AMC Networks Inc. (AMCX) Q3 2012 Earnings Report, Transcript and Summary

Good morning. My name is Christie, and I'll be your conference operator today. At this time I would like to welcome everyone to the AMC Networks Third Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Seth Zaslow, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning, and welcome to the AMC Networks third 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 third quarter 2012 results, 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 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.

Good morning, and thanks for joining us. Before I go into the performance, I wanted to give you an update on our relationship with DISH and the impact that our dispute had on third quarter results. As we discussed in our last earnings call, we were in litigation with DISH or with the VOOM HD business. We believe that as a direct result of the litigation, DISH terminated carriage of our networks in the middle of the year. The case went to trial in late September and in mid-October, the parties involved, AMC Networks, Cablevision and DISH Network, reached an agreement to settle the litigation. As a result, all 4 of our networks, AMC, IFC, Sundance Channel and WE tv have been returned to the DISH platform. We're delighted to have our channels and our programming back on the DISH platform. We've enjoyed a long relationship with DISH, one that we believe has been quite beneficial for both of us and are very glad again to be partnering with them in bringing our programming to their subscribers. The settlement included a long-term affiliation agreement for DISH to carry AMC Networks' 4 national channels, as well as a cash payment from DISH to AMC Networks and Cablevision collectively of $700 million. While the litigation has been resolved, the dispute did result in the interruption of our service on the DISH platform for the entire third quarter. As a result, our affiliate and ad revenues were negatively impacted, and we incurred incremental marketing expenses and litigation costs. The aggregate impact of these items was quite significant, particularly with respect to our AOCF and operating income results for the quarter. If not for the dispute with DISH, we would have reported healthy double-digit growth in both AOCF and operating income. With this dispute now behind us, we can focus our complete attention on the fundamentals of our business, which remain quite strong. In the third quarter, the company reported solid double-digit revenue growth. Our growth continued to be led by the success of our original programming. At AMC, the largest of our channels, the fifth season of Breaking Bad was the most-watched season ever for the series. Viewership in key demos, which were adults 25 to 54 and 18 to 49, increased roughly 50% over the prior year. The Walking Dead premiered its third season in October. The return attracted the most viewers in the series' history. The premiere delivered almost 11 million total viewers and over 7 million viewers in key demos, adults 18 to 49, and increased 50% over the prior season. The premiere was the most-watched drama in basic cable history ever, and with the exception of Sunday Night Football, outperformed all of broadcast TV for the week in key adult 18-to-49 demos, besting Modern Family, Big Bang Theory, The Voice and all others. Our Western series, Hell on Wheels, which premiered its second season in August, delivered solid ratings in key demo, adults 25 to 54, and has been renewed for a third season. At WE tv, primetime ratings were up double-digits year-over-year in the key demo, women 25 to 54. The increase was led by Braxton Family Values, the premiere of a show called Tamar & Vince, which is spun off of that show called The Braxtons and several other successful reality shows. IFC, led by a show called Portlandia, which stars Fred Armisen from Saturday Night Live and returns for its third season in January, is continuing to develop its strategy of producing alternative comedy across the channel lineup. At Sundance Channel, we're pursuing both scripted and non-scripted originals, rectifying the channel's first wholly-owned scripted original from the producers of Breaking Bad, will premiere in 2013. Two other projects, Restless, an original scripted miniseries, premieres in early December, and something called Top of the Lake, written and directed by Academy award-winning Director Jane Campion, and starring Holly Hunter and Elisabeth Moss from Mad Men, will also premiere in 2013. On the advertising side, we saw a healthy demand for our programming, most notably the scripted originals on AMC. Despite the absence on the DISH platform, the National Networks grew revenue by 9% versus the prior year. AMC was the largest contributor to that growth due in part to the airing of 2 original series in the third quarter of this year as compared to 1 series in the third quarter of last year. Our National Networks grew affiliate and other revenue by 24% over the prior-year period. This growth reflected significant increases in what we call the other revenue stream, partially offset by a decline in affiliate revenue related substantially to the situation with DISH. Our programming strategy is translating into new revenue opportunities through the exploitation of content on different platforms. Because of the way in which we manage this new and growing revenue streams, we continue to believe that they are absolutely accretive to our business and in fact are helping to grow the existing pay TV ecosystem from which they are derived. The increase in other revenue related to the digital and licensing distribution of our original programming primarily at AMC. We benefited from the release of the second season of The Walking Dead and the first season of Hell on Wheels on Netflix. We also realized revenue in connection for the distribution of Mad Men in similar ancillary windows. On the affiliate side, the decline was due to the situation with DISH as well as a year-over-year unfavorable impact from a contractual adjustment in the third quarter of 2011. Excluding those 2 items, we continue to see very solid growth in affiliate revenues. 