Okay. Up now we have AMC Networks. From the company, we're happy to have Patrick O'Connell, the company's Chief Financial Officer, and Nick Seibert of Corporate Development and Investor Relations. Thanks again for you guys making the trip. With that, we're just gonna do a little Q&A session. I'll just get right into it. I think it's safe to assume that most people in this room probably know about your assets, your companies, your channels. Maybe just go over, you know, what channels, what assets you have, how they generate revenue, and just maybe a big picture recap on maybe some tailwinds and headwinds that you have in your business.
Sure. Thanks, Mike. I think the best way to think about, you know, AMC Networks is fundamentally we are a world-class content production and distribution business. We've been responsible for some of the greatest TV ever made, and we're still making it today, and we will continue to make it sort of long into the future here. I think the best way to understand our business is really sort of four pieces. Number one, we have a studio. Number two, we've got a domestic, you know, networks business. Number three, we've got a streaming business. Number four, we have an international business. I'll go through them each, at a high level, and we'll talk about the revenue generation capabilities of the business and sort of, you know, kinda the trends that we're seeing.
The studio is really the crown jewel of this company. You know, we've produced, like I said, some of the best TV ever made. You know, this is really the engine that drives our production. This studio does a lot of the production. We sort of eat our own cooking, we program our own networks. We also do third-party production for others. That's a key asset of the business. Next is the domestic networks. You know, obviously you're familiar with AMC, kind of, highly curated, scripted content for adults. We also own in conjunction with the BBC America, which is a joint venture there. We, which is a channel for African Americans, and a couple other kind of domestic channels.
Moving quickly on the streaming side, we have AMC+, which is kind of a complimentary streaming business, and then a handful of other, what we call sort of targeted streaming services. These are services targeted at a specific audience with sort of a high degree of affinity for certain types of content. Think of a horror fan subscribing to Shudder or an anime fan subscribing to HIDIVE or a fan of kind of British mysteries and dramas subscribing to Acorn, our sort of targeted streaming services. Lastly, we have an international channels business that exists. We have a Latin American business and then three regions within Europe. Those are our sort of think of those as kinda legacy channels.
The content, the content that we produce, some of it ourselves, some of it's in-licensed. Those are the four buckets of the business. At a high level, the way to think about the monetization of this business is we have affiliate revenue. These are long-term, call it three year deals with various distributors. You know, could be cable MSOs, could be kinda wireless companies, et cetera. These are legacy relationships. We've had these, you know, contracts in place for in, at times, kinda decades. We can get into sort of the details as we have the conversation here. Second is ad revenue. This is sort of the front end of the monetization engine for the content we exhibit on our networks. Number three is streaming revenue.
That's about a half billion-dollar business for us today out of our roughly $3 billion in revenue. That's been growing nicely. We can talk about that further. Then lastly, licensing, which again is a business that produces sort of near-term revenue and cash flow out of the content that we've produced. We're in the midst of, you know, obviously a sea change in sort of in media right here. We are like every other media company, in the process of shifting gears, slowing the growth of streaming, frankly, deliberately, and pulling forward our monetization efforts of our content. We can get into that sort of further as well.
Well, everybody's linear business is declining. I think everyone's streaming business is growing-.
Mm-hmm.
Some faster than others. Profitability, what we'll get to, but. Then, of course, advertising, but advertising is dependent on the macro and, you know, whatever timing of your content, I guess, right?
Mm-hmm.
Maybe putting advertising aside, the linear and the streaming, are those offsetting each other? Are you net-net growing? I guess, are you indifferent or do you prefer streaming revenue over linear, et cetera? How do you think about that?
I think what media is exhibiting right now is sort of a back to basics mentality. It's really about old school kinda slicing up the rights that you have and being as efficient as you can around monetization. The media business hasn't had a revenue growth problem, it's really had an earnings growth problem. What we're primarily focused on is growing cash flow, you know, year-over-year. I think Listen, historically, you know, we have had subscription revenues grow, and we define subscription revenue as, you know, affiliate revenue and streaming revenue. Streaming has sort of more than offset the decline, at least on the affiliate side of the business.
I think if you take a step back and from a, from a macro perspective, you know, it's very clear that the future of entertainment from a consumption basis is gonna be on the streaming side, but the monetization is currently still stuck on the linear side. You know, we're focused on calibrating the level of investment that goes into those businesses such that we can grow cash flow over time. We're less focused on growing subscribers per se, and frankly, slightly less focused then on growing revenue, really focused on growing cash flow, which I think we have clear line of sight to.
