AMC Networks Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2024

There are 10 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the AMC Networks Third Quarter 2024 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 session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Nick Siebert, Vice President of Corporate Development and Investor Relations. Please go ahead.

Speaker 1

Thank you. Good morning and welcome to the AMC Networks' 3rd quarter 2024 earnings conference call. Joining us this morning are Kristin Dolan, Chief Executive Officer Patrick O'Connell, Chief Financial Officer Kim Kalicar, 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 Private Securities Litigation Reform Act of 1995. 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. Please 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.

Speaker 1

The 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

Thank you, Nick, and thanks, everyone, for joining us. It's been about 18 months since I became CEO of AMC Networks and I am proud of the work we've done to orient the company around our popular high quality content and unique advantages even during a changing and uncertain time in media. We're pleased with our results in the Q3. I'd like to note the significant progress we've made against one of our major priorities generating free cash flow. Year to date, free cash flow is already 293,000,000 and we're well on our way to delivering our stated goal of approximately $500,000,000 in cumulative free cash flow over 2 years.

Speaker 2

We're focused on 3 key strategic pillars programming, partnerships and profitability. During the quarter, we made significant advancements across all three areas. I'll start with partnerships. As we navigate a complex media environment, our partnerships have never been more important. I'm particularly pleased to report that over the past several months, we've renewed several major affiliate agreements, including an early renewal with our partners at Charter.

Speaker 2

Our new long term contract is consistent with Charter's strategy of maximizing customer value by combining linear networks and streaming services into the Spectrum Video product and now includes the ad supported version of AMC plus for all Charter Video subscribers at no additional cost to the customer. In late August, we kicked off an innovative partnership with Netflix to make prior seasons of 15 AMC series available to the company's U. S. Subscribers for the next year. This curated selection of shows is branded the AMC collection and we've been very pleased by its performance on this massive streaming platform.

Speaker 2

Almost immediately after the launch, we saw shows like Dark Winds, A Discovery of Witches and Anne Rice's Mayfair Witches hit the Netflix top 10 chart and stay there for weeks. Overall, the shows in the AMC collection have garnered significant engagement with Netflix viewers and we are seeing the benefits of this increased exposure on our own platforms as well. The 2nd season of The Walking Dead Daryl Dixon is available to stream only on AMC Plus. And since season 1 became available on Netflix, we saw acquisition activity related to this show more than double on our platform. And since season 1 of Anne Rice's Interview With A Vampire became available on Netflix, AMC plus acquisitions driven by Season 2 increased nearly 4 times from the pre Netflix baseline.

Speaker 2

We expect this dynamic will continue to play out with upcoming new seasons of other series in the partnership like Anne Rice's Mayfair Witches, Dark Winds and The Terror. In January, we'll add 2 new series from our Walking Dead Universe to the MC collection on Netflix for the first time. The Walking Dead: The Ones Who Live and The Walking Dead: Dead City. It's so gratifying to continue to see The Walking Dead Universe content perform so well on Netflix led by the original series as we prepare for the return of those U. S.

Speaker 2

Rights to AMC Networks in just about 2 years. Amazon remains a very significant partner for us on a number of fronts. In addition to offering AMC plus and other targeted streaming services on Prime Video channels, Amazon recently launched 15 of our fast channels on Amazon platforms, formerly known as Freebee. We were very early to recognize the opportunities around fast and CTV and the importance of these new platforms to reach younger viewers and supplement our linear distribution and ad sales efforts. We now have 18 channels that are live on 12 different platforms with 130 active channel feeds in all.

Speaker 2

Our presence in Fast, along with the ad supported version of AMC plus launched last year, is helping us navigate the shift from linear and emphasize the importance of cross platform buying to reach target viewers. We plan to launch ad supported versions of our other targeted streaming services starting with Shutter. Combined with our advanced tools including addressable, programmatic and data insights from our Audience plus platform, which helps the advertisers find viewers of our content wherever they are watching, we have the ability to reach the largest ad supported audiences in our history. We are also achieving a higher degree of relevance and targeting than ever before. This month, we launched a content sampling pop up with MGM Plus that brings 1st seasons of 9 of our series to MGM Plus subscribers and brings 1st seasons of 9 of their series including MGM Plus's hit series From to AMC Plus for the next few months.

