AMC Networks Inc. (AMCX) Q4 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the AMC Networks’ Full Year and Fourth Quarter 2021 Earnings Call. [Operator Instructions] As a reminder, today’s call is being recorded. I would now like to turn the call over to your host, Nick Seibert. You may begin.

Thank you. Good morning and welcome to the AMC Networks’ full year and fourth quarter 2021 earnings conference call. Joining us this morning are Matt Blank, Interim Chief Executive Officer; Chris Spade, Chief Operating Officer and Chief Financial Officer; and Miquel Penella, President of Streaming Services. Today, we will begin with prepared remarks and then we will 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 today’s 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. Today, we will discuss certain non-GAAP financial measures. The required definitions and reconciliations can be found at the end of today’s earnings press release. With that, I would like to turn the call over to Matt. Matt?

Thank you, Nick and good morning everyone. 2021 was a strong and pivotal year for AMC Networks. We met or exceeded all of our guidance metrics and delivered a full year of outstanding results. So, let’s start with a few headlines. We had revenue of $3.1 billion, representing a 9% increase and the highest revenue year in our company’s history and a significant milestone, ending the year with more than 9 million paid subscribers across our portfolio of streaming services, delivering on the 2021 full year subscriber goal we promised and representing nearly 50% year-over-year growth, reinforcing our position as the global leader in targeted streaming. We expect that by the end of 2022 we will be halfway towards our previously disclosed target of reaching 20 million to 25 million paid subscribers across our streaming platforms by the end of 2025. We delivered full year growth in domestic ad sales and subscription revenue, including 100% growth in our streaming revenue, demonstrating the power of our model. And it was a big year for growth for our international division, led by robust advertising revenue across our global portfolio. We capped the year with a strong fourth quarter and several notable achievements. We completed a multiyear distribution agreement with Comcast, including expanded availability of our streaming services. And we entered the fast growing fan-driven anime space through our acquisition of a company called Sentai, a global distributor of anime content. The foundation of our success remains our portfolio of strong, distinct brands and consistently great content, supported by our broad library of owned and controlled IP, including franchises with established global fan bases, like The Walking Dead, the Anne Rice Catalog and the Agatha Christie library. As we have said before, our streaming strategy is just different from others. The growth and success we have had pursuing our unique playbook is notable. Not only in the context of meeting our year end subscriber guidance, but in our structural ability to grow this business economically and with marked advantages that continue to set us apart from other major players in the field. By building a portfolio of targeted services, each designed to deliver something very specific to super fans of a particular genre. We are growing a business that is less speculative, less costly and more sustainable and larger players trying to deliver something to everyone in a household. Simply put, we are not trying to be something for everyone. We are instead trying to be everything to someone. A Shudder user, for example, may have several streaming subscriptions, but Shudder is likely to be a favorite and a must-have, because they love the singular devotion of Shudder to mystery, to suspense and to horror. They love the depth of content and they love that Shudder was curated by likeminded fans, who are as passionate about this content as they are. This too applies to fans of Acorn TV, of ALLBLK, of Sundance Now and of course, AMC+. Last quarter, we talked about the beauty of smaller numbers and how our strategy is allowing us to build the streaming business marked by why we believe are higher levels of customer engagement and satisfaction, lower costs, higher margins and other benefits that are enabling us to achieve our goals at much lower subscriber levels than others. We are on track to meaningfully reconstitute our revenue mix. And given the structural advantages inherent in our differentiated model, we can do this all while realizing long-term consolidated AOI margins in the mid to high 20% range. Interestingly, John Malone has recently been talking about the wisdom of building what he calls defendable niches in streaming. And that’s exactly what we are doing and why we believe our recent progress is replicable going forward. As I mentioned earlier, we recently acquired global anime content supplier, Sentai and we couldn’t be more excited to be in the anime space. This is an entertainment category that’s booming