AMC Networks Inc. (AMCX) Q3 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the AMC Networks Third Quarter Conference Call. My name is Charles and I will be your conference operator today. As a reminder, all lines will be placed on mute to prevent any background noise. [Operator Instructions] I will now hand over the call to our host for today, Mr. Seth Zaslow. Sir, the floor is yours.

Thank you. Good morning, and welcome to the AMC Networks third quarter 2020 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 Donna Coleman, Interim Chief Financial Officer. Following a discussion of the Company's third quarter 2020 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. 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 appropriate in your evaluation of the Company's performance. For further details, 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. With that, I would now like to turn the call over to Josh.

Good morning and thank you for joining us. I'll take a few minutes to touch on several of our operational highlights, before turning the call over to our Interim CFO, Donna Coleman. I've known Donna for many years through her work at Madison Square Garden and Cablevision, and we feel very fortunate to have her with us and have the benefit of her considerable wisdom and expertise until we name a permanent CFO. AMC Networks delivered solid results in the third quarter with better than expected performance against several key metrics. We continued to maintain a strong financial profile and increase our financial flexibility with a solid balance sheet, very good liquidity and healthy levels of free cash flow. Our financial flexibility allowed us to recently complete a modified Dutch auction tender offer, which took a significant number of shares out of the market at a very attractive price, something that Donna will provide more detail on in her remarks. We continued to make very good progress. And in many respects, we are accelerating around the four key priorities we've outlined on prior calls. They are, one, expanding distribution of growing subscribers for our subscription video on demand services. Two, growing our digital ad revenue business. Three, increasing content ownership and optimizing our content franchises. And four, maintaining the high value our linear networks. Our successful execution in these areas is powering our ability to begin to fundamentally reconstitute the revenue mix of our most company most notably with increasing revenue from our subscription streaming services becoming our fastest areas of growth. I'll touch briefly on these areas, starting with SVOD. Our SVOD business continues to outperform our expectations with AMC Networks fast becoming the global leader in subscription video on demand services for targeted audiences. To recap for you what this business consists of. We have four targeted SVOD services, Acorn TV, Shudder, Sundance Now and UMC that served defined audiences with curated programming. Our subscribers purchase these services as a complement to, not a replacement for the larger general entertainment offerings that AMC serve every member of the household. We also have a new subscription bundled offering called AMC+, which is available on Comcast, Dish and Sling, and it just launched a few weeks ago on Apple TV and Amazon’s Prime Video. AMC+ has ad free programming from our entertainments – entertainment networks like AMC and BBC America. It also includes Shudder, Sundance Now, our indie film centric SVOD offering called IFC Films Unlimited as well as select library shows such as all seven seasons of Mad Men. All of these services are performing very well for us. We're seeing very positive growth rates and we have exceeded earlier stated targets across several metrics, which if I may I'll detail for you. In terms of subs to our Acorn, Shudder, Sundance Now, and UMC targeted subscription services. On our last call, we told you that these services would end the year at the higher end of the 3.5 million to 4 million sub range. And we now expect to end the year with over 4 million subscribers. As a reminder, this is a goal that we previously didn't anticipate reaching until the end of 2022. So we are fully two years ahead of plan and are far exceeding our earlier expectations. With the addition of the AMC+ offering that I just described, in terms of total subscribers across our company for SVOD, we now expect to end the year in the 5 million to 5.5 million total subscriber range more than doubling our SVOD subscribers in just one year. And in terms of revenue, in 2020, our streaming business will generate approximately $200 million in revenue. That represents year-over-year growth of roughly 100%. So in just 12 months, we've also doubled the amount of revenue for our company coming from the streaming business. And we do think it's important to underscore that for a company of our size, the impact of 5 million subs today and 10 million, 15 million or 20 million subs in the future is very, very significant in terms of transforming the composition of our top line revenues. As streaming continues to be a powerful force shaping TV today, we believe our offerings will continue to appeal consumers, looking to go deeper in the content categories that they love and identify with. And they will continue to purchase our offerings along the side, the general entertainment SVOD offerings. While we're still in the early stages of growth, our progress to-date supports our conviction in the potential of these specialized SVOD offerings. Turning to advertising. In terms of the upfront, we are pleased with our performance and we've set a solid foundation for the fourth quarter and going into 2021. We're in the middle of a calendar upfront now, and the marketplace has greater momentum. Pricing is healthy. And our fourth quarter programming slate is set and quite strong, inclusive of AMC's Annual Halloween theme programming event called FearFest as well as our show Fear the Walking Dead, the newest season in The Walking Dead Universe called The Walking Dead: World Beyond and our annual Best Christmas Ever programming event. You'll see that our advertising revenue numbers for the third quarter on a relative basis are strong. We continue to benefit from the unique position we hold in the basic cable landscape with four of the top five dramas on basic cable to 2020 in key demos. We are the only premium diversified portfolio that consistently delivers high quality dramas in a deeply engaging ad supported environment. Our high concentration of hard to reach audiences are very attractive