AMC Networks Inc. (AMCX) Q1 2012 Earnings Report, Transcript and Summary

Good morning, my name is Christy and I will be your conference operator today. At this time, I would like to welcome everyone to the AMC Networks First Quarter 2012 Earnings Conference Call. [Operator Instructions] Thank you. And I would now like to turn the call over to Seth Zaslow, Senior Vice President Investor Relations. Please go ahead, sir.

Thank you. Good morning, and welcome to the AMC Networks First Quarter 2012 Earnings Conference Call. Joining us this morning are members of our executive team: Josh Sapan, President and Chief Executive Officer; Ed Carroll, Chief Operating Officer, and Sean Sullivan, Chief Financial Officer. Following a discussion of the company's first quarter 2012, we will open the call for questions. If you don't have a copy of today's earnings release, it is available on our website at amcnetworks.com. This call can also be accessed via our website. Please take note of the following. Today's discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of the future performance or results and involve risks and uncertainties that could cause actual results to differ. Please refer to the company's filings with the Securities and Exchange Commission for a discussion of risks and uncertainties. The company disclaims any obligation to update the forward-looking statements that may be discussed during this call. Further, we will discuss non-GAAP financial information. We believe the presentation of non-GAAP results provides you with useful supplemental information concerning the company's ongoing operations and is an appropriate way for you to evaluate the company's performance. Please refer to the press release and related footnotes for GAAP information and a reconciliation of GAAP to non-GAAP information, for which we'll refer to on this call. I would now like to turn the call over to AMC Networks' President and CEO, Josh Sapan.