with growth driven by increasing demand and online availability. We will have access to the best talent, most valuable IP and strong global program, enabling us to extend our leadership position in targeted streaming. I will touch on a few of the things that make this strategic acquisition, particularly attractive for us. First, Sentai’s anime-focused streaming service called HIDIVE is now part of our portfolio, giving us a vibrant new content vertical and a dedicated platform to reach anime super fans as well as a strong complement to our existing portfolio. The Sentai team has steep relationships with anime studios and creators and with a vast library of top trending and classic titles they are a long-time content licensor to many of the anime platforms. This IP strength will enable us to begin to power our own platforms with strong, exclusive content. There is also an opportunity to extend Sentai’s existing merchandising business by leveraging AMC Networks’ depth of experience in cultivating and rewarding passionate fan bases through events, through gaming and through other brand extensions. So, great M&A for us that complements our business and provides us with important strategic advantages and lots of growth opportunity. As we deepen our targeted leadership position with our Sentai acquisition, we continue to have great confidence in our unique model. We are methodically and prudently growing our business in a sustainable fashion. And we are doing this with a highly measured view of the long-term metrics of the business, including margin, cost per acquisition and subscriber lifetime value. As others engage in a race to be the biggest and to spend the most, we are now seeing that many maybe much closer to the domestic market saturation with some slowing growth among the larger players. It’s worth noting that we are comparatively in the very early innings of our streaming evolution, particularly, for AMC+ domestically and in key regions around the world, where we have just begun to mobilize and where we will continue to expand over the next year and for years to come. So, lots of market penetration opportunities ahead. As for content, we had an active fourth quarter and I will mention two highlights. We premiered the first eight episodes in the 11th and final season of the flagship Walking Dead series. And we welcome back our acclaimed original drama, Halt and Catch Fire, which is now streaming on AMC+ and follows several other acclaimed AMC originals that have recently come back to us following the expiration of third-party licensing deals, including TURN: Washington’s Spies, Rectify and Hell on Wheels, representing hundreds of hours of content that we are now making exclusively available to AMC+ subscribers. Our fourth quarter set us up well for 2022, which will be the biggest year for original content in our company’s history. We will bring our viewers closing seasons of Better Call Saul, Killing Eve and the final episodes of The Walking Dead. Three remarkable series that have all made television history and continue to captivate millions of fans and will help us promote the launches of several highly anticipated new series, including the gritty courtroom drama 61st Street, starring Courtney B. Vance; Dark Winds, a first-of-its-kind cop drama set on a Native American Indian reservation based on the best-selling Tony Hillerman novels and with Robert Redford and George R.R. Martin producing. And we will end the year with Anne Rice’s Interview with the Vampire and Anne Rice’s Mayfair Witches, the first two series in our newest franchise based on the Anne Rice collection, a strong addition to our growing library of owned and controlled IP. This is just a sampling of our broad slate of premium marquee content that we will rollout over the next year. And we are already starting to build out our pipeline for 2023. We recently greenlit two character-driven dramas for AMC+ called Demascus and Invitation to a Bonfire and have an expanding list of other new shows in development. On the commercial revenue front, as the ad-supported TV marketplace continues to evolve, we are optimizing our traditional ad business while taking advantage of new digital opportunities. Thanks to our compelling content and our innovative advanced ad capabilities, we delivered full year 2021 ad revenue growth. This includes a 70% increase in digital growth driven by our AVOD and FAST channels inventory, where we are seeing lots of momentum as we continue to leverage our original program via connected TV platforms. I will close by reiterating that 2021 was a year of significant achievement for the company setting us up well for 2022. We feel terrific as we look to the year ahead and we are more confident than ever that we are pursuing the right strategy for our company, for the audiences we serve, and especially for our shareholders. With that, I will turn the call over to Chris for more detail on our operational and financial results as well as our outlook for 2022 and beyond.

