AMC Global Media Inc. Q1 FY2022 Earnings Call

Welcome to the AMC Networks' First Quarter 2022 Earnings Conference Call. I would now like to hand the conference over to your speaker today, Nick Seibert, Vice President of Corporate Development and Investor Relations. Please go ahead.

Thank you. Good morning and welcome to the AMC Networks first quarter 2022 earnings conference call. Joining us this morning are Matt Blank, Interim Chief Executive Officer; and Chris Spade, Chief Operating Officer and Chief Financial Officer. Today’s press release is available on our website at amcnetworks.com. We will begin with prepared remarks and then we will open the call for questions. 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 press release. With that, I would like to turn the call over to Matt. Matt?

Thanks, Nick, and good morning, everyone. Thanks for joining us. AMC Networks’ first quarter marked a solid start to 2022, highlighted by total company revenue growth, strong gains in streaming revenue and subscribers, and continued momentum for our strong content slate across our portfolio of super-fan brands. And the last few weeks and months have shown, if anything, that anyone trying to build a streaming business can’t forget about the business part. These practical considerations have always been our focus, as we have moved into this space, and we continue to make significant headway on our differentiated strategy of offering streaming services that appeal to targeted audiences with specific affinities and passions. Our approach is considered, curated, cost-efficient, and is a distinctly different strategy than others aiming to offer something for everyone. In contrast, our goal is to offer, as we have said before, everything to someone. And the strategy is working. I’m pleased to report that we’ve achieved a Q1 streaming subscriber target we laid out on our last call, adding more than 430,000 new subscribers in the first quarter across our portfolio, and ending the quarter with 9.5 million total paying subscribers. Coming off our strong first quarter, we are reaffirming our full year 2022 financial outlook. With our content cost advantages, our continued ability to super-serve audiences and fans with deep content offerings and our clear focus on profitability by virtue of our unique strategy, we feel better than ever about reiterating our previously communicated target of achieving between 20 million and 25 million streaming subscribers in 2025. As we discussed on our last call, we expect we’ll be halfway towards that target by the end of 2022. We continue to excel at what we do best, creating excellent premium content and building strong, powerful brands while simultaneously maximizing our existing linear and ad-supported digital businesses, in no small part due to our pioneering efforts in advanced advertising. The most recent example of how our strong content is driving success across all of our platforms is Better Call Saul, which returned last month for the start of its sixth and final season. The debut was a record for us, driving the most new subscribers of any premier in the history of AMC+, along with remarkable social buzz and engagement, which we see continuing through the run of final episodes that extends across the next several months. We also saw solid linear ratings, and our strength in linear continues to be a powerful promotional platform enhancing our ability to grow streaming subscribers and optimize results across our business. Since the start of the year, we’ve made real progress in several areas of our streaming business. First, our unique targeted approach continues to provide us with several key advantages when it comes to attracting and retaining subscribers. Subscribers come to our services because of the depth of content, a shared community of like-minded fans, and our tailored and curated approach to programming. ALLBLK, for example, is programmed by a team that’s plugged into the Black creative community and immersed in this content. Our curators at Acorn know the particular types of mysteries and dramas that will resonate most with our subscribers. As for Shudder, it has firmly established itself as the premier streaming destination for horror and continues to be a terrific success story. Shudder had a particularly strong first quarter of growth, fueled in part by an expanding slate of Shudder originals as well as a deep library ranging from crowd pleasers to hidden gems, a content offering that hard fans can’t get enough of. We continue to see strong consumer loyalty to our services and churn improvements across our streaming portfolio. Our focus on offering a targeted experience to our respective subscriber bases provides us with the opportunity to create high viewer engagement around the shows and movies we deliver. Two recent examples from Acorn TV, a new series called Chelsea Detective that premiered in February and has garnered our biggest total audience of any Acorn series in 2022. And last month, a new series called Harry Wild starring Jane Seymour generated the most streams in the first 30 days of any premier so far this year. We have talked before about our comparative level of content spend across our targeted streaming services. Obviously, this is an area that’s gotten some recent attention broadly across the industry. It’s worth noting that the most