Well, good morning, and thank you for joining us. We started the year off with a strong quarter. While in the first quarter, the company reported 20% growth in revenue and 26% growth in AOCF. Our growth was led by the success of our regional programming once again. At AMC, the largest of our 4 networks, the second season of The Walking Dead continued to deliver record ratings. And the season 2 finale on March 18 delivered 9 million total viewers, the highest-rated episode in the series' history. Among the demo that is the most valuable and attractive to advertisers, the finale was the #3 show on all of TV for the week, behind American Idol and The Voice, and the series reigns as the most-watched scripted drama in basic cable history. AMC's Mad Men debuted its fifth season at the end of March, the highly anticipated premiere attracted 3.5 million viewers, 3.5 million, a 21% increase over last season's premiere and this season currently ranks as the most-watched season ever of the series. There's been a lot of discussions lately about the impact of online viewership on linear ratings and I want to take a moment to address some of what we're seeing on that front. As most of you know, we have an agreement with Netflix for some of our original content including The Walking Dead. In general, a guiding principle for our digital SVOD distribution is delayed windowing. Specifically, we make our shows available about a year after they air on our networks. We think this approach works and has several benefits: First, the year delay protects the cable ecosystem by maintaining the value of the premier window; secondly, the one year hold back drives rating. Based on the data we're seeing, all 3 shows like The Walking Dead, Mad Men and Breaking Bad, in a post home video digital syndication window, seems to be improving ratings for those shows on our linear channel. It appears that new viewers who are finding these shows on a digital service are catching up on prior seasons and are then tuning into AMC for new seasons in greater numbers, many for the first time. Now it's somewhat uncommon for TV shows to experience notable ratings increases in seasons 2, 4 and 5, but that's exactly what we're seeing. For example, Breaking Bad season 4 increased 24% over the prior season, The Walking Dead season 2 increased 32%, and ratings for Mad Men season 5 to date are up 30% higher than for season 4. So for us, the data suggests that this delayed digital distribution is in fact increasing linear viewership and in turn driving the value of the paid ecosystem. So to turn back to AMC's programming. Breaking Bad is currently in production on its 5th season and is scheduled to return to air in July. The second season of our Western series Hell on Wheels and the third season of The Walking Dead are both scheduled to return later this year. Just recently, AMC greenlit 2 scripted original pilots. We think they're both great stories and very well-crafted. One is an adaptation of an extremely well-regarded series out of the U.K., titled Low Winter Sun, and the other is a legal thriller from the Oscar-nominated screenwriter Richard LaGravenese, who wrote The Fisher King and The Bridges of Madison County, among many other celebrated films. Both pilots will begin shooting later in the year. At WE tv, primetime ratings were up double-digits in the quarter in our key demos, women 25 to 54, and women 18 to 49, led by the success of the reality shows centered on the family of Toni Braxton called Braxton Family Values, which completed its second season and is hugely successful among African-American women. IFC had its best quarter ever for the ratings perspective led by the success of the second season of the original comedy Portlandia, produced by Lorne Michaels and starring Fred Armisen from Saturday Night Live. The series recently won a Peabody Award and we've greenlit a third season. IFC has 2 new comedies coming out next month. One called Bunk, the other called Comedy Bang! Bang, guest starring an A-list roster of some of the biggest names in comedy, including Amy Poehler, Paul Rudd, and Zach Galifianakis. Sundance Channel has several new scripted series scheduled to air early next year. Top of the Lake is a miniseries from Oscar-winning filmmaker Jane Campion and stars Holly Hunter and Elizabeth Moss, who you may know from Mad Men, and Rectify is from the producers of Breaking Bad. The ratings success of our original programming continued to drive our top line performance. On the advertising side, our National Networks grew advertising revenue by 30% versus the prior year. AMC was the largest contributor to that growth due to an increase in the airing of originals in the first quarter of this year, as compared to the first quarter of last year when we did not have any originals on the channel. In particular, we saw a very strong interest from advertisers for commercial time during The Walking Dead. The comparisons for scripted originals in the second quarter of this year on AMC remain favorable for us, with the airing of 2 originals, Mad Men and The Killing versus just one original in the second quarter of 2011. However, we don't expect to see year-over-year growth rates similar to what we reported in the first quarter due to the relative size of the audience for the originals airing in the second quarter, as compared to The Walking Dead, which, as I just mentioned, aired in the first quarter and really is an absolute ratings juggernaut. On the Affiliate side, our National Networks grew affiliate and other revenue by 15% over the prior-year period. That growth reflected 8% growth in Affiliate revenue, as well as increases in our International, Digital and Home Video revenue, most notably related to the sale of international licensing rights to The Walking Dead. On the International front, we continue to move ahead with what we think is a disciplined approach and are encouraged by the progress that we've seen to date. Before I turn the call over to Sean Sullivan, I wanted to give you an update on our relationship with DISH. I'm going to take a minute to give you some background if I may. As many of you are aware, about 4 years ago, we entered into litigation with DISH over the VOOM HD business. We're seeking over $2.5 billion in damages. Over the course of the lawsuit, we've received several favorable rulings, including that DISH will be sanctioned for its improper disruption of evidence. DISH twice appealed the court's ruling but those rulings have been upheld most recently on April 26. As a result, the case will now be set for trial. We have a conference with the judge scheduled for next Tuesday to set a trial date. The ongoing litigation has impacted our relationship with DISH. As it has taken a turn for the worse for DISH, they have notified us that they have decided to terminate carriage of our 4 National Networks. We believe that DISH's stated plan is a direct result of the litigation and is not at all related to rate or other commercial considerations. We believe that DISH is not acting in the best interest of its subscribers and is trying to create leverage for itself in the VOOM lawsuit. We expect that the resolution of this matter will be significantly impacted by what occurs in the courts. If an interruption does occur, the impact on our financial results will depend, of course, on the length of time that we are off DISH's platform. But you should be aware that the loss of the affiliate fee and advertising revenue that comes from the carriage by DISH of our National Networks may have a material impact on our financial results. I hope you understand that due to the ongoing nature of the litigation, we will be limited in our ability to discuss this matter in more detail at this time. As appropriate, we'll continue to keep you updated on any further developments. With that, I'd like to turn the call over to Sean Sullivan, who will provide further detail on the financial results for the quarter.