You might not like the next question 'cause it's revenue sub-related, but, I'm just curious here, do you... And I don't know if you think about it this way, but, you know, one linear sub equates or one OTT sub equates to linear from a cash flow perspective.
Mm-hmm.
What is that?
Yeah. The economics of linear and streaming are quite different. If you wanna, you know, try to make them sort of examine them side by side, you know, we look at the economics of a subscriber in terms of, you know, one, what is the rate that I'm getting, right? What is the revenue generation there? Obviously, on the linear side, you're getting a lower wholesale rate, but that comes with benefits. That comes with the benefit of, you know, the Comcasts and distributors of the world are servicing that subscriber. I'm not having to sort of pay to acquire that subscriber. Those economics look very good if you look at it through.
Yeah
... through the lens of a streaming business, which is, you know, how much to your LTV to CAC, you know, kinda ratios, right? We expect that business to have, you know, a long and glorious and profitable sort of, you know, decline over the next, you know, handful of years and maybe even decades. We really like that business. The economics on the streaming side, I would point at sort of three different types of streaming subscribers we have. On one end of the spectrum, we've got what I call sort of pure retail, which means I own the customer relationship, I own their credit card, they pay me directly. Those are really valuable because they allow me to get information and data, so I can program my networks more efficiently.
I can see what they watch, when they watch, what they like, what they don't like, et cetera. Those are, those are valuable, but they're expensive to acquire, and they're more expensive to maintain. But there's still value in having them. The next bucket of streaming subscribers I have are what I call is our partner subscribers. I distribute through Apple or Amazon or other platforms. I pay them for distribution, but it's at a higher retail rate, right? My, my rack rate for AMC+ we're talking about here is, you know, kinda $8.99. They'll take a distribution fee. That's worth it to me because it's still highly accretive from a price standpoint versus the wholesale rates I'm getting on the linear side.
We have what sort of an emerging group of what I call sort of bundled subscribers. We talked about this a little bit on our earnings call. These are kind of subscribers that come to us via a potential bundle of streaming services or a bundle of my streaming service plus a communication service. It could be the example used on the earnings call was Verizon choosing to package us with a wireless product or a broadband product. As a consumer, you come to Verizon, you take XYZ product of Verizon, you take AMC+ for six, 12 months, and you get Netflix for free. That bundled service, that's an attractive proposition to me. It allows me to get a lot of good distribution into the market.
Verizon gets to earn a, you know, a margin on their distribution. The consumer gets something that makes sense for them, which is maybe less confusion around where to watch, you know, the show they wanna watch, 'cause that's been.
Mm-hmm
... the pain point for consumers on the streaming side is they don't know where to watch the show they wanna watch. They wanna have sort of one place to go to watch content, and that helps solve their problems, it helps solve the distributor's problems, and it, you know, it's a good business for me as well. There's three different buckets of streaming subs.
Maybe, the ad market. Actually, I forgot to look this up before, but your ad revenues are a percentage of total roughly. What is that number, give or take?
call it like a third of our revenues.
Third
ish, right?
Yeah.
It's a meaningful piece of our revenue.
Can you talk about maybe the ad market in general right now? I'm guessing it's not feeling good, but at least seems to be a recurring theme we're hearing at this conference.
It's better than it was in Q4. You know, Q4 was a bit choppy for sure. You know, we were no different than anyone else. You know, national was weak. Scatter was weak. That didn't feel great. Q1, I think the tone in the market has improved. You know, we are seeing healthier scatter. We are seeing fewer cancellations of sort of, you know, previously committed spend. The tone is better. It's not sort of materially better, you know, it feels like we're on stronger footing.
Yep. Can you actually talk about what content rights you actually own, and how have you been monetizing that?
Important to understand that, you know, at our core, we are a content production business. Going into 2023, we're gonna own on AMC, you know, the majority of our schedule. For those shows, most of those shows, we're gonna own, you know, worldwide rights. You know, I have ownership economics of those shows. I can choose or the company can choose to sort of toggle between, you know, owned content where I monetize all of it myself versus, you know, licensing content in which could come at a cheaper cost. In terms of what else we own besides the programs that everyone is, I'm sure, very familiar with, The Walking Dead and Rice, we're kinda leaning into heavily here going forward.
We've got shows like Rectify, Dark Winds, The Son, Into the Badlands. Like hundreds and hundreds of shows that are sort of, you know, serialized that are in my library that I can monetize or, you know, mine for additional kinda IP spinoffs, et cetera.
I don't know if you've ever disclosed this or if you do, have you ever had a third party come in and try and value your library for you?
