AMC Networks Inc. (AMCX) Q1 2013 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' First Quarter Earnings Conference Call. [Operator Instructions] Thank you. And I would now like to turn the conference over to Seth Zaslow, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning, and welcome to the AMC Networks' First Quarter 2013 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 2013 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 and 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 appropriate in your evaluation of 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 thank you for joining us. I'll provide a brief summary of our financial performance, followed by an update on the business, and then turn it over to Sean Sullivan for some greater financial detail. We started the year off with a strong quarter, and the fundamentals of our business remain quite healthy. In the first quarter, the company reported 17% growth in revenue and 19% growth in AOCF. Our growth continued to be led by the success of our original programming. As we've discussed on prior calls, we've been steadily and significantly increasing the investment in our programming across all of our channels. As we look out to the remainder of 2013, we expect this investment to continue as we believe our content will increasingly define and drive the performance of all of our networks. AMC, the largest of our channels, has clearly been the most notable for us as its slate of scripted dramas has met with the greatest attention. Primetime ratings at AMC were up roughly 30% in the quarter in the key demos adults 18 to 49 and 25 to 54. This performance was led by the third season of The Walking Dead, which broke records for basic cable TV. The season finale that aired in late March drew over 8 million adults 18 to 49, making it the most-watched episode in the series' history. For the season, viewership in key demos adults 18 to 49 and 25 to 54 increased over 50% compared to the prior season and made the show the #1 program on all of TV, broadcast and cable, outdelivering broadcast hits such as Modern Family, The Voice and The Big Bang Theory. AMC's Mad Men debuted its 6th season at that beginning of April. The premier attracted over 3 million viewers in an upscale audience that is uniquely attractive to advertisers. And this summer, AMC is set to air the highly anticipated final 8 episodes of what I think it's fair to say has become one of TV's most critically acclaimed shows, Breaking Bad. AMC is working aggressively to maintain the momentum it's built over the past several years by revamping existing shows such as the crime drama, The Killing, which is scheduled to return for its third season in June and greenlighting new scripted originals such as Low Winter Sun, a cop story set in Detroit, that will debut this August. The network has also announced several pilots, the most recently being one called Line of Sight, a science-fiction drama, and each of those are now in various stages of production. We will continue to increase our investment in programming at our other networks as well, with the goal being able to make each channel stronger individually, and thus, the portfolio of networks more valuable in the aggregate. As it was with AMC, this is a multi-year strategy and each of WE tv, IFC and the Sundance Channel are at various stages of the implementation of that overall plan. WE tv operates in a very competitive, but lucrative women's marketplace. There are quite a few networks now targeting females in the 18 to 49 and 25 to 54 demo, that demo which is sought after by advertisers. WE tv has had success particularly on Thursday nights with shows such as Braxton Family Values, a reality show centered on the family of Toni Braxton, which has consistently grown its audience with each successive season and now averages over 550,000 viewers per episode or roughly 5x time period average in key demos, women 25 to 54. And Mary Mary is a show about 2 sisters who are Grammy Award-winning singers delivered over 300,000 viewers on average in its recently completed second season, an increase of almost 10% over the prior season. With WE tv now available in over 80 million homes, we think