Thanks, and good morning. Turning to the results for the first quarter. As Josh mentioned, total company's revenues grew 19.5% and the AOCF grew 26.2%. First quarter revenue and AOCF growth was driven primarily by increases at our National Networks. At the National Networks, revenues increased 20.8% or $52 million. National Networks AOCF increased 25.4% or $27 million versus the prior-year period, to a total of $133 million. Advertising revenues increased 29.7%, primarily driven by the growth at AMC. As Josh mentioned, AMC benefited from an increase in original programming hours versus the prior-year period. Most notably, the airing of the second half of season 2 of The Walking Dead in the first quarter of 2012, as compared to no scripted original programs in the first quarter of 2011. Affiliate and another revenues of the National Networks increased 15% versus the first quarter of 2011. Results reflected an 8% increase in affiliate revenues, as well as the benefit of International sales of The Walking Dead. Expenses increased 17.4% or $25 million in the quarter, principally due to increased programming and marketing costs associated with our original programming, which was partially offset by a reduction in corporate overhead related to the spinoff from Cablevision of approximately $5 million. Turning to the International and other segment, revenues increased 3.8% or $1 million to a total of $26 million. AOCF for the segment was a deficit of $8 million, a decline of $1 million versus the prior-year period. The revenue growth was driven primarily by an increase in revenues at IFC Films and international affiliate fees, which more than offset a decline of Broadcasting & Technology. Expenses increased 6.4% or $2 million, primarily due to an increase in expenses at IFC Films and our International programming business. Litigation expenses related to VOOM lawsuit were approximately $1 million in the quarter as compared to $3 million in the first quarter of 2011. Total company net income from continuing operations was $43 million, or $0.60 per diluted share compared to $30 million or $0.43 per diluted share in the prior-year period. This increase was a result of growth in operating income and a reduction in our tax rate for the quarter versus the prior year, as a result of being a separate taxpayer from Cablevision, which was partially offset by an increase in interest expense from the increase in debt related to our spinoff. In terms of free cash flow, the company generated $74 million in free cash flow for the 3 months ended March 2012, capital expenditures were $3 million, cash interest was $44 million, this amount includes the first semiannual payment on our 7.75% senior notes that was made in January of this year. Cash taxes were $2 million. As of March 31, our NOL carryforward was approximately $96 million and based on current estimates, we expect to fully utilize the NOL during the second half of 2012. As we discussed on our last earnings call, for the past several years, we've been increasing our cash investment in original programming and we expect this trend to continue in 2012, most notably, for the scripted originals on AMC that are scheduled to air later this year, as well as those in 2013. Turning to the balance sheet, as of March 31, AMC Networks had $2.3 billion of outstanding debt, with cash and cash equivalents of $224 million for net debt position of $2.1 billion. Our leverage ratio was 4.4x based on LTM AOCF of $468 million. This is down from 5.4x on June 30, 2011, when we spun off from Cablevision. In March, we also prepaid $50 million of the Term Loan A debt. This payment was in addition to the $250 million prepayments that were made in August and October of last year. These prepayments are consistent with our strategy of using excess free cash flow to delever. So with that, I'd like to turn to the question-and-answer portion of the call. Operator?

[Operator Instructions] And your first question comes from Michael Morris of Davenport & Company.

Two questions. First, on the Affiliate revenue growth, 8% in the first quarter. Two things there: #1, it is an acceleration from your full year rate from last year. Does that acceleration represent some -- or is that primarily due to some of the new agreements that you've entered into #1, and #2, does that represent a growth rate for the balance of the year? And then I have a follow up.

Sure. The 8%, we think, has a number of things in it in the quarter. So I think it's fair to say it represents the beginning of some of an upward trend in the more recent agreements that we've signed. As we've spoken to you about, we believe that we are underpriced in the market and we've been looking to increase those rates. I think that we will see some trend upward. I think in the near term that trend will be modest increases from where we've been.

And so that -- but that 8% in 1Q, did it have anything onetime in nature, kind of on a quarterly basis for this year? Or does that represent what the growth rate should look like for 2012?

Yes, I'm not sure that, that would represent the growth rate for 2012. We have -- there are different components we have in different affiliate agreements. In some cases, we have old agreements for some marketing dollars we're rolling off. Then we had agreements where the rates are ticking up. So I think the best summary I can offer, I hope it's adequate for you, is that we're seeing the beginnings of an upward trend, that the 8% is not necessarily steady-state from now on.

Okay, that's great. And then second of all, if you look at the situation with DISH and the fear, I think, that it stokes with investors, is that your networks are not must-carry and that's the position that the DISH is at least taking in their public comments. Obviously, your ratings on your originals have been outstanding. Ratings on some of maybe the library film content has been weaker. As you look at your mix of programming, do you feel right now with what you have that you are in fact must-carry or when you look at this kind of pushback from a partner like DISH, do you think you're going to need to increase your programming and your spend, rather, in some of your more unique programming versus that library content?

