Earnings Labs

AMC Networks Inc. (AMCX)

Q3 2021 Earnings Call· Fri, Nov 5, 2021

$8.54

+1.25%

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Transcript

Operator

Operator

Good day, ladies and gentlemen, and welcome to the AMC Networks Third Quarter 2021 Earnings Conference Call. At this time, all participants' lines are in a listen-only mode. As a reminder, today's call is being recorded. I would now like to turn the call over to your host, Nick Seibert. Please go ahead.

Nick Seibert

Management

Thank you. Good morning, and welcome to the AMC Networks Third Quarter 2021 Earnings Conference Call. Joining us this morning are Matt Blank, Interim Chief Executive Officer; and Chris Spade, Chief Financial Officer. Today, we will begin with prepared remarks, and then we'll open the call for questions. If you do not have a copy of today's release, it is available on our website at amcnetworks.com. Before we begin, I would like to remind everyone that this call may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ. Please refer to AMC Networks' SEC filings for a discussion of risks and uncertainties. The Company disclaims any obligation to update any forward-looking statements made on this call. On today's call, we'll discuss certain non-GAAP financial measures. The required definitions and reconciliations can be found at the end of the earnings press release issued today. With that, I'd like to turn the call over to Matt.

Matt Blank

Management

Thanks, Nick, and good morning, everyone. With nearly two months under my belt at AMC Networks. It's great to be back in an environment with strong quality content at its core, echoing my many years leading Showtime. And a quick thank you to my friend, Josh Sapan. Josh and I have known each other for decades, and I'm grateful for his continued friendship, guidance and counsel. And I'm most grateful to be working alongside the terrific team here at AMC Networks. It's also so nice to be joined on this call by some longtime friends from the analyst community. AMC Networks had strong results in the third quarter, including revenue of $811 million, the highest quarterly revenue in the Company's history. We expect to have a strong finish to the year, so much so that we're updating our full year financial guidance, with an increase in total company revenue growth in the mid-single digits and total company AOI growth in the low single digits. And we're on track to deliver on the 9 million paid streaming subscribers that we first referenced in February of this year across our streaming portfolio of AMC+, Acorn TV, Shudder, Sundance Now and ALLBLK. Chris will expand on all of this in her remarks shortly. With our focus on targeted streaming, we're well on our way to our projected 20 million to 25 million paid streaming subscribers in 2025. With all the attention around the large streaming services that seems to dominate the news, it's clear to me that we're building a sustainable and long-term profitable business here with our unique approach to the market and how we're serving subscribers. As a new guy on the block, I thought I'd share some initial observations about the Company before turning this call over to Chris. AMC…

Chris Spade

Management

Thank you, Matt, and good morning, everyone. First, I will start by providing some additional details regarding our updated 2021 financial expectations, which Matt just mentioned at a high level. Our new outlook for the full year of 2021 sets the stage for a strong 2022 and continued proven execution toward our long-term subscriber goals of 20 million to 25 million by year-end 2025. We are reinforcing our plan to grow to at least 9 million aggregate paid streaming subscribers by the end of 2021. We have experienced ongoing subscriber growth momentum consistently every quarter, and we are on track to achieve our aggregate year-end subscriber goal for 2021. Streaming subscriber growth continues to be driven by our curated programming investments and supported by strategic subscriber acquisition and retention marketing investments. We will continue to invest to drive future streaming growth, particularly in new original programming, efficient subscriber acquisition marketing and platform enhancements. As we discussed on our last call, we expect streaming growth investments to be more heavily weighted toward the back half of the year and continue into 2022, in which we will have our strongest full year original programming slate ever. On the heels of our third quarter streaming performance, we anticipate accelerating streaming investments in the fourth quarter of 2021 and into 2022. We continue to see that streaming growth is supported by the combination of strong content and coinciding awareness and performance marketing. Going into 2022, for AMC+, we will have 22 original series premieres including three series finales for The Walking Dead, Better Call Saul and Killing Eve. Our series offerings in 2022 comprised our strongest slate ever. Today, we are raising our full year 2021 outlook for total company revenue and for adjusted operating income year-over-year growth. We expect full year 2021 total…

Operator

Operator

[Operator Instructions] Our first question comes from the line of John Janedis with Wolfe Research. Your line is open.

