AMC Networks Inc (Pre-Reincorporation) (AMCX) 2011 Q4 法說會逐字稿

Good morning, my name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the AMC Networks' full-year and fourth-quarter 2011 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

(Operator Instructions).

Thank you. Mr. Zaslow, please go ahead, sir.

Thank you. Good morning, and welcome to the AMC Networks' full-year and fourth quarter 2011 earnings conference call. Joining us this morning are members of our executive team, Josh Sapan, President and Chief Executive Officer; Ed Carroll, Chief Operating Officer; and Sean Sullivan, Chief Financial Officer. Following a discussion of the Company's full year and fourth quarter 2011, we will open the call for questions. If you don't have a copy of today's earnings release, it is available on our website at AMCNetworks.com. This call can also be accessed via our website.

Please take note of the following. Today's discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of the future performance or results, and involve risks and uncertainties that could cause actual results to differ materially. Please refer to the Company's filings with the Securities and Exchange Commission for a discussion of risks and uncertainties. The Company disclaims any obligation to update the forward-looking statements that may be discussed during this call.

Further, we will discuss non-GAAP financial information. We believe the presentation of non-GAAP results provides you with useful supplementary information concerning the Company's ongoing operations and is an appropriate way for you to evaluate the Company's performance. Please refer to the press release and related footnotes for GAAP information and a reconciliation of GAAP to non-GAAP information, which we'll refer to on this call.

I would now like to turn the call over to AMC Networks' President and CEO, Josh Sapan.

Well, good morning, and thank you for joining us. We're glad to be with you here today. I'll provide a brief summary of our financial performance followed by an update on the business and then turn it over to Sean Sullivan for some greater financial detail.

2011 was a successful year for AMC Networks. We finished off with a strong fourth quarter. In the fourth quarter, the Company reported 14% growth in revenue, and 7% growth in AOCF. Our results included a programming write-off of $18 million that we recorded in the quarter. If one excludes the impact of this write-off, our AOCF growth would have been 25%. For the full-year 2011, we grew both revenues and AOCF 10%. AOCF grew 14% excluding the fourth quarter write-off I just mentioned.

Our growth was led by the success of our programming. Overall, our programming approach continues to shift away from movies and increasingly toward the creation of compelling originals, both in fiction and non-fiction form. Our general bias is to own that programming when possible. However, we will continue to partner with studios when we think it makes economic sense. We believe successful originals enhance the value of our business, and the benefits attached to increased ownership of content will manifest themselves not only in the linear TV window, but increasingly in developing distribution platforms such as digital and International.

This strategy is the direction we've been going in for a few years and we will continue to go in. Over time one will see the trend increasingly at work across all our channels. On the scripted side, AMC, the largest of our four cable TV networks, is increasingly defined by its slate of original scripted series. We are now at five scripted series, including the critically acclaimed series Mad Men and Breaking Bad, the crime drama The Killing, the recently introduced Western series Hell on Wheels, and our very successful zombie series, The Walking Dead. The second season of The Walking Dead premiered in October. It not only set cable ratings records, but has consistently been among the top shows on all of television, with audiences frequently larger than broadcast shows such as Glee, Two and a Half Men, CSI and 30 Rock.

2012 will be the first time that we will air all five of these scripted shows within one calendar year. And we've recently looked to build off the success of these scripted dramas by introducing non-fiction original programming on AMC. We think that's consistent with the template that we set out five years ago and that we've been executing on since that time. At our other National Networks, the strategy of investing in original programming is also at work. Two notable examples are a show called Braxton Family Values on WE TV, and a show called Portlandia, which is produced by Lorne Michaels and stars Fred Armisen, both from Saturday Night Live, on IFC. Both shows in their second season have delivered ratings about 5 times the primetime average in each of those networks' key demographic targets.

The success of our original programming is increasingly driving our top line performance. On the affiliate side, our investment in programming helps us to provide a significant revenue stream that we are looking to grow over time. On the advertising side, our originals have helped us attract new quality advertisers to our networks and grow ad revenue at rates in excess of the overall domestic ad market. You should expect to continue to see quite a bit of variability in our ad results quarter-to-quarter, based largely on how many originals we have airing, and of course, how significant each one is in delivering a particular demographic audience. The fourth quarter of 2011 benefited most significantly from the airing of two original series on AMC, versus one in the fourth quarter of 2010. As for 2012 year-to-date, we're now ten weeks into the first quarter, and we're seeing healthy demand, particularly for our originals.

