AMC Networks missed Wall Street expectations for revenue during its third quarter of fiscal year 2023, citing lower domestic advertising revenues and affiliate revenue as a reason for the 7% drop year over year. That fall was partly offset by streaming revenue growth.
During its third quarter, AMC reported net income of $67.9 million, which included non-controlling interests, or diluted earnings of $1.44 per share. Revenue fell 7% year over year to $636.95 million, the company announced Friday.
Adjusted earnings per share were reported as $1.85, an 11% drop year over year. Diluted earnings per share saw a 26% drop year over year.
According to analysts surveyed by Zacks Investment Research, the network behind “The Walking Dead” was expected to report earnings of $1.31 per share and revenue of $654.08 million.
Given the difficult advertising environment and the softness the company is seeing when it comes to content licensing revenues, AMC Networks dropped its year end 2023 revenue expectations from $2.8 billion to $2.7 billion. The fiscal year’s adjusted operating income is expected to be in the range of $650 million to $675 million. Additionally, 2023 free cash flow is expected to be in the range of $120 million to $140 million. If the company were to exclude its one time cash restructuring payments that free cash flow figure would be in the range of $235 million to $255 million.
Though the company’s overall revenue was down, streaming revenues provided some relief. Streaming revenues were reported as $142 million, an increase of 9% from the prior year. Year-over-year subscriber growth as well as the company’s continued focus on higher value subscribers led to the uptick.
As for the company’s subscriber count, streaming subscribers increased by 100,000 year over year to total 11.1 million. This is a 4% increase in growth compared to subscribers seen in the prior year during this time period. Compared to the subscribers added in the second quarter of 2023, the network saw a sequential increase of 1%. This is despite “significantly reduced promotional activity,” CFO Patrick O’Connell noted during the earnings call, a development the company is pleased with.
“During this period of experimentation and change in our industry, we continue to execute on our plan and effectively manage the business with a focus on high-quality programming, strong partnerships and profitability. In addition to introducing an ad-supported version of AMC+, we extended our leadership in TV advertising through the launch of programmatic buying on our linear networks, an industry first,” AMC Networks CEO Kristin Dolan said in a press release. “We are well-positioned to achieve our free cash flow goals for the year and remain focused on responsible content investment and monetization across a wide array of distribution platforms and licensing opportunities.”
Overall, revenue for domestic operations fell 8% from the previous year, coming in at $541 million. Advertising revenues saw a drop of 18%.
When it came to distribution and other revenues, the figure dropped 3% to $394 million. Content licensing revenues increased 7% during a quarter that saw AMC Networks entering a “pop-up” agreement with Max. However, subscription revenues dropped 5% due to declines in the linear subscriber universe that were partially offset by streaming revenue growth. Similarly, affiliate revenue decreased 13% due to what were described as basic subscriber declines.
As for advertising revenues, the company said the 18% decrease to $147 million was related to anticipated linear ratings declines, a challenging ad market, and fewer original programming episodes within the quarter. These figures were partly offset by revenue growth in digital and advanced advertising.
International and other revenues dropped 2% from the previous year, coming in at $98 million. This was largely credited to lower production volumes at 25/7 Media, the company’s production services business, but was offset by higher subscription revenues at AMCNI as well as increases in advertising revenues due to favorable foreign currency translation and digital and advanced advertising growth in the U.K.
Operating income dropped 4% year over year to $8 million.
Overall, this quarter was a big one for the company. In addition to launching the ad-supported version of AMC+, the third quarter of 2023 also included the company’s content pop-up agreement with Max, which added seven AMC Networks originals to the streaming service for two months. The experiment led to viewership increases on AMC+ for “Fear the Walking Dead,” “Anne Rice’s Interview with the Vampire” and “Anne Rice’s Mayfair Witches.”
Considering the success of this partnership, Dolan said it’s “likely” the company will “find imaginative new ways to work with other programmers in the future” during the third quarter earnings call.
As for the launch of AMC+’s ad tier, the company emphasized that it was too early to draw any significant conclusions from the experiment. However, it also emphasized that the option is “important” to the future of the streaming service from a bundling perspective.
“It’s very important for us to have this ad-supported tier now because it allows us to participate in future bundling partnerships with parity across a non ad-supported tier, or an ad-free tier, and an ad tier,” Dolan said. “So making it seamless for the consumer and giving them that choice, regardless of the tier they decide to come in.”
The quarter also saw the premiere of the No. 1 most-viewed premiere in the history of AMC+, “The Walking Dead: Daryl Dixon.” According to the company, it was the most watched season of any new show on the streaming service.
Last year, AMC Networks reported $681 million in revenue, a sharp decline from the $786.78 million that was expected by Wall Street analysts. At the time, the company credited its lower-than-predicted net revenue to the timing of content licensing deals as well as lower affiliate and ad sales during the quarter. International currency valuation also played a role in the decline. That quarter also saw its U.S. ad sales drop 10%.
But whereas the company saw a drop in revenue, it saw growth in subscriptions. During the company’s third quarter last year, AMC Networks reported that it had added 11.1 million paid streaming subscribers. In the past, the company has said its goal is to have 20-25 million streaming subs in 2025. The company hit the halfway point of that stated goal in May of 2022.
The second quarter of this year also led to mixed results for the company. In August, the parent company of IFC and the Sundance Channel once again missed Wall Street predictions. Its reported revenue was $679 million, marking an 8% decrease compared to the company’s revenue in the second quarter of 2022.
Additionally, while there was an increase in subscribers during the second quarter of 2023, it wasn’t as significant as the growth the company saw during the first quarter of this year. AMC Networks reported an increase in subscribers of 11.2 million in its first quarter. That was then followed by an increase of 11 million subscribers in the second quarter of 2023, indicating a 2% drop in growth. At the time, the New York-based company said the decline reflected the end of some promotions.
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