popular titles across our four most established and targeted streaming services, Acorn TV, Shudder, Sundance Now, and ALLBLK typically cost less than $1 million per episode and sometimes substantially less than that. In fact, our annual content amortization last year across our targeted services combined was less than the cost of one season of some of the boldly promoted titles produced by larger streamers. This reflects a remarkable and often unappreciated level of efficiency in our targeted content spend. Since this time last year across all of our streaming services, we’ve added over 1,500 hours of new content and ended the quarter with over 12,000 hours of content for our subscribers to enjoy. Global expansion of our streaming services is another area where we’re steadily making progress. We’re just beginning to scale as we bring our services, including AMC+, to international markets. To manage our growth overseas, we’re initially working with strategic partners, whether that’s traditional distributors of our own international channel portfolio or digital distributors such as Apple TV Channels and Amazon. We have just begun to opportunistically roll out our services in key markets, including the UK, Australia, and India, and we expect to add more overseas distribution in the coming months. There’s tremendous global potential for us, and we see rich opportunities in the months and years ahead. Last quarter, we talked about our acquisition of leading anime content distributors, Sentai and its anime-focused target service called HIDIVE. Over the past few months, we’ve moved quickly to onboard the Sentai team and incorporate them into the company. We’re expanding this business on several fronts, including developing a new free ad-supported HIDIVE branded streaming channel called HIDIVE x Anime. It’s still early days, but we like what we see in terms of subscriber behavior and churn with HIDIVE and are more excited than ever about its potential. So, lots of momentum for us in streaming. Our measured yet aggressive pursuit of subscribers and our demonstrated ability to meet or exceed our growth targets give us great confidence in our differentiated model, particularly as we continue to reconstitute our revenue mix, while remaining focused on near-term profitability. The first quarter kicked off the biggest year of original programming in AMC Networks history. Our subscriber growth benefited from a string of key programming events, with two standouts being the final season of A Discovery of Witches in January, which was streamed across AMC+, Shudder, and Sundance Now, and then in February, AMC+ debuted the middle eight episodes and the expanded final season of The Walking Dead, which will complete a series run later this year. We recently completed the fourth and final season of Killing Eve, which premiered in February and was the number two driver of engagement and acquisitions for AMC+ over the course of the season, second only to The Walking Dead. The series saw steady week-over-week streaming growth across AMC+, with the finale delivering season high viewership. Last month, we premiered a gritty new crime drama with huge cultural relevance called 61st Street, which has been a strong performer on both our AMC+ and ALLBLK streaming platforms. Among all first season series launches on AMC+ to date, 61st Street ranked as the number two most streamed series in its premier week, behind only Kevin Can Himself. On ALLBLK, 61st Street has been the number one acquisition driver with the top three most streamed episodes of television on the platform since premiering last month. The programming momentum continues into the second quarter. I mentioned earlier the final season of Better Call Saul, which consists of 13 episodes split into two parts, with the second half of the final season premiering in July. In June, we’ll launch an exciting new crime drama from Robert Redford and George R. R. Martin called Dark Winds. Also on the way is the premier of a new Utopian drama Moonhaven, starring Joe Manganiello and Dominic Monaghan, and we’ll have the return of the dark comedy, Kevin Can Himself, starring Annie Murphy of Schitt’s Creek fame. Later this year, we’ll bring fans the final eight episodes of The Walking Dead and debut the first two series in our emerging Anne Rice universe, which will be our next big franchise: Anne Rice’s Interview with the Vampire and Anne Rice’s Mayfair Witches. By the way, I’ve seen an early cut of the first episode of Interview with the Vampire, and I couldn’t be more excited. We think it’s going to blow people away, with Mayfair Witches close behind. These are franchises we expect will pay off for years to come. Our pipeline is just as robust going forward into 2023, including a fantastic lineup of new shows and universe expansions. We have two new series set in The Walking Dead universe, focused on the popular and fan-favorite Daryl, Negan, and Maggie characters; a new series bringing viewers into the widely popular, grossing, and award-winning world of Orphan Black; as well as two new dramas: a psychological thriller called Invitation to a Bonfire and a dramatic comedy, Damascus. Next year, we also have new series starring two names already beloved by AMC viewers, Bob Odenkirk and Giancarlo Esposito, who both established their iconic characters in Breaking Bad and continue, of