Sure. So we believe pretty firmly that the activity of late and their statements of late are directly and absolutely related to the litigation. And that the activities that we detailed that occurred in the court, including the most recent ones, in which the disruption of evidence was appealed and that appeal was -- didn't work, is a reasonable significant turn in the litigation and there's a big outstanding claim. So we think that's motivating the behavior of late. We have been, over the past 5 years, seeking to make our services stronger. That initiative, as we've increased investment and it began several years ago, we think it's more improved. We think that today AMC, in particular, is one of the most popular services on the television dial, both in terms of ratings, popularity of individual shows and viewer engagement. So we think that there's a general dynamic of having to have consumer traction as there has been increasing downward price pressure on wholesale rates, because of margin compression for our distributors, both cable and satellite, so we've been seeking to make them stronger. I think that AMC is among the most critical services one can have to succeed. If you're a multichannel video provider, I might offer that if you're in the business perhaps of selling IP telephony and broadband and video, I think it's important. I think if you're in the business of only selling video, it's perhaps increasingly important -- has increased importance. So I think that we're in a fairly strong position.

And so you don't see a need for a change in your program spend mix or an increase in your program spend in order to fortify that position?

No, we think we need to continue to do what we've been doing, which is to develop programming that is resonant and important. We have 5 series on the air on AMC. We think that both individually and in aggregate, they do become pretty meaningful when you take Walking Dead, Breaking Bad, Hell on Wheels, The Killing, Mad Men, and things that we have in development. We think that WE tv is developing very nicely. We have a couple of shows that are doing extraordinarily well. They're actually targeted to an African-American female community so they may hit some people's radar less, but they're actually working extraordinarily well. And we think IFC is developing a comedy franchise beginning with Portlandia, which among its constituents is very well-regarded. So we think we're on the right path. We think we're willing to continue the pace of investment by large degree that we're pursuing today and we think that we'll become strong over time.

Your next question comes from the line of Monica DiCenso with JPMorgan.

Monica, are you there? [Technical Difficulty]

Your next question comes from Richard Greenfield of BTIG.

A couple of questions. First, just on ratings. Charlie Ergen was pretty bold on Monday, came out and said that they have very good set-top box data that basically ties to the fact in their subscriber base, which is significant, that your channel is actually substantially under-indexed. And I was just wondering whether you had any color on whether that was actually a true statement, whether there was, for shows like Walking Dead, a substantial under-indexing in the DISH footprint? And then 2, just on a housekeeping point. Breaking Bad, I believe this is the last season, but you have extra episodes. Are you planning on running that over 2 years, the way you do with something like Walking Dead where it breaks over a year, so you get the benefit in '12, as well as 2013? Any color on that would be great?

This is Ed. So on the topic of ratings, with set-top box data from any of our affiliates, we obviously don't have visibility to that. What we do have is the national ratings that are put out by Nielsen and we see a clear trend on AMC of increases in the first quarter on IFC and WE, double-digit increases. We also see the Walking Dead, frankly, blowing away any other scripted series on basic cable, with broadcast-size ratings. So we have absolutely no reason to believe that DISH's results would be any different than the Nielsen results, it's certainly a representative sample. So again, that leads us to a clear conclusion that what we're looking at is all about the litigation. On Breaking Bad, we have committed to 16 episodes. We know that the next season will be back next summer but we do not at this time have a play schedule firmed up.

And then just as a follow-up, given how early Charlie and DISH are out trying to negotiate around dropping your channel, how are you thinking about programs, given the content you have coming out this summer, like Breaking Bad? How are you thinking about marketing programs with other distributors who might want to capture subscribers who want access to that programming?

So I think it's -- in a certain sense, which I think it's probably early, if I may, in the activities in this circumstance. The ruling came from the court on the 26th, that's fairly recent. We'll have a calendar related to trial with greater clarity presumably by next Tuesday. And we, of course, have been contemplating the horizon, both near term and midterm and long term, as to what may occur. We think the litigation will significantly inform activities and the disposition. So that's an answer by way of saying that we'll see how it goes. We think that the absence -- potential absence of our service and services on any platform, by definition, creates a sort of competitive opportunity for another platform. It's a very competitive world for multichannel video. So we'll watch it as it goes. Of course, we're contemplating it and making all sorts of contingency plans.

Your next question comes from Bryan Goldberg of Bank of America Merrill Lynch.

Just a couple of quick ones. On the affiliate growth rate of 8%, does that reflect any new affiliate agreements in the quarter other than Suddenlink, which we all read about in the press?