Speaker 2

Amazon's Prime Video channels currently offers an AMC Plus MGM Plus bundle for just $10.99 a month. So we think this sampling arrangement is a great way to raise awareness of the programming on both services and attract new customers. We also have a promotion with Verizon in market right now offering Verizon Wireless customers access to the ad free version of AMC Plus for 6 months at no cost to the customer, after which it rolls to the regular monthly price. We continue to focus on making great content and running our business efficiently as the industry reorients itself around changing consumer behavior. We see significant opportunities to participate in the new offerings of our long time partners like Comcast and CharterZumo, which Cox is now deploying across its footprint as well.

Speaker 2

Another good example of this is the recent agreement with Comcast Technology Solutions to manage most of our back end content distribution, which provides access to the speed and scale of Comcast best in class technology, while also increasing the predictability of our cost to serve. As I noted earlier, our strong programming continues to engage audiences and we are seeing momentum across all of our platforms. AMC plus is setting viewership records with its most watched series in its 5 year history early this year with The Walking Dead: The Ones Who Live. AMC plus has also had 2 of its 3 most watched returning seasons ever this year with Anne Rice's Interview with the Vampire Season 2 and The Walking Dead Daryl Dixon. Daryl is on track to become number 2's most watched original series this year on both AMC and AMC plus behind only the ones who live.

Speaker 2

Acorn TV, the destination for passionate and loyal fans of international crime dramas and mysteries continues to fire on all cylinders. In the Q3, we saw a year over year improvement in Acorn's already strong retention and also an improvement in sign ups with the Q3 being our biggest quarter for customer acquisition so far this year. This is particularly impressive given a rate event we implemented in the Q2 and speaks to the loyalty and high engagement of Acorn subscribers. We have a new Acorn series called Irish Blood starring Alicia Silverstone currently in production in Ireland and more brand expanding shows on the way. We just wrapped the 28th installment of our Fear Fest horror programming event, which now curated by Shudder and it delivered fantastic results across all of our platforms.

Speaker 2

October was the highest rated month of the year on AMC and made the network a top 5 movie destination in cable. Fear Fest titles also drove an all time high in film viewership on AMC plus beating last year's record. And even as Fear Fest wraps, Shutter will keep the party going all this month with its season of Scream's programming stunt and new movie releases and watch parties every Friday night. I want to note that Rotten Tomatoes just recently released its list of the best horror films of the year and 5 of the top 10 were films released by Shudder or IFC Films. Critics and serious horror fans agree, we own this cost effective and financially efficient genre, which consistently delivers outside levels of engagement and fan enthusiasm.

Speaker 2

Our fastest growing targeted service HiDive caters to devoted anime fanatics and has continued to deliver strong results. In the Q3, we saw sign ups and viewership both hit an all time high. We're particularly pleased with the performance of I, Perry, Everything, which recently debuted as HiJazz's number one most watched series ever. Our strong upcoming slate on AMC and AMC plus includes the 2nd season of Anne Rice's Mayfair Witches and a 3rd season of Dark Winds, both debuting early next year. These are two series that we expect will benefit from our Netflix partnership given the popularity of prior seasons on that platform.

Speaker 2

We're in production of the 3rd season of The Walking Dead Daryl Dixon in Spain. We just completed production on a new season of our horror anthology The Terror called Devil in Silver, which was shot on Staten Island. A third series of our Anne Rice universe, The Tallamasca is shooting in Manchester, England and we have a writer's room open for a highly anticipated Silicon Valley project from Jonathan Glasser, an award winning writer producer whose credits include AMC's Better Call Saul as well as Succession. Before Patrick provides a more detailed look at our financial results, I want to say that even in a time of turbulence and uncertainty for many in our industry, we continue to find advantages in our size, independence and standing as one of the last pure play premium programmers. We really can work with anyone to reach and serve viewers on our platforms and those of an expanding array of partners that include the likes of Comcast, Charter, Netflix, Amazon, Roku, YouTube, Samsung, Vizio, Philo and so many others.

Speaker 2

We are nimble, opportunistic and have reoriented our company for today's new environment with viewers and high quality content that breaks out and drives popular culture at the center of everything we do. I'm grateful to our people for breaking down the old ways of doing things and adopting a fast moving and free thinking mindset more typical of a startup than a legacy media company. This new approach is what this moment in media requires, and I'm pleased to say we're meeting the moment in so many ways. With that, I'll turn the call over to Patrick.