course, in Better Call Saul. We recently greenlit a new drama-comedy starring Bob Odenkirk called Straight Man, adapted from a Richard Russo novel. Giancarlo Esposito will star in a new drama called The Driver. We couldn’t be more thrilled to be keeping these two remarkable talents with AMC for their next big projects. We are also taking advantage of our film labels, IFC Films, IFC Midnight, and RLJE Films, as well as Shudder, to reinvent the so-called Pay 1 window for our movie businesses and make new films exclusively available to AMC+ subscribers each Friday, 52 weeks a year. This initiative kicks off tomorrow with the streaming premier of a movie called Clean from IFC Films, starring Oscar winner Adrien Brody. We piloted this strategy late last year and saw notable results in both viewership and subscriber acquisition. The combination of a weekly lineup of exclusive new films, coupled with our biggest year of original programming, provides an incredible array of entertainment. We continue to expand our AMC+ offering with owned and controlled exclusive and carefully curated content as we serve and grow our audiences. Earlier, I touched on how we continue to optimize our streaming, digital, and linear platforms. I wanted to expand on that for a moment. Streaming and linear can and should strongly complement each other, and I’ll point to our ALLBLK streaming service and our WE tv linear network as examples. WE tv has long been the number one cable network with Black women on Thursday nights, and we recently rebranded Thursday nights as ALLBLK on WE tv. We will increasingly share content across these two platforms, and we see strengthening on both platforms as a result. For example, after having three prior seasons of the hit ALLBLK series A House Divided on WE tv, the fourth season premiered on ALLBLK in January, and streaming viewership increased 84%, with much of the growth coming from WE tv viewers who are new to ALLBLK. We saw similar growth with the most recent season of another ALLBLK series called Double Cross after prior seasons aired on WE tv. We have also seen churn decline to historic lows for ALLBLK, while at the same time, WE tv on Thursdays and Fridays is delivering double-digit rating gains from the previous year. So overall, this demonstrates how we’re leveraging incremental content monetization opportunities and driving audience engagement across our streaming as well as our linear platforms. This is also the time of year for some of our most important conversations with our advertising partners. We’ve never before entered an upfront with such a mix of meaningful strengths across our lineup of original content, the ability to offer advanced technology solutions that matter most to advertisers, and an expanding reach across a variety of platforms. To supplement advertising opportunities on our own linear and digital platforms, we continue to take advantage of our deep library of targeted content by redeploying it across our fast channels. When we first entered the AVOD and FAST space two years ago, we did so with a very clear and deliberate platform-agnostic strategy of making our content available in as many places as possible so we can meet viewers wherever they are. That strategy has opened up a world of monetization opportunities for us. We currently have eight FAST channels carried on six leading third-party platforms and are developing six new channels, including the HIDIVE ANIME channel I mentioned earlier. This has become an increasingly important element of our ad-supported content business, and we see tremendous potential for us going forward in this very hot and growing space. We’ve also made distinct progress growing our advanced advertising business and demonstrated our continued advertising innovation through our commitment to selling addressable ad spots in every hour of original programming this year on our AMC and WE tv networks with an addressable footprint of nearly 40 million homes. This is the most significant national addressable deployment in the history of television, and we’re thrilled Amazon was our first partner to jump on board with this opportunity. This is just the beginning, as we work with our ad partners to usher in a new age of highly relevant and targeted advertising on television with brand safety, control, transparency, and enhanced returns for our advertising partners and AMC Networks. Across our company, AMC is operating from a position of great strength. Our strong execution of our strategy produced solid results in the first quarter and is expected to lead to another strong year of revenue and subscriber growth right through our 2022 targets and beyond. Our differentiated streaming approach continues to provide us with a meaningful advantage. We’re growing subscribers, we’re expanding internationally, and most importantly, we continue to create and find premium content and monetize it on a level we never have before, which is fueling growth across our company. We remain laser-focused on profitability and the economics of our streaming businesses and are already beginning to see the positive differentiation of our targeted approach. There is so much opportunity ahead to win subscriptions, entertain viewers, and create meaningful long-term value. With that, I will turn the call over to Chris for more detail on our financial results. Thank you.

