AMC Networks Takes a Big Content Write-Off as Cable Subs Keep Dropping

The parent of IFC Films and the Sundance Channel reported adjusted earnings per share of $2.52 on revenue of $965 million for the fourth quarter, beating Wall Street expectations

AMC Networks earnings

AMC Networks’ interim executive chairman James Dolan issued a stark warning as the company revealed its fourth-quarter earnings Friday: The industry’s “current mechanisms for monetizing content are not working.”

“Across the board, the content industry is being disrupted by cord cutting in the traditional linear sector or MVPDs and also in the streaming sector,” Dolan told analysts on the company’s earnings call. “It’s also being disrupted by changing viewership habits, a challenged ad market and rising content costs.”

That materialized in a $403.8 million content write-off for the IFC Films and Sundance Channel parent in 2022. The writedown accounted for the bulk of restructuring charges that led to a net loss of $264.7 million for the fourth quarter of 2022. AMC translated that to a diluted loss per share of $6.11. Adjusted for one-time items, the company said it earned $2.52 per share. In addition to content write-offs, the company recorded $45.2 million in severance and other personnel costs.

In November, the company announced a “large-scale layoff affecting about 20% of AMC Networks’ staff and “cuts to every operating area.” It also pulled the plug on Season 2 of “61st Street” starring Courtney B. Vance, which had already been filmed, and axed previously greenlit series “Invitation to a Bonfire” with Tatiana Maslany, which had already shot four episodes.

“As the industry continues to evolve, AMC Networks will focus on streamlining our organizations, operating more like retailers than wholesalers, driving cash flow and maintaining our strong balance sheet. At the same time, we will continue to do what we do best, which is making great content,” Mr. Dolan added. “We believe this strategy will position AMC Networks well to navigate current industry dynamics and generate long term shareholder value as an even stronger company.” 

Dolan’s wife, Kristin Dolan, will lead the company’s transformation as its new chief executive officer. Dolan, who starts later this month, replaces former CEO Christina Spade, who departed the role in November after just three months. The company said it chose Dolan based on her decades of media experience, including tenures at AMC’s predecessor companies.

Quarterly revenue for AMC came in at $965 million, up 20% compared with the same period a year ago, largely driven by increased distribution revenue. Streaming gains were offset by a declining cable business.

Analysts surveyed by Zacks Investment Research, on average, were expecting adjusted earnings per share of $1.23 on revenue of $936.5 million.

Revenue in AMC Networks’ domestic operations segment increased 26% year over year to $861 million. Subscription revenue grew 7% thanks to increased streaming revenue, primarily driven by streaming subscriber growth and “partially offset by declines in the linear subscriber universe,” the company said.

Streaming revenue for AMC+ and a collection of specialty services increased 41% with total subscribers of 11.8 million at the end of the quarter. Affiliate revenue slid 7.5% due to basic-cable subscriber declines, partly offset by contractual rate increases.

Distribution and other revenue increased 45% year over year to $655 million, while content licensing revenue soared 152% to $300 million, due to the timing and availability of deliveries in the period, including the delivery of an AMC Studios produced series to a third party and the early delivery of episodes of “The Walking Dead” and “Fear the Walking Dead.”

Domestic advertising revenue fell 12% from the prior year to $206 million, due to lower linear ratings, softness in the advertising market, and fewer original programming episodes, partly offset by digital and advanced advertising revenue growth.

The company’s international segment saw revenue fall 12% year over year to $108 million.

Distribution and other revenue decreased 4% to $86 million, due to the “unfavorable impact of foreign currency translation at AMCNI, partially offset by the timing of productions at 25/7 Media.” International
advertising revenue slumped 33% to $22 million, due to “the wind-down of two channels in the U.K., the unfavorable impact of foreign currency translation at AMCNI, and softer ratings in the U.K.”

During the quarter, AMC renewed both Anne Rice’s “Interview with the Vampire” and “Mayfair Witches” for second seasons. “Interview with the Vampire” became the No. 1 new series launch in AMC+ history and the No. 2 new basic cable drama in 2022, while “Mayfair Witches” is pacing to become the most viewed single season of any show on AMC+ and is a top 10 cable drama in the current broadcast season.

The company also premiered the final season of “The Walking Dead,” which concluded with AMC+’s highest single day of viewership ever and which commanded the series’ highest pricing in its 11-year run, demonstrating high audience engagement and advertiser demand for the franchise. In 2023, AMC will release a new season of “Fear the Walking Dead” and two new series: “The Walking Dead: Dead City” and “The Walking Dead: Daryl Dixon.”

The company also renewed WE tv franchise hits “Love After Lockup,” “Life After Lockup,” “Love During Lockup” and “Growing Up Hip Hop” for new seasons.

Looking ahead, the company expects 2023 consolidated net revenue to be approximately $2.9 billion, largely due to the industry wide dynamics mentioned by Dolan. Consolidated adjusted operating income will be in the range of $650 million to $675 million. 2023 free cash flow is expected to be in the range of $185 million to $205 million.

Streaming revenue is expected to grow for the full year at a moderate pace compared to 2022. The company is no longer providing streaming subscriber targets. 

Affiliates revenue growth for the year is expected to be impacted by ongoing cord-cutting trends and a “strategic non-renewal with a virtual MVPD” that occurred at the end of 2022. Content licensing revenue is expected to decrease as year over year growth is affected by 2022 deliveries of certain “Walking Dead” universe titles partly offset by new international licensing revenues. Advertising trends in 2022 are expected to continue into 2023, including lower linear ratings and a soft overall ad market, partially offset by digital and advanced advertising revenue growth.

The company noted that 2022 was a “peak content investment year” and that cash content investment in 2023 is expected to be approximately $1.1 billion, compared to $1.35 billion in 2022. Looking beyond 2023, cash content investment is expected to be in the $1 billion dollar area consistent with pre-pandemic levels.

“2023 will be a key year for AMC Networks as we execute our differentiated strategy of being everything to someone rather than offering something for everyone,” Chief Financial Officer Patrick O’Connell said.

AMC Networks shares climbed approximately 30% Friday following the earnings announcement. The stock was trading up $6.09 to $26.59 and is up about 54% since the start of the year.