to advertisers and importantly are obviously not accessible on large streaming platforms that are ad free. A continuing area of focus for us is to leverage our award-winning programming through partnerships that offer viewers a new way to consume our content and help our advertising partners to capitalize on their shift to streaming. So we've successfully debuted ad supported streaming channels on Pluto and Sling and recently added Amazon’s IMDb as an ad supported streaming partner. These are in addition to recent fan centric initiatives we're dealing with Reddit and Twitch, all part of our effort to create multiple ways for advertising clients to reach their audiences on all platforms via the passionate fan bases we have for our content, particularly around our key content franchises. These ad partnerships and ad distribution partnerships have yielded promising revenue results that are adding to our overall digital ad inventory scale in a manner that's becoming increasingly meaningful. We have more ad supported platforms launching in the coming months, and we are looking forward to continued growth in this area in 2021 and beyond. Moving on to distribution. In the quarter, we reached a long-term carriage agreement with our partners at AT&T DirecTV. Our new comprehensive multi-platform partnership includes extended distribution for our linear channels and new distribution for our SVOD’s services, including AMC+ in our targeted SVOD offerings. With AT&T DirecTV, we've now completed multi-year renewals with three of the top four traditional distributors over the last 18 months. These are in addition to our recently expanded agreements with Amazon and Apple TV, which is, I just mentioned now carry AMC+ in addition to our standalone targeted SVOD services. These distribution agreements not only reflect the power of our strong content, but also I think the largest shift in our relationships with these value distributors. We're expanding our partnerships with them to include multiple products, obviously, our linear channels as well as our growing SVOD services and bundles now including AMC+. We think that we are particularly well-suited to bring our content to bear in service of MVPDs evolving needs as they themselves expand their businesses to capture opportunities, not only in traditional bundled linear video, but also to the broadband only subscribers, which are growing. Turning to content. As I mentioned, AMC is home to the four of the top six dramas on cable in 2020 to-date in two key demos adults 25-54 and adults 18-49. The expanding Walking Dead Universe continues to be very popular with viewers. Last month, Fear the Walking Dead returned for a sixth season. The show is creatively better than ever and ranked as the number four cable drama for the year among adults 18-49. And I mentioned earlier, the newest series in the franchise called The Walking Dead: World Beyond. This show follows the first generation to come of age after the zombie apocalypse and with its strong performance in the new storylines; it ranks as the number one freshman cable drama of the year in both key demos and through its first three episodes. It's also performing well for us on our AMC channel overseas particularly in Latin America. We recently announced that The Walking Dead mothership will come to a close in late 2022. We are planning an expanded two-year season with 24 episodes, which will mark the 11th and final season of this flagship series. Its conclusion will be followed by another new series. This one's focused on the very popular Daryl and Carol characters. And fans are already expressing their enthusiasm and anticipation for that new chapter in The Walking Dead Universe. We're also developing an anthology series called Tales of The Walking Dead that will offer great flexibility in the stories we tell within this universe. It'll focus on the characters, fan favorites, back stories and other novel approaches. All of this activity led by Scott Gimple, our Chief Content Officer of The Walking Dead Universe. All of it, we are really quite excited about it. I talked about our new AMC+ offering at the beginning of these remarks. To give you a sense of how viewers are engaging with AMC+ in the first two weeks that the service has been available on Apple TV and Amazon. The most viewed series and ???????????? growth drivers are The Walking Dead Season 10, The Walking Dead: World Beyond. Premieres of two new AMC series called Gangs of London and The Salisbury Poisonings as well as family Halloween theme programming from AMC popular FearFest as well as from our Shudder service. I'll note that those two acclaimed dramas Gangs of London and Salisbury Poisonings were AMC+ exclusives at launch, and won't appear on our linear network until early next year. In addition, the broad availability of AMC+ allowed us to make content from The Walking Dead Universe available on AMC+ several days ahead of its linear premiere. So while it's still early days to view AMC+ as a powerful platform to reach fans of our content, allowing us to increasingly capitalize on the strength and interest of our original programming, as well as the breadth of our growing library of own content. And on the production front, I'm pleased to say that we are resuming production activity on a number of our shows and we're doing so safely in accordance with local health and safety guidelines and in cooperation with all of the relevant unions and guilds. We're currently in production on new episodes of The Walking Dead at our studio in Georgia, Fear the Walking Dead in Texas, and season one of a new series called Kevin Can F*** Himself that is shooting in Boston. Finally, turning to international. We continue to expand availability of our SVOD services into overseas markets with Shudder now available in Australia and New Zealand and Acorn TV recently launched in Portugal, expanding its European footprint. In Spain, we've leveraged our strong relationship with our long-term distribution partners at leading Spanish Pay TV operator Movistar+ and we are co-producing a major mini series to our AMC studios with them called La Fortuna with a stellar cast including Oscar-winning actor Stanley Tucci. So to close out, the third quarter demonstrated the strength of our increasingly diversifying business. And we continue to benefit from the positive momentum across those strategic initiatives in particular, the progress we're making and executing on our subscription streaming business. With that, I'll turn the call over to Donna Coleman for more details on our financial results. Thank you.