Thank you, Matt, and good morning, everyone. Our year is off to a strong start with the continued growth of our streaming subscribers across all services, and with growing monthly streaming subscribers and revenue, with our strongest programming slate still to come in the remainder of the year. We are focused on the growth of high-quality revenue-generating subscribers that have favorable lifetime profitability across all our services. Our first quarter performance is tracking strongly against our 2022 and long-term outlook. As such, today, we are reiterating our 2022 and long-term financial outlook. We continue to execute against our strategy of owning more IP, engaging our global audiences with strong content curation, growing profitable global streaming and digital businesses, and optimizing our highly cash-generative linear business supported by our strong MVPD partnerships and leading advanced advertising initiatives. The targeted nature of our streaming offerings requires a lower level of content spend across our services and the requirements of a general entertainment service. Our continued success depends on the right balance and mix of content and marketing investments, along with an efficient and high-quality technology stack to support stellar customer service for all our super fans. We believe our communities are desirable, sustainable, and offer tremendous value to subscribers, which is resonating and breaking through in our current crowded streaming market. Across our portfolio of streaming services, our cost per subscriber acquisition is significantly less than the expected lifetime revenue of the subscriber and is improving in efficiency over time. Combined with the lower cost of programming for our services, this ultimately results in a very profitable business. With subscriber engagement driven by our content depth, curation, and sense of community, we believe our subscribers are less price-sensitive than others. We see this in our overall improving churn profile. Given these favorable dynamics, we believe we have long-term strategic pricing power. As such, we have announced plans to launch $1 price increases on both Acorn and ALLBLK beginning this month. We are executing against our global growth opportunities in a disciplined and thoughtful manner. While it is still early days, we have launched our streaming services in several countries over the past year, including the UK, Canada, and Australia. Our experience to date, deep marketing expertise, and existing international distribution and content relationships, combined with our unique ability to distinctly tailor our services to super-serve our subscribers in specific individual markets, allow us to deliver a fulfilling and satisfying experience for subscribers, while achieving efficient subscriber acquisition and retention, thereby driving subscriber lifetime value and long-term profitability. While every new international launch will be different, we will generally partner with a local distributor during the initial launch phase. This strategy allows us to activate local markets quickly and thoughtfully while leveraging our local partner scale, minimizing investment risk and generating the greatest return for our shareholders. A timely example of this is our launch of AMC+ in India on Apple TV channels in March. Our product road maps include launches of AMC+ in Spain, New Zealand, Latin America, and other European countries, all occurring mainly in the latter half of 2022 and into 2023. Additionally, we plan to continue expanding Acorn TV across Latin America in 2022 and 2023. With our multi-platform content monetization approach, we can prioritize investment in our streaming growth, extend our linear business and continue to innovate in advertising. As Matt mentioned, we recently announced the development of six new FAST channels, further expanding the audiences that our content and brands connect with. We led a meaningful step forward in national addressable advertising, as we now offer three addressable ad slots for every hour of original programming on our AMC and WE tv networks. Our innovations in addressable advertising help maximize the yield of our available inventory by delivering effective data-targeted campaigns across our linear VOD and digital distribution. The expansion of additional channels and distribution partners offers more scale and provides us with additional high-value digital inventory. When combined with our seamless programmatic first go-to-market approach, these leading advancements in advertising help offset traditional rating headwinds and position us well into the future. Now let’s discuss our first quarter 2022 financial performance. Consolidated revenue increased 3% to $712 million, driven by streaming and advertising revenue growth. Consolidated adjusted operating income was $211 million, reflecting a 30% margin and anticipated higher investments in content and marketing to drive subscriber and revenue growth. Adjusted earnings per share was $2.54. Domestic operations revenue increased 6% to $606 million as compared to the prior year. Distribution revenue and subscription revenue each grew 8%, driven by continued streaming growth. Streaming subscribers and streaming revenue increased 37% and 43%, respectively, versus the prior year. We ended the first quarter with approximately 9.5 million paid streaming subscribers, representing first quarter net streaming subscriber additions of 431,000. We are just beginning to see the benefits of our robust 2022 content slate materialize, partly in the form of beneficial subscriber retention performance, as we have experienced an improvement in churn rates across our entire portfolio of streaming services compared to the prior year. Affiliate revenue declined in the low single digits, driven by subscriber universe declines and partly offset by contractual rate increases. Content licensing revenue of $61 million grew 9% as more original programs were distributed in the first quarter of 2022 compared to 2021. Domestic operations advertising revenue of $201 million grew 1%, driven by continued pricing and digital growth, partly offset by lower delivery. Domestic operations adjusted operating income decreased 10% to $219 million for the first quarter of 2022. Adjusted operating income performance was driven by continued investments in future