John Janedis

Analyst

Within your streaming forecast, how important are incremental distribution agreements like the Verizon deal to reach the targets? And understanding it's early, what does engagement look like from the Verizon cohort relative to the legacy subs? And then the overseas expansion, can you give us an update on the strategy?

Matt Blank

Management

Sure. Thanks, John. Good questions. Obviously, any engagements on the marketing and promotional front that we can develop in coming years will help us reach those goals or go beyond those goals, but our plan is in place for getting to those numbers over the next several years. We're very excited about the Verizon deal. They're one of the great marketing organizations, great brands, and it's great to be associated with them. It is early in that promotion for us to really be talking about what it's going to mean in terms of sub growth for us. I'm sorry, what was the second part of your call -- your question?

John Janedis

Analyst

Overseas -- overseas distribution.

Matt Blank

Management

We are not as well penetrated overseas as a lot of others are. So again, that's just runway. We look all over the world. We see a huge runway for AMC's brands. And obviously, we plan to take advantage of those as we roll out our streaming plans.

Chris Spade

Management

John, it's Chris. Thanks for the question. The other thing I would also add to Verizon is I echo what Matt says that it is important in our long-term strategy of growth. As we look at how we're going to build out and expand AMC+, it's a wide variety of areas that the growth will come from. So we have our core organic growth. And if you can recall, AMC+ only recently launched last year, so it's still a year plus into it, but it's still early days compared to some of the other services that are out there. So as we look ahead, we do see strong international opportunity for AMC+ and our targeted streaming services. And we have for AMC+ recently launched in Canada. There will be more countries to come. And also, for Acorn, we've launched in a couple of countries as well, and there will be more to come there. So global distribution is a big opportunity for us, and we're excited about what the future holds for that. Thank you.

John Janedis

Analyst

Okay. Maybe separately I could sneak in the second one. You talked about the enhanced pipeline and, Matt, the beauty of small numbers. What are your expectations for growth in content investment with the market saturation for the larger players that you talked about? Does that change how you think about programming investment or the size of your opportunity?

Matt Blank

Management

Our model is different. And one of the things I mentioned there is we're just not going to play the cost game that others are playing. And that strategy is not going to change. We are very confident about our ability to program these services aggressively. And frankly, based on my background, we're going to step on the gas pedal here. And that's going to benefit not just the current user experience, but also the IP that we own in the future. So we're not going to play other's games. We're going to continue to invest and -- in all the franchises here. And that's important as we roll out these targeted strategies.

Operator

Operator

Our next question comes from the line of Tim Nollen with Macquarie. Your line is now open.

Tim Nollen

Analyst · Macquarie. Your line is now open.

Could I follow up on the International? I think you said in the prepared remarks that you've got some Hulu and Netflix deals expiring. You can put some of that content on your platforms, your own DTC platforms. I just want to make sure how that plays out in Europe as well because I know you've had some decent content deals in Europe, I think, also with Amazon. So the question is what content can you put on to your own platforms? And then a second question would be, I saw the announcement a few weeks ago about this partnership with The Trade Desk and Magnite on targeted programmatic linear advertising. Wondering if you could speak a little bit more about that. I think it's not completely new. You've been doing this for a little while already. Just curious about more details on this partnership. Thanks.