there's an opportunity for the channel to invest more aggressively in the coming quarters and years and to reap rewards over time. We will look to increase the number of original hours and to develop more robust content for other nights of the week. We think this investment strategy makes sense in the women's programming niche and will be welcomed by our viewers. IFC is continuing to develop its approach of producing alternative comedy across the channel lineup. The channel aired the third season of what has become IFC's signature show, Portlandia, which is produced by Lorne Michaels and stars Fred Armisen from Friday Night Saturday Night Live in the first quarter and also has several new projects in development and now on air, including a show called Maron, which stars comedian and podcast host, Marc Maron. It premiered just last week to a fair amount of press and is doing well in early ratings. Comedy Bang! Bang! hosted by comedian writer Scott Aukerman returns for its second season in the third quarter. And several other projects, including a show called The Spoils of Babylon, which will be executive produced by Will Ferrell and another show called The Birthday Boys, which will be executive produced by Bob Odenkirk and Ben Stiller are expected to air later this year or in early 2014. At Sundance Channel, we've been focused on increasing the distribution of the network from the less than 30 million subs when we acquired it in 2008 to over 50 million today. We have balanced rate and increased distribution over that time to achieve this growth and we are now in a position to transition the channel to a traditional ad model that creates a second revenue stream for Sundance's next stage of development. This follows in a certain sense to the playbook we've used at AMC, WE tv and IFC at earlier points in time. We recently aired a of pair original programmings -- programs that were very well-received, Top of the Lake, written and directed by Academy award winning director Jane Campion, starring Holly Hunter and Elisabeth Moss from Mad Men, premiered in March to strong reception; Rectify, the channel's first wholly-owned scripted original from the producers of Breaking Bad, premiered on the channel in April to wide critical claim and has been greenlit for a second season. During the first quarter, we also greenlit a second wholly-owned scripted series, The Descendents that is scheduled to air later this year or in early 2014. Our ability to produce content that is valuable and monetize-able is increasingly driving our top line performance. On the advertising side, the National Networks, in aggregate, grew revenue by 27% in the quarter versus the prior year. We saw very strong interest from advertisers in our original programming across each of our networks, but in particular, for The Walking Dead on AMC. On the distribution side, the National Networks grew revenue by 12% in the quarter over the prior year period. As many of you know, included in this line item is a combination of the revenues we receive from our traditional MVPD partners, cable, satellite and telco companies, as well as newer developing revenue opportunities from the distribution of our content on various ancillary platforms such as digital and International. Affiliate revenue in the quarter grew due to an aggregate increase in rates and subscribers, partially offset by a decrease due to revenue not being recognized with respect to one expired affiliation agreement that we are in the process of renewing. At our International and Other segment, we continue to move ahead with a disciplined expansion of our footprint of channels outside of the U.S., as well as our various Internet delivery initiatives, which are in the early stages of development. Before wrapping up, I did want to briefly address the VOOM litigation and settlement. We went through what we think is a fulsome process, and we're very pleased to have this matter resolved and with the ultimate outcome, which includes long-term affiliation agreement with DISH for all 4 of our networks and $175 million in cash. With that, I would like to turn the call over to Sean Sullivan who will provide further detail on the financial results for the quarter.