Thank you and good morning. For the third quarter, total company revenue was $654 million. And total company AOI was $185 million. Both revenue and AOI were ahead of our expectations this quarter, primarily due to favorable top line performance, particularly at our international and other segments. With respect to the performance of our operating segments. At the National Networks, revenue was $462 million and AOI was $159 million. Advertising revenue in the quarter declined 16% to $164 million. As expected, we saw an improvement in the overall health of the advertising market in the third quarter as compared to the second quarter. However, our advertising performance was impacted by the timing of our originals, in particular, the airing of Fear the Walking Dead, which aired in the third quarter of 2019, but was moved to the fourth quarter of this year, as well as the pandemic and lower delivery. With respect to distribution. As anticipated, distribution revenues decreased in the quarter. The main driver of the decline was the content licensing component of distribution revenues. This line item declined due mainly to the timing of the licensing of our scripted original programs in various windows. Most notably, results in the prior year period reflect the SVOD availability of The Walking Dead as Low Winter Sun [ph] and the international distribution of Fear the Walking Dead and The Terror. As for subscription revenues, consistent with our expectations, subscription revenues were down in the low double digits as compared to the prior year period. As we continue to see a moderation mainly due to declines in total Pay TV subscribers. As Josh discussed, we believe the strength of our content and our attractive wholesale pricing continues to make us a valuable service for our distribution partners. Moving to expenses. Total expenses decreased $48 million or 14% versus the prior year period. Technical and operating expenses decreased 15% to $223 million. The variance primarily related to the suspension of production activities and subsequent delays in the creation and availability of content, which resulted in a reduction in programming amortization. In the quarter, we recorded $20 million in charges related to the write-down of various programming assets. This compares to write-downs of $1 million in the third quarter of 2019. SG&A expenses were $90 million in the third quarter, a decrease of 11% versus the prior year period. The variance primarily related to lower marketing and other administrative costs. Moving now to the international and other segments. International and other revenues were $199 million. As I mentioned, revenue was higher than expected. Levity was the main driver. While the comedy venues remained closed, production activity resumed sooner than we had expected. Advertising at our annual – at our international networks also improved more than we anticipated on a sequential basis. Looking at our year-over-year results. International and other revenue increased 9% versus the prior year. As Josh discussed, we've benefited from strong growth from our targeted SVOD services due primarily to the increase in subscribers. AOI was $28 million, an increase of $14 million versus the prior year. The increase was primarily attributable to an increase at our targeted SVOD services, partially offset by decrease at our international networks. Moving to EPS. For the third quarter, EPS on a GAAP basis was $1.17 compared to $2.07 in the prior year period. On an adjusted basis, EPS was $1.32 compared to $2.33 in the prior year. The year-over-year variance in both GAAP and adjusted EPS primarily reflected the decrease in AOI as well as an increase in the effective tax rate, partially offset by a favorable variance and miscellaneous net and a reduction in outstanding shares as a result of our stock repurchase program. The increase in the effective tax rate was due to an increase in a cap valuation in the current period versus a discrete benefit in the prior year period of some tax planning strategies related to investment tax credits and the reorganization of foreign IP. The favorable variance and miscellaneous net reflected unrealized gains on equity investments. In terms of free cash flow. As expected, the company had a strong quarter and continues to deliver very healthy amounts of cash. We generated $203 million in free cash flow for the three months ended September, 2020, resulting in a nine-month total of $595 million in free cash. Through nine months, cash interest was $92 million. Tax payments were $60 million. Capital expenditures were $35 million and distributions to noncontrolling interests were $14 million. Working capital also improved significantly year-over-year, primarily due to delays in production spending as well as the timing of collections related to receivables from the sale of advertising and content. Turning to the balance sheet. Our financial profile remains strong and we continue to take steps to ensure that we're well positioned to ensure to weather the impact of the pandemic on our company. Our balance sheet and strong free cash flow have continued to allow us to opportunistically allocate capital. In mid September, we launched a Dutch auction tender offer. As a result of the tender, which we