AMC Networks Inc (Pre-Reincorporation) (AMCX) 2012 Q3 法說會逐字稿

At this time I would like to welcome everyone to the AMC Networks third quarter conference call. (Operator Instructions).

Thank you, I would like to certain the call over to Seth Zaslow, Senior Vice President of Investor RelationsPlease go ahead sir.

Thank you. Good morning and welcome to the AMC Networks third quarter 2012 earnings conference call. Joining us this morning are members of our executive team Joshua Sapan, President and Chief Executive Officer, Ed Carroll, Chief Operating Officer and Sean Sullivan, Chief Financial Officer. Following a discussion of the Company's third quarter 2012 results, 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 www.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 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. 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 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 prides you with useful supplemental 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 like to turn the call over to AMC Networks' President and CEO, Josh Sapan.

Good morning and thanks for joining us. Before I go over the performance, I wanted to give you an update on our relationship with Dish and the impact that our dispute had on third quarter results. As we discussed in our last earnings call we were in litigation with Dish over the Boom HD business. We believe that as a direct result of the litigation, Dish terminated carriage of our networks in the middle of the year. The case went to trial in late September, and in mid October, the parties involved, AMC Networks, Cablevision and Dish Networks, reached an agreement to settle the litigation.

As a result all four of our networks, AMC, IFC, Sundance Channel and WE TV, have been returned to the Dish platform. We're delighted to have our channels and our programming back on the Dish platform. We've enjoyed a long relationship with Dish, one that we believe has been quite beneficial for both of us, and are very glad again to be partnering with them in bringing our programming to their subscribers. The settlement included long term affiliation relation agreement for Dish to carry AMC Networks four national channels; as well as a cash payment from Dish to AMC Networks and Cablevision collectively of $700 million.

While the litigation has been resolved, the dispute did result in the interruption of our service on the Dish platform for the entire third quarter. As a result our affiliate and ad revenues were negatively impacted and we incurred incremental marketing expenses and litigation costs. The aggregate impact was quite significant, particularly with respect to our AOFC and operating income results for the quarter. If not for the dispute with Dish, we would have reported healthy double digit growth in both AOCF and operating income. With this dispute now behind us we can focus our complete attention on the fundamentals of our business, which remain quite strong.

In the third quarter the Company reported solid double digit revenue growth. Our growth continued to be led by the success of our programming. At AMC, the largest of our channels, the fifth season of "Breaking Bad" was the most watched season ever for the series. Viewership and key demos, which are adults 25 to 54 and 18 to 49 increased roughly 50% over the prior year. "The Walking Dead" premiered it's third season in October.

The return attracted the most viewers in the series history. The premiere delivered almost 11 million total viewers and over 7 million viewers in key demos 18 to 49, an increase of 50% over the prior season. The premiere was the most watched drama in basic cable history ever, and with of the exception of Sunday Night Football, outperformed all of broadcast TV in the week, in key adult 18 to 49 demos. Besting "Modern Family", "The Big Bang Theory", "The Voice", and all others.

Our western series, "Hell on Wheels", which premiered it's second season in August, delivered solid ratings in its key demo adults 25 to 54, and has been renewed for a third season. At WE TV, prime time ratings were up double digits year over year with key demo women 25 to 54. The increase was led by "Braxton Family Values", the premiere of a show called "Tamar and Vince", which is spun off of that show "The Braxtons" and several other successful reality shows.

IFC led by a show called "Portlandia", which stars Fred Armisen from "Saturday Night Live" and returns for its third season in January, is continuing to develop it's strategy of producing alternative comedy across the channel lineup. At Sundance Channel we're pursuing scripted an non-scripted originals. "Rectify" the channel's first wholly own scripted from the producers of "Breaking Bad" will premiere in 2013. Two other projects, "Restless" an original scripted miniseries premieres in early December. And something called "Top of the Lake", written and directed Academy Award winning Director by Jane Campion and staring Holly Hunter and Elizabeth Moss from "Mad Men", will also premiere in 2013.

On the advertising side, we saw healthy demand for our programming, most notably the scripted originals on AMC. Despite the absence of the Dish platform, the national networks grew revenues by 9% versus the prior year. AMC was the largest contributor to that growth, due in part to the airing of two original series in the third quarter of this year, as compared to one series in the third quarter of last year.