As we discussed in our last call in early October, we announced the distribution agreement with Netflix. We began to see the impact of this agreement in our fourth quarter results. We believe that the manner in which we've structured the agreement works to protect the existing cable ecosystem, and the premiere linear window that goes on cable, while at the same time providing us with additional revenue for our increasingly desirable content in a digital syndication window. The recognition of revenue related to our digital initiatives will also vary quarter-to-quarter, depending upon the timing of the delivery and the availability of that programming.

I'd now like to turn the call over to our Chief Financial Officer, Sean Sullivan, to take you through the financial results in some greater detail.

Thanks, Josh, and good morning. As Josh mentioned, for the fourth quarter total Company revenues grew 13.6%, and AOCF grew 7.1%. AOCF growth was impacted by an $18 million programming write-off in the fourth quarter at the National Networks. Excluding this write-off, fourth quarter AOCF growth was 24.6%. For the full-year, total Company revenues and AOCF both grew 10.1%. Adjusting for the write-off I just mentioned, AOCF growth for the full-year would have been 14.5% over the prior year. At the National Networks, revenues for the full-year increased 8.8% or $88 million. National Networks AOCF for the full-year increased 6.8% or $29 million versus the prior-year period to a total of $448 million. Adjusting for the fourth quarter charge, full-year National Networks AOCF grew 11%.

In the fourth quarter, National Networks revenues increased 12% or $33 million to a total of $305 million. Advertising revenues increased 14.7%, primarily due to the growth at AMC. As Josh mentioned, AMC benefited from an increase in original programming hours versus the prior year period --more specifically, the airing of two original scripted series in the fourth quarter of 2011, versus one in the fourth quarter of 2010. Affiliate and other revenues at the national networks increased 10% versus the fourth quarter of 2010. These results include the benefit of increased digital distribution revenues.

For the quarter, National Networks AOCF declined 2.6% versus the prior-year period to a total of $101 million. As I mentioned, results for the fourth quarter include a charge of $18 million related to a programming asset at AMC. We periodically review all of our programming assets, and as a result, incur write-offs from time to time as a normal occurrence in our business. However, the magnitude of this write-off was significantly in excess of our historical experience over the past few years, and therefore, we felt that it was appropriate to highlight that in our results for the quarter. Adjusting for the impact of the $18 million charge, fourth quarter AOCF for National Networks grew 14.3% over the prior year period.

Turning to the International and Other segment, full-year revenues increased 20.2% or $21 million to a total of $126 million. Full-year AOCF for the segment was a negative $5 million, an improvement of $10 million versus the prior year period. In the fourth quarter, International and Other revenues increased 14.5% or $5 million to a total of $39 million. This growth was driven primarily by an increase in revenues at IFC Films, as well as increases in International affiliate fees.

Operating expenses decreased 5.5% or $2 million, primarily due to a decrease in expenses at IFC Films. Litigation expenses related to the VOOM lawsuit were less than $1 million in the quarter, as compared to $1.2 million in the fourth quarter of 2010. For the quarter, International and Other AOCF was $7 million, an improvement of $7 million versus the prior year period.

Total Company net income from continuing operations for the full-year was $126 million or $1.79 per diluted share, compared to $118 million or $1.71 per diluted share in the prior year period. This increase was the result of growth in operating income and a decrease in income tax expense, partially offset by an increase in interest expense and costs associated with the redemption of the debt incurred in connection with the spinoff from Cablevision.

For the fourth quarter, total Company net income from continuing operations was $29 million or $0.40 per diluted share, compared to $30 million or $0.43 per diluted share in the prior-year period. This decrease was mainly due to the programming write-off we took in the quarter. Excluding the impact of this, net income from continuing operations would have been -- $[40] million or $0.56 per diluted share. We had a four percentage point reduction in our tax rate for the quarter versus the prior year as a result of being a separate taxpayer from Cablevision.

In terms of free cash flow, the Company generated $240 million in free cash flow for the 12 months ended December 2011. Capital expenditures were $15 million, cash interest was $79 million, and cash taxes were $12 million for the 12 month period. As of December 31, our NOL carryforward was approximately $143 million. Based on current estimates, we expect to fully utilize the NOL during the second half of 2012.