completed in mid-October, we repurchased 10.8 million shares for $251 million. We were quite pleased with this transaction, as it allowed us to repurchase a significant amount of our stocks. Subsequent to the completion of the tender, the balance sheet remains strong, and we continue to have significant financial flexibility. In terms of capital allocation, the four key tenets of our capital allocation policy remain unchanged. They are, first, invest organically in our core business and new businesses on projects that produced attractive returns for our shareholders. As Josh discussed, our targeted SVOD services have been performing quite well. And we're looking to lean into this area of our business to improve our long-term positioning. Our second tenet is to maintain leverage that is appropriate for the business outlook. As of September 30, AMC Networks had net debt and finance leases of $1.9 billion. Our leverage ratio based on LTM AOI of $833 million was 2.2 times. Adjusting for the tender offer that I mentioned a moment ago, our leverage at September 30 would have been 2.5 times. Despite the impact of the pandemic on our business, we do not foresee any issues with regard to our covenant or our ability to service our debt and continue to have significant liquidity. Third, make disciplined and opportunistic acquisitions to advance our strategic. Fourth, return capital to shareholders. Year-to-date, the company has repurchased 14.8 million shares for $354 million. As of last Friday, we had $135 million available under our existing authorization program. We'll continue to be opportunistic with the pacing of our repurchase activity, and you should expect it to vary quarter-to-quarter. Looking ahead, as we previously discussed, the ultimate impact of the COVID-19 pandemic on our operations remains quite fluid. It makes it unusually challenging for management to estimate the future performance of our businesses. As a result, the focus of our prospective comments will be on the fourth quarter. With respect to that quarter, we anticipate continued quarterly variability as a consequence of both pandemic, as well as the specific timing of our investments in content and the airing of our shows. As per revenue at the National Networks in terms of advertising. While the advertising market continues to improve sequentially, year-over-year results in the fourth quarter are expected to be impacted by the timing of our original programming lineup, including a delay in the airing of The Walking Dead. As a result, we expect the year-over-year decrease in fourth quarter advertising revenue to be relatively consistent with the percentage we reported year-over-year in the third quarter. As for distribution revenue at the National Networks, we anticipate that we'll see significant sequential improvement in our year-over-year results in the fourth quarter, as compared to what we saw in the third quarter of the year. With respect to content licensing revenue, our performance will be impacted by the favorable timing of the availability and monetization of content and ancillary windows. For instance, in the fourth quarter, we expect to recognize revenue from the international distribution of World Beyond and Fear the Walking Dead. In terms of subscription revenue, we expect the decrease in the fourth quarter to be relatively consistent with the percentage we recorded year-over-year in the third quarter, as the macro trends in Pay TV subscribers continued to be the main driver of our performance. At our international and other segment, we expect revenues to be down modestly on a percent basis year-over-year. We anticipate continued growth in our streaming services will be offset by declines at Levity as the comedy venues remain closed. And our international networks due primarily to an adverse impact on advertising revenues related to the pandemic. As for expenses, we expect total company expenses to increase modestly on a percent basis year-over-year. At the national networks, expenses are expected to be relatively flat year-over-year, due primarily to the timing of airing our originals. We expect programming amortization to reflect the airing of originals, such as Fear the Walking Dead, World Beyond and Soulmates. At our International and Other segment, we expect increased investment in programming and marketing to drive subscriber gains for our growing SVOD services. In terms of free cash flow, our production activity has picked up significantly. Assuming no significant interruptions in that activity as a result of the pandemic, we don't expect to generate meaningful cash flow in the fourth quarter. We remained quite pleased with the free cash flow characteristics of our business and expect to end 2020 at levels, well in excess of 2019 free cash flow. So in conclusion, overall, we feel confident about our ability to continue to weather the pandemic, given our strong balance sheet and our healthy free cash flow. Our focus remains on positioning the business to get through this period of uncertainty, while also taking advantage of opportunities that we create to further our long-term strategic initiatives and positioning. With that we would like to move to the question and answer portion of our call. Operator please open the call to questions.