Our national networks grew affiliate and other revenues by 24% over the prior year period. This growth reflected significant increases in what we call the other revenue stream, partially offset by a decline in affiliate revenue related substantially to the situation with Dish. Our programming strategy is translating into new revenue opportunities to the exploitation of content on different platforms. Because of the way in which we manage these new and growing revenue streams, we continue to believe that they're absolutely accretive to our business, and in fact are helping to grow the existing paid TV ecosystem. from which they are derived. The increase in other revenue related to the digital and licensing distribution of our original programming primarily at AMC. We benefited from the release of the second season of "The Walking Dead" and the. and the first season of "Hell on Wheels" on Netflix.

We also realized revenue in connection with the distribution of Mad Men, in similar (inaudible) windows. On the affiliate side the decline was due to the situation with Dish as well as a year-over-year unfavorable impact from a contractual adjustment from the third quarter of 2011. Excluding those two items, we continue to see very solid growth in affiliate revenues. With that I would like to turn the call over to Sean Sullivan, who will provide further detail on the financial results for the quarter.

Thank you, good morning. Turning to the results of the third quarter,total Company revenues grew 17%, and AOCF declined 10.9%. As Josh discussed, third quarter results were negatively impacted by the loss of carriage of our networks on Dish.

This dispute with Dish resulted in lost affiliate advertising revenues, as well as increased marketing and legal expenses in the quarter. On a segment basis, the vast majority of the Dish impact was at the national Networks. Despite the loss of Dish, national networks revenue increase 18.5% or $48 million.

National networks AOCF decreased 5.5% or $7 million versus the prior year period to a total of $116 million. Affiliate and other revenues at the national networks increased 24.3% or $39 million to a total of $199 million versus third quarter of 2011.

Results reflected an increase in other revenues, partially offset by a decline in affiliate revenues. Other revenues benefited from increased digital and licensing distribution revenues, primarily at AMC, related to our scripted original programs such as "The Walking Dead", "Hell on Wheels" and "Mad Men." The year-over-year growth rate affiliate revenue was impacted by the loss of carriage on the Dish platform, as well as the impact on a contractual adjustment in the prior year period.

As Josh noted, excluding the effects of these two items, we would have had solid growth in affiliate revenues. Advertising revenues increase 9.1% to a total of $107 million despite the impact of not being carried on the Dish platform. Year-over-year increase is primarily driven by the growth at AMC. AMC benefited from an increase in original programming hours versus the prior year period. Most notably the airing of two scripted originals in the third quarter of 2012 as compared to one scripted original in the third quarter of 2011.

Moving to expenses, expenses increased 40.5% or $55 million in the quarter, principally due to increased programming and marketing costs. Increase in programming expense was associated with our continued investment in original programming, as well as a write off of $8 million taken in the quarter. Marketing costs increased primarily due to the dispute with Dish, and activity at AMC related to it's original programming. The Dish related expenses were incurred in connection with communicating to our views, such as third party media buys and direct marketing.

Turning to the international and other segment. Revenues decreased $1 million to a total of $29 million. AOCF for the segment was a deficit of $8 million, a decline of $8 million versus the prior period.

Revenue performance was a result from an international affiliate feeds, which was more than offset of decrease in revenues of IFC films and Broadcasting and Technology. The decline in the AOCF was mainly due to the decrease in revenues, as well an increase in litigation expenses related to the Boom lawsuit. As it connected, we began allocating a portion of Boom litigation costs to Cablevision in the third quarter. AMC Networks shared the litigation costs were $5 million in the quarter, as compared to slightly less than $500,000 in the third quarter of 2011.

Total company net income from continuing operations was $37 million or $0.51 per diluted share. Compared to $40 million or $0.56 per diluted share in the prior year period. This decrease was the result of the decline in operating income, which was partially offset by a decrease in interest in income tax expense.

In terms of free cashflow, the Company generated $210 million in free cashflow for the 9 months end of 2012. The capital expenditures were $14 million. Cash interest was $99 million, and cash taxes were $20 million. As we mentioned on our last call, on NNL carry forward was fully utilized during the third quarter of 2012.

Turning to the balance sheet, as of September 30th, AMC Networks $2.2 billion of outstanding debt. If we add tax and cash equivalents of $313 million for a net debt position of $1.9 billion. Our leverage ratio was 4.1 times based on LTMs AOCF of $470 million. This is down from 5.4 times on June 30, 2011, when we spun off from Cablevision and flat with the prior quarter, despite the impact with Dish on our third quarter results.