As Josh discussed, our strategy over the past several years has focused on our original programming. As a result, we've seen a ramp in our investment in programming, most significantly our scripted originals on AMC. The funding of the production for these shows generally occurs several months in advance of the airing, and we expect this trend to continue in 2012 as we plan to air five scripted originals on AMC for the first time within one calendar year, while continuing production for shows that will air in 2013. We also expect cash interest and tax payments to increase as a result of the full-year impact of the capital structure we put in place, in connection with our spinoff from Cablevision, and as AMC Networks becomes a full taxpayer later in the year.

Turning to the balance sheet, as of December 31, AMC Networks had $2.3 billion of outstanding debt. We had cash and cash equivalents of $216 million, for a net debt position of $2.1 billion. Our leverage ratio was 4.8 times based on LTM AOCF of $442 million. This is down from 5.4 times on June 30, 2011, when we spun off from Cablevision. In early March, we also prepaid $50 million on the term loan A debt. This payment was in addition to the two $50 million prepayments that we made in August and October of last year. These prepayments are consistent with our disciplined approach to managing our business, whereby we'll continue to execute our strategy, invest in our original program -- programming, and as appropriate, use excess free cash flow to delever.

So with that, let's move to the question and answer portion of the call. Operator, please open the call to questions.

(Operator Instructions) Your first question comes from the line of Michael Morris with Davenport & Company.

Good morning. One question, and then a follow-up. First on your affiliate fee revenue, you just reached a new agreement with Suddenlink. Josh, in the past you've talked about how you view AMC as a $0.75 network. You said, it's not going to get there right away, but something you think can achieve. Can you talk about -- what can you share with us in terms of that agreement? Whether that's helping you move toward that level, and what kind of a template that sets?

Sure. So we think -- we did just settle with Suddenlink. We think it's a fair agreement for both sides. We think it does reflect the increasing value of AMC and other services. So, we think we're moving in the right direction. We're pleased.

Maybe you can help with this as well. I realize it's sensitive to give specifics, but even in the fourth quarter it looks like your actual -- you cite of the 10% growth, it was primarily due to the affiliate arrangements. Does that represent an acceleration from the pace that you've seen to date this year? Or any granularity there would really help.

Right. So, of course, of the specifics of any individual agreement, we need to keep privileged. We have -- just for the rough math, a universe of 95 million or so homes. The -- in general, the agreements come up generally between two and five or six years. Some are longer. This one was, of course, for Suddenlink, which is an MSO, a great one, that's a little larger than a million subscribers. So as we mentioned, we think the service is -- and particularly AMC, are stronger than they were when we entered into contracts years ago. We think that there will be an evolution of the reflection of that value. I guess that's the best I can provide, in terms of where we're headed, and what the trend looks like.

All right. That's great. Then on the ad side, can you provide a little more color on the 14.7% ad growth that you recognized in the fourth quarter, in terms of key drivers? What was driven by originals, for example, versus other parts of the business? Then when you talk about healthy demand go into the first quarter, do you expect that represent an acceleration from the pace that you saw in the fourth quarter?

Right. So the trend that we're seeing -- thanks for the question -- the trend that we're seeing, which is we think a good one, is we're seeing advertisers really value and recognize the value in price and in demand for the originals across our channels. In the fourth quarter, if there is an important trend to identify, it is that -- and it continues in the first quarter -- that those originals really work for their purposes. They really help sell products. They're differentiated. They're defining, they're popular. They have a life -- in social media.

If you want to sell cars, entertainment products, financial services, et cetera, they're really a very desirable place to be, no kidding. So, we're seeing that. That's a gratifying, of course, an important response to our investment. So, that's the key trend that we're seeing. Movies in general have not been as important as they were several years ago, and that's why we embarked on this trend, so -- and as planned. The trends are in place, and they're -- we're pretty much doing as we expected to do.

Great. Thanks a lot.

Sure.

Your next question comes from the line of Monica DiCenso with JPMorgan.

Thanks very much. Just following up on that, with demand being strong, how are you feeling heading into the upfront later this year? Do you think you are on pace for a better year than next -- than last year? Would you consider selling more inventory?

So I think, once again, we are encouraged by the demand and appreciation for our original content. That is the key trend that we're seeing, which is very important to the strategy that we have embarked upon and the associated costs. In terms of -- so we're feeling very good about our originals. It's too early, I think, to call the market, and to see how it actually plays out. But we're encouraged, particularly by the strength of our original content and the value that advertisers put on it, and the degree to which it really works for them to sell products.