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 third quarter, total company revenues grew 17%, and AOCF declined 10.9%. As Josh discussed, third quarter results were negatively impacted by the loss of carriage of the networks on DISH. This dispute with DISH resulted in lost affiliate and advertising revenues as well as increased marketing and legal expenses in the quarter. On a segment basis, the vast majority of the DISH impact was at the National Networks. Despite the loss of DISH, National Networks revenues increased 18.5% or $48 million. National Networks AOCF decreased 5.5% or $7 million versus the prior year period to a total of $116 million. Affiliate and other revenues for the National Networks increased 24.3% or $39 million to a total of $199 million versus the third quarter of 2011. Results reflected an increase in other revenue, partially offset by the decline in affiliate revenues. Other revenues benefited from increased digital and licensing distribution revenues, primarily at AMC, related to our scripted original program such as The Walking Dead, Hell on Wheels and Mad Men. The year-over-year growth rate in affiliate revenue was impacted by the loss of carriage on the DISH platform as well as the impact of a contractual adjustment in the prior-year period. As Josh noted, excluding the effect of these 2 items, we would would've had solid growth in affiliate revenues. Advertising revenues increased 9.1% to a total of $170 million despite the impact of not being carried in the DISH platform. The year-over-year increase is primarily driven by the growth in AMC. AMC benefited from an increase in original programming hours versus the prior year period. Most notably, the airing of 2 scripted originals in the third quarter of 2012 as compared to 1 scripted original in the third quarter of 2011. Moving to expenses, expenses increased 40.5% or $55 million in the quarter, principally due to increased programming and marketing costs. The increase in programming expense was associated with our continued investment in original programming as well as the write off of $8 million that was taken in the quarter. Marketing cost increased, primarily due to the dispute with DISH and activity at AMC related to its original programming. The DISH related expenses were incurred in connection with communicating to our viewers, such as third-party media buys and direct marketing. Turning to the International and Other segment. Revenues decreased $1 million to a total of $29 million. AOCF for the segment was a deficit of $8 million, a decline of $8 million versus the prior year period. Revenue performance was a result in the increase in international affiliate fees, which was more than offset by a decrease in revenues at IFC Films and Broadcasting and Technology. The decline in AOCF was mainly due to the decrease in revenues, as well as an increase in litigation expenses related to the VOOM lawsuit. As we expected, we began allocating a portion of VOOM litigation cost to Cablevision in the third quarter. AMC network share of the litigation cost were $5 million in the quarter as compared to slightly less than $0.5 million in the third quarter of 2011. Total company net income from continuing operations was $37 million or $0.51 per diluted share compared to $40 million or $0.56 per diluted share in the prior year period. The decrease was a result of the decline in operating income, which was partially offset by a decrease in interest in income tax expense. Turning to free cash flow, the company generated $210 million in free cash flow for the 9 months ended 2012. Capital expenditures were $40 million, cash interest was $99 million and cash taxes were $20 million. As we mentioned on our last call, our NOL carryforward was fully utilized during the third quarter of 2012. Turning to the balance sheet, as of September 30, AMC Networks had $2.2 billion of outstanding debt. We had cash and cash equivalents of $313 million, for a net debt position of $1.9 billion. Our leverage ratio was 4.1x based on LTM AOCF of $470 million. This is down from 5.4x on June 30, 2011, when we spun off from Cablevision, and flat with the prior quarter despite the impact of the dispute with DISH on our third quarter results. This week, 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 March and July of this year and the $250 million prepayments that we made in 2011. These prepayments, only $250 million since the spin, are consistent with our strategy of using excess free cash flow to delever. Lastly, we are working with Cablevision to finalize the allocation of the VOOM litigation settlement proceeds in accordance with the terms of our existing agreement with Cablevision and our Related Party Transaction Approval Policy. At this time, we will not have any comments relating to the allocation of these proceeds between the 2 companies. With that, I'd like to move to the question-and-answer portion of the call. Operator, please open the call to questions.