This week we also pre-paid $50 million of the term loan aid debt. This payment was in addition to the $250 million pre-payment that were made in March and July of this year and the $250 million pre-payments we made in 2011. These pre-payments totalling $250 millions in the spin, are consistent with our strategy of using excess free cash flow to delever.

Lastly we are working with Cablevision for the finalize the allocation of the Boom litigation settlement proceeds, in accordance with our in terms of our existing agreement with Cablevision and our related party transaction approval policy. At this time we will not have any comments relating to the allocation of these proceeds between the two Companies. With that, we'd like to move to the question and answer portion of the call. Operator please open the call to questions.

(Operator Instructions). And your first question comes from Rich Greenfield of BTIG.

Hi. A couple of question. First, you have two Netflix spots still remaining for programming. You've got a couple of programming coming. Can you discuss the mechanics of how that works, and should we expect similar benefits to those shows that goes into those slots, as you got from "Hell on Wheels" hitting on the past quarter? Any way you could give us a sense of how that works?

Sure, so Rich this is Josh. We have an agreement with Netflix, and some, but not all of our shows will appear on Netflix during the term of the agreement. We're not at liberty to discuss the details, of course, of our Netflix agreement. You've seen how it has behaved in the past and what shows have appeared on Netflix. Both those that we own, "The Walking Dead", and those we have studio partnerships with. So in general you can assume that most, but not all, of our shows will go to Netflix. And depending upon on their nature and their editorial type, we will be rewarded.

And then just to follow up, you have, I believe a deal where you split your revenues on iTunes and Amazon. So, when you put shows like "Breaking Bad" and "The Walking Dead"--you decide to put them up right after they air, rather than holding them back. Can you discuss how you think about that and how financially you benefit? Either wholly- owned or on shows you split with other parties where you're co-producing?

Hi Rich, this is Ed. For iTunes, for the EST category, we have different deals with different production companies. Sometimes the production company atFox or at Sony may be in control of that right in those windows, sometimes AMC studios may be controlling the right, and there are splits in different deals.

Generally our philosophy on EST is, from a consumer point of view, it's a very non-economic way for them to watch television shows. They're paying a relatively high a la carte fee. And so we think, if people choose to download an individual episode that way, our data seems to support the idea that those folks are more likely to tune in to see the show on the channel, to the benefit of the network and our affiliates.

Is there any way to quantify how big EST was in the quarter?

Not specifically. We won't break it out.

Thank you.

Thank you. Your next question comes from Bryan Goldberg of Bank of America.

Two ones related to advertising. Most of your peers have talked about the ad environment improving in the fourth quarter. Could you guys just update us as to what you're seeing out there, in terms of scatter pricing relative to your up front in the fourth quarter and are you seeing sequential improvement as well?

The scatter market, Brian, has been sort of fine for us. It's been fairly consistent. I think what we've seen more than anything is particularly strong and consistently strong demand for originals, and most particularly strong for originals on AMC. So, I'm not sure we've seen any sort of changing trends over the last six weeks or so.

The hurricane probably has an affect, the Olympics gets in the mix somewhere. From our experience, probably the most notable thing, has been the interest on behalf of advertisers in being in these particular shows. On a demand basis, on price basis and therefore translates in volume basis, that's been the theme of greatest note for us.

Okay, and then the second question is really about Sundance Channel and the potential for advertising. Can you give us your current thoughts to potentially taking that channel to an ad model at some point? The new Dish deal, we think, should get you alot closer to the 50 million subscriber mark. What else would you need to see at the channel from the ad model to start to make a lot of sense?

So we like what we're doing with Sundance now in terms of the sponsorship structure. We think it's quite well suited to what Sundance programs. As you may know, if you watch or observe, we have sponsorships that could be described as somewhat PBS like.

The sponsors take advantage of being deeply involved in the editorial in some cases, and we think they get great benefits from it. We have a couple things to say in the more macros. That's our plans for the near term. What we're focused on is the editorial vitality of Sundance.

We are doing dramatic series increasingly. Full form open-ended dramatic series like "Restless", which we are pleased about and which will hit air next year. And we are doing a bunch of miniseries which have worked well in the past for Sundance. "Appropriate Adult", last year and before that a miniseries called "Carlos," and this thing called "Top of the Lake", which is soon to hit air, and which is getting a strong critical response. We would like to see Sundance become more popular, more meaningful, and more viewed; but no plans to do anything different today with the current sponsorship model.