Great. Then regarding the non-scripted shows, I think you had -- can you comment on how those ratings have gone versus your expectations? I think in the past, you had said over time maybe you would swap out some more expensive programming for those. I'm just wondering, are you at a point where that might happen this year? Is that more like, one or two years out?

Right. So just by -- to expand upon the answer, if I may, we have had significant non-fiction programming on WE tv, and to some degree, on IFC and Sundance channel over time. We just initiated, for the first time, some non-fiction programming on AMC. I would say that actually it exceeded our expectations. Now, it's early days, and it's fairly new. We've put on really two non-fiction shows to date. The first was a show that was designed very specifically as a follow-on to the Walking Dead, because we had such large audiences. We identified that they stayed with the show on social media, by the way, while they watched it and then after they watched it.

So, we developed a show to satisfy their appetites, and of course, to deliver audience for us economically afterwards, called the Talking Dead. The Talking Dead did very good numbers, well in excess of what we had done in those time periods with movie programming. Then we did a second show called the Comic Book Men, which was somewhat similarly designed to take advantage of people very interested in the genre content that The Walking Dead represents.

So, it features Kevin Smith, who is a bit of a, if I can use the word, fanboy icon. He directed Clerks, and it examines the world of people who are very interested in that genre of content. It too, exceeded our expectations and performed very strongly. It is a new initiative for us. So we'll have to see over time how it plays out on AMC, how much of the service it inhabits, how it performs from a ratings point of view, how it merges with the scripted shows that we have on and the movies. There are some open questions. But to date, we're quite encouraged by the results.

That's great. Thank you.

Your next question comes from the line of Bryan Goldberg with Bank of America Merrill Lynch.

Hi, thanks. Just a couple questions. First on advertising, in the fourth quarter with a show like Walking Dead, how effectively were you able to monetize the ratings upside of season two? Were you able to capitalize this in the Scatter market, or was a large chunk of inventory spoken for in the upfront?

Right. So we -- some was sold in the upfront, but we did, we were able to sell in Scatter at -- with high demand, pretty good prices. So it worked out quite well. Our plan and our approach, in terms of balancing upfront and Scatter, which is always a balance, worked just about according to plan. So we were pleased with it.

Okay. Thanks. Then on programming strategy, the recent acquisition of CSI Miami. Could you give us your early thoughts on how that programming is meshing with the AMC schedule? Are you seeing the lead-in benefits at the primetime? How should we think about the economic impact of having this type of programming on your air, really from a margin perspective, is it accretive or dilutive?

I think that's a very good question. It -- in part, Bryan, CSI Miami is on the air. I think one way you could think of it, as an adjunct to our movie programming. It's on fairly regularly. It fills a bunch of hours. We think it's done -- it's a show that's well done. So, it has met our expectations, just about met our expectations in terms of audience delivery, and in terms of flow. So again, that's a new initiative for AMC. We have not had on a scripted drama that came from broadcast television before, and we're fairly fresh into that initiative. I would say just to date, it's just about where we thought it would be. We'll evaluate whether we think it should lead to other acquisitions or not.

Okay. Then just one last one. With Suddenlink now out of the way, could you refresh us what percent of the AMC sub base will be up for renewal by the end of '12? I think the last disclosure we saw was 11%. Are we down towards 9% range now?

I actually don't have the number in my head exactly. We can go -- get back to you on that. I don't have the exact percentage in front of me. If I can answer in general -- as you know, we have agreements -- you get the duration. They're generally between two in five years. At any given point in time, a reasonable -- in any given year, generally, some percentage of the sub base is up. If you look at whether it's the next 18 months, and there's a big MSO up, that can change the percentage. So it is an ongoing, of course, process for us that is eternal. We will have expiring agreements all the time, in our immediate, near, and mid-term horizon.

Okay.

Operator, next question please.

Your next question comes from the line of Richard Greenfield with BTIG.

Hello, a couple questions. First, your comments earlier about becoming a cash taxpayer by the end of 2012 --your leverage is obviously falling. I think during the roadshow, originally, before the split off, you said you were pretty comfortable around 5 times. You're obviously starting to delever pretty quickly below that. Wondering how you think about where leverage should be and how you plan to keep leverage high as you move into the end of '12 and into '13? Because it seems like you have a lot of capacity to do something to return capital.