So it incorporates a couple of things I said before, probably the most recent one is Suddenlink, which you did read about, so that's the most recent one. It has some others that were consummated over the past year or 2. It's everything in there and then it has that roll off of some very old marketing support. So that's what's in the numbers. So what you'll see, just to restate it, is you'll see, I think, a moderate increase over time as these new affiliate agreements come into place.

And then on the VOOM situation, the lost profit claims is a large number as per your filings with $2.5 billion. Can you just refresh us on if there is any sort of damage recovery, how you will be sharing that with Cablevision? And I ask that because it seems like DISH is trying to roll this negotiation into your carriage agreement. So if you do end up with a new carriage agreement as a result of this current dialogue, I mean, how would you share the economics with Cablevision?

This is Jamie Gallagher, General Counsel. As we disclosed in our public filings. When we spun, we entered into an agreement with Cablevision based upon multiple considerations at the time that discussed in a range how we would handle the lawsuit going forward post that. Among the elements of that, were that in the event of a settlement or any sort of a verdict that we would split the proceeds of that 50/50 with Cablevision. That's really all that we can say at this time, as it's been disclosed.

And then on, I guess, on the upcoming upfront, I mean, what are your thoughts in terms of today what's attainable with pricing? And also can you refresh what your upfront sellout was approximately last season and what your appetite is for increasing sellout or maintaining this for the upcoming season?

So we're going to the upfront quite encouraged. The meetings are occurring now. It's a little early to see exactly how it will go. We've had quarter-over-quarter sequentially greater volume and price increases. So we go in with a sense of momentum. And the conversations that we're having, which are abundant, are yielding a terrific response and that response, I think, is probably reflected with both the market and the strength of our original programming. So we go in with, I think, a justifiable feeling of confidence based upon recent trends and the response that we're getting to date. In terms of sellout, we've seen sort of general consistent approaches and levels of sellout over the past couple of years and, of course, we'll monitored that and adjust as we go forward, depending upon what deals we do.

Your next question comes from Ben Swinburne of Morgan Stanley.

Not to beat the dead horse on your affiliate revenue, but is the difference between the 8% and the sort of 4% to 5% you've been running at, Josh, primarily the drop-off at launch amortization?

Right. So it's a good question. It's a couple of things. So a piece of it is a drop-off of launch amortization and a piece of it and we're now getting to split hairs rather finely. And a piece of -- seriously, and a piece of it is a bit of escalation in aggregate rate increase coming from newer deals. So it is those 2 components and again, we're now dealing with fairly small numbers, Ben, but those 2 things are in there.

Got it. And then one of the other things that DISH has brought up, at lease in the press, is the access to your content prior seasons on Netflix and Amazon. I mean you looked at the ratings growth, as you mentioned in your script, clearly you're creating a lot of value by leveraging those platforms, and I think your shows particularly work there. But, obviously, that's another topic out there. So, as you balance all this stuff, do you think about changing the philosophy on online windowing as these sort of discussions, which have some compound annual impact on your business long term, kind of has to factor in? Obviously, you could push things out longer and later. Do you think about that flexibility as being important?

It is a -- to us, it's a really rich subject and it is one that is evolving very quickly and changing very quickly because those platforms have different degrees of distribution and impact. And so I don't think that the patterns have -- are firmly established. I think they are literally occurring as sort of as we speak. We like to think that we're extremely careful about what we do with regard to the availability of our content on digital distribution outlets and that we -- if you take a spectrum of activity from companies that operate cable-TV channels, and examine it, I think that we're probably on the conservative, if you will, end of the spectrum in terms of restraining the availability of the content that we offer, particularly the marquis content, on any digital outlet outside of the paid ecosystem. So I think we're sort of on the far conservative right end, if you will, of the practice. We did that because we think that the paid ecosystem is what we live in and off of. And it's important for us to both protect it and to be protected by it. So the year or so policy that we developed, that we put in place with our own product and that we put in place with partners who produce the product, we think makes sense. As we do new agreements they will, of course, will examine the data and will examine what we think the impacts are. It is interesting, I pointed in my prepared remarks, those numbers, and you can just them for yourselves, what we seem to be seeing and I wouldn't say it with absolute certainty, but we seem to be seeing is this sort of slightly virtuous cycle in which the availability of shows a year old and older are -- and that occurs, by the way, on cable VOD too -- are allowing new people to be introduced to shows. And particularly with serialized dramas that you watch and the story unfolds, that people are sort of sitting down and becoming acquainted with the shows and they're either -- the common words used that are they're either catching up or they're binging. And we're getting pretty interested in them and then they get anywhere between interested and, we hope, excited about the story continuing. And so when the next season after that year comes on to AMC, we are seeing and I can't dissect the degree to which it's the quality of the shows, it's how they're marketed and/or it is the new audience that has been introduced to them on those subsequent post-home-video digital syndication platforms. We think the latter matters. And we hope and we believe that it is working sympathetically with the paid ecosystem and in fact, even driving it a good bit. Now of course, we are the economic beneficiary of fees paid by that so we have a view that would hope that, that would work, but it does seem to be going that way.