top-line revenue growth, including programming and subscriber acquisition and retention marketing. International and other revenue for the first quarter of 2022 decreased 9% to $100 million. Excluding the impact of foreign currency translation, revenue would have decreased 7%. Distribution and other revenue decreased 12% to $87 million, reflecting a 5% impact due to variability of timing of productions at 25/7 Media, as well as a 3% impact from unfavorable foreign exchange translation. Advertising revenue grew 4% on a year-on-year basis, driven by continued solid performance in the UK and partly offset by currency unfavorability. Excluding the impact of foreign exchange translation, advertising revenue grew 7%. International and other adjusted operating income was $23 million, representing a decrease of 2%. Adjusted operating income performance reflects the revenue dynamics I just discussed, partly offset by ongoing favorable expense management. Moving to cash flow and the balance sheet. Free cash flow for the first quarter of 2022 represented an outflow of $37 million, primarily reflecting planned content and marketing investments, the timing of certain production tax credit receipts, and technology investments. We remain on track to deliver approximately $100 million of free cash flow in 2022. We ended the first quarter with net debt and finance leases of approximately $2 billion. Our consolidated net leverage ratio was 2.6x, and we remain comfortable with our balance sheet and current leverage ratio. Our capital allocation policy remains unchanged. First, we will look to invest organically in projects that provide attractive returns to our shareholders. This includes return-based investments in the profitable growth of our streaming services and digital businesses. Second, we will maintain leverage that is appropriate for our business outlook. Third, disciplined and opportunistic strategic M&A. Fourth, opportunistic return of capital to our shareholders. There were no repurchases of AMC Networks common stock in the first quarter of 2022. We will continue to evaluate share repurchases on an opportunistic basis. As we look to the rest of this year and beyond, we see strong value potential from the unique advantages built into our differentiated model and the profitable streaming opportunities in front of us. We are highly focused on continuing to unlock this value as we reconstitute our revenue mix for long-term growth. We remain on track to achieve our goal of 20 million to 25 million streaming subscribers by the end of 2025. We continue to expect to be about halfway there by the end of this year. For the second quarter of 2022, we expect 400,000 to 500,000 net paid streaming subscriber additions, driven by our strong second-quarter programming offerings. Regarding our financial outlook for the full year of 2022, we continue to anticipate total company revenue growth in the low single digits. Continued streaming subscriber growth is expected to drive subscription revenue growth, partly offset by ongoing affiliate revenue trends from basic universe declines. Content licensing revenue is expected to decline over time as we utilize our exclusive content on our own streaming services. Notwithstanding that, in 2022, we do expect some full-year growth in content licensing revenue. It is important to note that given the timing of episodic deliveries and specific dynamics related to legacy licensing agreements, we expect the majority of our full-year 2022 content licensing revenue will be recognized in the third and fourth quarters of 2022. For 2022, we continue to expect stable advertising revenue, driven by continued pricing and robust digital growth and innovation, partly offset by continued macro viewership trends. Full-year 2022 operating expenses reflect the return of pandemic-related programming and concluding seasons of some of our more mature series, which typically costs more on an episodic basis. Once these shows conclude this year, it frees up additional programming capital that will be redeployed into new content or otherwise recaptured. Productions are still generally subject to COVID protocols. Over time, as protocols are no longer necessary, we will see these pandemic-related production costs come out, and we expect to recapture or repurpose these costs as well. We continue to invest in our streaming platform by investing in owned content, efficient marketing, and technology. Additionally, we are investing in our international growth as we launch our streaming services in new markets, and we have included certain nonrecurring start-up costs associated with entering these new markets in the outlook. In consideration of our global growth-driven investments, as previously guided, we expect full-year 2022 adjusted operating income to be about 10% lower than 2021. We are pleased with our current level of content investments across our services and our networks, representing the right content refresh cadence to continue to add new subscribers and keep existing subscribers engaged, providing them with a healthy mix of new and library content to enjoy. We do not see the need to increase our content investment level from here dramatically, and we expect that future investment levels will be about the same as in 2022. As we continue to maintain our disciplined and curated approach toward content investments and our intense focus on unit economics and subscriber lifetime value optimization, we anticipate that the total longer-term company adjusted operating income margins will be in the mid to high 20% area. We expect our long-term free cash flow to return closer to pre-pandemic levels, which will drive additional meaningful shareholder value creation over time. Our solid first quarter performance positions us well to achieve our full-year 2022 goals and our long-term goal of 20 million to 25 million subscribers by 2025. With much of our robust new original content slate built to come in 2022, we are excited by the future growth opportunities we see for our streaming and digital businesses. Value creation remains at the forefront of everything we do, and we will continue to build on our momentum with our targeted premium content curation strategy to super-serve and engage our passionate fans and attract many more new fans along the way. Operator, please open the line for questions.