Two, on original programming, I believe you had none of high-profile in Q1 last year. It sounds like your comments were that the healthy demand for advertising for originals was carrying over into Q1. Given that you have Walking Dead, and you're going to capture a little bit of Mad Men, wondering should we expect a meaningful uptick in advertising on a sequential basis given that trend? As well as adding CSI to the schedule? Thanks.

Thanks, Rich. I'll answer the first question, and maybe have Josh respond to the second one. In terms of leverage, I don't think Management has changed its point of view from the roadshow. We're obviously focused on deleveraging. I think that deleveraging below where we are today provides better -- some better strength, more flexibility, but maintaining a tremendous amount of liquidity, as you say. So as we sit here today, I'm not -- we're not, still at a point where we're comfortable sharing what our target leverage is for the business, but just focusing on deleveraging, and continue on the path we've shown you over the last couple of quarters.

On the ad sales side, we do indeed have more originals and more inventory of desires. So, we expect to see the benefit of that on a quarter-over-quarter comparable basis, just as you described. Yes.

Is there any way -- I mean would it be reasonable to believe that ad growth year-over-year would be faster in Q1 than in Q4? Just based on all of that?

I think we'll see strength in it. I think we'll see -- it is as we mentioned, dependent not insignificantly -- most significantly on these originals. We do have more of them. So, that is the trend that will be at play.

Thanks.

Your next question comes from Vasily Karasyov with Susquehanna Financial.

Thank you. Good morning. I have a question for Sean. Just following up on your comments on cash spending on programming and the P&L impact. Can you help us understand how that impacts the margins? Or what it means for the margins for National Networks, directionally at least, for 2012? Should we expect another year where margins tick down? Or is flat a better assumption?

As you know, we don't provide formal guidance. I think it's -- so I won't give you a specific answer necessarily. But as you look forward, as we said, we will be investing incrementally in the original shows that we'll have -- and the -- and in putting together the five original scripted series. I think from revenue and AOCF, we certainly expect in 2012 to get a commensurate return on that. We'll have in the short-term some incremental investment in working capital to support the production of these shows.

But we are certainly doing it, with the -- with the full expectation of the free cash generation, whether it be from affiliate fees, whether it be for advertising, or ancillary revenue streams that will ultimately pay off as a result. So, as we look forward, as you can see '11 versus '10, we were able to maintain our AOCF margin. Certainly going forward, over the mid and long term, we fully expect the same.

All right. So I think the last time you spoke about margins was on the June quarter call. I think the philosophy that you laid out back then, was that you really don't expect a big margin expansion. It's more about protecting the margin going forward. Is that -- do I still understand correctly, that is still the philosophy?

I don't know if it's a philosophy, but as you can tell, within our National Networks, each of our networks are in various stages of development. We believe that we're doing the right things, in terms of the original programming strategy, looking at each network and what the right complement of programming is, the required investment as such, because we believe that's the best use of cash and capital for you, the shareholders, to drive long-term value for this business. Therefore, generating meaningful margins and meaningful free cash flow is what we're trying to do. So it's hard -- I mean we're not going to give -- I'm not giving it to you as a philosophy. It's just how we manage the business, in the context of the macroeconomic environment we operate in, and what's in everyone's best interest.

Thank you. That's very helpful.

Your next question comes from the line of Ben Mogil with Stifel Nicolaus.

Good morning, and thanks for taking the question. So you've got Mad Men premiering at the end of the month. You've obviously had the first four seasons on Netflix pretty aggressively, from their promotional perspective. Can you talk a little bit if you can, about any kind of viewer ratings -- not ratings, but viewership that you can talk about, what Netflix is seeing as you head into the season, in terms of building momentum around the show?

Yes, it's a really interesting question. It -- what we -- it has been a very popular show on Netflix. I would just restate that our, as we articulated in the prepared remarks, we have a point of view about windowing, that I guess you could describe, at least in our industry, as somewhat restrained or conservative. We put a long period of time between the airing of these scripted shows on AMC relatively, and when they go to Netflix in general.

So it has been popular on Netflix. We will, of course, know the ratings at the end of the month when the premier occurs. I think it's fair to say that we're encouraged that the effect of Netflix, specifically for a show like Mad Men, will be positive. That it will have had the opportunity to be exposed to some new audience, who may become familiar with it, may develop an appetite for it, and may be interested in seeing new episodes. They may well be people who hadn't seen it on our -- on cable TV premieres, satellite premieres or on cable VOD.