Thank you, Matt and good morning everyone. Our differentiated and targeted streaming strategy is clearly working. For 2021, we are pleased to have met or exceeded all the goals we previously outlined, including ending the year with more than 9 million aggregate paid streaming subscribers, representing subscriber growth of 49%. With this momentum, we are well-positioned to deliver our 2025 streaming goals. For the full year 2021, consolidated revenue increased 9% to $3.1 billion, the highest revenue year in the history of the company. Consolidated adjusted operating income was $816 million, representing a 6.5% increase year-over-year. The company generated record adjusted earnings per share of $9.64 and representing 24% growth. For the fourth quarter 2021, consolidated revenue increased 3% to $804 million, adjusted operating income was $103 million, and adjusted earnings per share, was $0.54. Full year and fourth quarter domestic operations revenues grew 8% to $2.6 billion and 4% to $685 million respectively. This growth was underpinned by strong growth in streaming subscriptions and robust full year advertising performance. Subscription revenue, which includes streaming and affiliate revenue, grew 15% for the full year and 11% for the fourth quarter. For the full year 2021, streaming revenue was $371 million, representing 100% growth as compared to the full year 2020. We exited 2021 with streaming run-rate revenue of $424 million based on the company’s share of the month of December’s gross paid subscription fees annualized. Affiliate revenue declines were in the low single-digits for the full year of 2021. For the fourth quarter, excluding the impact of a one-time payment associated with a distributor in the prior year quarter, affiliate revenue decreased in the low single-digits. Robust subscription revenue growth was partly offset by a decrease in content licensing revenue of 4% for both the full year and fourth quarter of 2021. The decrease is driven by our decision not to license our new owned original content to third-parties and to keep it exclusively for our streaming services. Full year 2021 domestic operations advertising revenue grew 5% to $845 million, driven by healthy pricing and continued digital growth, which was partly offset by lower delivery. In the fourth quarter, advertising revenue declined 1% to $234 million, reflecting the comparison against the timing of a stronger content lineup in the prior year quarter. Domestic operations adjusted operating income grew 2% to $845 million for the full year 2021. For the fourth quarter, domestic operations adjusted operating income was $122 million. Full year and fourth quarter AOI results reflect strong revenue performance, partly offset by continued investments for future growth, including programming as well as subscriber acquisition and retention marketing. International and other revenue was $511 million for the full year 2021, representing growth of 13%. Excluding FX translation impacts, growth was 9% on a constant currency basis. Full year revenue performance demonstrated the robust advertising performance across our international channel footprint as well as the return to production from COVID-related delays at 25/7 Media. Fourth quarter revenue was $122 million, a decrease of 3%, reflecting the timing of production as the majority of productions were delivered in the first three quarters of 2021 at 25/7 Media. International and other AOI was $83 million for the full year 2021, representing growth of 71%. Excluding FX translation impacts, growth was 56% on a constant currency basis. For the fourth quarter, AOI was $13 million, representing growth of 96%. AOI performance was driven by the strong revenue performance I just highlighted as well as ongoing expense management. Consolidated free cash flow for the full year of 2021 was $71 million and reflected increased content investments, including previously delayed production and the one-time impact of the previously disclosed litigation settlement payment. Excluding the impact of the litigation settlement payment, free cash flow would have been $230 million for the full year 2021. We ended 2021 with net debt and finance leases of approximately $2 billion. Our consolidated net leverage ratio was 2.5x, and we remain very comfortable with our balance sheet and our current leverage ratio. There were no repurchases of AMC Networks common stock in 2021. We will continue to evaluate share repurchases on an opportunistic basis. Our capital allocation policy remains unchanged. First, we will look to invest organically on projects that provide attractive returns to our shareholders. This includes return-based investments in the profitable growth of our streaming services. Second, we will maintain leverage that is appropriate for our business outlook. Third, disciplined and opportunistic strategic M&A, such as the Sentai acquisition we completed in the fourth quarter of 2021 and fourth, opportunistic