Chris Spade

Management

Thanks, Tim. So first, on the international front, we are in this period where we will continue to optimize our linear performance relative to content licensing deals that we have in place. It's not a long-term plan for us in terms of continuing to renew these types of licensing deals. So over time, we will take back some of that licensed content for ourselves in markets where we are significantly out there with our streaming distribution. Given the IP that we have that Matt outlined, we actually do have strong IP that we can put in place in the standing products today internationally in select countries. So we will continue to go through this dance of optimizing and enjoying the current licensing revenue we have in place that will fuel the growth for the future. But for the long term, we really feel it's important that we have exclusivity in our content. And so wherever those deals will come to expire in countries that we are significantly investing in streaming, we'll look to have that product be exclusive. And then relative to the targeted programmatic linear advertising, we're very excited about what Kim Kelleher and our advertising team are putting in place across the board with advanced advertising. They're paving away a new frontier. And I think because of the nature of our strong content and the innovation that we're bringing to selling our advertising inventory, we're viewing it in a way that's exciting to our advertisers, and we can focus on the addressable market.

Operator

Operator

Our next question comes from the line of Michael Nathanson with MoffettNathanson. Your line is now open.

Michael Nathanson

Analyst · MoffettNathanson. Your line is now open.

Matt, I have a couple of you. First is, given your experience at Showtime and all you've done even before that, I wonder what do you think of the unit economics of this midstreaming business? When you look at the ROI or the lifetime customer value, anything you can share with us on kind of the comparable unit economics of this model versus the models you knew before? And then second is, last night, you probably know that Lions get announced they want to do something with Starz and consider opportunities. How do you feel about the need for maybe further scale? And do you think this is eventually -- I know you're playing a niche game. Were there any benefits to actually even adding more services and platforms, even though your niche to become stronger relative to distributors and other gatekeepers?

Matt Blank

Management

Sure. Good question. First of all, the Showtime experience versus the AMC experience. When Showtime went into the streaming world, the -- it was really the same business in terms of the consumer experience. Consumers were used to paying for a premium network. Most of the other companies that have entered streaming with traditional businesses, that wasn't really the case. No one has paid directly for ESPN before. Nobody has paid directly for Discovery before. So it's a totally different model. Here, we look at our business model and say, this is a great incremental and sustainable business plan where we can generate strong margins and continue to grow our business around the world. So it's really a very, very different enterprise. And we feel really good about the plan here and only better about it going forward. In terms of the Lionsgate and Starz transactions, there's nothing really new here. These conversations have been in the marketplace for a long time. We'll see if they go anywhere. We don't feel that it's necessary for us to scale by acquisition in any way, shape or form. The model is working. It's going to continue to work. We think it's a sustainable model. We think it's a model that can grow. And it's a model that really fits how we define this company's future.

Operator

Operator

Our next question comes from the line of Michael Morris with Guggenheim. Your line is now open.

Michael Morris

Analyst · Guggenheim. Your line is now open.

I have two questions. First, for Matt, I'm curious, any additional insight you can give us on sort of changes either strategically or operationally with the management change? I know it's early, and the question is not meant to be sort of like a criticism of the past, but really a bit more specificity about your vision for the future of the Company and where we may see some changes. And my second question is for Chris. Really trying to get some frame of reference for this content slate into next year, I think you referenced 22 season premieres, which sounds like a pretty big number. Can you help us with how that compares to maybe the sort of COVID impact in '21, but also sort of like pre-COVID kind of peak levels of production? Is this bigger than you've ever been? Is it -- how does it compare to, say, 2019 or something like that? Thank you.

Matt Blank

Management

Great. Thanks, Mike. Nice to be chatting with you again after a bunch of years. First, AMC, one of the things that impressed me right out of the box here is what an incredible group of leaders we have in this company across the board. And I'm already getting to adjust to the pace of how this company works, which is very quick, and the smarts of the people around me. What it means for my -- the strategy in terms of my being here, I am a fan of the strategy. I think they're doing a great job. It's a sustainable strategy. I don't want to spend too much time repeating what we said in the earlier part of the call. But whether it's the IP we own, whether it's the targeted services we have out there, whether it's the acceleration of our content plans, whether it's the strength that we still see in the traditional business, we think there's tremendous opportunity to keep growing this company. And I love the management of the Company, and I think they're the right people in the right places to help us keep on strategy.