[Operator Instructions] And your first question comes from Rich Greenfield of BTIG.

First, you have I think 2 Netflix slots still remaining for programming. I think you got a couple of new programmings coming. Could you discuss the mechanics of how that works? And should we expect similar benefits to those shows that go into those slots as you got from Hell on Wheels hitting in the past quarter? Any way you could give it a sense of how that works.

Sure. So this is Josh. We have an agreement with Netflix and some, but not all, of our shows will appear on Netflix during the term of the agreement. And we're not at liberty to discuss the details, of course, of our Netflix agreement. You've seen how it's behaved in the past and what shows have appeared on Netflix, both those that we own, Walking Dead, and those that we have studio partnerships with. So I think in general you can assume that most, but not all, of our shows will go to Netflix, and depending upon their nature and their editorial type, we will be rewarded.

And then just a follow-up, you have, I believe, a deal where you split your revenues on iTunes and Amazon. So when you put shows like Breaking Bad and Walking Dead, could you decide to put them up right after they air rather than holding them back. Could you just discuss kind of how you think about that and how financially you benefit, either wholly owned or on shows that you split with other parties where your co-producing?

This is Ed. So for iTunes or for the EST [ph] category, we have different deals with different production companies. Sometimes the production company of Fox or Sony may be in control of that right in those windows, sometimes AMC Studios may be controlling the right, and there are splits in different deals. Generally, our philosophy on EST [ph] is from a consumer point of view, it's a very noneconomic way for them to watch television shows. They're paying a relatively high à la carte fee. And so we think if people choose to download an individual episode that way, our data seems to support the idea that those folks are then more likely to tune in to see the show on the channel for the benefit of the network and our affiliates.

And is there any way to quantify how big EST [ph] was in the quarter?

Not specifically. We won't break it out.

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

Two ones related to advertising. Most of your peers has talked about the ad environment improving in the fourth quarter. So could you guys just update us as to what you're seeing out there in terms of scatter pricing relative to your upfront in the fourth quarter? And I guess, are you seeing sequential improvement as well?

So the scatter market, Bryan, has been sort of fine for us. It's been fairly consistent. I think what we've seen more than anything is particularly strong and consistently strong demand for originals and most particularly strong for originals on AMC. So I'm not sure we've seen any sort of changing trends over the last 6 weeks or so. The hurricane probably had some effect, the Olympics, gets in the mix somewhere. From our experience probably the most notable thing has been the interest on behalf of advertisers in being in these particular shows. And -- but on a demand basis, on a price basis and therefore translates in volume basis, that's been the theme of greatest note for us.

Okay. And then the second question is really I guess about Sundance Channel and the potential for advertising. I guess, could you just give us your current thoughts to potentially taking that channel to an ad model at some point. The new DISH deal we think should get you a lot closer to the 50 million subscriber mark. So what else would you need to see if the channel -- for an ad model to start to make a lot of sense?