Thanks, Josh, and good morning. Turning to the results for the first quarter, total company revenues group 17.1% and AOCF grew 19.5%. First quarter revenue in AOCF growth was driven by increases at our natural National Networks. At the National Networks, revenues increased 18.2% or $55 million. National Networks' AOCF increased 19.3% or $26 million versus the prior year period to a total of $159 million. Advertising revenues increased 26.9% to a total of $164 million. While we experienced year-over-year advertising growth at all of our National Networks, AMC was the primary contributor. AMC benefited from the performance of its original programming, most notably, The Walking Dead and its companion show, the Talking Dead, despite a decrease in scripted original programming hours versus the prior year period. Looking to the second quarter of 2013, we don't expect to see year-over-year growth rates in advertising revenue 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 and an unfavorable comparison in a number of scripted original episodes on AMC versus the second quarter of 2012. Distribution revenues at the National Networks increased 11.7% or $21 million to a total of $196 million versus the first quarter of 2012. As a Josh discussed, the first quarter results reflected the aggregate impact of several items, most notably affiliate and distribution -- digital distribution revenues. The increase in affiliate revenues reflected mid-single-digit growth over the prior year period, and the increase in digital distribution revenue principally reflected the timing of revenues associated with the SVOD release of IFC programming on Netflix, as well as EST, or electronic sell-through revenues, principally related to AMC's scripted originals. Moving to expenses. Expenses increased 17.3% or $30 million in the quarter, principally due to increased programming costs. This increase was partially offset by a decrease in marketing expenses related to the timing of airing of our original programming versus the prior year period. The increase in programming expense was principally associated with our continued investment in original programming across all 4 of our networks. AMC made up the largest component of the year-over-year variance as the channel saw increases in both scripted and unscripted programming over the prior year period. Turning to the International and Other segment. Revenues for the first quarter were essentially flat at $26 million. AOCF deficit increased approximately $2 million versus the first quarter of 2012 to $10 million. The revenue performance in the first quarter principally reflects an increase in our affiliate -- International affiliate fees, which was more than offset by a decrease in revenues at IFC Films. The decline in AOCF in the first quarter was mainly due to an increase in professional fees related to the VOOM lawsuit. AMC Networks incurred costs of approximately $2 million in the first quarter, primarily related to the finalization of the allocation of settlement proceeds as compared to $1 million in the first quarter of 2012. Total company net income from continuing operations was $62 million or $0.85 per diluted share compared to $43 million or $0.60 per diluted share in the prior year period. This increase was primarily the result of growth in operating income. Before I review our capital structure, I wanted to give you a final update on the allocation of the VOOM settlement proceeds. As we previously disclosed in connection with the settlement agreement, AMC Networks and Cablevision collectively received a cash payment of $700 million from DISH. These proceeds were dispersed on a preliminary basis evenly between the 2 parties. On April 8, AMC Networks and Cablevision entered an agreement finalizing the allocation of VOOM settlement proceeds. As a result of this agreement, AMC Networks retained $175 million and paid the remaining $175 million of the $350 million that was preliminarily distributed to the company to Cablevision in the second quarter. Other than the professional fees that in I mentioned, the finalization of the VOOM situation did not have an impact on our first quarter earnings. However, in the second quarter, we expect to record a litigation settlement gain of approximately $133 million as a component of operating income. In terms of the cash flow statement, during the first quarter, we were required to make tax payments of $81 million related to the VOOM settlement. These payments were based on the preliminary allocation of proceeds. We expect to recoup approximately $60 million or roughly 3/4 of this amount for reductions in future tax payment over the remainder of the year. In the second quarter, we expect the combined cash outflow associated with VOOM to be approximately $155 million, which represents $175 million disbursement to Cablevision, partially offset by a reduction in our tax payment of approximately $20 million. In terms of free cash flow, the company reported negative $46 million of free cash flow for the 3 months ended March 2013. This amount includes $83 million in tax payments, $81 million of which related to the VOOM lawsuit that I just mentioned. Excluding the VOOM payments, free cash flow for the first quarter was $35 million, capital expenditures were $8 million and cash interest was $35 million. Turning to the balance sheet. As of March 31, AMC Networks had $2.2 billion of outstanding debt. We had cash and cash equivalents of $555 million for a net debt position of $1.6 billion. Excluding the $175 million that was transferred to Cablevision in early April, our net debt position was $1.8 billion and our leverage ratio was 3.7x based on LTM, AOCF of $490 million. The 3.7x leverage ratio was down from 5.4x on June 30, 2011, and 4.2x in the prior quarter. While we expect to continue to delever, I did want to reiterate what Josh said in his remarks. We are focused on investing in our core business as we think this will generate the greatest return for shareholders over the long term. Accordingly, we will continue to increase our investment in programming and marketing across all of our channels. And as a consequence of this, there will be continued variability in both AOCF growth and margins. We believe that this strategy and our disciplined approach to programming investment will allow us to continue to consistently grow AOCF over the long term as we take advantage of the various opportunities we have to monetize our content. With that, we'd like to move to the question-and-answer portion of the call. Operator, can you please open the call to questions.