Thank you. [Operator Instructions] And our first question comes from the line of Michael Nathanson. Your line is open.

Thanks. Hey Josh, I have a question for you. Can you talk a bit about those four targeted services, maybe the need to – the balance of what is bringing in those subscribers? Is there enough healthy, original programming, is it library, a little bit about churn? So I'm just trying to get like a picture of how much you need to invest in originals, keep driving this and what the churn dynamics look like? Thanks so much.

Sure Michael. I think the answer is a little bit different for each one, because they have such discrete targeted audiences. I will share with you that the largest of them Acorn, which is British-oriented has a vast and deep library, and a wide range of material that we can license. At the same time, Acorn has been a bigger vigorous co-producer of material in the UK and actually around the world. So an Acorn is a combination of very significant library, and co-productions. And by the way, asterisk Acorn through that business we own significant participation in Agatha Christie intellectual property. It happens to have, Michael, interestingly, among the lowest churn of any subscription service in America, that includes the biggest part of this. And that's a function of, I think, two things: one is the sort of dedication and affinity that people feel with the material, part of its demographics it's used somewhat, older. And although it is somewhat programmed-dependent, and significant part, the steady stream availability and opportunity for put people to watch the type of material they like, gives it this very low turn. So it has frankly, extraordinarily attractive, characteristics in terms of churn and therefore lifetime value. Shudder – I'm sorry, I'm giving you a, such a long answer, torment you, but Shudder…

It’s okay.

[Indiscernible] it gets very interesting. But Shudder is interesting because we do have also library of good movies, but we've been able to produce, and co-produce in a few different areas and your illustrative and worth the moment. First, with our own AMC service, or regular linear business, we co-produced a series called Creepshow, which in that demo and on that service is sort of a monster hit. And then this is illustrative, Michael, I thought you might appreciate it, we did a movie during the pandemic called Host, which was done completely, remotely. It was lauded in those circles and it was a pandemic movie that was a horror movie. And it was lauded and there was electric amongst the Shudder audience. Shudder has slightly higher churn, wide availability of material, and it's a dollar threshold for producing for it against the target audience is frankly not that high, a movie like Host is rather inexpensive and they enjoyed it very well. So the net of this, if I were to summarize it, is as compared to the general SVODs. The dollar requirement is in a different league. It's nothing like you see and read about Netflix, et cetera, spending on a per hour basis. It's actually a different universe. And it has different sets of economics that are very attractive and frankly much lower. And so it's a wonderful business to be in. And I think that we have advanced and refined our capability in how to find target and retain those audiences as proven by the numbers. So while I wouldn't say we're the worldwide leader in targeted SVODs, we may, in fact, be the worldwide leader in these targeted SVODs. It's a nice claim to make, I think, it's legitimate.

Okay. Thanks Josh.

Thank you. Next question comes from the line of Steven Cahall. Your line is open.

Thanks. Two from me. Maybe first just tracking your distribution revenue it does seem like that may be in addition to sub declines there's a little bit of pricing pressure. And so just wondering if it's logic for us to conclude that as you're renewing with MVPDs, you're launching these digital bundles, is there a little bit of price pressure that's working into your networks as you make that pivot? So that's the first one. And then the second one, I was just wondering about the life of series deal with Netflix, for the Walking Dead, as you start to think about delivering the final seasons of the Walking Dead, how do you think about that deal? And we've seen some legacy libraries like Mad Men recently get repriced up as they've come available. So, does the end of that show sort of reopen that deal with Netflix? And if it does, do you feel like that's more upside or downside to your licensing revenue? Thank you.