Speaker 3

Thank you, Kristin. We remain consistent in our strategic and financial priorities. We continue to lean into our unique strengths as an independent, innovative and nimble premium programmer, allowing us to successfully execute our disciplined financial framework even as the overall industry continues to redefine itself. We're quite proud of the significant strides we have made towards our key financial goals, including the optimization of our programming investments, the generation of robust free cash flow and the continued preservation of the strength of our balance sheet. As Kristin mentioned, year to date, AMC Networks has generated $293,000,000 of free cash flow.

Speaker 3

This puts us solidly on track to achieve our financial outlook of year over year free cash flow growth for 2024 and approximately $500,000,000 of cumulative free cash flow by the end of 2025. As mentioned in our earnings release this morning, we closed the transaction with BBC Studios last Friday, where we acquired the remaining 50% of the BBC American joint venture that we didn't already own for $42,000,000 in cash, including cash that was distributed from the JV's balance sheet. We now own 100 percent of this iconic channel with full operational control and look forward to what the future holds. Of course, we still maintain a close commercial relationship with BBC Studios to ensure the brand and programming remain top tier. We will continue to fully consolidate BBC America as we did prior to the transaction.

Speaker 3

Assuming this transaction closed on September 30, dollars 133,000,000 of redeemable non controlling interest related to the BBC America reflected on our consolidated balance sheet would be eliminated. Going forward, we'll keep 100% of the cash the business generates and we'll no longer be making any related cash distributions to noncontrolling interests. Moving on to our Q3 consolidated results. Consolidated revenue for the 3rd quarter was $600,000,000 representing a decrease of 3%, excluding 20 fiveseven Media in the prior period. Adjusted operating income was $131,000,000 representing a 22% margin, and we generated $54,000,000 of free cash flow in the quarter.

Speaker 3

Now looking at segment level results. Domestic operations revenue decreased 2% to $530,000,000 Subscription revenue of $316,000,000 decreased 5%, primarily due to linear subscriber declines, resulting in a 13% decline in affiliate revenue. This was partially offset by streaming revenue growth of 7%. Streaming growth was driven by both subscribers and rate, and we ended the 3rd quarter with 11,800,000 streaming subs. We are pleased with the performance of all of our services and we're encouraged by the strong retention we have seen to date, particularly across our portfolio of targeted services where we saw year over year improvements in retention in the 3rd quarter.

Speaker 3

As Christian discussed in detail, our high quality programming performs very well on both owned and third party platforms. It remained highly sought after and we continue to focus on optimizing the monetization of our AMC Studios owned IP across an array of different windows. This includes finding new fans and building new audiences who broadly penetrated distribution partners, providing access to the widest possible audience and in turn increasing the value of our IP. The results are clearly visible in our strong Q3 licensing performance. Domestic ops content licensing revenue increased 31% to 81,000,000 dollars driven by the timing and availability of deliveries, including deliveries related to the AMC collection on Netflix.

Speaker 3

Echoing what Kristen said earlier, we are thrilled with our performance here and the halo effects to date. Advertising revenue of $133,000,000 declined 10%, largely due to lower linear ratings, partially offset by continued digital growth. It is worth highlighting that this is the 2nd quarter in a row where we saw sequential improvement regarding the year over year rate of change in ad revenue. Domestic operations AOI was $150,000,000 for the quarter with a healthy margin of 28%. The year over year decrease in AOI was largely driven by linear revenue declines in the quarter.

Speaker 3

Moving to our International segment. 3rd quarter international revenue was 74,000,000 dollars Excluding 20fiveseven Media in the prior period, international revenue decreased 6%. International advertising revenue growth remained robust in the 3rd quarter with growth of 16%, largely driven by the momentum of new AVOD offerings, namely ITBX in the UK, in addition to growth in Central and Northern Europe. International AOI was $14,000,000 for the quarter with a margin of 18%. Moving to the balance sheet.

Speaker 3

We ended the 3rd quarter with net debt of approximately $1,600,000,000 and consolidated net leverage ratio of 3x. As a reminder, we completed a series of meaningful financings this year and significantly extended our maturity profile. And as such, we now have no bond maturities until 2029. We ended the quarter with approximately $1,000,000,000 in total liquidity, including $816,000,000 of cash on the balance sheet and our undrawn $175,000,000 revolver. We appreciate the flexibility and optionality of our meaningful cash balance.