[Operator Instructions] And your first question comes from Bryan Goldberg of Bank of America Merrill Lynch.

Just a couple of quick ones. With regards to the mid-single-digit affiliate growth you mentioned, can you help us, what was the core underlying affiliate growth sort of an apples-to-apples basis, excluding the impact of this expired affiliate deal that Josh called out?

Right. So, Bryan, this is Josh, just -- I'll answer it just completely, if I may, which is the line includes the MVPD revenues and then it includes digital and International revenues, and that's how it's reported. There were sort of 2 things going on in the quarter. They slightly -- they had different effects on the reporting. One is, revenue not recognized from one MVPD agreement because we're in the process of renewing it. And the other is the effect of several agreements, in fact, 6, which are -- have been newly signed over the past year or so. So we had historically been seeing MVPD growth in the range of low- to mid-single digits x that one agreement, which we're in the process of renewing. That number is trending substantially upward.

Okay. And then on Sundance, could you just help us -- update us on the progression towards the advertising model so far? How are you positioning the channel of the advertisers in this year's upfront? And when do you expect to get Nielsen rated and rectify viewership levels? How should we think about that relative to the channel average or other programs you have?

Sure. So I'll answer the first part. I'll turn it over to Ed Carroll for the second. What we're doing with the Sundance, as I mentioned in my prepared remarks, follows the pattern that we have undertaken first for AMC, then WE tv and IFC. And that is that the approach is to expand the distribution of the channel to change the affiliate agreements, which historically had not embraced or expected advertising. And then with the opportunity to create and enjoy a second revenue stream with hopefully increased subscribers to invest in content. And so we're at the final stage of that plan which is being implemented finally in the fourth quarter. Now I'll just ask Ed to comment on the specific...

So this will be Sundance channel's first participation in the upfront. We are coordinating that effort with our other networks. Sundance ad sales is under common management with AMC, IFC and WE ad sales, so it's a coordinated effort. And we begin -- we transform to an actual ad-supported format beginning in the fourth quarter. We're out there now having conversations. Advertisers have obviously taken note of our first originals, which were mentioned by Josh, Top of the Lake and Rectify. And so we think there will be an appetite for, hopefully, a high-quality dramas on Sundance, along with its mix of films that appeal to an upscale audience.

Okay. And then just finally for Sean, the tax -- the cash tax benefit is going to come back to you, that $60 million. I think you said $20 million is going to come back in the second quarter. Should we expect $20 million in the third and fourth quarter, will it all come back this year?

Yes, I think a ratable recoupment over the remaining 9 months is a reasonable estimate.

Your next question comes from Michael Morris of Davenport & Company. Michael C. Morris - Davenport & Company, LLC, Research Division: Two questions. First, on advertising, could you talk a little bit about the drivers, a little more about the drivers of the strength in the quarter? And particularly I'm thinking about ratings versus pricing on Walking Dead. I think historically, the pricing on Walking Dead hasn't been quite at the level of Mad Men, which is your highest-priced program. Ultimately, what I'm trying to figure out is, as we look at the additional originals over the course of the year, what the upside is on the pricing side for them and how much is ratings-driven? And then I have a follow-up.

Sure. I think -- I'm not sure that -- answer your question, which I'm glad to do or try and do is going to necessarily give you the clear ability to model the rest of the year. But I'll certainly answer the question which is the ratings -- the audience size on The Walking Dead is probably the most significant piece of what drove revenue because the audience is so large and I think it was effectively monetized. The pricing on The Walking Dead has escalated substantially and it is now either near, approaching, or in some cases, at sort of broadcast comparables. So the pricing has moved up sort of near or at parity because of the embrace of the show and the quality of the show. So it was really 2 factors causing the good performance in the first quarter. I'm not sure that you can necessarily take a cue from it and apply it to other shows which have different audience sizes and different pricing components and different appeal to different advertisers for the rest of the year. I hope that helps. Michael C. Morris - Davenport & Company, LLC, Research Division: Yes, it does. Second question on the subscribers, you disclosed the Nielsen calculation of subscribers and I'm curious as to the numbers that at March 31, whether those reflect, number one, any changes from your renewed agreements with Comcast or Verizon at year-end; and number two, the impact of the relationship which you weren't paid on during the quarter.

