated buying platform like The Trade Desk or whoever their preferred partner is. So this is really exciting when you couple it with the advanced advertising efforts we've taken to make all of our inventory Highly targetable.

Speaker 5

So this really kind of rounds out the offering and just making it much more seamless and efficient To buy from us.

Speaker 2

Yes. And just in summary, like you can an advertiser can come to us either with a segment that they define or when we help them define and then they can buy across All of our opportunities in a consolidated way go through our Audience plus platform get attribution that really helps

Speaker 3

Hey, Mike, it's Patrick on the content licensing question. The short answer to the question is more of an end market issue for us and a Pricing issue for us, so I'll unpack that a little bit here. So first off, I separate the international and domestic markets. I think the international market remains kind of more robust than the domestic side, at least for us. And as we go to market and look to sort of pull forward the monetization Of our content, we're at the same time disciplined from a price perspective.

Speaker 3

So obviously, we were able to get a bunch of additional programming Kind of on the cupboard via the unwind of the Disney Hulu deal, we opted to use that on the pop up on Max, opportunistic, Really put our content out there, hopefully driving people back into our own ecosystem. We're benefiting this year honestly from a higher volume of content In the cupboard, since we had held back in prior years and kept that for exclusive use on our own Platforms, that's obviously no longer the case. But the reality is that when we're in market, we value our content highly. And so while there's always an appetite for the content, it's not always at a price that we think it's worth. And so we're opting to sort of Keep some powder dry, doesn't mean it's a timing engine necessarily, but we are sort of guardians of our programming and the value thereof.

Speaker 1

Thank you both for the details. Appreciate it.

Operator

Thank you. And one moment please for our next question. Our next question will come from David Joyce of Seaport Research Partners. Your line is open.

Speaker 6

Thank you. I wanted to follow on the programmatic question there. I was just wondering how, I guess ubiquitous is this ability. How are we moving towards industry standards across Various networks and platforms in order to make this efficient for the ad buyers. And How does this work with you opening up some of Your newer services like AMC plus to advertising, are you is it pretty seamless to be selling across platforms?

Speaker 6

And if you could tie that in also to how things went in the upfronts this year, were these part of all of those negotiations as I presume they probably were? Thanks.

Speaker 5

Hi, David. It's Kim Kelleher. Great question. So let's see, I'm going to take it piece by piece very quickly. So this has been a work in progress for a long time.

Speaker 5

This started with addressable efforts that we announced 2 years ago, with unaddressability in partnership with Comcast, Charter and Cox, fast forward to today, we are opening up Inventory that we'll be able to add to this footprint, partner by partner. Initially though, we are working through Canoo and have started with Comcast inventory. Obviously, Canoo also works with Charter and Cox, so we anticipate expanding upon this. What we do is we couple this inventory with our growing CTP inventory coming from our 17 fast Channels that are currently across 9 platforms, soon to be across 12 platforms by the end of this year, which is giving us a Huge expanse of inventory that can be transacted on digitally. So once you put all of this together, you're able to do Highly targeted and with the progress the industry has made on managing reach and frequency and Brand safety within those environments, you've got a very compelling opportunity that we're excited to be leading.

Speaker 6

Thanks. And if I could add a second topic. With some of the content comparisons causing Some challenges, how can we and obviously given some of the strike impacts, how should we think about some of your key content properties Timing wise across some of your main networks over the next few quarters to think about how advertising trends It may be playing out. Thanks.

Speaker 7

Hey, David, this is Dan. Thanks for the question. We're in great shape. We have a robust slate of content that is already finished and or being finished right now as Kristen With interviews of Empire and the 2nd season Daryl Dixon, that will take us well into 2024. So we don't expect any impact From the lingering SAG after strike, which we also hope is going to be resolved in the coming days anyway.

Speaker 7

And there's no material impact to AOI or free cash flow from the strikes.

Speaker 3

And David, it's Patrick. Just one sort of final footnote there from a 2023 perspective, you'll recognize that we're cycling fairly difficult comps from a programming perspective. So I would expect that the advertising number in Q4 will reflect that. Great. Thank you.

Operator

Thank you. One moment please for our next question. Next question will come from the line of Michael Nathanson of MoffettNathanson. Your line is open.

Speaker 1

Hi, this is Luke Landes on for Michael. I wanted to ask in your current bundled deals with linear distributors, Is there any way to allocate the breakdown to streaming versus linear channels? And how you expect that to shift in the years ahead?

Speaker 2

Hey, it's Kristen. At this point, I think we look at our relationships holistically. And as we noted, we've included AMC plus With every single partner, traditional as well as a lot of the newer players into the space like Amazon, Apple, Roku, YouTube. So I think this will evolve over time how it gets sort of bifurcated and trifurcated. But just to restate, Our goal is always to offer the most flexibility that allows our partners to be successful and to get our content in front of as many people opportunistically in any way that they would Like to consume it.