So I'll answer the first part of it – the first question and the first part, the second one, I'll ask Ed to participate. On the distribution side, there has been some pricing pressure downward rate of growth on MVPD renewals used to be double digits, it's lowered now. The most significant factor affecting the moderation of the line and our distribution revenue and it has a bunch of components, as you know, it includes content licensing revenue as well, is subscriber declines, which unfortunately have taken place, particularly in the satellite sector, which we’re widely exposed through AT&T and through Dish. There has been a moderation in rate of growth, each deal is different that we've done. We are focused on a holistic, as I mentioned in my prepared remarks, relationship with our MVPD partners. So, off note Comcast was a helpful architect in what was first called AMC Premiere and then AMC+, Dish and Sling supports it, AT&T supports it and carries it. So we are focused on what our world looks like over 12 and 24 months in aggregate. But we're also focused on frankly, we think we have among the most valuable basic cable services that are out there with four of the top six rated dramas. And they are great for MVPDs. We're trying to both retain, and you saw recent numbers in the charter, frankly, grow standard video subscribers. If my information was correct. So we're living happy on both sides of the house. The nicest thing for our company that we see is that our cherished MVPD partners are embracing our linear offerings and our SVOD offerings. And they see us as a stable, high quality, reliable, integrated provider on both sides of the house. So as they live with more broadband-only in their lives, we are a provider who is very well-priced on the linear side, and now has a margin opportunity on the SVOD side and allows them to vigorously be in the video business with that partner. So I think that's a sort of unique and very nice position to be in. To your second question, if I may, I'll first distinguish that certainly shows we own because we produce them and the other ones we license. So Mad Men, for instance, we licensed because when we made it, we were just getting into our regional programming, we didn't want to de-risk it. So we took on Lionsgate as a partner, and they were the owner of it. So to put it on the service on AMC+, which we did, we had to license it from Lionsgate. We own the Walking Dead, and we own the majority of shows we've done over the past eight or 10 years. So that question of licensing is not applicable because after shows do their run on SVOD if you licensed them to the likes of Netflix, they come back to us as the studio. If I may, Stephen, I'll just turn it over to Ed who may amplify a bit on the answer.

Right, Steven. So several years after we stop making and delivering new episodes of the Walking Dead, all the rights, revert back to us from Netflix. And so that that will be over 170 zombie hours. And then if you combine that with Fear, Fear the Walking Dead, which comes off Hulu a few years after we stopped making and delivering it, we'll have well over 225 hours. And it's important because we will then have the freedom to use them on our platforms to continue to either share licenses domestically or continue to aggressively license them internationally. And I think the point that you are scratching at is a good one. With a show like Walking Dead, I’d put it in a rare league, like Game of Thrones and Sopranos, there are always new people aging into that demo. So they will always be people who want to see that show. So if we have that show and we decide to use it on our platforms or license it around the world, share a license domestically, we have the option to do that. And as Josh was alluding to us, it dovetails nicely with the studio strategy that we've been talking about for the past few years. So shows like Into the Badlands, and Halt and Catch Fire, and Rectify and Turn, literally hundreds of hours are coming back to us and we have our choice to exploit them on AMC+, or to come up with other creative splits that are in our economic interest to do.

Thanks Ed.

Thank you. Next question comes from the line of Michael Morris. Your line is open.

Thank you. Good morning. Two topics for me. First, can you share your thoughts on pricing for the AMC+ service? So specifically the why do you have such a variance on – at least on a percentage basis between say a Comcast customer, and an Apple or Amazon customer? And then also the $9 price point on Amazon Prime and Apple feels fairly high on a relative basis. So why is that the right price and sort of what other considerations there? And then secondly, as your revenue streams do increasingly diversify, how do you think about the long-term AOI margin compared to maybe what you've enjoyed on a pretty steady basis at the National Networks space – segment in that kind of mid-to-high 30s range? How do you think about it for the company over all over the longer term? Thanks.