return of capital to our shareholders. Looking ahead to 2022 and beyond, we see numerous advantages in the streaming opportunities in front of us, and our long-term view remains unchanged. We are tracking well toward our goal of 20 million to 25 million streaming subscribers by the end of 2025. And as Matt mentioned, we expect to be about halfway there by the end of this year. As we continue to reconstitute our overall revenue mix, we expect streaming to be our third largest revenue business by 2023 and well on its way to be our largest revenue business by 2025. As streaming revenue becomes a larger percentage of our consolidated revenue, we will enhance our disclosures by providing streaming subscribers on a quarterly basis beginning in the first quarter of 2022. While we encourage investors to always take a long-term view of our opportunities, today, we are matching the cadence of our disclosures by providing our streaming subscriber outlook for the first quarter of 2022. In the first quarter, we expect 400,000 to 500,000 net streaming subscriber additions, driven by our strong first quarter slate, which includes the return of A Discovery of Witches, The Walking Dead and Killing Eve. Moving to our full year 2022 financial outlook, we anticipate total company revenue growth will be in the low single digits. Subscription revenue growth will be driven by continued streaming revenue growth, partly offset by continued affiliate revenue trends. As legacy content licensing agreements roll off, licensing revenues will decline over time as we utilize our exclusive content to drive subscriber growth and retention across our streaming services. Notwithstanding the expected long-term decline of content licensing revenue for the full year of 2022, we do anticipate some year-over-year growth in the content licensing revenue. This is largely driven by the timing of deliveries related to prior existing licensing agreements. Our advertising business demonstrated remarkable strength in 2021. For 2022, we are expecting stable advertising revenue, driven by increased pricing as well as the robust growth of our digital and addressable offerings, which will be partly offset by continued macro viewership trends. We have a robust content slate this year with the return of pandemic-delayed programming, including the highly anticipated seasons of Killing Eve, Better Call Saul and The Walking Dead. In addition to the strength of our 2022 content, we will continue to invest in the growth of our streaming platforms by expanding our investments in owned content, return-based subscriber acquisition and retention marketing as well as international streaming launches in new geographies. We plan to launch AMC+ in India, followed by Spain, New Zealand, Latin America and other European countries. The timing of new launches is largely weighted toward the end of 2022 and into 2023, with much of the initial investment required in 2022. With our targeted streaming strategy and the beneficial unit economics inherent in our differentiated model, we are operating our portfolio of targeted services efficiently today with an eye toward future growth. This means that we will prioritize investments to support our long-term streaming and digital revenue growth while also optimizing our current performance. This was evidenced in 2021 when we initially expected 2021 would be an investment year with a small AOI decline. As 2021 progressed, we were able to execute strongly to deliver AOI growth of 6.5% without impacting our necessary streaming growth investments. In 2022, we similarly see that we are in an investment year and estimate lower AOI in the neighborhood of 10% lower than 2021. We will continue to invest in content and marketing to support streaming growth, which will require a few points of margin investment in 2022. As we continue to maintain our disciplined and curated approach toward content investments, along with our intense focus on the economics that maximize subscriber lifetime value to meaningfully grow our streaming revenue, we anticipate that longer-term total company AOI margin will be consistent with our 2021 margin profile in the mid- to high 20% area. Moving to free cash flow. For the full year 2022, we expect free cash flow of approximately $100 million. Our free cash flow outlook reflects continued investments in owned content as well as increased technology investments. Our full year 2021 effective tax rate was 25%, and we expect to be in the mid-20% area for 2022. In summary, with the strength of our 2022 content slate, ongoing efficiencies from awareness and performance marketing and global streaming expansion, we are well positioned in 2022 and beyond to drive profitable subscriber growth. This will fuel our continued long-term revenue and earnings growth and will drive substantial value creation over time. With that, I am pleased to turn the call over to Miquel to discuss our strong streaming performance in more detail.

