AMC professes confidence in streaming, advertising

The Walking Dead
Advertising revenue dropped by 14.6% in Q2, although AMC executives voiced optimism about developing ventures into addressable advertising. (AMC Networks)

AMC Networks emerged from a second quarter that was less than kind but could have been much worse. Net income tumbled to $15 million ($.28 per diluted share) from $129 million ($2.25 per diluted share) in the year-ago Q2.

But even as cord cutting continued to eat into its traditional carriage, the New York firm professed optimism in its advertising and streaming businesses.

It highlighted non-GAAP figures predominantly reflecting a $130 million impairment charge on AMC Networks International; its adjusted earnings per share hit $2.39, still a drop from the previous quarter’s $2.60 but close to double Zacks Equity Research’s estimate of $1.26 per share.

“This is obviously a time of great transition,” CEO Josh Sapan said on the earnings call Tuesday morning. “We continue to maintain a strong financial profile, with a solid balance sheet and very good liquidity, and we continue to generate healthy levels of free cash flow.”

The novel-coronavirus pandemic continues to wreak havoc with AMC’s operations, but the company now hopes to resume series production starting in late August with Fear the Walking Dead, to be followed by multiple other production starts and resumptions in the fall.

Traditional pay TV also remains a drag, especially the satellite services that can’t sell competitive broadband to their subscribers and so see the biggest damage from cord cutting. But AMC executives emphasized the success of its ventures into standalone streaming services and reiterated previous forecasts that they would hit 3.5 to 4 million subscribers by the end of the year.

“Several years ago, we saw that commercial-free subscription video on demand services would be ascendant,” Sapan said of AMC’s Acorn TV, Shudder, Sundance Now and UMC (Urban Movie Channel). “We don’t need tens of millions of subscribers for it to be a meaningful contributor to our business.”

Noting that more than 80% of subscribers to those services also subscribe to one other general-purpose streaming service, he added “We are not competitive with the large services, we are compatible with them.”

AMC is now expanding distribution of yet another streaming service, the ad-free AMC+, having just expanded its availability from Comcast’s Xfinity TV and Xfinity Flex platforms (where it’s $4.99 a month) to Dish Network and its Sling TV service (where it’s $6.99). Comcast is also carrying its $4.99/month WE tv+.

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But at the same time, viewers who don’t mind ads but do reject paying another subscription can watch ad-supported AMC content on Pluto TV and Dish’s Sling Free.

“It is early days,” Chief Operating Officer Ed Carroll said of that last venture. “We do see it rolling into our revenue now, but it is early days.”

Advertising revenue dropped by 14.6% in Q2, although AMC executives voiced optimism about developing ventures into addressable advertising that include joining the Comcast-Cox-Charter On Addressability project.

“We anticipate third quarter advertising revenue to be down in the mid to high teens year over year,” said AMC Networks Chief Financial Officer Sean Sullivan. But Carroll warned later that the Mad Men (and women) of the advertising industry themselves aren’t clear on business prospects.

“Not all of their clients have revealed what their budgets will be,” he said. “We just don’t have tremendous visibility right now.”