Speaker 3

We believe our capital structure will continue to present attractive opportunities for us to deploy cash in an accretive manner, benefiting both the equity and the credit over time. In the Q3, in addition to our regularly scheduled amortization payments, we paid down an incremental $35,000,000 of our credit facility debt. Our capital allocation philosophy remains prudent and opportunistic. First, we look to support the business by creating and acquiring compelling programming that resonates with our audiences, while maintaining healthy levels of profitability and cash flow generation. 2nd, we look to improve our balance sheet by reducing gross debt and optimizing our capital structure.

Speaker 3

3rd, M and A and share repurchases or dividends remain further down our current priority list. Moving on to our outlook. We are pleased with the progress we have made year to date, and we believe we are well positioned to achieve our outlook for the full year. Beginning with free cash flow, we continue to expect to grow free cash flow this year year over year for the full year 2024 and by 2025, we expect to have generated cumulative free cash flow of approximately $500,000,000 In terms of revenue, we continue to expect total revenue of approximately $2,400,000,000 for the full year. On AOI, for 2024, we continue to expect consolidated AOI of $550,000,000 to $575,000,000 with growth in streaming and digital advertising as well as prudent expense management remaining key focuses of ours despite ongoing linear revenue headwinds.

Speaker 3

We anticipate cash programming spend to be a little bit less than $1,000,000,000 this year and that programming amortization will be similar to 2023 levels. I'll close with what I've said in the past regarding our overarching financial philosophy. We continue to employ our back to basics approach that emphasizes broad distribution of our content and brands across platforms and prioritizes near term monetization and at the same time takes advantage of our unique position as a nimble and innovative premium programmer. We'll continue to allocate our capital wisely to ensure we maintain a healthy balance sheet, remain extremely disciplined on expenses and balance appropriate levels of programming investment against available monetization opportunities. With that, operator, please open the line for questions.

Operator

Thank you. Our first question is going to come from the line of Thomas Yee with Morgan Stanley. Your line is open. Please go ahead.

Speaker 4

Thank you so much. I'm hoping to get a bit of an update on the ad supported tier for streaming and how that may or may not have kind of evolved over time as a broader mix of your 11,800,000 subscribers. When you have that and then you have the momentum on your fast channels, just sort of collectively think about the inventory that you have to play with and whether or not you're still agnostic to the ad tier versus non ad tier in terms of adoption as you kind of drive your OTT growth?

Speaker 2

Hey, Thomas, good morning. It's Kristen. There's a lot to unpack here. I think I'm actually going to throw it to Kim to take you through, the specifics on your questions.

Speaker 5

Sure. We're very encouraged by early results of our ad supported growth in streaming. Obviously, we just launched late last year and we continue to see it play a pretty aggressive fast growth aspect of introducing new customers to AMC plus in all the right ways. That said, it is still a very targeted approach. And as you point out, the way we go to market with that inventory is coupled with our digital inventory from other distributions, including Fast and AVOD.

Speaker 5

Our priority has been to maintain a 1st sales position across all platform partnerships, which gives us that first sales right of bringing our inventory attached to our programming to market. So

Speaker 3

it's a very it's

Speaker 5

a slightly different strategy than many of the others in the marketplace, but it's serving us incredibly well and helping us to scale. So we're seeing quarter over quarter growth consistently for our digital revenue. And on top of that, we're very, very aggressive with making our inventory more seamlessly transactable, more real time and more addressable, not only across the digital footprint, but also our linear footprint. Happy to expand on that more.

Speaker 2

And I would just add we're comfortable with the split between it wasn't surprising to us at all. We can't break it out, but the difference between premium and ad supported on the streaming service for AMC plus we're comfortable with how that's coming in. And what it's also allowed us to do, while we keep our streaming services below $10 a month at this point, by bringing in the ad supported tier, we took an increase on AMC plus prior increase, but now we have people have the opportunity to flex down and still keep the service. But important to remember that both the ad supported and the premium are still below $10

Speaker 4

Got it. So it sounds like it's fair to say you're willing to sacrifice maybe direct ARPU on an ad supported subscriber for maybe some of the broader holistic things that it brings you from a

Speaker 2

Yes, particularly as Kim noted because of the opportunity to truly sell cross platform and to sell audiences versus just spots.

Speaker 4

Got it. And then, Kristen, you mentioned the original Walking Dead rights returned to you in the next few years. Do you see that particular title as something that deserves a different approach? Or how are you thinking about redeploying that catalog? Or what flexibility does that open up to you relative to what's actually happening now?