Right. So we like what we're doing with Sundance now in terms of the sponsorship structure. We think it's quite well-suited to what Sundance programs. So as you may know, if you watch or observed, we have sponsorships that could or be described as somewhat PBS-like. The sponsors take advantage of being deeply involved in the editorial in some cases, and we think they get great benefits from it. We have a couple of things to say in the more macros. So that's our plans for the near-term. What we are focused on is the editorial vitality of Sundance. So you see that we are doing dramatic series increasingly, full-form, open-ended dramatic series like Restless, which we are pleased about, and which will hit air next year. And we are doing a bunch of miniseries which have worked well in the past for Sundance, Appropriate Adult last year and before that, a miniseries called Carlos, and this thing called Top of the Lake, which is soon to hit air and which is getting a strong critical response. So we would like to see Sundance become more popular, more meaningful and more viewed, but no plans to do anything different today with the current sponsorship model.

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

I have one housekeeping for Sean and then one for Josh. Sean, if I look at the National Networks segment depreciation and amortization this quarter, there was a material step down sequentially. And I know the amortization is declining there, but is this $14 million, the new run rate, that's a good assumption for the next, say 5 quarters?

Yes, that is a good assumption, and I think as you'll see in the Q, we had fully amortized certain intangibles at both Sundance and AMC in the quarter. So you'll see that going forward.

All right. And Josh, about your affiliate agreements. Some of your peers mentioned that in order to expand the tide, they're talking about calling back some of the advertising minutes that they give to their affiliates in an hour and reducing that and probably getting value through increasing advertising revenue. So my question is, where do you think you stand versus your peer group in terms of how many minutes you give to your distribution partners? And would you consider that as a way to extract value from your renegotiations?

Sure. We think we are in a pretty good division of inventory with our affiliates. It's developed over a long period of time. It provides value to them. I think the more they use it, the more they value our services. So we don't anticipate any alteration in that in the foreseeable future. We think we're at the right level and we think, on a share basis, it's pretty appropriate.

So whatever we see on the affiliate line, that's what you get?

I'm not sure I understood the -- your last comment, forgive me.

I mean if you -- the reason I brought it up is some of your peers say that we renegotiate the affiliate agreement, but sometimes the benefit comes through other lines. So if I understand correctly, that we'll see all the benefits on the affiliate revenue line?

Yes, that's where it is. Yes, that's correct.

Your next question comes from Michael Morris of Davenport.

Two questions, one on advertising and one on programming investments. So first on advertising. I think historically you've said that Mad Men is your highest CPM program. I'm curious as to whether you're seeing the CPM gap between Mad Men and your other originals start to close, whether that benefited you all at all in the third quarter, and especially given the great reach for Walking Dead in the fourth quarter, whether that CPM gap is closing. And then second, on cash programming spending, if we look into next year, and I don't want to be specific necessarily, about '13 but just in general about your strategy, do you expect to continue to increase your level of cash programming spending in the future to similar pace to what you've done this year, given that you seem to be at that level of kind of 5 original programs on AMC Network. So do you expect to continue to increase the level of cash spend at the same pace? And if so, you did just speak about Sundance, is it going to the other networks? And how do you look at holstering those networks in the coming years?

Sure. So on the advertising side, Mad Men does come in the highest CPM due to the nature of the show and it sort of particular engagement and acclaim, which I think is related to its engagement. We have seen CPMs on our other originals getting much closer to Mad Men, which is a very nice trend for us. We've seen it on the other scripted originals on AMC and in association with the size of the audiences that some of them are getting, most notably Walking Dead, we end up with unit prices that are different than what we see in the past and are very desirable. So it's attractive math and the trend that you identified is correct, it's occurring. In terms of the cash program spend, and I hope this answers your question, we are today at 5 scripted series on the air on AMC, and we have 3 or 4 non-scripted series on AMC, which is an initiative that we took up little over a year ago. You may be familiar with some of them, Talking Dead, Comic Book Men, The Pitch, Small Town Security, and we are reasonably pleased with the effort on unscripted on AMC to date. We have a bunch of stuff in development on AMC, and we need to evaluate which shows we go forward with. That evaluation will have several factors rolled into it. Most importantly, which shows we think will perform, to some degree what our ownership participation is in those shows. We're slightly more attractive to those that we own, but it will begin with which shows we think will work. And then, what -- and the answer to your question will ultimately be revealed truly in the ultimate projected ROI on any individual piece of programming. If we think that we can get enough ad revenue and other revenue as we're calling it, from the introduction of a scripted show on AMC, then there is no limit to what we would do, and we would see our spend escalate, because it really does build the service in every single way and it's immediately economic. There could be other circumstances in which we think that a show will build and become economic in season 2 or season 3, and we might stay with it for that reason. So it's a not specific answer to your question about what may happen with cash. It really will be based upon what is before us in terms of programming that we can say yes to, how much that programming costs and what we think the aggregate economics of it will be. I think the same just basic principle is true for other channels, which is that if we think that there's ultimate economics in increasing from whatever the current state is, through other revenue and through ad revenue, then we'd like to add as much as possible. We'll be guided and disciplined by the net projected economics. And it does a little bit differ on each channel because on IFC we're doing, as we mentioned, alternative comedy, that material tends to cost somewhat less than scripted drama. On WE tv, we've been focused on nonfiction and that tends to cost less also than scripted drama. So the bets are not as big. Okay, I hope that answers your question.