Right. So I think I understood your question. The numbers we reported don't, I think, reflect -- because they were brand new agreements, significant changes as a consequence of the agreements from the MVPDs that you identified with the exception of DISH. I'm not sure it was included in your question, because there was a transition that occurred there rather completely or comprehensively and quickly. In other agreements, and if you don't mind, I'll not answer specifically, we do balance the rate that we're paid with the distribution gains that we have an ambition to make. And more often than not, those will take place generally over time because the MVPD, particularly if it's cable or telco versus satellite, are operating in different geographies with different head ends and sometimes different packaging and pricing depending upon the MVPD, whereas satellite is universal in the manner in which it manages its platform. So I hope that answers your question. The quick answer is that the subscriber changes were not specifically influenced at that point in time much by the recent agreements. Michael C. Morris - Davenport & Company, LLC, Research Division: So just to put a fine point on it, you could have had or you -- did you have additional subscribers from the agreements done at year end that are not necessarily reflected in these numbers, as these numbers that you disclosed did not increase from 12/31/12 to March 31, '13?

Well, the answer is, yes, but they may occur over time.

Your next question comes from Richard Greenfield of BTIG.

Josh, last quarter, you talked about margins continuing within the historic range of relatively flat as you kind of reinvest the potential margin upside and continue to create better original programming. We saw relatively flat margins in Q1. I think during earlier comments, you talked about volatility quarter-to-quarter, but should we still be comfortable that overall, the company is still targeting kind of maintaining an overall margin profile as you build to the future? And then just as you think about International line item, is that a number where there's a path to profitability over the next couple of years? Or there's still a lot of investment that's going to lead to that number continuing to be an investment phase? Just any way to think about the bunch of moving pieces within that International and Other line.

Sure. So if you don't mind, Richard, I'll try and respond to the International and Other line first. The International and Other line has, first of all, separate components as a segment that we report on. So one needs to sort of look more carefully at each of them to understand the aggregate, of course. But let me respond, if I may, to specifically what we're doing with our International channels, which is you would, one, just to say what they are is, you would travel to Canada and see AMC, you travel to Europe, and see Sundance. You travel to Asia and see a channel, Sundance or WE tv. So in aggregate, what we've said is that they are in aggregate today, essentially breakeven. The markets that we got to first are profitable, and the markets that we get to later have really -- they have an investment horizon that's several years. So they take that profit and it disappears as a consequence of the investment. In terms of the profile over time, we look at each territory with a discrete ROI. We look at -- when we go into a territory, what will it cost, what are the platforms like, what rates do we expect, what pace of growth do we expect, how much program investment and what's the horizon look like for a return. We think, just if I can add to it, that it is a "strategic undertaking for the company" because it's very good to have distribution outside of the U.S. if it can be managed well with a clear eye toward profitability. And we think that over time, that will be -- it already is good, but it will be particularly good over the longer term. So in terms of projecting exactly where it is in 2 or 3 years, it's a little challenging. What I would say is that if we have opportunities to invest in a territory that we think provides a good return, it could potentially weigh down the aggregate economics of the International line in International and Other because we saw a good investment opportunity, and we wanted to take it. So if we did less, it would probably show more rapid profit and that actually may not be what our first desire is. I hope that answers your question. I'll talk about margins and then see if it answers...

What about the other pieces -- before you get to margins, what are the other pieces within International? Anything you could add color-wise?

Yes, so we have our film company, IFC Films, which is we think also an important and strategic asset. As I mentioned in prepared remarks, we have initiatives that really are embryonic in Internet-delivered video and television, which we think is very worthwhile to be exploring. And then we have something that's not really necessarily material to the economics, we have broadcast transmission facility that operates mostly on our own behalf but with some third-party business. So in any given quarter, some of the performance of those things can influence the aggregate.

And then on margins?

Sure. So as we mentioned, broadly, as I said and as Sean repeated, we think that content and good shows will drive our value to MVPDs and our ad monetization and then increasingly, our digital sales, both on EST and SVOD. And ultimately, just to link back to your earlier question, if we ever had enough distribution of our channels outside the U.S., we could be the buyer of our own shows. Today, we don't have enough breadth to be necessarily be the buyer of our own shows and the prices are too good to pass up the sale to a third-party. So we think that content investment is key, and we think it is truly important over the near and mid and long term. So we think that we'll be in the general range margin-wise of where we are. But we think depending upon the performance of the shows, which are all not quite predictable. When they're done, we could see some reasonable, if not substantial, volatility relative to investment and success or failure. And the ability to monetize near, mid or long term. So it's not a sure business. It is a business that has obviously some fickle and unpredictable components.