Thank you, Chris. And as Matt said at the start of the call, we’re building a successful streaming business with a unique playbook, which is structurally different than the one being followed by other major players in the space. This gives us some clear advantages today and as we continue to make progress towards our very reasonable and attainable subscriber goals. All of our streaming services saw significant and steady growth in the last year. Our unique strategy allows us to grow these businesses quickly and responsibly, building a more stable base of subscribers at a much lower comparative content spend. In that regard, I want to give a little more context and data around the advantages of our targeted approach to streaming. Every streaming business revolves around a few key elements. The cost to acquire subscribers, the lifetime value of those subscribers, the fixed costs associated with retaining them, mainly in the form of paying for content and how many of those subscribers or customers churn out of your service. Across our portfolio of targeted streaming services, excluding AMC+, which is still a relatively new service, our CPA or cost per customer acquisition is significantly less than the projected lifetime revenue associated with that customer. That is a good business. And once we are in our relationship with them, the annual revenue from each customer far exceeds what we spend on content to serve them. These are very favorable economics that we believe result in a stable and ultimately, very profitable business with customers who are very happy with their experience and the value of the services they subscribe to. If you look at the top 20 most popular shows in December across our four most established and targeted streaming services, Acorn TV, Shudder, Sundance Now and ALLBLK, 19 those 20 titles cost less than $1 million per episode and some substantially less than that. And because its service is focused on a specific genre or content category, our performance marketing is much more tactical and efficient than the marketing for a service that is aimed at every member of a household. We also built a community around each one of our services. This is not a marketing slogan, but an actual structural fact in our business because of our targeted approach. We call Shudder subscribers members, and we treat them like that. They come in for the content at love, which we continue to provide, but we engage them in a variety of ways over the course of the year that fortify their loyalty to the brand, including putting a film curator on the phone in the month of October to make customer recommendations on what to watch based on a customer’s individual taste. For Acorn TV, we arrange towards to bring super fans across the Atlantic to the UK to visit the talents and sets where their favorite shows are made. These best – both tactics may feel out of place in the context of the streaming wars that generate headlines. But they are totally inorganic to our services and the way they relate to viewers. AMC+ is the newest of our services because it is a source of our acclaimed and popular linear originals for many broadband-only customers, it lives closest to our linear business. But as we continue to grow and refine AMC+, the service is being developed very much in the model of our targeted services with all of the structural advantages and benefits we’re seeing in those businesses. For AMC+, we are very pleased with the strong subscription growth to date. In its first 16 months since launching in October 2020, we’re seeing strong subscriber acquisition and retention trends, including the strength in annual subscription sign-ups, which helped to lower churn rates. The strong content slate for AMC+ in 2022, along with targeted and efficient marketing will continue to drive meaningful revenue growth for the service. Internationally, we launched AMC+ in Canada and Australia late last year. We’re seeing a strong positive reaction by consumers there and expect both markets to continue to grow rapidly this year. As Chris mentioned, we have significant international launches planned for AMC Plus and our other targeted services this year, representing a huge untapped opportunity. In terms of content, we have a very big year ahead in 2022 across our full portfolio of services, including the big titles comment to AMC+ that have already been mentioned. Shudder will see an expansion in original horror films in addition to the return of its number one series, Creepshow for a fourth season and the docu series Clear for Fear [ph], Executive produced by Brian Holler [ph] which examines the history of horror through the lens of the LGBTQ community. ALLBLK has a huge year of original programming planned with a return of top series like Double Cross, A House Divided and the second season of the weekly talk comedy and music series Social Society. With four hosts, we have a combined social reach of more than 11 million followers, which we think is a great springboard for weekly engagement and conversation. We’re also seeing strong synergies between ALLBLK and our WeTV linear network as those platforms work more closely together to grow their respective and largely complementary audiences. Later this year, a new WeTV docu series, Hip Hop Homicides produced by 50 Cent and Mona Scott-Young will delve into the unsold murders in the Hip Hop community. The explosive series will premiere on WeTV and also appear on ALLBLK. Acorn will offer subscribers a fantastic lineup of shows, including a new series called Harry Wild, starring Jane Seymour, the return of favorites like Bloodlands with James Nesbitt, My Life Is Murder, starring Lucy Lawless, with Stable Pro, the Chelsea Detective and the final season of Doug Martin, restarting long-time fan favorite Martin Clunes. At Sundance Now, we will have the second season of the Emmy award-winning short-form series State of the Union and a new series called Ten Percent, which is the English version of the French Netflix hit Call My Agent. As we have said, our advantages in affinity, retention, fixed content and customer acquisition costs, lifetime value and other key metrics are real and compelling today. And we believe they will only intensify over time as we continue to build communities around the content areas where we see these distinct opportunities. With the Sentai acquisition, we have added Anime to our portfolio of direct-to-consumer offerings. We love the hand that we are playing and the way we are building a vital, viable and sustainable streaming business for today and tomorrow. And now operator, please open the line for questions.