Thanks a lot.

Thank you. Your next question comes from Vasily Karasyov of Susquehanna Financial Group.

Thank you. I have one housekeeping for Sean and then one for Josh. Sean, if I look at the national network segment; depreciation, amortization of this quarter there was a material step down sequentially. I know amortization is declining there, but is the $14 million run rate a good assumption for the next, say, five quarters?

Yes, that is a good assumption, and I think as you'll see in the cue, we would fully amortized certain intangibles at both Sundance and AMC in the quarter. You'll see that going forward.

Alright, thank you. Josh, about your affiliate agreements. Some of your peers mentioned in order to expand the pie, they're talking about coring back some of the advertising minutes that they give to their affiliates in an hour, and reducing their (inaudible) value through increasing advertising revenue. My question is, where do you think you stand versus your peer group, in terms of how many minutes you give to your distribution partners? Would you consider that as a way to extract value from renegotiations? Thank you.

Sure, we think we are in a pretty good division of inventory with our affiliates. It's developed over a long period of time. It provides value to them.

The more they use it, the more they value our services. We don't anticipate any alteration in that in the foreseeable future. We think we're at the right level, and we think on a shared basis it is pretty appropriate.

Thank you. Whatever we see on the affiliate line, that's what you get?

I'm not sure I understood exactly, your last comment. Forgive me.

The reason I brought it up is some of your peers say that we negotiate the agreements, but sometimes the benefits comes from other lines. If I'm correct with that, we'll see the benefits and we'll see what's driving the line.

Yes, that's where it is. That's correct.

Okay. Thank you very much.

Thank you. Your next question comes from Michael Morris of Davenport.

Thank you. Good morning guys. Two questions, one on advertising, and one on programming investments. So first on advertising, I think historically you said that "Mad Men" is your highest CPM program. I curious as to if you're starting to see the CPM gap between "Mad Men" and your other CPM originals start to close? Whether that benefited you all-- at all in the third quarter, especially given the great reach with "The Walking Dead" and the fourth quarter; whether that CPM gap is closing?

And then second, on cash programming spending, if we look into next year and, I don't want to be specific necessarily about 2013, but just in general about your strategy. Do you expect to increase your level of cash programming spending in the future, at a similar pace to what you've done this year, given that you seem to be at that level of five original programs on AMC network? Do you expect to continue to increase that level of cash benefit at the same pace? And if so, you did just speak about Sundance, it is going to the other networks, and how do you look at bolstering those networks in the coming years? Thanks.

So on the advertising side, "Mad Men" does come in the highest CPM due to the nature of the show, and its sort of particular engagement and acclaim, which is related to its engagement. We have seen CPMs on other originals getting much closer to "Mad Men", which is a very nice trend to us. We have a seen it on the other scripted originals on AMC, and in association with the size of the audiences, some of them are getting most notably "The Walking Dead," we end up with unit prices that are different than what we've seen in the past and are very desirable.

It's attractive math, and the trend that you identified is correct. It's occurring. In terms of the cash program spend, I hope this answers your question. We are today at five scripted series on the air on AMC, and we have three or four non-scripted series on AMC, which is an initiative we took up a little over a year ago. You may be familiar with some of them. "The Talking Dead", "Comic Book Men", "The Pitch", "Small Town Security". We are reasonably pleased with the effort on unscripted on AMC to date.

We have a bunch of stuff in development on AMC, and we need to evaluate which shows we go forward with. That evaluation will have several factors rolled into it. Most importantly, which shows we think will perform. To some degree, what our ownership partnership with those shows, we're slightly more attracted to those which we own. But it will begin with which shows we think will work.

The answer to your question will ultimately be revealed, truly in the ultimate R-- projected ROI on any individual piece of programming. If we think that we can get enough ad revenue and other revenue as we're calling it, from the introduction of a scripted show on AMC, then there is no limit to what we will do, and we would see our spend escalate, because it really does build the service in every single way and it's immediately economic. There could be other circumstances in which we think that a show will build and become economic in season two or season three, and we might stay with it for that reason. So it's a not specific answer to your question about what may happen with cash.

It really will be based upon what is before us in terms of programming that we can say yes to, how much that programming costs, and what we think the aggregate economics of it will be. The same just basic principle is true for other channels, which is if we think that there is ultimate economics in increasing from whatever the current state is, through other revenue and through ad revenue, then we would like to add as much as possible.