Is there any other show that you feel particularly strong about in terms of the new schedule of originals?

There are actually many. I will mention that Ed talked about 2 shows on Sundance. And we're paying, as you might imagine, particular attention to Sundance because we're undertaking sort of final stage of ad support and the full-on effort to sell it. And we premiered the show called Rectify, which met our hopes in that the critical reception was extremely strong. And we think that signals vitality for the direction the channel is going in. I can mention a long list after that but I'll stop short of that and leave it to one, lest I just give you a list of enthusiasms.

Your next question comes from Anthony DiClemente of Barclays.

A couple of questions. If we calculated that your original programming hours were up about 13% in 2013, not sure if we're on the right track with that, was wondering, as you look into 2014, how you think about the growth or the trajectory in original programming hours, is it something like that degree of growth? And is there anything about the competitive landscape that informs your decisions on content investment? There are some investors out there who think would say that the original programming landscape is getting a little bit crowded. So just was wondering your thoughts on the competitive environment. And then one other question, if I may, which is that I think you had an interesting strategy of pre-launching a number of Rectify episodes on VOD to the MVPDs ahead of the Linear premier. And I'm just wondering if there's anything instructive to you, Josh, about that experience? Did it incrementally drive any interest or viewership in kind of your internal research, or has the SVOD strategy been more of a stimulant to Linear viewership?

Sure, Anthony. So on the last piece of it, we did do something that's probably somewhat different than others have traditionally done, which is for those who are not aware of it, we launched multiple episodes of Rectify on cable VOD in advance of the premiere, which is in a certain sense, counterintuitive to how to launch a TV show because normally, one deprives people of the opportunity to see it and then tries to use what I would sort of call blunt-force marketing to bring every one to the television set when it airs because that's how it's monetized. And we got our piece of instruction from what we've seen occur between seasons, particularly on scripted dramas, our own and others, which is there's on cable VOD and digital SVOD, significant utilization between seasons 1 and 2, 2 and 3, 3 and 4, et cetera, and then we've seen subsequent seasons on Linear rise. And we think that there's a correlation, there's a cause and effect. And that is that new people are coming to the show, they are, to use the common parlance, binging on them. And then get they get excited enough that they watch, they don't want to wait till it's available a year later on SVOD, which is what we do. And they come to the next Linear season and we've actually built viewership between seasons. So we tried to, if this all makes sense, replicate some of that effect before season 1 of Rectify. We try to get people to watch and to refer their friends and others to it, and I think we met with a reasonable degree of success. This is deep in the weeds, but we also actually pre-premiered of the series at 60 movie theaters and actually invited through related companies, what we think is the right audience to come in and have a sort of movie binge experience with a community of people pre-premiere. And we think that we built up a bit of a head of steam, which resulted in good ratings for Sundance and also a lot of talk about it. So yes, we sort of ran that SVOD playbook in advance of season 1. Just on the competitive frame, the other part of your question is, we do think that the competition is increasing, and we do think that there are a number of channels that are making noises increasingly about scripted. And so we think that we'll operate in a competitive, increasingly competitive framework which is another reason that we want to step up our investment. And I'll turn it over to Ed, if I may, for comments about [indiscernible].

I'll just add to that. On the competitive frame, there is more competition, there's more outlets, it does -- it can make the development process more expensive. I think there's some advantages that we enjoy, we have platforms that have established brands. We have a reputation of developing successful shows, so if you're a producer or a show runner and you have a show concept that you're going to shop around, you want to look for a platform that has a history of developing and producing successful shows. And you also would be likely to look for a network that has a high percentage of renewing shows. And right now, if you look at the major shows that we've had on these networks, our percentage of multi-year renewals is very, very high. So if you're a producer or a show runner and you have a hot concept, I think you take note of that when you're shopping the show. But it is a competitive landscape. In terms of the growth of shows, I think the number you quoted is in the right neighborhood. I won't project on 2014 only because our development process is fairly disciplined. It's probably been part of our advantage, which is to say if we're not happy with the way a show is developing, we take it offline, we retool it or we simply don't go forward with it. I think that's helped us on the quality index, but it does make it hard for us to sit here now and project out hours.