Your next question comes from Chris Merwin of Barclays.

Also first for Josh, at IFC you've been converting that network to an ad supported model. So how's that process going? Is there any way you can help quantify the impact to the model of the inventory being sold at that network? And then, this is maybe for Sean, I know you can't comment on the split of cash in the settlement, but can you walk us through I guess what your priorities are for use of cash? Is it going to be paying down more debt? Or investing in originals or replace some of the programs that are rolling off in the next couple of years?

Sure. On IFC, the conversion I think is going almost exactly according to our plans, which is good. We now are in the regular ad market as opposed to the sort of hybrid sponsorship market, which we were in previously. I think advertisers are responding quite well. Our ratings have been increasing. We've altered our movie mix a bit. And most notably, we've got a few shows that are working quite well against this overall strategy of alternative comedy. We mentioned a show in the prepared remarks called Portlandia with Fred Armisen and Carrie Brownstein, which is a bit of a hit among those who like it, and it's probably doing 3x plus our prime average among our target demo. There's another show on the air called Comedy Bang! Bang!, which is certainly doing well and we're pleased with it, and we have a pretty significant development initiatives. So overall, as we planned, we like what we're up to. We think that there's open space to do what we're doing that nobody's quite in it and we'd like to move as quickly as we can on that within economic reason.

And Chris, on your second question, the second question, I'm not going to comment further other that what I've said in my prepared remarks as it relates to the allocation of the settlement proceeds. But just to refresh from prior calls in terms of our capital allocation strategy, that really hadn't changed. As Josh just articulated, we'll continue to invest in the original programming across all our National Networks as we think that obviously provides quite many benefits. We're going to continue to delever. We're at 4.1x. We don't have a current target that we're shooting for. We just think this management team is focused on getting more balance sheet strength going forward. So it's really the same as we'd consistently said over the prior quarters.

Your next question comes from Alan Gould of Evercore Partners.

I've got a couple of questions. First, and this may be following up a little bit on that last one, without giving the split of the cash, can you just tell us use of the cash. I noticed you've paid down $50 million of your debt just a few weeks ago or a few days ago. Is it more debt pay down? Or are you going to increase your program investment with the cash?

Again, I think we've been disciplined in paying down debt. Now that we've resolved the dispute with DISH, we certainly felt more comfortable on paying incrementally. We still have over $300 million in cash in the balance sheet at the end of the quarter. We obviously used $50 million of it yesterday. And in -- I don't think there's a direct correlation between increased cash, increased programming investment. As Josh said, we'll look at it in terms of the economic return that we expect to get from all of the revenue streams we can generate from investing incrementally in programming. So I wouldn't conclude that, that's the logical place to go. We're just going to continue to evaluate our strategy, investing in programming. And as Josh said, there's theoretically no maximum if you find the right projects and development. In the meantime, we'll continue to pay down debt because we think it's the prudent thing to do at this time.