I think about it in sort of three ways. One, sort of from an accounting lens. You can look at sort of the value of the content we have on our balance sheet. On a net basis, call it $2-ish kinda billion. That's Capital of the company is deployed, content that's been developed, net of the amortization that's already, you know, been taken. That's sort of a starting point from an accounting perspective. I think that undervalues the content, but you could start there. I'd move to sort of a more of an economic perspective of the value of that content, which is that content produces... Obviously, I monetize it sort of with my owned and operated platforms, linear streaming, but then I license it to other folks.
Licensing revenue for us has been a half billion-dollar business, for the last, you know, handful of years. There's that recurring revenue stream off of, you know, the continuous, you know, production, which has been about $1 billion a year ± over the last handful of years. You've got that stream of revenue, so you can value that at sort of whatever multiple you think is appropriate. I think beyond that, there is real strategic value to the studio that we have. You know, this is one of 10 or a dozen studios in the world that can, you know, reach out and touch any actor, writer, director, et cetera, you know, have just a remarkable track record of curating amazing content. That has real strategic...
It has value to us sort of from an ongoing economic perspective, but it has potentially strategic value to others in the future. It could be other studios, it could be, you know, another media company, it could be a technology company, it could be a broadcast company. AMC happens to be, and Jim Dolan, our Chairman, alluded to this on our most recent earnings call, you know, we happen to be sort of small and kind of bite-sized enough that that could have real strategic kind of value and be potentially actionable for folks going forward here if we do see another wave of consolidation.
I wanted to talk about, 'cause you mentioned it, your content licensing line item. You said about a half a billion. What's in there, and maybe can you point out some of the bigger items that you saw in this past, fourth quarter of 2022?
That is, for the most part, you know, what it says, content licensing revenue. There's also some third-party production revenue in there. In the fourth quarter, we pointed out that we had $126 million of third-party production revenue that came from a single show that we did for Apple. The show was called Wall. That $126 million was in the content licensing revenue for 2022. It'll be, you know, less than half that in 2023. There can be some noise as content licensing is notoriously, you know, kind of episodic. It depends on, you know, the timing of deliveries, obviously.
Most of that revenue is licensing revenue for content I produce for my own platforms that I'm then selling on in a second window or international rights or some other, you know, slice of rights that I'm not monetizing myself, but it's content that I own and I've produced that I'm sort of licensing to a third party, and a smaller piece of it is third-party production revenue that's going to others.
Just to be clear, when you said less than half in 2023, you were talking about?
The $126 million.
Yes
...pro-production revenue.
The content that you create and for third parties.
Yes.
Who owns the rights to Wall?
That is being sold.
Got it.
A third party.
Okay. I think there was also some pull forward. No. Well, you pulled The Walking Dead.
Yeah. Do you wanna-
Into the fourth quarter.
Early delivery of certain Walking Dead titles. That was, you know, we had the episodes early. We worked with our licensing partners and it just made sense for everyone to kind of get those episodes out early. That's a.
Did you quantify that on the call or I forget now? Okay.
It's less than The Wall impact-
Okay
...in the fourth quarter.
Just I think Walking Dead's on Netflix. You're talking about Netflix here? Yeah.
Yeah.
Yes.
When does that deal with Netflix expire?
We'll get the rights to the two Walking Dead shows back.
A couple years-
Yeah.
A few years is kind of what we've been saying.
Got it. Okay. Can we talk about maybe the international business?
Mm-hmm
How that's differs or just is it the same stuff at the end of the day versus domestic? Can you talk about that?
Yeah. The international business is, you know, it's a reasonably small piece of the business. It's reasonably sort of independent and autonomous. These are legacy channels. It's not just an AMC channel in different markets. You know, most of these channels are programmed with, you know, kind of local content, including sports rights in many cases, especially in sort of Southern Europe and Eastern Europe. These are channels that have, you know, decades of legacy in these markets, they tend to be sort of robust, you know, kind of cash flow generators. We do utilize some of our AMC content on these channels, but not, it's not just AMC international. I wanna make sure people understand that.
In terms of the contours of the business and how they differ from a traditional U.S. cable network, I think of them as skewing much more heavily towards affiliate fees rather than advertising. You know, the revenue is more than half, you know, kind of affiliate revenue. Advertising is a smaller piece of the pie.
Can we talk about content spend? I think you alluded to it earlier.
Mm-hmm.
Kind of seems like a general theme across the entire industry.
Mm-hmm
...passively. I think you're reducing it a little bit. Can you explain that a little bit more?