Your next question comes from Todd Juenger from Sanford Bernstein. Todd Juenger - Sanford C. Bernstein & Co., LLC., Research Division: I've got a couple that I think are quickies. And depending on how fast I go, I may see if I can squeak in a more strategic one. But let's do the quickies first. So on this MVPD deal that's under renewal, my question is, is that revenue being deferred upon, hopefully, successful completion of a deal? Or are you actually black somewhere and that revenue sort of is gone? And then the second question is on Sundance advertising, following up on a favorite question, obviously, we're all trying to figure out what could be worth. I doubt you'll us. One way I thought about maybe just establishing a floor for that, maybe this is silly, but, Ed, I do know if -- we don't know what the format's going to look like but if you just filled it up with nothing but direct response, so the lowest bottom feeder prices, would you be willing to comment on sort of how much that would be, order of magnitude. I mean, obviously, that's not your plan, I'm sure you'll hope to do better. Or any comment you can make to help us figure out some way to think about a number there that's greater than 0?

Yes. So, Todd, this is Sean. On your first question, the services are still being provided. We are not dark anywhere related to that one example or the one situation Josh mentioned, and the accounting rules just did not allow us to recognize the revenue in the first quarter. So once that deal is paid for, then we'll get paid for the period of time in which we provided the service.

On the advertising front, it is a little difficult to model going forward admittedly. Our approach is to make the platform as valuable a platform as possible for advertisers and to have -- and to establish strong pricing and to establish its effectiveness. And the point of departure is, and I know you were just using it as an illustration from a mathematical modeling point of view, but the point of departure for Sundance is its editorial invitation, which is to say it has independent film and high-quality sort of storytelling genetics. So the original shows that we begin with, we mentioned 2, Top of the Lake recently and Rectify, we think are -- it's an ad term, have very high engagement, have people who care an awful lot about them and will build. So we actually think about -- and we do have some nonfiction shows on Sundance as well. So we think that we can build up real momentum and strength by having the channel be a home for some of the best TV shows on TV and that advertisers will find value in that. And that probably challenges your math a little bit, but it's actually the approach we're taking. So short of just looking at a UE and a baseline-projected rating and a CPM, I'm not sure that we can guide you to a particular way to inform the model. Todd Juenger - Sanford C. Bernstein & Co., LLC., Research Division: All right, that's fair enough. And that's -- I understand the comments you're making around the type of advertisers that fit in that environment. So that makes sense. I will try and squeak, if you don't mind, just one final one and you can make it a short answer if I'm being greedy with time, but your enthusiasm for Rectify, I think, we understand why it's there. Can I just -- when you think about the trade-off between putting such a potentially strong, I'm searching for a better word, show on Sundance, obviously it's a long-term objective of growing the distribution and establish advertising. First, if you wanted to maximize your money right now, I suggest you could probably put it on AMC and make more money this year. That's going to come up more time and time again. How do you think about the trade-off? And can you have your cake and eat it, too? Can you imagine a scenario where some reruns or something of stuff that originally showed on Sundance might it show up on something like AMC Network?

It's a good question. It's probably worth noting that we are right now showing reruns of Breaking Bad on Sundance, and it seems to be performing quite well. We're actually -- we actually had premieres of Rectify going into reruns of Breaking Bad on Sundance at this moment. They are both -- both those shows have a common producer. So I think the main answer is, we have separate development teams, and Sundance will look for the best product that we think will best benefit the brand in the short term and the long term. AMC has its development team and AMC's issue, I think, as I look, and maybe I'm optimistic, as I look at its slate of pilots, we'll have some hard choices to make. We won't be able to go forward with everything. So I think the answer is having strong development people that are attentive to the aspirations of that network.

Your next question comes from Ben Swinburne of Morgan Stanley.