So we think -- and this is, of course, brand-new technology and content activity. It hasn't been in place in the past. So I don't think that there is a defined pattern. But we think it will have a beneficial effect.

Thank you. Then on the write-off, I'm assuming it was on Rubicon, was the write-off tied to a season two, that you thought -- that you sort of spent some money on production that didn't end up happening? Or was it more that the revenue ultimates for one, were too high, again, under the expectation the show would make it to syndication?

Yes. So we did season one, and we did not renew. Then we thought that the show might have value in replay, and might have value in other distribution platforms, for us which we were running it on. As we evaluated that, we saw that it did not have vitality. So the consideration was really about -- whether or not those -- that season one of Rubicon, yes, that's the show, had vitality and was usable by us. We've reached the determination that it really was not. So that's what is reflected in the write-off.

Then last, because I know that K is not out yet, or at least I don't think it's out yet. Can you talk about what the cash programming costs were in fiscal -- or sorry, fiscal/calendar '12? I know you don't give guidance, but what should we be thinking about it, mid high single-digits, low double-digits? Just some context around what we should thinking about, around the cash programming costs?

Yes, sure. When you get -- we will file the K later today, so you will get that. If you look at the movements year-over-year in both the programming assets and the programming obligations, so that working capital movement you're going to see is roughly $30 million, just south of that.

You mean -- so like a net outflow of $30 million, you are saying?

Correct.

Okay. Thanks. Should we be thinking that's a reasonable number for '12 as well?

Again, I'm not going to give you guidance. I think we've made some prepared remarks today about the five originals on AMC specifically, where large part of the dollars are, the timing of production as it relates to the timing of exploitation, and realizing the revenues. So hopefully that gives you some sense of what next year looks like.

That's great. Thanks, Sean.

Your next question comes from the line of Anthony DiClemente with Barclays Capital.

This is actually Chris Merwin in for Anthony. Just on the International side, you had mentioned that VOOM -- excuse me -- you mentioned that VOOM expenses were down, which led to some upside at the segment in the quarter. Should we expect lower costs going forward, at the International segment? Is there an update on timing around a resolution to the litigation?

Right. So I think you said two things. They were, we should we expect more cost --

Lower costs.

Oh, lower costs -- you saw on the International side, we -- as we mentioned, we are expanding Internationally. We launched on many platforms in calendar year 2011 across Western Europe, Eastern Europe and Asia. So we are in a growth mode. Where, by way of background, where our distribution is more mature, particularly Canada, we see profitability where it's new, and we're developing and adding platforms in territories than we are investing.

So as we continue to, and we believe it's appropriate to invest and grow internationally, as an adjunct to our business; that will cost money. So I think the aggregate reporting in that line will reflect that investment. You had a separate VOOM question about legal fees, I think. I don't know quite how to answer it, except -- I don't know if this is responsive to your question except to say that the litigation continues.

We are -- we just heard a ruling from the appellate court on an appeal from DISH in our favor. We are now -- we are waiting, we believe, what will be a trial at some point is not determined, and the legal costs will move with the timing of this trial when it happens. I hope that was responsive to your question. I think that's what you asked.

Yes. That's helpful, thanks. Then you mentioned that there was some lumpiness in the fourth quarter from Netflix revenues. I know you don't provide guidance on this, but is there any way you can help us think about the quarterly progression of Netflix revenues in 2012?

I don't think -- I think the right way to think about it is, as Josh said, we're trying to be restrained and protect the existing ecosystem. So generally speaking, Netflix will get the shows that we control the digital rights to two weeks or so prior to the premier of a subsequent season. So any lumpiness will be dictated on what our programming schedule -- in terms of linear air versus prior subsequent delivery. As you are I'm sure aware, the revenue recognition on these are, when we deliver the episode, they've accepted the episode, and they're available for exhibition, is when we take, obviously, 100% of the revenue in.

Thank you.

Your next question comes from the line of Ben Swinburne with Morgan Stanley.

Thank you, good morning. Can I just ask a point of clarification, Josh, on the write-off. Did you say that for Rubicon, you were assuming syndication or digital licensing revenues as a result of season one in the ultimate? And then, analyzed that, that would not come to fruition, so wrote-off the remaining asset? Is that the right way to clarify it?