Speaker 4

Because I feel like you have some options.

Speaker 2

Yes. I mean, it's not it's about 20% of our the value of our inventory or the value of our catalog is vested with The Walking Dead. And we know that with having all of it back in house, within 2 years, Dan has been doing a lot of thinking. I'll flip it to him about how to best utilize that catalog and the associated IP to maximize the value. But it continues to be hugely popular around the world.

Speaker 2

So it is important that we're getting all the rights back.

Speaker 3

Yes. I'll just throw in.

Speaker 6

I mean, obviously, these rights are very valuable to us. They come back to us, as Kristen noted, in roughly 2 years. And possibly even they'll be possibly even more valuable to us as a part of a cohesive package that includes the entire full universe of Walking Dead shows. So we have a lot of different options, a lot of different ways we can drive monetization and we're going to be sure to be super strategic and do whatever drives the most value for the company and serves the fans. So we're looking forward to that moment in time.

Speaker 4

Okay, understood. Thank you so much.

Operator

Thank you. And one moment as we move on to our next question. Our next question is going to come from the line of Steven Cahall with Wells Fargo. Your line is open. Please go ahead.

Speaker 7

Thank you. So Christine, it sounds like you've really seen the power of some of your marquee content on Netflix and it was helpful to understand how that's driving more subscribers to AMC plus How do you think about the value of those subscribers on AMC plus for those new seasons? And then there's kind of a studio inside of AMC that's making all this. So how do you think about whether or not you want those new seasons on your own branded platform like AMC plus versus selling directly to Netflix with new original content, just given the size of their reach and what that reach has done with your own programming. So I'd love to hear how you think about that trade off between being a studio and being a distribution company.

Speaker 7

And then Patrick, thank you for the color on capital allocation. I feel like you really deemphasized share repurchases or dividends for now. I know you're not giving long term guidance on AOI, but is that to can we infer from that that you think that there could be some AOI growth pressure ahead that naturally pushes leverage a little higher? I think you're prepaying some of your debt with your free cash flow. So kind of trying to get at whether or not this is the last year of declines in AOI or if this implies there could be some declines still ahead?

Speaker 7

Thank you.

Speaker 2

All right, great. I'll start. So your question about the new seasons, the way that we look at acquisition for AMC plus is we'll look at the first stream that people watch when they come into the service, right? And so, with the shows that are on Netflix, as you're aware, it's only prior seasons. So as I noted in my remarks, we see significant uptake on new customers coming in that are watching the new seasons of the show.

Speaker 2

So it's a roundabout way of answering your question. The value of those new seasons on AMC plus are really, really important. But that being said, we're getting more and more sophisticated through our data and our analysis around viewership and what hunts and what doesn't and what works in linear and what works in streaming that Dan and team are getting much more sophisticated in really taking everything we have available to us and when doing it in a very strategic way. So I'll let Dan comment on that to answer your second question.

Speaker 6

Yes. Hey, Steve. I'd say, look, going back to what Kristen said at the top of this, making and curating great content is what drives the overall opportunity in front of us and it builds lasting asset value and that's in particular owning that value inside of our studio whether we're producing for AMC or producing for 3rd party platform. So obviously the beauty of having a studio and producing programming is that these rights rest with us. And we're very interested and strategically working right now to create an opportunity with our studio to be able to sell to 3rd party platforms in a meaningful way.

Speaker 6

As a reminder, we produce Silo for Apple, which has been a very successful show for them. Season 2 is I think they're going to is dropping soon and we're soon to begin production on Season 3. And so we have a lot of plans for how to continue to build the library of assets in our studio and look forward to doing so over the next couple of years.

Speaker 2

The other thing I'd add to that is just Dan and his team are very good at creating content inexpensively and we'll do really high quality shows like The Walking Dead or Mayfair Witches or Tallamasca, which we're filming now. But then we also produce really high quality content very inexpensively for Acorn, for All Black. And so we can do anything from like $50,000 to $100,000 an episode all the way up to $6,000,000 or $7,000,000 an episode and the quality is really good. So Dan and team are very careful to select the right content, produce it incredibly well and efficiently and then put it in the

Speaker 3

right places. And interestingly, we see some shows that may be what we

Speaker 2

would consider to And interestingly, we see some shows that, may be what we would consider lower

Speaker 3

budget to create that actually have great success

Speaker 2

even on platforms like Netflix. Yes, Stephen, it's Patrick. On your

Speaker 3

broader sort of financial outlook question, I'd address it this way. The industry is still in very much in the midst of a kind of generational change in the operating model here. We're obviously subject to the same secular trends as others. We continue to evolve our business model in light of those changes. We're mindful of the level of programming investments.