Okay. My other question is there an increase in digital revenue and other this quarter? Was it mostly streaming deals? Or was a portion of that also an increase in your international license fees?

Yes. Sure. It's -- I think as we talked about the last quarter, The Walking Dead being on Netflix was coming into the third versus the fourth quarter last year, so that was obviously a big contributor. Hell on Wheels also came up on the service. As we mentioned in our prepared remarks, we did see some meaningful dollars in the quarter for the digital exploitation by our studio partner on Mad Men. There's also DVD revenue, et cetera. So I'm not going to break out the specific components for confidentiality reasons, but that's generally what we saw in the quarter. It will continue to be lumpy. I think you guys have a fairly good understanding of the rhythm of our shows, when they premiere, what the windows are that we utilize across those platforms and other than something that may be abnormal in the quarter. I think you guys will get a pretty good sense of the rhythm of the revenue.

If I could just follow up on that, Sean? I mean it was 7 episodes of Walking Dead, 7 episodes of Hell on Wheels. I don't know if Mad Men was the big Lionsgate syndication from a year ago or just 1 more season but I don't know [ph] the season last year. So I mean just the increase, which was looks like $40 million or $50 million, seems quite high given that many episodes.

Yes, I think that the unexpected item in the quarter, and again, I need to restrain myself, is the current and prior season of Mad Men that we've recognized our share in the quarter.

Your next question comes from Ben Mogil of Stifel Nicolaus.

So sort of following up on Alan's question, when you look at the mix of SFA [ph] deliveries in the third quarter, was it more weighted towards programming that you have less economic interest in, like Mad Men, that you say that 4Q will be weighted for?

It is -- Ben, this is Josh. It was a mix of a programming. Each of these deals is different. They actually have different -- if we have a studio partner, we negotiate each one literally differently. So there are different percentages of everything, including all ancillaries, home-video, electronics, sell-through, digital SVOD, international. So in the quarter there was a mix of all of the occurring and Sean sort of gave you the picture of what was in that aggregate amount of money.

And just sort of following up on that, when you look at 4Q, is there -- remind us again, because you would have recognized all the revenue for Walking Dead SVOD on September 30, is that correct?

For season 2?

Yes, sorry, for Season 2.

Correct. So looking ahead to the fourth quarter, again, we don't provide guidance, but as you've seen the show was on the air so it's likely that the international distribution of The Walking Dead would be the most meaningful item in the fourth quarter beyond whatever normal EST [ph] or other home video, DVD sales that we'll recognize.

And then sort of flipping over to some of the comments that you made earlier about, I guess to what Michael's question about programming, inflation, et cetera. And again, not looking for guidance, but just a general concept, are you seeing particularly as while the SVOD services start to roll up their own original programming, are you seeing sort of any material cost inflation as you talk to the various studios and your various producing partners?

Cost inflation?

In terms of the ability to just go out and do an original programming, an original program. You've obviously been at it a couple of years. You're now seeing all the SVOD services start to do some of their own original programming. You're seeing STARZ ramp-up like -- there's a lot of people are trying to do this now. Are you seeing any material cost inflation as you are talking to programmers?

No. I don't think we are. I think that all we see is we see differences in cost by program type. But I don't think that there's a sort of market tightening or market affect that is in any way influencing cost. We, and actually the other companies you named, are actually on a spectrum basis, fairly small in the entire system of what is being commissioned and purchased when you look at the amount of television being sort of manufactured for all outlets today. So there's no market effect. I think what is most, to my mind, important in it and telling as it relates to the economics of our businesses are program type. And very simple principles, scripted dramas that are open-ended tend, in general, to be at A cost level, that is the highest cost level. And probably difficult to do them for much less and be in that arena meaningfully. And situation comedies, we don't participate in so I won't comment. But the type of comedies we're doing on IFC have their own sort of cost basis. They're often referred to a single camera and they cost substantially less than scripted open and drama and often a little more than nonfiction or so-called reality. Those are sort of the buckets, if you will, on the expense side. But again, nothing is being influenced by developments in the market.