[Operator Instructions] Our first question comes from Michael Morris with Guggenheim.

Thanks guys. Good morning. I want to ask you first a little more detail on the Sentai acquisition. Love to hear like what kind of contribution this makes in the near-term, but maybe more importantly, can you talk about the timing or path to taking some of your IP and combining it with the opportunities that this studio and this format present for you, what – how quickly can you kind of get that combined performance? And then also maybe just a pretty unique one. But when you talked about the international rollout, I was kind of surprised to hear India at the top of the list, given what a challenging market that’s been for some others. So, I am curious what you are seeing there that makes it kind of top of your list of additional markets from here? Thanks.

Thanks, Mike. Sentai was interesting. I – literally in my first week on the job back in September, I was presented with this opportunity and the folks here were well into their discussions and putting that transactions together. And about two weeks later, a couple of weeks later, there was a Wall Street Journal story, I think, about Barnes & Noble’s earnings and surprises in their store traffic. And the article pointed out that it was driven by two things, graphic novels and Sentai books. And I said, “Wow, this is a category I don’t know much about.” Full disclosure, I have never been a fan, but there is a tremendous following for it. And I view that acquisition as sort of a microcosm of our targeted strategy. There are audiences out there that we can reach. We can reach efficiently. They have a streaming service in place called HIDIVE, I think we can enhance tremendously in terms of the marketing of that service. And we own a lot of that content. And we think it will be valuable content and more valuable content in the future. In terms of what we can add to it in terms of our IP, I think that’s probably down the road a little bit, but we are ramping up there very quickly, and we intend to make that an important part of our offerings. And again, it’s exactly on message for us in terms of how we are trying to reach the super fan audiences. Reach them efficiently, low churn rates, great subscriber, long-term value and programming costs that we can control and will enhance all of our offerings going forward. So, that’s a good one for us. In terms of India, I will let Chris elaborate on that a little bit, but you are right, it’s coming up soon.

Good morning Mike. Thanks for the questions. Relative to our international rollout, we are excited to expand our international footprint. And as you may know, a lot of our distribution expansion is mainly with our partners, with Amazon and Apple and others. And from the standpoint of our direct-to-consumer offering, we will have a direct-to-consumer offering also. But from the standpoint of our rollout plan, it’s largely in partnership with bigger distributors. And of course, our products will differ in terms of our offerings country-by-country. So, with India, we will take a close look at what’s there. On a broader scale for our international expansion, as you also know, we have international businesses largely driven by the linear side of the businesses. But because we have boots on the ground, so to speak, we have a lot of sort of organic ability there locally in a lot of the regions to not just roll out from corporate, we are going to roll out our international expansion, but we can perfectly triangulate what we are trying to do on a global level and then use these local regions to our benefit with dubbing, local content, partnership relationships. So, we feel very good about our international expansion opportunities.

Great. Thank you.

Our next question comes from Robert Fishman with MoffettNathanson.

Good morning. Thank you. Following up on your prepared streaming remarks, can you expand upon the balance of marketing and promotional investment that’s needed to drive AMC+ subscriber growth. We just saw you pay for the most expensive ad spot during the Super Bowl. So just curious, was this a special one-off compared to the more tailored subscriber acquisition approach that you discussed?

Let me start on that – I am sorry, let me just start on that and say that I think one of the things you are going to see in addition to the aggressive pursuit of subscribers for our streaming services is as we begin the year with our best content in history, you are going to see us doing a lot of marketing to support that content and support the brands that we offer as a backdrop to all of the directed specialized marketing we do in the streaming world. So, the Super Bowl spot was one part of it. I think that with the type of content we have this year, that was an important opportunity to kind of take advantage of that content and get our message out more broadly to consumers. I will let Miquel talk a little bit more on your other point.

Yes. Thank you, Matt. And specifically for the Super Bowl ad, we felt it was important for AMC+ as an extension of our linear business, to let consumers know, to let audiences know that the final episodes, the final seasons of franchises like The Walking Dead, Better Call Saul, Killing Eve are now going to be premiered on AMC+. But that is not typically what we do to acquire customers. What we do to acquire customers follows a very disciplined approach that includes creating audience profiles and really targeting our marketing campaigns based on our understanding of the consumers lifetime value and with a very specific target for the cost per acquired customer. And that’s something that we do systematically in a disciplined manner, and we manage it on a daily basis.

It’s great that you saw the commercial. It’s all good man, right?

Thank you. Yes. No, it was a fun one. So, just bigger picture, I am just wondering how has your expected ROI changed for new programming that you have discussed coming with your streaming and more limited third-party licensing compared to what greenlighting a new series you still look like before the streaming pivot?