Speaker 3

We're mindful of the level of expense that goes into this business. I think we've demonstrated an ability to be quite nimble and sort of fishing where the fish are, whether it's the kind of

Speaker 6

the pop up on Max

Speaker 3

and then most recently, obviously, the content licensing deal with Netflix. And so we feel good about the hand that we have in terms of having really strong assets. You mentioned yourself, the value of the studio and the content that produces, we think that's going to continue to accrue to the benefit of the company and the equity over time near to intermediate term. It's a little bit more opaque. As I've mentioned, we've taken steps to sort of de risk the business from an operating perspective with the moves that we've made.

Speaker 3

And then from a financial perspective, we still are very much focused on generating maximum amounts of free cash flow to maintain really good levels of financial flexibility and liquidity. And so as you've seen in this past quarter with the free cash flow generation, this puts us in very good position to achieve our 2 year guidance of $500,000,000 of free cash flow. So net net, we're still kind of in the middle of innings here of the industry's evolution. We've taken some kind of meaningful steps both on the operating side of the business and financially to sort of take advantage of opportunities that exist, also derisk ourselves to the degree possible. So we feel good about that and we'll continue to play.

Speaker 3

Thanks.

Speaker 4

Thank you.

Operator

Thank you. And one moment for our next question. Our next question is going to come from the line of David Joyce with Seaport Research Partners. Your line is open. Please go ahead.

Speaker 8

Thank you. A couple of questions on the impacts of the strategies that are coming to light. First on the content licensing, nice growth in that year over year obviously with Netflix deal. I'm just wondering, given you've got a kind of a wide aperture for where you're placing and selling your content, how should we think about this revenue stream? Is this kind of one time for Netflix?

Speaker 8

Or is there something recurring there that we can look forward to each quarter? I know typically it is fairly lumpy revenue line. Just wanted your thoughts on that. And then secondly on the SG and A expenses, they were up a little bit year over year. But I'm just wondering in the selling or if there are one time items in this expense line.

Speaker 8

I'm just wondering how to think about that going forward as well. Thanks.

Speaker 2

Thanks. It's Kristen. On the content licensing, I just want to be clear. Netflix is not the primary driver of our content licensing increase this year. So just to be clear, because I think that could be inferred from your question.

Speaker 2

We're really focused on broad distribution of the content and generating the best possible return. But our owned IP and everything that we license is really windowed around the world in a variety of ways, either to we license to ourselves for our international areas and then in places where we don't have carriage distribution, then we license to others. But I'll let Kim speak a little bit on the growth there because it has been a real bright spot for us, and I think we'll continue to do so.

Speaker 5

Totally. Thanks, Kristen. I think just adding to what Kristen just shared, I'd say we opportunistically look around the world for opportunities in markets where we do not have an owned and operated footprint and pursue making sure that our content is available everywhere viewers want to watch it. So that globally a strategy that we've had long in place that continues to expand and grow. Domestically, I would say we're increasingly focused on non exclusive deals that allow us to monetize our content multiple times on multiple platforms, whether ours or partners and oftentimes both.

Speaker 5

But we do this very thoughtfully to ensure that we're protecting the value of our content by retaining the premieres and the new seasons. So what we're seeing as a premiere is the first time someone watches something. So this gives us an opportunity to utilize the fragmentation in the marketplace to our benefit.

Speaker 2

And I'd add one other thing on that is just the way that we've reorganized the company in integrating the majority of the brands both on linear and streaming into one part of the organization. And so we've been able to utilize content across all platforms, across all services. And interestingly, we don't have a lot of overlap between our various brands as far as the viewership is concerned. Even when you look at AMC Plus, right, AMC Plus is arguably a catch up service for the linear network. And when we went day and date so that everything is released on both at the same time instead of premiering things on the streaming service, we haven't seen a decline in viewership.

Speaker 2

Everybody is gravitating to watch the way that they want to watch. So the opportunity to move things around has not negatively been widely used across all the different verticals that we have. We've gotten much better at taking content, spreading it around and not cannibalizing ourselves while maximizing the value of particularly the things that we create ourselves. David, it's Patrick.