Chris Spade

Management

Mike, it's Chris. For your second question, it's a great question actually. When you look at our pipeline of content and where we've been historically, we've had strong franchises, strong series in place on the linear side that has helped fuel our streaming success and streaming growth. And even people that haven't watched some of the franchise shows have found them on streaming, and now they're coming back to us. Better Call Saul is a great example. And even I myself, as a consumer, I got hooked on Better Call Saul during the pandemic, and now I can't wait for the next episode. And I haven't even read the script because I want to be surprised. But relative to how we think about '21, it is our strongest slate ever. And now we have more ways than ever to monetize our content. If you think about where we were in '18 and '19, we didn't even really have AMC+. So although we had rights, we didn't have the service in place. So now we're at a place where we can maximize our monetization and also reap the benefits of that, not just in '22, but for years to come. Having said that, it is really important that we look at where [Technical Difficulty] were we -- sorry, I didn't know -- can you hear me, Mike? Because it looks like our line went...

Michael Morris

Analyst · Guggenheim. Your line is now open.

I can hear you. We lost you about 20 seconds ago, at least from my side. You started to talk about looking forward.

Chris Spade

Management

Okay. Did you hear me talk about my love of Better Call Saul? Or you missed that part?

Michael Morris

Analyst · Guggenheim. Your line is now open.

Yes -- no, we got -- We got that part.

Matt Blank

Management

You can say it again.

Chris Spade

Management

By the way, I should not talk about Better Call Saul because The Walking Dead is my favorite show, but I'm taking Better Call Saul for the point. So -- but anyway, we really have our content as a monetization engine across all platforms, linear streaming, et cetera. And so when we look at the end of '21, we are making a strategic decision to invest more in our content and marketing and really unfold our powerful slate that we have next year to make the most going into next year and the years beyond.

Operator

Operator

[Operator Instructions] Our next question comes from the line of Thomas Yeh with Morgan Stanley. Your line is now open.

Thomas Yeh

Analyst · Morgan Stanley. Your line is now open.

Matt, following up on Michael's question on going after scale on the OTT side, are there other genres or cohorts of super fans where you think you can expand on the suite of targeted offerings that you have now even organically? Do you see that as an opportunity to kind of build scale in that way? And then, Chris, you cited ROI-based subscriber acquisition and retention marketing as an area of focus. Can you give us any color on what you're seeing on the trends around the effectiveness of performance versus brand marketing and how you see that mix evolving over time? Thanks so much.

Matt Blank

Management

Thanks, Thomas. We're constantly evaluating ways we can expand on the strategy. And why wouldn't that make sense for us? And certainly, organically, if we saw pieces of our business that we thought lending themselves to expansion, we would chase that and we chase it aggressively. And we're being approached regularly with other targeted ideas in the marketplace, and we're ready to move when we think there's an appropriate target in terms of genre and target audience and the economics, so yes, on that front. Thank you.

Chris Spade

Management

Thomas, it's Chris. Thanks for the question. I like that you're focused on the metrics because for us, it really is all about the metrics. It's really important to us that we're seeing strong lifetime value and lifetime revenue relative to our subscribers. And for us, our performance metrics are different for each of our services, and they're all very favorable in relation to the lifetime revenue and the value of a subscriber. The SAC costs that we're seeing today are consistent with our view that we can continue to expand our subscriber growth investments, including an added focus on retention marketing. And in regard to churn, we're seeing healthy retention rates across all of our services. And for AMC+ in particular, as I said, we're only a year past the initial -- year plus past the initial launch of the premium service, but we've grown significantly in the course of the 12 months, and our pacing continues to be strong. And there is a belief that we have that the COVID-driven push of consumers to streaming that did benefit us along with other streamers. But what we're seeing with AMC+ and the targeted services is that, because we're super serving fans, we have seemingly more sticking power and also given that we have attractive price points in place. So as we look to '22, the strong content slate will continue to drive momentum along with targeted and specific awareness marketing and performance marketing with an increased focus on retention marketing, and we're doing this all to try to support a lower churn and a more satisfied consumer.

Operator

Operator

[Operator Instructions] There are no further questions. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.