AMC Networks' Q3 profits fall as cable networks struggle

The Walking Dead
AMC's 'The Walking Dead' drew in more than 20 million viewers for its season 7 premiere. Image: AMC Networks

AMC Networks’ third-quarter profit dropped about 11 percent as operating income for its cable networks fell sharply.

Net income fell to $65 million as operating income dropped 26.5 percent on the back of a 19.6 percent decline at AMC’s National Networks division, which consists of AMC, WE tv, BBC America, IFC and SundanceTV.

While revenue for National Networks stayed flat, increasing 0.8 percent to $526 million, operating income for the division dropped 19.6 percent to $139 million. While distribution revenue jumped 8 percent to $336 million, due to an increase in licensing revenues and affiliate fees, Networks advertising revenues decreased 9.9 percent to $189 million because of lower ratings.

The blow to Networks operating income came as operating expenses rose because of higher programming expenses and an increase in restructuring expense.

In all, AMC’s net revenues for the quarter rose 0.4 percent to $635 million.

Despite the struggles, AMC Networks CEO Josh Sapan sounded confident his network could continue to grow its distribution as part of long-term strategic goals and touted the success of programs like The Walking Dead.

"Recently, AMC debuted the seventh season of The Walking Dead with a powerful episode that was watched by more than 20 million viewers, making it the most watched program on television for the fifth consecutive season, among key demos,” said Sapan in a statement. “Across the company, our programming continues to resonate broadly and is desirable in both linear and non-linear environments. We continue to participate in emerging streaming TV offerings, most recently joining the new DirecTV Now service, in addition to Sling TV and Sony's PlayStation Vue. Through our growing AMC Studios operation, we continue to produce, create, own and distribute premium content that provides us with substantial economic benefits and positions us well for long-term success and growth."

While Networks ad growth fell short of estimates, analysts like Jefferies’ John Janedis took heart in AMC’s outlook for the fourth quarter.

“Looking ahead to 4Q, mgmt guided to a rate of growth of 6%. Notably, the first two episodes of season 7 of The Walking Dead are up 10% in total viewers on avg. (Live +SD) - we do not believe that the guide to MSD growth in 4Q adv is predicated on sustained YoY growth in viewership for season 7 of TWD,” wrote Janedis in a research note.