Speaker 3

On the last question regarding the year over year trends on the SG and A line, that is largely due to an increase in marketing year over year. We've made a concerted effort to be quite tactical in our deployment of marketing dollars. And so this is mostly what we call performance marketing bottom of funnel where we've got people in the ecosystem that have kind of very high intense, whether this is search or kind of other verticals where the CPAs are attractive. And so we've continued to be very tactical in the market that way and also across our various products. And so those are well spent dollars.

Speaker 3

There's kind of, I would call it, very near term inside 12 months or certainly within 12 to 18 months ROI on those dollars. So it's mostly marketing on the SG and A line. Not seasonal so much as just tactical in terms of where and when we find subs at the right price.

Speaker 8

All right. I appreciate the color. Thank Yes.

Operator

Thank you. Our next question comes from the line of Charles Wilbur with Guggenheim Securities. Your line is open. Please go ahead.

Speaker 9

Hi, good morning. I was hoping first off on the charter renewal that you called out. If you could share any color on how the revenue recognition might evolve between your affiliate revenues and your streaming revenues with the new deal? And then you kind of when and how any subscribers to your streaming services might be recognized there? And then secondly on free cash flow, you guys have done really well through the 1st 3 quarters of the year.

Speaker 9

I know you highlighted the $42,000,000 payment for BBC America, but wanted to see if there were any other kind of high level items, puts and takes that you might call out for the Q4, if there were any strike related benefits in the prior year that you're lapping or content production timing or anything like that? Thank you.

Speaker 3

Hey, David, it's Patrick. I'll take both of those. So first I think you skipped one.

Operator

No, I was going

Speaker 2

to say for Charlie, just on the charter renewal.

Speaker 3

Go ahead.

Speaker 2

I'm sorry. We obviously don't comment on specifics of any deal, but we sell as a bundle and we get paid as a bundle and that's really important for us because we are I think one of the first that has integrated our streaming products as well as our linear products on renewal and opportunistically with Charter, with Philo and with others in the space. So I'll throw it back to Patrick because I think the industry itself is still figuring out how we're going to count these subs and how they're going to report them. So but as far as the terms of the deal, we fully integrate and that's the way it works. Sorry, Patrick.

Speaker 3

Great. No, thanks. Yes, on the accounting, this is a deal that's not going to be operationalized until kind of early 2025. So would say watch this space. There's more to come.

Speaker 3

I'm not going to unpack the accounting right now. But obviously, as the revenue comes in the door, we'll be very clear in terms of how that's being recognized across the various revenue buckets, but nothing to say at this time right now. Secondly, on your question regarding free cash flow, we continue to be very pleased with the amount of cash flow generation we've been able to squeeze out of the business. A big part of the reason we gave the 2 year guide was sort of twofold. 1, to demonstrate our commitment to generating that amount of free cash flow, obviously, in service of supporting the balance sheet and liquidity in the business, but 2, demonstrate our confidence in being able to deliver it.

Speaker 3

So and certainly benefit there is that we're not having to sort of necessarily manage it period to period or quarter to quarter. And so it does tend to be lumpy in terms of when content licensing deals get signed or when certain things are in production. I wouldn't call out anything specific in terms of either one of those as far as this quarter goes, but you should expect kind of lumpiness on a quarter to quarter basis. But that's the beauty of it to your guide, which is you can sort of rest assured that we're laser focused on achieving these numbers and obviously the performance to date kind of puts us in good stead to do that.

Speaker 2

And just to finish the question, Charles, by also pointing out, it's important to remind people that we're driving the profitability by refining and improving the organization, not by cuts. And so the Comcast Technology Solutions decision that will bear fruit when we complete that transition over the next period of time. It's not it doesn't happen overnight. And reorganization, as I mentioned earlier, more efficient marketing, more strategic utilization of data, all of that is helping us bring the costs down without just aggressively making any cuts. It's really about running the company more efficiently and utilizing a lot of the technology and the capabilities that we have at our fingertips here every day.

Speaker 9

Great. Thank you.

Operator

Thank you. This does conclude today's question and answer session. And I would like to hand the conference back over to Nick Siebert for closing remarks.

Speaker 7

Thanks for joining us today. Have a good day.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
AMC Networks Q3 2024
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