Sure. So I'll kick it off, Michael and Ed may have something to add. I’ll start with the margin first, which is we – the SVOD services that we have really do, as I mentioned earlier in the Q&A, have unusual expense characteristics, they are unusual. The targeted services are a different species from an SVOD service that is striving to be in 50 million domestic homes and 200 million worldwide homes, and is looking to serve every member of a household with something from kids programming, et cetera, on. So the scalability and the leverage in our expense base is relatively very attractive to wit, we’re run rate profitability and all that stuff put four million subs in aggregate is something that is indicative of what it costs to actually serve with great satisfaction that the consumers who are buying these things. They're critical, they're making decisions and we are satisfying them with that level of expense. Now it takes – it is yet to be relatively good at it both programming and marketing, but that's what we've been doing now for it's going on six-and-a-half, seven years. On AMC+ we also had a benefit in the sort of share – appropriate shared programming between linear services and SVOD. So if we replace a third party as the outlet for SVOD, and we enjoy the benefits of it ourselves, and we also own the show, that is an attractive proposition for us economically. So I wouldn't make a margin prediction for us. 36 to 48 months out I would say that we'll have a – we hope a radically different top line of diversified revenue coming from multiple different sources, which is already underway, doubling SVOD subs and doubling SVOD revenue in 12 months is a reasonably healthy rate of growth, obviously. And the margin profile in aggregate of our company, I think, will be very attractive over time which is not the same any one period, there won't be some fluctuations. As it relates to your other question on price, I'll offer one – I'll turn it over to Ed if I may, he will perhaps be more authoritative, go ahead Ed.

Hey, Michael, I'll just remind you we had established a price point in the market for Shudder, which was $5.99. And that said that has exceeded a million subscribers. And we have a price point in the market for Sundance Now at $6.99. And then we had AMC Premiere on Comcast and Comcast really was a co-architect of that concept of taking AMC content and making it available in a premium, commercial-free, sort of binge friendly format. And that was about a $5 price point. So, with all that value, as you would imagine, we did a fair amount of modeling and determined that that $8.99 was the right introductory price point. And we'll be migrating some of those AMC premiers at lower price points to higher price points over time. It might help. If I give you a little information about the programming model with AMC+ the viewing data and its early days. But in the few weeks we've been out there, the power of the broad offering on the Walking Dead is proving very compelling to subscribers. And so when we combine that with Shudder, and then The Scary Movies and original series such as Creepshow, we have a lot of experience programming into this genre in defense of the genre content. It's the Comic-Con crowd that has embraced our Zombie series and shows like Preacher, and Into the Badlands and A Discovery of Witches, and it's broad. So we think the combination of AMC content combined with the offerings of some of our targeted SVODs, I'm talking about, Shudder and Sundance Now hits a sweet spot. It's still a targeted product, but it's one with a significantly higher stealing. So the genre is a big aspect for us to program to hit those Comic-Con fans that have great reverence for our shows. The other major track is the prestige side of AMC's brand. So that's exemplified by shows like Mad Men, and Killing Eve and Better Call Saul. And that, we think, is reinforced by the indie films and series from Sundance Now and IFC Films. So both on the genre and the prestige side, it's a lot of good content at an attractive price point, we're off to a fast start, its early days, but we really like the trajectory that we're on.

Great. Thank you both.

Thank you. Next question comes from the line of Kutgun Maral. Your line is open.

Great, thanks for taking the questions. Two if I could. First, sticking with AMC+, you had previously sized the total addressable market for each of the four targeted services to be over $10 million in the U.S. alone, your updated SVOD subscriber targets today imply fairly encouraging adoption of AMC+ either through Xfinity DISH, Sling or now through Apple and Amazon. So how are you thinking about the longer term, subscriber potential for AMC+? I assume the service accelerates your SVOD revenue expectations as well. I'm not sure if you'd be willing to update your previous 2024 outlook, or if maybe we should wait for a year end. And I know you've talked about the relative, attractive cost structure of your SVOD services overall. Does AMC+ shifts the path or timeline to profitability? And I have a follow-up.