This is Ed. So on Rubicon, we continued to run the program on AMC at various times. We also made it available on the VOD platform. So, we ran it on linear, on VOD, and some web applications until we thought it really didn't have utilization going forward. Then we made the decision to write it down.

Okay. So the $18 million was all related to that show, by and large?

Yes. Correct.

Okay. Great. Then I just wanted to ask two more. One, maybe for Sean, on affiliate revenue growth in 2011, I think in the first half of the year for National net, it was about 4%. Then you've had some catch-up payments in the third quarter, and digital in the fourth quarter. But is the underlying affiliate revenue growth in the back half of '11 similar to what we saw in the first half? Just trying to think about the normalized growth rate from your affiliate fee business now --

Yes, I think a mid single-digit percentage is what we have said historically. It is still consistent and accurate today. Certainly I think Josh talked earlier, on his comments about ongoing discussions and the strength of our originals. So in terms of what our orientation is, in terms of what we'd like that to be going forward, but we're not going to provide guidance as a result.

Okay. Then last question, Josh, sort of a high level one. We're all trying to figure out how much of these online revenues are incremental to the business. That's obviously a difficult question to really pinpoint. I'm curious if you could chime in on two points. One is, what are the ratings? Whether you expect or have seen airing of Netflix -- on Netflix and other digital platforms help your linear ratings?

Then second, how has it impacted, if at all your conversations with distributors? So obviously, the Suddenlink deal was done, but there was certainly some noise in the press about whether it was contentious or not. I'm just curious, if you think there's any impact negative on your affiliate revenue discussions, as a result of putting content on these other platforms? I realize they are older seasons, but I just -- since you have been in the business a long time, I'd love to hear your thought on those issues.

Yes, sure. So on the ratings question, as I mentioned before, we -- at least we or I, think that the availability of past seasons on Netflix will have a beneficial effect. I don't think there is that much data --

Right.

-- that anyone could point to, and that you could segregate that as a variable, and say that caused it. We have had experience with shows being on Netflix, and returning -- I'm sorry -- and new seasons of shows, and so we think it's a contributor. What we understand from the performance of our shows, which I think is consistent with shows that have long arcs, and that people sit down to watch a bunch of, or binge on, is that they create appetite, et cetera. That's reflected in the ratings when there's a new season. So we think it's beneficial.

It would be very hard to make an absolute proof that it is beneficial.

Right.

On the subject, of how what we do impacts distributors, I think that it's fair to say that this restraint that in general, relative to the industry that we exhibit. By putting on our scripted shows what is on SVOD services like Netflix, pretty close to a year delay between the time that we air a season, and then when they can be seen on an SVOD digital service, which is a fairly long time relative to others, if you take a look at it.

I think in general that's probably appreciated by our distributors. We discussed it with them in some detail. They are in recognition of what's happening in the world. I think in general, they would -- I would stop short of saying, applaud, but they would say that the restraint in the period of time which is longer than others, is beneficial to the preservation of its value on cable TV. So I don't think it was necessarily a direct issue in the Suddenlink conversation. But I think it is in general, I hope and I believe, well-regarded, that policy.

Thanks.

Your next question comes from the line of David Joyce with Miller Tabak and Company.

Thank you. I was wondering if you could provide some color on the kind of ad loads that we should be expecting now. The progression on IFC and Sundance, for example -- I know Sundance has been more of a sponsorship model. Also relating that to the Mad Men, since part of the delay was coming to agreement on how much ad time would be on that show. If you could provide some color on that, please?

Right. So AMC is a very simple story. We have a standard level of advertising. There was some discussion in the press of -- a small number of minute or minutes, one way or another. I think that may have been, in terms of ultimate economic consequence, perhaps exaggerated in terms of overall impact. I think on IFC, where the subject to us is the most relevant, we had historically, up until January of 2011, had sponsorships, and not conventional advertising. Then in January of 2011, we switched to 10 minutes of national advertising per hour, which is a pattern and a transition that we had undertaken at an earlier time, on both AMC and WE tv.

Those experiences -- I hope this answer isn't too long -- those experiences proved to us that the injection and availability of a second revenue stream was good for the channels. In the case of AMC, we are able to take some of the incremental revenues that came from advertising, obviously, and invest it in content. It gave birth to the scripted shows that we have on today. We are essentially pursuing that playbook on IFC.