Your next question comes from Alexia Quadrani of JPMorgan.

With The Walking Dead beating all expectations and really having such tremendous ratings success, can you give us a sense of how you're able to monetize that with the advertising, advertisers? I mean, essentially, how much was already presold in the upfront? And how much is sort of last in the scatter where you can really take advantage of this great rating?

Right. It's a good question. So I think the ratings were extraordinarily strong, and scatter generally has a premium 2 upfront. So we did see sort of, I think, benefits on both sides. It was strong last season and stronger this season. And then it had more appeal in scatter than it did in the upfront or more power because of the size of the audience. So it was all a play to our benefit. I probably should mention that the benefits of it extend in a number of other ways, beyond the ancillary value of the show, which we touched on when we discussed SVOD. There's a show that follows it called the Talking Dead, which is a discussion of The Walking Dead. And we've had pretty good results with people who watch The Walking Dead wanting to stay with it and continue to participate and watch a talk show, which is actually pretty good about the very show they watch and to call in. And so there's a way to extend the value and extend the monetization not just through the available inventory on the show, but through related activities and in this case, related programming, as well as some web activity. So there are a number of extensions of The Walking Dead, because it's so unique and so strong and the audience is so significant. And so we're enjoying some of those benefits at the moment.

I guess given that point you just made and the sort of the extensions your getting from your success on Walking Dead, when you look at the 2 new pilots that you have coming on next year, I mean, I guess what is the early reaction to those pilots? Are you beginning or are you talking about selling advertising? I don't know how much you may have already sold ahead of time. Do you get a benefit because you've had such success in terms of starting off at a decent CPM? I guess any color you can give us on how we should think about those.

So the pilots are -- we're doing post production. So we haven't yet seen the assembly on them. So we'll do that evaluation before we talk about specific pricing on them.

Your final question comes from Ben Swinburne from Morgan Stanley.

Josh, can you talk about the impact on ad sales on the quarter from DISH? The loss distribution? Your ratings on the regionals were so strong, I'm wondering if you were able to deliver all your guarantees. I know you don't sell a show per se, but how much do you think DISH hit you on the ad side?

Sure. So look, it had impact of course, because it represents a piece of our distribution footprint. We were in the sort of enviable position during the quarter of having a number of shows perform so well, particularly The Walking Dead, that they created records without the DISH distribution. So the quarter was of course a snapshot in time with that onetime unique event occurring not being on DISH. You see the results that we reported. So in aggregate, the impact on overall ad sales was what it was. It was as reported and we did quite well. We, of course, would've presumably done better had we had those available households. In general, better to have more available viewers, obviously, as you go forward. That's the simple math in that. If there's a nice takeaway for us from it, it's something that we've been focused on for a long time, which is that desirable content and content that people really care about most, is something that we've been trying to do for 5 years. And in the case of ad sales from this last quarter, we had a nice sort of affirmation that, that approach makes sense, even in the case of disturbances in our sort of activities.

Just a follow-up, Sean. Separately, I don't know if you're willing to quantify the total expense impact from DISH in the quarter. I think you mentioned litigation cost. I know there's some marketing as well. And then on the write-down in the quarter, was that related to The Killing? And if it was, could you just tell us if that's the remainder -- remaining balance on that show or if there's still more to come there?

Sure. In terms of DISH, I think all we really comfortable talking to you about is the litigation at $5 million. We certainly spent a meaningful amount of money on direct media buys that I'm sure you saw yourself on local and national markets. I think I'll stick to what we said, we would have expected very healthy double-digit AOCF margins if not for that. In terms of the write-off, actually the write-off in the quarter relates to a miniseries called The Prisoner. It's a show that we saw no future utility to and we took that off in the quarter. As it relates to The Killing, as Josh said I think last quarter, we're continuing to use the show. We think it has great utility. We think it's a great show. And we'll continue to evaluate that as we do with our entire programming inventory every quarter as we go forward so...

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.