Our first question comes from Thomas Yeh at Morgan Stanley. Your line is now open.

Hi, thanks for my questions. First, can you provide some additional color on the incremental kind of advertising environment? What you’re seeing in terms of any broader impact from macro uncertainty or any verticals where you’re seeing strength or weakness that holds your view of stable revenues this year? And then as a follow-up, as you transition from some really high-profile final seasons of major shows to new IP like Anne Rice’s stuff, I was hoping you could dig into how you’ve been approaching your marketing efforts and a credit landscape. Matt, you spoke about efficiencies on content costs, and Chris, I think you talked also about attractive subscriber acquisition costs. How does the marketing approach differ relative to general entertainment? How do you think about the right level of investment there and how that shifts as you approach new shows relative to established ones? Thank you.

Sure. I’ll start on that, and Chris can come in. But just generally on the advertising markets out there, we feel confident about delivering what we plan to deliver this year. As you know, there is certainly uncertainty out there in terms of worldwide politics, supply chain, and all those hangovers. But there are also ways that we’re growing that part of our revenue stream in terms of some of the advanced advertising applications, in terms of the FAST channels, and just in terms generally of the types of things we’re trying to do with our advertising partners. So we remain confident there. Good question on the marketing front. I think, if anything, we have tremendous advantages in terms of the targeted nature of our services and what we are learning about our users over time. Our ability to market these shows more efficiently, spending more time building brand marketing and specifically marketing behind the content along with the performance marketing that we’ve been doing in the streaming space. So I think it’s a work in progress for everybody as consumers become more embedded in streaming services. But again, I think it’s one of the benefits of having targeted services, knowing our consumers well. Marketing to really a curated slate of content is a lot easier than throwing a lot of marketing against the wall for a wide range of genres of content. So we’re feeling really good about our ability to launch these shows and have them drive both user and viewership of our channels, but also streaming connects.

Hey, Thomas, it’s Chris. Just following up some more on the advertising question, I appreciate your questions. On the ad front, we’re incredibly pleased with our solid ad revenue performance that we’re seeing this year, both domestically and internationally. Early on last year in the upfront that we’re in right now for the year, we did make the strategic decision to take on more upfront sales than usual because we were seeing incredibly strong pricing, and we had high demand for our offerings. That decision was incredibly successful in that we have less scatter inventory than we usually would right now. From that standpoint, we’ve been able to leverage the strength of the advanced advertising marketplace to shift some dollars into digital and advanced advertising relative to categories that we’re seeing strength in: health, technology, financial, retail, entertainment areas. On the advanced advertising front, we’re also very proud of what we’ve been doing in pioneering there. We’re a leader in the addressable space, and we’ve been the first to market national addressable ad campaigns across linear VOD and connected TVs. We’re really excited about what we’re doing there. With Amazon specifically, the three addressable ad slots that we’re putting out will run in the footprint served by Comcast, Charter, Cox, and Vizio, and they will reach more than 35 million homes.

Great, thank you. And if I could just squeeze one more on streaming ARPU, revenues grew a little bit slower than subscribers in the quarter. I know ARPU is a mixed bag with a lot under the hood and you just talked about some price increases at Acorn and ALLBLK, but can you share any details on the mix of wholesale retail adoption, any promotional discounting that might be happening there? Thank you so much.