Sure. It’s a great question. I mean relative to our return on investment, as Miquel highlighted, we are focused on the streaming side of our lifetime value and our ARPU and what that can generate. But also when you think about it in our content investment, we still have the full flywheel of the ecosystem with linear and streaming. So, we are able to invest in our content in a way that we can fully monetize it across various different distribution areas and licensing revenue for us because of our size, it’s not billions and billions of dollars that we pull away from. So, with the way our licensing revenue will decline over time strategically, we feel that we have a balance that we will have some come in to fuel it. But over the long-term, streaming revenue will meaningfully grow to offset it. And we just feel that the exclusivity of these original content series is paramount and more important than licensing it to third-parties.

I also think that this is a moment in time when we have really a pretty exceptional lineup, probably the best lineup in our history in 2022. And we just delivered terrific performance in 2021 when we didn’t have that. So, if you look at kind of every piece of our business, from commercial revenue to the things we do with our traditional platform affiliates to our ability to drive streaming subscribers. This is an important time for us, an important time to take advantage of those content investments, and we plan to do that this year.

Right. And I think the key word in your question, or a set of words is return on investment in the sense that we are playing for the long-term, we want to have quality subscribers. We want to make sure that we are looking and measuring our content, marketing and tech investments in a way that really drives future value, which is the lifetime value of the streaming subscribers, while also optimizing linear business, add revenue from the standpoint of the strong performance we saw in ‘21. We will continue to have strength in 2022. And again, our content slate is key to driving future growth for 2022 and beyond and monetizing across all the platforms.

Thank you everyone.

Thank you.

[Operator Instructions] Our next question comes from Steven Cahall with Wells Fargo.

Thanks. Maybe first, I was just wondering if you could talk about the trend of content spend. You have got the three big series this year. And then I am sure you are working hard to fill some of that content in and the free cash flow step down on an organic basis year-on-year is somewhat sizable. So, just wondering how we should think about cash content spend trending as you go through this big growth cycle? And what that kind of means for free cash flow in the next couple of years? And then on advertising, it seems like maybe on a year-on-year basis, you have just – you have got a huge year for the content slate this year. So, I was a little surprised that you are guiding to stable and not up. I just think you have a lot more shows hitting. So, maybe just help me unpack that a little bit. And any thoughts as you head into the upfront season, the spring? Thank you.

Sure. Thanks, Steven. Relative to the trend of the content spend, we have been waiting for 2022 patiently. So, we do have a strong volume of content offerings across all of our brands and services. So, we like the level of volume we have in 2022. We can offer new original content every, call it, three weeks to five weeks. And we feel that, that’s an important cadence to keep the streaming subscriber engaged and constantly being given new things to enjoy. So, relative to the trend there, I don’t really see on a full cash flow basis that will continue to rapidly increase content investment spend. Relative to free cash flow and the trends there, I think that goes hand-in-hand with what I just said, because we do have three series finales in 2022, more mature programming, higher cost per episode. That also affects our free cash flow in 2022 on a timing basis. So, from the standpoint going forward, I would expect that we would turn the corner and we would start to ramp back up net free cash flow over the long-term. And that also goes hand-in-hand with the margin outlook that we gave, where the next year, we feel it’s going to be an investment year from what we see now. But as that continues and streaming continues to meaningfully grow, we should be able to get to a mid to high-20% margin for the long-term. On the advertising front, the stable outlook is what we see today. We do have strong performance in terms of our series finales. Even just with the Super Bowl commercial, for example, that’s streaming focused, obviously, not advertising at this point, but we are seeing more traffic, more buzz there. So as we continue to focus on more awareness for all of our shows across all the platforms, I think that will have a halo effect on our viewership of linear, but it’s still early days. It’s still early days for the upcoming upfront. But we feel very strongly that we have innovation and leadership in our advertising talented team. And we expect that to continue, but we are just putting forth what we see on the horizon for us today with the macro viewership trends that are out there.

I think we should also just remember that pricing was extremely strong, coming out of the upfront last year for the past year. And that was through a year, again, that is not nearly as strong as ‘22 is in terms of the content that we are going to be offering across the board. So, there is a lot of reason to be excited and hopeful on that front.

Great. Thank you.

[Operator Instructions] And I am not showing any further questions at this time. I would like to turn the call back over to our host for any closing remarks.

Thank you for your interest in AMC Networks. You can now disconnect. Thanks.

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect, and have a wonderful day.