Sure. What we're really trying to do is balance investment into the business with near-term profitability. I think it helps to sort of contextualize our content spend. Go back to the five years prior to the pandemic, AMC Networks spent about $1 billion in cash programming expense per year. I'm using cash as distinct from amortization that hits the P&L. I think that's the right, you know, kind of way to look at, especially these days. During the two years of the pandemic, that increased dramatically. In 2022, it was $1.35 billion. We're gonna take that $1.35 billion down to $1.1 billion in 2023. And we can float it down further to kind of a billion-ish in 2024 going forward.
The idea there is, again, we need to sort of lean into existing IP that we have. We've got two more Walking Dead shows coming in, so we're gonna sweat those assets as hard as possible. That makes a ton of sense. Invest behind proven franchises. We're gonna build new franchises. We've had tremendous commercial and critical success with the two Anne Rice series that we've launched in the last couple quarters. We're gonna lean further into that and build that IP. It really is, you know, this balance between investing in the business, you know, having the content that we're known for, but also being able to maintain, you know, real kind of margin and generate significant free cash flow kind of this year and going forward.
Can we review, I guess the cost save initiatives that you announced, I forget what quarter last year, but, you know, what you're thinking about costs, upfront costs to achieve that, the timing of those, and then what annual savings you think you get from that?
Yeah. We took two restructuring charges in the fourth quarter, the first round programming, the second around just, you know, kind of people. Cash costs to achieve those are gonna be about $115 million, one one five, in 2023. About 40 of that is gonna be severance around people. The balance is gonna be around the production spend. You can assume for simplicity's sake that the run rate cost savings are for the people are, you know, the run rate cost savings are close to the one-time cost to achieve roughly. That savings is baked into the guide we gave on AOI for 2023.
That was $650 million-$675 million in 2023. That's all, you know, kind of baked into the, baked into the cake there.
I think it's right. This is a good transition to guidance, I guess, 'cause you just brought some of it up. Do you wanna go over what your guidance for 2023 is? You just mentioned AOI, but if you wanna talk about revenues or Free Cash Flow.
Yeah. You wanna hit revenue, and I'll do the rest?
Yeah. You know, we said about $2.9 billion of revenue. I think we touched on kind of the advertising revenue and also some of the components of content licensing revenue and that year-over-year change. You know, I will note that, you know, content licensing revenue for 2023 is back half weighted as it was last year as well. In terms of affiliate revenue, you know, I think it's gonna kinda look like what we're seeing in terms of basic subscriber declines, you know, plus a couple points, and that's related to a strategic non-renewal that occurred at the end of 2022. Yeah, I think we covered ad affiliate.
Streaming revenue, you know, it's gonna grow, but it's not gonna grow as fast as it did last year. There's a deceleration there. Part of that's less kind of content, the rest of that is a significant cutback in subscriber acquisition marketing. It's gonna drive fewer gross ads, year-over-year.
On Free Cash Flow.
Yeah
... you know, probably the most important number we're guiding to $185 million-$205 million of Free Cash Flow for 2023. We think we can grow that going forward. important to note that that number is before the one-time cost to achieve, you know, both the programming, kind of reset as well as the people costs.
Let's talk about the balance sheet, and maybe let's start with I think you made some announcements recently about a tender offer, which is requires the financing of some sort. Why don't I just let you talk and stop speculating on things?
Yeah. Let me just talk sort of, you know, holistically about how we think about the capitalization of the business. You know, obviously, this is a industry that's in a period of transition, you know, moving from more of a wholesale model to a retail model. You know, I think that, you know, points to being conservative financially. We're looking to sort of reduce, you know, the sort of the financial risk in the system. That, to us, means, number one, maintaining, you know, a strong balance sheet, maintaining, you know, robust liquidity. When it comes to refinancing, we're gonna be focused on the near-term maturities. You saw the tender offer was focused on the 2024s and 2025s. We did not put our 2029s in there.
In terms of, you know, kind of where we're looking to have the business capitalized, we don't have a specific leverage target, but in terms of maintaining access to the market, you know, being a BB corporate credit, I think, has a lot of value. We will look to maintain that, and we recognize that that's gonna entail some gross deleveraging over time. As it relates to the tender offer that's in the market today, you know, it's obviously sort of contingent upon a financing. You know, we will, you know, be back with news when it's appropriate on that front. You can assume we could potentially put some cash into that refinancing to effectuate some gross deleverage here on the front end. We don't have to, but we could.
The other note I'd make on the cash is that at the end of 2022, we had $950 million roughly on the balance sheet. Folks should assume that we've got an excess of $500 million of excess cash on the balance sheet. We can deploy that, you know, kind of prudently, whether it's in this transaction or whether it's on a go-forward basis.