Speaker 2

So, utilizing our content across brands, across platforms, across technologies and then both in ad supported and non ad supported ways, But it's not specifically broken out yet in a way that we can articulate publicly.

Speaker 8

Thank you.

Operator

Thank you. Again, one moment please for our next question. Our next question will come from Brett Feldman of Goldman Sachs. Your line

Speaker 9

is open. Great. Thanks. 2, if you don't mind. First on free cash flow and the outlook for growing free cash flow.

Speaker 9

I was hoping you could give us some insights into how you think the Cash flow equation is going to evolve, meaning right now you guys are really doing a terrific job on the cost side of it and that's clearly supporting A strong cash flow profile, how much longer do you think that cost programs can support growth in free cash flow? And How are you thinking about the path to long term revenue growth, which I think most people would agree is sort of essential to sustaining cash flow growth Over the long term. And then the second is, you've really been at the forefront of bundling your streaming services in with other You've had some good early success there. There's been this constant conversation about when are we going to see more of that Happening broadly across the category. I'm curious what your insights are there.

Speaker 9

As you've done this, what have you found has worked? And do you see some emerging catalysts that are likely to create more of a bundling initiatives and natural facilitators? Sort of an open ended question, but I think you guys have a unique vantage Thank you.

Speaker 3

Hey, Brad, it's Patrick. I'll start on the free cash flow question. Listen, we've been taking steps over the course of the last 3 or 4 quarters, frankly, to set ourselves up in this way. And so, we'll have essentially doubled run rate free cash flow from 2022 into 2023, And we feel quite good about continuing to grow that into 2024. Obviously, the biggest lever we've had to pull there is on the programming side.

Speaker 3

And so We've set up the 2023, 2024 and we're looking towards 25 slates in order to ensure That run rate continues. Obviously, there are revenue challenges in the business. We expect those to continue into 2024, particularly on the traditional side of the business. One of the ways we've been able to grow free cash flow is not just on expense management, which to your point It's finite, but I would also point at our efficiency on the marketing front. And so that's been one lever that we've pulled this year that's been particularly effective for us.

Speaker 3

And obviously, we've Moderated the growth in our streaming subscribers and that's decelerated to a degree, but it's been offset by Increases in the efficiency of that marketing spend, so we're being much more tactical on spending against CPAs where we see value. And so I think to the extent we continue to do that and frankly as the ecosystem evolves towards bundles and we can have More sort of innovative and imaginative kind of revenue streams as Kristen alluded to. I think From that, obviously, AOI and free cash flow growth will continue.

Speaker 2

On the bundling Brett, I would just say there's real opportunity here around pricing and packaging. We are, as we've stated before, a Pure play programmers, so we have, I think, more flexibility to experiment. We have long standing relationships in the industry, so it's And then sort of as part of an answer to both of your Questions, our goal here is really to get to be sort of a lean mean distribution machine to create great content and get it out everywhere we possibly can. And that's our ability to be innovative, our ability to move quickly, our ability to partner and engage with people on all different types of ideas And then culminate that with really intense utilization of data and technology to really understand the opportunities, Articulate and attribute what the results were and then kind of roll those forward into expansion of the opportunities around bundling, around Technological distribution around ad supported capabilities are all again bright future spots that we see In addition to the efficiencies that we're finding in the organization and just Getting smarter and more nimble and faster in everything that we do. So we've made a lot of progress there.

Speaker 2

I think we have more opportunities to do so in ways that Benefit the company without cutting both.

Speaker 9

Thank you.

Operator

Thank you. And one moment for our next question. Our next question will come from Thomas Yea of Morgan Stanley. Your line is open.

Speaker 10

Thanks so much. I wanted to ask more about the MAX experiment, Especially in the contrast to the comments about the lower industry appetite for licensing, it seems like it was more promotional than economic in nature. I'm wondering if there is any opportunity to monetize that more directly in the future. And do you think the value lies more And driving attention to your own services as opposed to kind of a direct licensing?

Speaker 2

I'd say it's a combination of both. I mean, we did see obviously as we We're thrilled with the volume of viewership of our titles on MAX, including things that were not Current, current. So we got a lot of exposure for our brands. We then saw uptick again in utilization on AMC Plus of the Current seasons of shows like Dark Winds, and some of the other shows that we put on Max and then we're the experiment just ended So we're now working with Warner Brothers on results from them to see how we can again sort of parlay this forward and think about Ways that we can opportunistically continue to expand the visibility of our content and partner with others to help kind of serve the customer best. And bundles, everything old is new again when you talk about bundles and whether it's a triple play of telecommunications offerings or neatly packaged That of programming offerings, it benefits the consumer, and we want to play in that space.

Speaker 10

Great. Makes sense. And then recognizing it's still early days on the ad tier launch, the OTT subscriptions I noticed did stabilize in the quarter. I'm wondering if there was a contribution or a mix shift from that and it sounds like you see this as a potential tool to Find more ways to bundle is the expectation that the mix of subscribers shifts more towards an emphasis on AVOD as an opportunity over time? Thank you.

