AMC Networks Tunes For TV Growth After 'Breaking Bad'


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"Breaking Bad" fans suffering from withdrawal since the hit television series ended in September may be able to get their fix again soon.

Cable channel operatorAMC Networks ( AMCX ), which brought you this crime drama of a terminally ill chemistry teacher turned meth dealer on its namesake AMC network, debuts the spinoff "Better Call Saul" in November. From AMC and Sony Pictures, it tells the back story of crooked lawyer Saul Goodman before he became the attorney for dealer Walter White, the main character on "Breaking Bad."

Known too for "The Walking Dead" and "Mad Men," AMC Networks owns and operates several cable TV channels, including nationally distributed programming networks AMC, WE tv, IFC and the Sundance Channel. New shows, returning series and international strategies are forecast to help spur viewer interest and company growth long after the final episode of "Breaking Bad," which aired in September to a series-record audience of 10.3 million.

Stay tuned for more scripted programming in 2014 from the flagship AMC network.

"A popular phrase in the media business is 'content is king,'" said Guggenheim Securities analyst Michael Morris. "That will be the case for AMC Networks in 2104. It will be a big year in terms of them introducing new shows and expanding existing shows."

The 2014 lineup on the AMC network includes the debut of a Revolutionary War piece called "Turn," and "Halt & Catch Fire," which captures the rise of the PC era in the early 1980s. Both are produced by AMC Studios and will be distributed internationally through Entertainment One (eOne) Television.

Pushing Channel Carriage

AMC Networks is also expanding original programming on We tv, the Sundance Channel and IFC, says Morris.

This is important, he notes, because those three channels "aren't fully distributed" to the roughly 100 million pay-TV (cable, satellite and telco) subscribers in the U.S., while the AMC network is distributed to just about all of them.

"By bolstering these three channels with more original programs, one of the company's objectives is to create that must-have stature for the networks, and in doing so increase the number of subscribers," he said. "That's very high-margin revenue because there's little direct costs associated with it."

New scripted programming this year on AMC as well as program expansion at its other channels should help AMC Networks keep up the strong momentum it's been seeing of late, analysts say. Earnings have risen by at least 42% year-over-year the past three quarters and sales have increased by at least 16%. In the third quarter, they climbed 57% to 80 cents a share. Revenue shot up 19% to $395.3 million.

Analysts polled by Thomson Reuters see full-year 2014 earnings rising 69% to $3.19 a share.

"The flagship AMC network generates the lion's share of the economics of the company, and it has been very successful with shows like 'The Walking Dead' -- the highest rated nonsports program on cable, 'Mad Men' and 'Breaking Bad,'" said Morris.

"These are the three most prominent programs on AMC, each of which has seen not only strong ratings, but strong ratings growth since their debuts," he added. "With that ratings growth has come growth in ad revenue and direct content revenue, including sales of 'Walking Dead' toNetflix ( NFLX )."

In Q3 the AMC network led the 36% ad revenue growth seen across the company's National Networks segment, which includes AMC, IFC, We tv and Sundance, said CEO Josh Sapan on the quarter's conference call with analysts.

AMC Networks enhances its growth potential further this year as it sets its sights on expanding overseas. The company agreed to buy Chellomedia, the international content division ofLiberty Global ( LBTYA ), for $1.04 billion, it announced in October. The deal is set to close in the first quarter.

The acquisition provides AMC Networks an array of TV channels distributed to more than 390 million households in 138 countries, the company said.

"As AMC Networks has expanded internationally, we have had a great desire to do something we consider fundamentally strategic, which is to take our content and put it on channels we own," said Sapan in announcing the deal. "This acquisition allows us to secure a large, global platform on which to distribute our increasingly successful original programming through a collection of strong, well-established and well-managed assets worldwide."

Show On The Road

What does Chellomedia bring?

"It jumpstarts international revenue, which is less than 10% right now," said Macquarie Securities analyst Amy Young. "Fifty percent of Chello is general entertainment. So the content fits nicely with the portfolio." It provides diversification and lets AMC Networks replicate its success abroad, she adds.

In a report, Young also noted: "Chello has a significant presence in Europe and Latin America, the latter where AMCX recently sealed a deal withDirecTV ( DTV ) to launch Sundance. This will build on AMCX's international footprint, including Canada, Sundance in Europe and Asia as well as WE tv in Asia."

AMC Networks is also expanding overseas on its own. In September, it launched Sundance Channel for the first time in Latin America in partnership with DirecTV, the largest pay-TV distributor in the region.

Owning It

AMC Networks should have plenty of growth drivers in the U.S. too. Morris expects 36 hours of owned original content on AMC this year, in addition to new originals on We tv and the Sundance Channel.

He cites the point that AMC Networks "owns" the new "Turn" and the "Halt & Catch Fire" series.

"A successful owned program can be more attractive for the company because they participate fully in all of the revenue streams, such as selling the program to Netflix," he said.

Historically, adds Morris, the company has licensed rather than owned most of its scripted programs, including some of its most popular shows such as "Breaking Bad" and "Mad Men." When program content is licensed to the company, a studio produces and owns it, he notes. With licensed programs, AMC "participates in the ancillary revenue streams, but not to the extent" that it does when it owns the program content, he adds.

In addition to new shows, the AMC network will have a full lineup of returning series this year, including season five of "The Walking Dead" starting Feb. 9; the first half of the final season of "Mad Men" with a 90-minute premiere on April 13; and the season four premiere of the Western "Hell on Wheels," to debut this summer.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas
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