Sure. Yes, it’s a great question. I think it’s a question that really gets to the heart of the business in streaming in terms of what are we seeing with ARPU trends? What are our key metrics with lifetime value and our cost per acquisition, etc.? Relative to ARPU, there is still going to be a lag between the revenue and the subs coming on with the sub month effect. If you think about our cadence last year, because in 2021, we had less of a content slate than what we would normally like driven by COVID delays. Now in 2022, we have a cadence that we like for programming, and we really have strong content. So we don’t feel that we need to discount as much on the ARPU side. Our goal really is to drive future streaming profitability across all our services, lean into wherever we feel we do have pricing resilience. It’s not necessarily about putting buckets of millions and millions of subs on for us. It’s really about making sure that we are connecting with that high revenue-generating subscriber that is going to be loyal to us and keep our churn rates in check. So we are excited about the modeling that we’re doing and really feel strongly about the opportunities in front of us for growth to get to our targets.

Thank you. Our next question comes from Michael Morris from Guggenheim. Your line is now open.

Thank you. Good morning guys. I have two questions about streaming again. The first one is on the contributors to the streaming subscriber growth trajectory. At the steady pace you are on, you are on track for the year. But beyond the year, I don’t think it puts you on pace to reach your goals. When do you expect a little bit more tailwind? Is that driven by the content cycle or geographic expansion? I am curious about the inputs there. My second question on the topic of advertising is about the potential for an ad-supported tier for your streaming services. I think all your services are ad-free at this point. What is your current thought on possibly layering in an ad-supported tier at a different price point? Thanks.

I will start out, Mike. Thank you. First, we have no current plans for an ad-supported tier. This is something we continue to monitor and look at. We are very happy with our current offerings. If the business changes, we think we have the ability to be very nimble and adapt quickly. It’s interesting when you hear one large player have some problems in their sub growth, and all of a sudden, an ad tier is going to solve all problems. We don’t necessarily think that’s true, but we will monitor the market and see what happens. In terms of achieving our goals for 2025, we think we are absolutely still on schedule. There is still tremendous opportunity where we haven’t ramped up on the international front. We have new additions to our offerings like Sentai, where we are just beginning to roll out services. We have loads of new content coming this year and next year. We are in the process of refining how we market and what we are learning about marketing. Again, I think we see tremendous advantages in these targeted services. From our standpoint, we are right on schedule to meet our subscriber streaming guidance.

Mike, it’s Chris. Your question on the pacing is right on. In fact, in our preparation, I said if I was an analyst, the number one question I would have is how does the organic pacing reconcile with the long-term target. We’ve seen how the 400,000 to 500,000 is our organic pacing right now and it’s what we have visibility to and what we feel good about. Moving forward, we will have international expansion relative to new markets that we will be in that aren’t in our base right now. We also have HIDIVE, which we recently purchased, that provides significant opportunities for growth that’s not in the pacing yet. We also have churn improvements and metric improvements that we are seeing. As we increasingly have annual subscriptions do more bundling, we will see natural metrics improvement, and we are seeing it over time. I would also point out AMC+ is a newer service relative to some of the other services out there. We have strong content this year. We are really excited about Better Call Saul. The way it’s coming together is amazing. We also have the end of The Walking Dead coming up later this year, dovetailing into the Anne Rice franchise, which looks stellar. More and more, our strategy is to get away from licensing because we have to honor our legacy deals. Eventually, the only place to see much of this IP will be AMC+.

Very helpful. Thank you both.

Thank you. Our next question comes from the line of Robert Fishman from MoffettNathanson. Your line is now open.

Thank you. So, as you are aware and already alluded to, investors are now focusing on streaming margins. Can you help us frame the longer-term margin target for your streaming platforms? If you’re not willing to share any specific numbers, should we think about the streaming pivot for your company profitability by 25% since streaming is expected to be your largest revenue driver? Will it be incremental to profitability, or will streaming just help offset the declines in linear?

Hi, Robert, it’s Chris. A lot of the focus now in our business is really looking at the models and the profitability and how we grow from here and what does it look like. For us, when we make a content investment, we are really looking at the holistic monetization cycle. We are making an investment in content, and then we can monetize and distribute it across all our platforms, which includes streaming, linear, international distribution, licensing, and wherever there are markets that we aren’t in a streaming position. As we build our revenue for streaming, it helps offset headwinds we see on the linear side, which we will continue to experience with basic declines. We feel very bullish on the future, and we expect streaming momentum will continue to grow, and as linear settles out, we have a good monetization engine that will deliver mid to high 20% margins long-term, and we will return to pre-pandemic cash flow levels. The last piece is pricing power. We see our streaming communities demonstrating loyalty, and by super-serving them with consistent content, it will be meaningful over time.