It's a good question. I'll give you a couple of answers. And the answer to the ceiling of market opportunity is substantially or dramatically higher. When we spoke to you about targeted SVODs, we were talking to you about those four, Shudder, Sundance Now, UMC and Acorn. And AMC+ if I can – I think Ed said it is targeted and niche, but I would say it's super, super steroid targeted. And if you have four of the five – four of the top – I shouldn't have said five, forgive me, four of the top 10 or 20 shows of the past four years, which have not been widely exposed that are genre oriented, you are not in a 10 million subscriber opportunity range, you are either in a sort of super targeted range. So the market size opportunity radically different than when we spoke to you before the launch of AMC+ now going that several months or a year plus ago. So that is a new development in our activity, it's a new development in our expectation, and it's a new development for the actual perspective of the overall company. I can't dramatize it enough. In terms of cost, there's a few things to consider that we will find opportunities to invest. I think with degrees of discipline and also with degrees of the efficiency that will come organically from the situation we're in, and they'll – they come in two different flavors. First and foremost, what Ed just said is he named the list of shows, they each have explorations on their SVOD licensing. And they are over and then they come back to our library we own them. What is interesting this phenomenon is and you see it is that, audiences that come of age and are of interest in that material have not seen or heard them. So they're new to them. And they discover them. And we own them. So that will be – that will create a level of efficiency for us to expand and raise the ceiling on that market opportunity. Number one. And then number two, when we produce for AMC Networks, AMC, BBC America, Sundance, IFC, we can produce for our SVOD services and our linear services. That will similarly give us an inherent economy in our approach to what we're doing. So we're going to need to be great, we're going to need to serve audiences, we're going to need to excite, but we have two fundamental characteristics that give us cost advantage as we mind that much more significant opportunity.

That's very helpful. Thank you. And second, if I could just on buyback, the tender offer was a very clear and impressive expression of the Board's confidence in business. That said, there still appears to be plenty of dry powder, given the strong balance sheet, ample liquidity and free cash flow generation. I appreciate that this would be a Board decision, but should investors expect buybacks will continue to remain elevated as shares remain range bound in the mid- to lower $20 range?

Hi, it's Donna. I think, as I outlined in our prepared remarks, where we feel we have a very good balanced approach to investing in the company, maintaining our leverage level and returning capital to shareholders, so I think that we are going to continue to be opportunistic in our decisions on buybacks. We'd have $135 million left in our existing authorization from the Board. As you point out, we're very optimistic about the future of the company and the strategy that Josh laid out. And so we're quite pleased with the way the Dutch auction worked out. But I think that going forward, we're going to maintain our four tenants that I outlined in our script and continue to be opportunistic in both investing in the company and doing share buybacks.

Thank you both.

Operator we have time for one last question, please.

Thank you, sir. Next question comes from the line of Brett Feldman. Your line is open.

Thanks for squeezing me in. You've continued to make the point you're demonstrating it with your performance that managing these targeted SVOD services is a real core competency of the company. And you've talked about this $10-plus million addressable market for the services you have. I would imagine that if you were to come up with a theoretical list of targeted SVOD services that could need different demos, it could be much more expensive than four services. And so have you thought about trying to cultivate a fifth or a sixth, I got to imagine you get pitched ideas a lot, and as just noted in the last question, you have plenty of financial resource available to you. So I was just hoping you maybe you could just expand on how you think about diversifying that service portfolio over time. Thank you.

Sure. I think – thanks for the question. We started Shudder several years ago, we started Sundance Now several years ago on an almost R&D basis. We put it in rework to move it away from our mainstream activity in order to feed it and give it the support that it needed. And then we did have our eye on other targets we had experienced. Just to give you a bit of history, we had experienced the appeal frankly of British-oriented or produced programming through our partnership with the BBC. So we were happily able to acquire the services Acorn and UMC, and you were familiar with black-oriented programming through VTV. And so we had distinct attraction to, and was on our list, British and urban-oriented, or black-oriented content. To your question about expansion, I'll note one asterisk, we launched very recently, something called IFC Films Unlimited, which is a targeted Indie film service that had some reasonably good uptick rather rapidly. And we do study the market, and we do study pricing and we do now have increasingly available data to understand really different price points, what people will buy. And as you might imagine, we're of course aware of everything that's in the marketplace that's operating today, particularly in U.S. what the ownership is, what their subscriber performance are and roughly what their metrics are. So without saying anything – without conclusion we're studying the marketplace, we will determine whether there are opportunities either for organic or M&A activity in this area. I think we have reached a place where we have degrees of competency, if not confident plus in how to market – bring these things to market, how to organize them, how to work with distribution partners, both digital and MVPDs, and to how to discount, arrange, and sell and retain. So the answer is yes. We think there may be opportunities to grow. We just want to make of course, right calls, the right moves and have the right ROI.

Great. Thanks for taking the question.

Well, thank you everyone for joining us on today's call. We apologize for the delay at the outset of the call, but we do appreciate your interest in AMC Networks. Operator, you can now conclude the call.

Thank you, sir. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.