Got it. trying to figure how to answer or how to ask some of these questions I want answers to. Maybe talk about what your first lien capacity is?
Mm-hmm.
Because I'm assuming just looking at trading levels, that's probably what you're focused on.
Yeah.
In terms of the debt raise.
Yeah. We've got just under $1 billion of secured capacity right now. You know, we could, you know, in conjunction with our, you know, bank group, maybe, you know, tweak that up a nudge, but, you know, call it $1 billion-ish, $1 billion plus of secured capacity. You know, that's likely the market we'd look to finance in, you know, in the near term, I would say. Obviously sort of attractive from a, you know, callability, you know, repricing, you know, perspective. We like that market. Opens up a new market for us, frankly, too. We haven't been in the institutional kind of term loan market to date, so we like those aspects as well.
Okay. Any questions from the audience? I'm hoping there are, don't be shy.
Looks like Lionsgate and Starz second half of the year. Does it make sense to combine the two companies into one broad offering instead of being on them?
Yeah.
That certainly what Starz is talking about.
The question is on Lionsgate, Starz. Does the potential kind of combination between AMC and Starz make sense? Listen, I would say, look to Jim Dolan's comments on the earnings call, which is everything's on the table. We're gonna look to do what's best for shareholders. From an industrial logic perspective, do I think a combination of those two businesses could make sense? Yes. Would there be synergies? Yes. Would it allow us to cross-market kind of products? Yes. Are there complementary audiences in some respects in terms of where the Starz audience sits and some of the assets that we have? Yes. I think that could make sense. Obviously they're undertaking their own transaction, which I can't sort of comment on.
You know, I'm familiar with those assets. We'll have to see if the transaction to separate them is sort of effectuated and then kind of take it from there. I would also say kind of more broadly that, you know, AMC is, and I think I said this before, you know, it'll be a unique size and have sort of some unique characteristics that could be valuable, you know, to a handful of other strategic suitors, or, you know, kind of parties as well.
Any other questions? Well, I mean, I'll have a couple more here.
Mm-hmm.
we'll end early, I guess. Are you guys doing anything with FAST platforms at all? I think there was a quick mention of, a headwind this year from like Fubo TV.
Yep.
What happened there? Is that just they decided to go more like, I think, sports and less what you do, I think?
Sure. I'll talk about the FAST channels. This is for folks that aren't familiar with the business, we consider these sort of digital businesses. FAST and AVOD, essentially, you know, free ad-supported TV. We really like this space. We've got I think it's up to sort of, kind of 15 channels across seven different platforms right now. We don't own a platform ourselves. We don't own a Pluto or something else where our content is sort of tied to it, so we play across everything. This is, allows us to sort of monetize effectively, you know, library or deep library content. And it really plays to our strength as someone that's got, you know, real digital and advanced advertising chops. We like, you know, we like those businesses.
You know, you'll see us continue to roll out kind of more of them. They also have the added benefit in certain cases on the CTV side of us being able to use those FAST channels to sell a subscription. Literally, you can just click through if you're on like, you know, Samsung or Vizio, what have you, and buy a subscription to one of our streaming products if you like kind of the teaser or barker on the FAST channel. That's an efficient acquisition vehicle for us. The other element of sort of FAST AVOD is addressable advertising, which is this is advertising that we work with our traditional distribution partners, Comcast, Charter, Cox, et cetera. They help us, you know, enable this on their platforms.
This enables us to increase the value of our inventory to our advertising partners. They can target, you know, truck intenders or, you know, parents at home with small children, et cetera. It's a yield management, you know, game for us, so we like that as well. That's on digital advertising. You mentioned sort of Fubo. This was the strategic non-renewal that Nick mentioned a couple minutes ago. You know, I would say Fubo is obviously a very sort of I think it's a unique case, and I don't think there's a read-across between Fubo and our other affiliate relationships. Fubo is a very small business. It's, I think, these days very focused on sports streaming.
You know, as an entertainment sort of property, didn't make sense for them to continue to carry us. We've had sort of a long and profitable relationship with them as, you know, an investor, and obviously, they carried us for a period of time. Given the strategic direction that they were taking, didn't make sense to renew. That is a different kettle of fish than our sort of, what I would say, regular way affiliate relationships.
Any questions? Otherwise, we'll wrap up early. Patrick and Jesus. Nick, sorry. Thanks very much for making the trip again and enjoy the meetings.
Great. Thanks, Mike.
Thank you.