That's very helpful. If I could just sneak one last one in. Your comment on ad sales for Q2, slowing from the big number in Q1. Was that purely a function of revenue associated with an episode of Walking Dead being higher than Mad Men? I know the ratings are quite a bit higher but I also thought Mad Men CPMs were probably the highest you've got across all your shows. I just wanted to ask that.

We actually saw that. We saw the increased volume also on IFC and on WE. We saw favorable pricing on Braxtons and on Portlandia. So we do think it's indicative of some momentum building in the general marketplace as we approach the upfront.

Your next question comes from Vasily Karasyov of Susquehanna Financial Group.

Josh, I have a question about the pilots that you announced I think a couple of days ago. It looks like you fully own one of them and you co-own the other one. So my 2 questions, is that a deliberate strategy to try and, from now on, own all the shows that you put on the air? And second, if that's true, how do you make sure that you'd still generate the best creative ideas, because I'm sure you know it didn't -- sometimes those strategies backfire and it happened historically to other networks, broadcast networks?

It -- sorry, I think -- I would sort of summarize our approach, Vasily, by saying that our first desire, if we can, is to own, because of the benefits and success and because the availability of ancillary revenues on the international front and from the digital front have been increasing very significantly. So, it actually creates a risk profile that is altered from the time that we commenced this activity for sort of full-priced scripted dramas 5 years ago. So we do have that bias. I don't think that we will absolutely ignore or exclude having a partner or a studio because we don't want to exclude rate-creative material. So I think we'll operate with a bias toward ownership. We'll be flexible and then there's also dealmaking and hopefully, if you have strength and you're dealing with a partner or studio, it can change the complexion of the deal. And if you have strength, it can make the deal favorable to you, the network. So I think that's what we'll see going forward, is an attempt to be in the ownership position. But if you take a sort of snapshot of what others do out there, I think there are some companies that only own and then there are other companies that almost always license. So you see sort of different content coming from different structures. Ours will operate with a bias toward ownership, but not excluding the opportunity to partner.

All right. And then I have a quick one for Sean. Sean, the international distribution revenue in the quarter. First, how recurring is it? And second, could you give us an idea of what margins look like on that revenue?

At this point, the recurring revenue, we feel very good about what we have going on with AMC Canada, we're continually launching in new territories with our Sundance global brand and our WE tv Asia properties. We still are, as Josh has mentioned, we've been at this initiative for 3 or 4 years now. We're going to continue to invest in those international, not only with hiring resources but programming. So it's still early days in terms of our initiation of this business. So it's probably premature to talk about margins per se because, frankly, we're still in the investment mode.

I'm sorry, I think I misspoke. I meant the international distribution revenue that you booked in the National Network business?

So the international distribution revenue if you're talking specifically about The Walking Dead, that's within the National Networks, that doesn't get recorded into the International and other segment. I apologize for misunderstanding your question. That will continue when we deliver the episodes and it's within our affiliate and other revenue stream. As you can see the performance in the first quarter, our other revenue, ancillary, digital, international is becoming an increasingly greater percentage and we hope that will continue over time.

Your next question comes from Anthony DiClemente of Barclays.

Just as a follow-up to that for Josh. Just wanted to hear a little bit about the give-and-take between the digital distribution market, the Netflixes of the world and the off-network syndication market that I think Sean just spoke about. Is it -- is that a sympathetic relationship or is that a sort of zero-sum game relationship in terms of the value you can get from digital versus the value from kind of licensing off of AMC Networks? And then Chris has a follow-up.