I have a clarification question for Sean on affiliate revenues and then one for Josh. In the prepared remarks, I think you said National Nets were up 11.7%. And you, I think, said the rate growth from or affiliate revenue growth from MVPDs were mid-single digits. I just wanted to clarify if that was correct. And then the difference between those 2 would be digital growth? Is that the right way to think about it?

Yes, that is correct. That's what I said, mid-single digits. The 2 things that we saw was the digital growth, not only what we're experiencing with The Walking Dead, Mad Men. I think I mentioned also in the prepared remarks IFC and some of the things that they delivered to Netflix in the quarter. And lastly, we continue to see the International distribution of The Walking Dead is also something you saw in the first quarter over last year's period. So it's a number of factors.

Josh, when you guys first spun out of Cablevision, you talked a lot about the opportunity to drive your affiliate fees higher. I think you thought you were underpriced, et cetera. I'm curious, when you look at the business today, how you think about the opportunity in affiliate revenues versus advertising, it seems like over those last few years, the power of serialized content, thanks to SVOD players, has become so much more significant in terms of driving ratings and you guys have a huge head start there. And if you look at the broadcast fragmentation, it seems to further helping that opportunity. And then on the flipside, arguably, the MVPD pressure points have gotten tougher about paying up for content. So I was just wondering if you think about the businesses long term, both opportunities look differently than it did 2 or 3 years ago.

Well, you certainly got all the variables and all the pressure points. We don't think about it -- we actually don't think about it differently. I think we modify our tactics a bit. We actually have the same view that we expressed a couple of years ago, which is that we were underpriced, that we are in incrementally altering that. It's a big ship to move. And we do balance, as we mentioned, subscriber growth with rate increases. So I think if you look back 2008 to today, we've probably grown somewhere in the range of 60 million subscribers across the 4 channels, which, of course, is important for ad monetization and opportunity over the long term, while having gone from mid-single-digit rates of increases to something now moving higher than that. So I think -- we think, and we also have our eye on helping maintain the entire ecosystem which is why the manner, the sort of process we engage in to put our shows on SVOD has probably the most significant delay between linear MVPD exhibition and SVOD window versus any other cable TV channel. So we look at it the same way. I think our tactics will alter. We'll just adjust all the time. To your comment, we think that scripted, which we thought several years ago was an unmined opportunity for all the reasons you identified, including fragmentation and technological wind at the back, which we think continues. And so same plan, slightly adjusted tactics as each thing rolls out.

Your final question comes from Ben Mogil from Stifel. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: So just 2 quick questions. Josh, talk a little bit if you can about the Saturday night, the move to Saturday night on a couple of your key shows. It's obviously been a dead zone in the past but -- which I guess, is the -- both the opportunity and the concern. Just maybe if you could talk about that for a little bit? And then, Sean, I think the Q hasn't been filed yet. If you can just give us the national expense breakdown between operating and, I think, technical, that would be great, or just the national expense breakdown on just technical and other, that would be great as well.

All right. So just on Saturday night, it's rather singular. It has been and is a sort of somewhat neglected night on TV for good reasons historically. We, on AMC, had historically had particular success with westerns on Saturdays going way back to Broken Trail, which was a miniseries that we did several years ago that at the time, set ratings records. So even Hell on Wheels can find a very happy home on Saturdays. It's actually just -- it's uniquely strong and interesting. We see linear viewership affected in the evening by what actually plays in the morning and midday, which, in the extreme, suggests that people are planting themselves in front of their television set and staying with it for a uniquely extended period of time. It's enough to almost make you worry about them. But they seem to be doing it, and so we thought it was an interesting opportunity to take advantage of and we'll see how we do with it. So that's the thing behind it. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: Obviously, those people don't have little kids. And then on the cost front?

Yes, the technical operating expense for the National Networks was about $120 million for the quarter. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: So that's -- and what about the other, is that technical and operating? And what about the other expense line?

You're talking about the SG&A? $84 million.

All right. Thank you, everyone, for joining us on today's call and for your interest in AMC Networks. Operator, you can now conclude the call.