Okay. If I could just add one quick follow-up. Can you discuss how you measure the ROI for specifically around the IFC Films decision, moving the Pay 1 window to AMC+? Will that help overall company profitability, or will that just help accelerate AMC+ subscriber growth?

Yes, sure. It’s a great question. We have a gem in IFC Films. Our streaming research shows fans enjoy both the original series and movies. We felt it was really important to lock in the first Pay 1 window for IFC Films, so we can benefit from that window for AMC+ and our services, offering one movie a week starting this week, with Clean being the first movie. Over time, it doesn’t significantly impact our ROI, but the subscriber growth we can achieve from offering our movies is powerful enough to support future streaming growth.

To reinforce that, one of the number one objectives here is to get compelling proprietary programming in front of our streaming potential audience and current users. That’s what we are doing here.

Thank you, Robert.

Thank you. Our next question comes from the line of David Karnovsky from JPMorgan. Your line is now open.

Hi. Thank you. Matt, you walked through some of the ways your domestic linear networks can be leveraged to drive streaming engagement. Just wondering how you think about that dynamic applying internationally? Where do you think your channel footprint is well-established and aligns with your streaming offerings that you can drive awareness of your product as you launch them? Thanks.

Thanks. Good question. Without identifying specific markets, I’ll just say that in international markets, it varies. We have territories where we already have a footprint, and territories where it makes sense to partner with larger platforms. It’s a game time decision as we look at the market. There’s tremendous opportunity out there for us. This is not a part of our business that has been heavily developed historically, so there are considerable opportunities to scale, which requires a custom approach on a market-by-market basis. This year and moving forward, it’s a real priority for us, with lots of opportunities, and we’re going to take advantage of it.

It’s a good question, David. We have an established international presence in much of Europe and Latin America, so having boots on the ground helps with partner relationships and content relationships, supporting our international expansion in those markets.

Thank you.

Our next question comes from Steven Cahall from Wells Fargo. Your line is now open.

Thanks. Matt and Chris, it sounds like you feel pretty confident in reaching your long-term guidance without necessarily needing to increase your content spend significantly. That’s definitely an outlier among your peers. Could you talk about how you see that ramping up? It seems tough to get there without increasing content spend, especially domestically. Would it be correct to think that a large percentage of new subscribers will come from international growth?

Let me just start there. It’s again a very good question. Rather than focus on spend, we prefer to focus on volume and new content delivery. We know we can be more efficient on the spend side. It’s hard to measure at the moment because we’ve seen that spending $18 billion on content doesn’t necessarily make for a better business. Our main focus is on balancing the spend and content amount we offer. Chris mentioned earlier that we are producing more new content than ever from the next year. A lot of it will be more cost-efficient to spend. With series reaching their end, we will spend less on episodic levels of costs. There are real efficiencies in our targeted networks and streams, and we like our plan going forward.

Each service has deep long-term business plans. We look at content refresh rates and investment levels in combo with our marketing strategy, balancing acquisition and retention. Throwing money at content leads to diminishing returns. Everybody would love to have ten hits, and we have a lot of hits. We are fortunate to have that, but we closely evaluate what the right refresh rate is to hit home runs for subscriber growth and high ARPU, without trying to be everything to everyone.

Thanks for that. On ARPU, I think I noted about $4 of streaming ARPU in the quarter. Looking ahead, should we expect the blended ARPU to have headwinds since your mix is going to international? I assume India has a pretty low ARPU market, which may create headwinds as you track towards your guidance.

It’s a great question regarding ARPU. From where we sit now, I don’t want to give specifics about what we think it will be. Last year, we didn’t have the content slate that we wanted due to delays. Now in 2022, we have that slate, a healthy level of marketing investment, shifting focus from acquisition to retention. Our priority is to grow in a meaningful way to get the highest ARPU-generating subscriber possible while ensuring profitability. Our playbook is unique for each streaming service, and we feel we have momentum with that.

Thank you.

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Nick Seibert for closing remarks.

Thank you for your interest in AMC Networks. Have a good day, everyone. This concludes the call.

This concludes today’s conference call. Thank you for participating. You may now disconnect.