Sure. So it is an interesting question, as to whether what the interplay of those 2 opportunities are. I think it's probably worth, not to overcomplicate it, but segregating domestic from international in that conversation because -- and it slightly is informed by the type of material one has. I think that the type of shows that AMC has, which are scripted dramas, as opposed to what you see in domestic television syndication, commonly are today of much greater value and therefore, appeal to domestic digital SVOD services. In fact, it probably is among their most significant calling cards for services like Netflix. So I think domestically, the digital SVOD opportunity for us is the most significant one. I don't think it precludes a domestic television syndication opportunity, but that would probably be by degree a portion of that, significant reduced as compared to digital SVOD. On the international front, where we have a sort of, if you will, the whole world to sell to and cable TV outlets to sell to worldwide, in the case that we're owners, that's a pretty significant market. So I hope my response answers your question. Internationally, we can sell it to free TV, we can sell to cable TV outlets. Of course, in the U.S. we're our own user of cable TV, so we only have subsequent either television syndication or digital SVOD. So I think I would separate or bifurcate international from domestic, and those 2 opportunities diverge in terms of what's consequential. Digital SVOD, domestic for us, being the biggest and then internationally, regular old TV being the biggest.

I got it, Josh. And then Chris?

This is Chris. And I just had one on the lawsuit. Jamie, you mentioned that the proceeds from the lawsuit would be split equally between you and Cablevision. So from Cablevision's standpoint, it could be possibly in their best interest to go trial and all that for a favorable resolution, but if DISH were to follow through and drop AMC's networks, it could potentially be in your best interest to settle the lawsuit. So to the extent there's any potential conflict of interest there, I'm just wondering how you think that would be managed?

We really don't think it's appropriate this time to talk about the future cost of the litigation or any possible settlement. We just think that'd be going too far.

Your next question comes from the line of David Joyce of Miller Tabak & Company.

I was hoping you could provide some more color on the advertising side of the equation? How much of the almost 30% growth came from new or incremental advertisers? And how much was from greater activity from current advertisers? And also, if you could comment on the scatter market and how much inventory you do sell in the upfront?

On the -- we're making our models right now so we're not in a position to discuss how much of our inventory we're looking to sell in the upfront. It will obviously depend upon how the market develops. What was your first question, I'm sorry?

Just the split of the ad growth, was it coming from new advertisers or increased commitments from current -- the legacy advertisers?

It's coming from both. We saw high, high demand from auto. We saw high demand from quick-service restaurants, we saw high demand from financial, both new and returning advertisers.

And how's the current scatter market?

The current scatter market is good. It's being driven by demand for our original content and, as we alluded to before, in the first quarter of this year, we saw increased demand in the scatter market on volume and pricing versus the fourth quarter of '11, so we're encouraged.

Okay. And just finally, when did you last renew your agreement with DISH carriage?

It was a couple of years ago.

Your final question comes from Ben Mogil of Stifel, Nicolaus.

Just going back to looking at the licensing deals on Walking Dead that show up on the affiliate revenue. When we look for the balance of the year, should we assume that we we're going to still have some of that or it's just very lumpy where you record it largely in the first quarter and then it's kind of done for the year?

Yes. It's generally lumpy. So season 3 will come back in the fall. As we deliver those episodes to our international distribution partner, they start to exhibit, the window's open, that's when we'll recognize it. So, it will generally be consistent with what you've seen historically in terms of pattern, assuming the scheduling stays the same.

Which is basically what? Basically, first quarter and third quarter, is that fair to say?

Right. It'll be -- yes, first and fourth.

First and fourth, okay. And then sort of very quickly, just following up on the comments with advertising. Can you give us a sense of what you're seeing scatter year-over-year or scatter against the upfront, just from a percentage basis?

No, we can't yet. We're seeing -- in the present quarter, as I mentioned before, we're seeing higher demand, we're seeing better pricing. But speculating on how the upfront is going to go, we feel good about it, but we're not in a position to put up -- forecast any numbers.

Right. And then in terms of historical, I think scatter over scatter, and scatter over the last upfront, we've seen healthy increases, in terms of pricing, double-digits.

Thank you, everyone, for joining us on today's call and for your interest in AMC Networks. This concludes our call.

Thank you. This does conclude today's conference call. You may now disconnect.