Speaker 3

Yes. Hey, Thomas, it's Patrick. Yes, thanks for recognizing the kind of the sequential growth there. As I referenced before, It's really early days on the ad tier. So it's tough to draw any kind of lessons from that yet.

Speaker 3

That being said, I think I would point to the efficiency and kind of marketing spend, cadence of content, etcetera, on the subscriber growth On the subscriber side, Q4, we'll see what that looks like. It's still too early, I think, to attribute much on the asset board and tier. But I'll let Kim comment as well.

Speaker 5

Hi, Thomas. I would just add to the second part of your question. I think it's very important for us to have this ad supported tier now because It allows us to participate in future bundling partnerships with parity across a non ad supported tier Or an ad free tier and an ad tier. So making it seamless for the consumer and giving them that choice regardless of the tier they decide to come in.

Speaker 10

Make sense. Thank you so much.

Operator

Thank Stand by as we compile the Q and A roster. One moment please for our next question.

Speaker 8

Hey, can you hear me?

Operator

Yes. We have Tia Kahele of Wells Fargo. Your line is open.

Speaker 8

Thank you. So, Kristen, you've talked a lot on this call about the Importance of partnerships and I know the MAX relationship has come up a lot and this seems to be a bigger theme that we're seeing With more content heading on to bigger platforms to maximize its value and reach. So the question I wanted to ask you, you seem to hold nothing sacrosanct within the business in terms of how to best position it going forward, how important is AMC to the long term strategy of AMC. It seems like the linear network is still a great place to premiere content and engage with subscribers, But AMC plus is competing against some of these bigger platforms that you're finding partnerships with. So how do you just think about the strategic nature of that asset And then Patrick, I might be doing the math wrong here, but I think your AOI guide implies a very small Q4 for AOI versus The last three quarters, can you just talk about if there's any content amortization timing shift in there?

Speaker 8

Is it a conservative guide or something else. Thank

Speaker 3

you. Great.

Speaker 2

Thanks, Steve. On the AMC plus front, it's a critical piece of what we do because it's Again, we've always coupled it with the linear network. We haven't, particularly in the last year, put things on AMC plus We wouldn't put on the linear network. So we see it more as an extension of our linear offering that is available to people who Zoom television in a different way. That's why we're so excited, A, about the Xumo launch and our partnerships with It's interesting just to have products that appeal to different segments of the audience depending on their age and their habits, but each of them contain What we've been sort of working on for 40 years, which is curated amazing scripted dramas and the great thing for us again as Patrick mentioned is we're Reasonably priced across all of our products and what we deliver is general entertainment.

Speaker 2

So we believe by being good partners and having great content, we can hold A good position in a sort of expanded basic traditional family cable type of package, whether it's something that is traditional linear or In the more advanced kind of future looking bundles, it's still a bundle, it's just delivered over IP. So It's a critical piece, but again, I think you have to think about it as a different transmission form of what we've always done really well.

Speaker 3

Hey, Steve, it's Patrick. On the Q4 question, I think you answered your own question. So your instincts are correct. There'll be a substantial amount of amortization, it's the P and L. And if I could sort of Qualify the nature of the guide, I would say I expect us to be within the range.

Speaker 3

It's not necessarily conservative. But Yes. As you'll look at kind of last year, we had a similar dynamic in terms of the Q4 margin being kind of maturity lower And the balance of the year. So there's nothing more than that in there.

Speaker 8

Great. And maybe just to follow on with that, Patrick, I think the domestic margin Year to date, it's about 4 percentage points higher than last year, with less revenue. I know you all have A lot on cost. Do you think you can continue to expand margin at domestics over the longer term? Thanks.

Speaker 3

I'm not sure expanding margin over time is going to be as easy, but we're going to give it Are all, but expanding margins could be challenging, I think.

Speaker 2

But I would add, we still see some significant opportunities to streamline our The place is evolving, the capabilities are evolving, there is opportunities for different cloud vendors and different distribution capabilities That really can allow us to be more efficient in the actual mechanics of delivery on a go forward basis and we're looking at that really closely.

Speaker 3

Yes, Steve, actually one more point on the margin there that I'd point to would be, we're focused on free cash flow. And so Obviously, sort of amortization has a big impact on our P and L from an AOI perspective. As we go forward, we're more focused on free Cash flow than AOI. So we're not managing the business for margin, we're managing it for free cash flow right now.

Speaker 8

Very clear. Thank you.

Operator

Thank you. I am seeing no further questions in the queue. This will conclude today's conference call. Thank you all for participating. You may now disconnect.

Operator

Have a pleasant day and enjoy your weekend.

Powered by Quartr
Earnings Conference Call
AMC Networks Q3 2023
00:00 / 00:00