It takes some time to do it. But we're exactly in line with the expectation we had, in terms of audience delivery and the type of original content that we are now able to make. We mentioned the show Portlandia, which actually among the certain demographic is a bit of a hit. It's not my demographic necessarily, but it's really appreciated, and the ratings are five times in excess of our prime average. So we think that the plan on IFC is working. On Sundance, it is a sponsorship supported service. It's a unique service. We don't have any plans to change that today, whatsoever.

Thank you. On Mad Men, should we expect that to also be in the first and second quarter of 2013? In terms of modeling, when we expect the ad revenue?

We haven't made that scheduling decision for Mad Men past this season.

Thanks. Finally on the distribution of the networks. You added some households, according to Nielsen numbers, with the biggest jump at IFC. A little bit of a slippage at WE -- is there any trends that we should consider there?

No. I think the -- I think the general trend or issue, which I think can be seen in our history, is that some of our services are carried on in pay packages because they don't have advertising. They have been, and some are carried -- and that's Sundance, particularly, on so-called digital tiers. When they become advertiser supported, if they become advertiser supported -- so that refers specifically now really to IFC --then we, and we hope our distributors, have a greater incentive to put them on more highly penetrated levels of position in the cable system, because we can benefit directly from those increment -- that incremental availability.

So, we would like to see IFC where it's not carried at a very high level of penetration, repositioned to a high level of penetration. We've undertaken that, and achieved it with -- pretty significantly over time with IFC and with WE tv. It's today less of a concern for Sundance, for the reasons of the structure of its revenue stream. So that's -- if there is a trend, that's pretty much it. Any activity in any 90 day period is probably not an indication of anything significant in the trend.

All right. Thank you very much.

Operator, we'd like to take one last question please.

Your final question comes from the line of Jaison Blair with Telsey Advisory.

Thank you for taking my call. On CSI Miami, what's been reported in the press is that it's a 10 season deal, a couple hundred episodes. It seems like a rather large financial commitment. Could you just put some color around the pacing of the cash outlays, the terms of the agreement. Did you freeze the SVOD rights? If it doesn't meet your expectations for audience conversion, what can you do to boost awareness, and what could you do to offset the risk?

So we don't -- disclose the details of the contracts that we enter into. We are -- as I mentioned, I think CSI Miami is just about meeting our expectations specifically. It's new to the service. We think it makes sense. We think it has endurance. It has a proven track record as the of type of material that the AMC audience -- there might be a slight gendership in it, relative to the average gender delivery on AMC. But we think it's a good acquisition. It's actually performing exactly as we expected.

As I mentioned, what was behind it, most significantly, is we thought that being a service that has now a lot more TV shows on, that we would be advised to take something that is a proven performer and to add it to the mix of movies that we have on. It's just about exactly met our expectations.

Can you tell us if you froze the SVOD rights?

No. We can't actually identify every specific right we have with those that we have a contract with.

Okay. Can you just tell us what you might be able to do to boost awareness?

Well, I mean, if you want to boost awareness, you market. That's pretty -- I mean it's a conventional, and very obvious thing to do, and we have done some marketing behind it. It's a good question, because it's a new thing on AMC. So people have not been trained to think about having off Network shows on AMC. We have put some marketing behind it, and it's helped.

I think a broader answer would be -- an issue for us is, what we want this service to be known for, how we want it to be characterized, and where we want to weight our marketing dollars. We really do want to, of course, weight our marketing dollars around our scripted originals and non-fiction originals that have multiple benefits for us, not only audience delivery, brand identity, benefits if we own the show like Walking Dead, and future exploitation on digital platforms, et cetera. So it is a very discrete, if you will, piece of business for us. It's one that we think is doing just about what we expected. That's where it's sits in the spectrum of our hierarchy.

It seems -- and one just last -- it seems as though it's a trade up from movie programming. Can you give us a sense of how much movie programming it might displace?

Not exactly. I think -- but the way to look at it is, is to look at it like a movie license, in the certain sense, in terms of it being enduring, in terms of it having replay value, and in terms of it having flow that leads into other shows that may follow it.

Great. Thank you so much.

Thank you, everyone, for joining us on today's call, and for your interest in AMC Networks. This concludes our call.

This concludes today's conference. You may now disconnect. Thank you for your participation.