AMCX

AMC Networks Inc. (AMCX)

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AMC Networks, Inc. (AMCX)

JPMorgan Global Technology, Media and Telecom Conference Call

May 14, 2013, 10:00 am ET

Executives

Josh Sapan - President & CEO

Analysts

Alexia Quadrani - JPMorgan

Presentation

Alexia Quadrani - JPMorgan

Good morning. I think we’ll get going so we can stay on schedule. Those of you that don't know, I am Alexia Quadrani, the media analyst with JPMorgan. Thank you all for coming. We are very pleased to welcome AMC Networks to the JPMorgan TMT conference. With us today is Josh Sapan, the President and CEO of AMC Networks which owns Cable networks such as AMC, IFC, WE tv and the Sundance Channel.

Josh is with AMC for over 20 years successfully transforming the network from a classic movie channel into a top entertainment network today with the highest rated show on both cable and broadcast this season, The Walking Dead. Under Josh’s lead AMC made TV history in 2011 when it won the Emmy Award for outstanding drama series for the fourth year in a row as well as a Golden Globe Award for the best television series drama for the third year in the row. He also spearheaded the developments and networks IFC and WE tv which were launched under his leadership in 1994 and 1997 respectively.

Thank you very much Josh for joining us today. You've done an incredible job in the right series or at least from an outsider’s point of view. You are hit rates seems to be well above average, I guess what do you attribute that to and more importantly do you have confidence it can continue with some of new series or pilots that are coming later this year?

Josh Sapan

We have had good track record on particularly AMC. I’ll say something that sounds obvious we have a management team across the board that's been placed for quite sometime on the AMC Channel and COO and myself and several leading companies, so I think it is team effort and that provides some sort of stability and sort of easy talking language amongst one another that I think helps us make selections. Perhaps more importantly, it’s something more fundamental to the nature of the business which is if you are in the business of getting TV shows that are not necessarily intended to do a three rating or four rating and to prove themselves within two weeks which is something that others second to the business have in their genetics, it tends to be somewhat higher success ratio and better leverage.

So if one looks at the shows developed or piloted or made and whether or not they or on the air a year or two or three to four later and when we will take this into categories for instance channels that are commonly thought of to do what is often for prestige programming and then that's all we do, but as commonly a word, and so if one were to take AMC and FX and HBO and Show Time and look at their, if you want to call it batting average of shows made to shows that sustained, it ends up being slightly different percentage I think than if one were to look at the broadcast network as a category and that really has to be with the fundamental nature of those businesses and they differ quite a bit and this is a long explanation to your first question.

I hope I don't take too much time, but premium services of course, paid services don't have advertising. So their purpose in putting on shows is of course audience, but perhaps more fundamentally consumer attachment to whether it would be Homeland (inaudible) Sex and the City, technically Sopranos, Californication etcetera. In the case of FX or AMC while the audience is very important, the average cable channel has let's say 50% of its revenue coming from advertising and 50% coming from affiliate fees, round numbers, and so the orientation that those channels including hours to begin with has a more flexible step criteria for what makes a successful show and if the show is high quality, and if the show needs some good critical and consumer reception, then those businesses, the basic cable channels have genetically, it's not an attitudinal question, they have an inclination to give it more time to succeed and more time to capture an audience.

And so if one rewinds and allocates to Mad Men and Breaking Bad and Walking Dead, we’ve seen audiences grow not only double-digit season over season but we've seen them grow in cases of Walking Dead Season III 50% over season 2. In the case of Breaking Bad, 50% Season 5 over season 4. So in certain, I stopped short of saying the exercises in patience but I would say certain cable channels are rewarded economically more for consumer attachment than just for the absolute blunt number that the show does in week three and it creates a different percentage of success. So that sort of beginning (inaudible) more to say about that but I will allow you to go on.

Alexia Quadrani - JPMorgan

(Inaudible) new pilot this year, lowering for some and have several other pilots ordered. I guess for Breaking Bad and from this and Mad Men I believe ending its run in 2014, is your goal to stay around the five original series or expand beyond that?

Josh Sapan

So, we will on AMC expand beyond that. There is no theoretical limit to how many shows we can put on AMC or in fact any channel, it really is a question of net economics and as long as we can finance show and have enough money coming in from now the increasing sources that money comes in from we could do more originals, and more originals; I think practically we won’t expand at two rapid rate from where we are, but there is one thing to note that is actually appealing for our business and our category of businesses, which is between what we can expect from subscription video on demand from EST or electronic sell through, from international sales and then this ends up being a judgement call, what you do or don’t allocate in terms of shows cost to the affiliate revenue stream in a certain sense we begin with a fairly substantial amount of cost spoken for and the at risk piece of our commitment has been reduced as this specific business model as ours has emerged and as those sources of revenue have grown which doesn’t necessarily affect five, six, seven, eight, but it does mean that when you go make a sixth or seventh you are not looking at a 100% of the money at risk, you are looking at a much reduced percentage.

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