We'll be guided and disciplined by the net projected economics. It does a little bit differ on each channel. Because on IFC we're doing, as we mentioned, alternative comedy. That material tends to cost somewhat less than scripted drama.

On WE TV we do focus on nonfiction and that tends to cost less also, than scripted drama. So the bets are not as big. Anyway, I hope that answers your question.

Yes, that's very helpful. I appreciate it.

Our next question comes from Chris Merwin of Barclays.

First one for Josh. At IFC, you've been converting that network to an ad supported model. How is that process going, is there any way you can help quantify the impact of the model of the inventory being sold at that network? This is for Sean, I know you can't comment on the split of the cash in the settlement, but can you walk us through, just what your priorities are for the use of cash? Is it going to be paying down more debt or investing in originals or replace some of the programs that may be rolling off in the next couple of years?

Sure. At IFC the conversion is going almost exactly according to our plans, which is good. We now are in the regular ad market as opposed to the hybrid sponsorship market, which we were in previously.

I think the advertisers are responding quite well. Our ratings have been increasing. We've altered our movie mix a bit.

Most notably, we've got a few shows that are working quite well against this over all strategy of alternative comedy. We mentioned a show in prepared remarks called "Portlandia", with Fred Armisen and Carrie Brownstein which is a bit of a hit among those who like it, and it's probably doing three times plus our prime average among our target demo. There is another show on the air called "Comedy Bang Bang", which is similarly doing well and we are pleased with it and we have a pretty significant development imitative.

Overall, as we planned, we like what we're up to. We believe there is open space to do what we're doing, that nobody is quite in it. And we would like to move as quickly as we can on that, within economic reason.

Chris, on your second question, I'm not going to comment further other than what I said in my remarks, as it relates to the allocation of the settlement proceeds. But just to refresh from prior calls, in terms of our capital allocation strategy, that really hasn't changed. As Josh, just articulated we'll continue to invest in the original programming across all of our national networks, as we think that obviously provides many benefits.

We'll continue to delever, we're at 4.1 times. We don't have a current target that we're shooting for.

This management team is focused on getting more balance sheet strength going forward. It's really the same as we consistently said over the prior quarter.

Thank you.

Thank you. Your next question comes from Alan Gould with Evercore Partners.

Thank you. I have a couple of questions. First, this may be following up on the last one.

Without giving the split of the cash, can you tell us use of the cash? I noticed you paid down $50 million of your debt just a few weeks ago or a few days ago. Is it more debt paydown or are you going to increase your program investment with the cash?

Again, we've been disciplined in paying down debt. Now that we've resolved the dispute with Dish, we certainly felt more comfortable paying incremental. We still have $300 million in cash in the balance sheet at the end of the quarter. We obviously used $50 million of it yesterday.

In terms- I don't think there's a direct correlation between increase cash, increase programming investment. As Josh said, we'll look at it in terms of the economic return that we expect to get from all of the revenue streams we can generate by investing incrementally in programming. I wouldn't conclude that is the logical place to go. We'll just going to continue to evaluate our strategy, investing in programming. As Josh said, there is theoretically no maximum if you find the right projects in development. In the meantime we'll continue to pay down debt because we think it's the prudent thing to do at this time.

My other question, is there increase in digital revenue and other this quarter? Was it mostly streaming deals or was a portion of that also an increase in your international license fees?

Yes, sure. I think as we talked about the last quarter, "The Walking Dead", being on Netflix was coming into the third versus the fourth quarter last year. That was obviously a big contributor. "Hell on Wheels", also came up on the service.

As we mentioned in our prepared remarks, we did see some meaningful dollars in the quarter for the digital exploitation by our studio partner on "Mad Men". There's also DVD revenue, etc. I'm not going to break out the specific components for confidentiality reasons. That's generally what we saw in the quarter. It will continue to be lumpy.

I think you guys have a fairly good understanding of the rhythm of our shows. When they premiere. The window that we utilize across those platforms, other than something that may be abnormal in the quarter, I think you guys will get a pretty good sense of the rhythm of the revenue.

Okay, just to follow up on that Sean, there was seven episodes of "The Walking Dead". Seven episodes of "Hell on Wheels". I don't know if "Mad Men" was the big line syndication from a year ago or one more season, but there was a season last year. Just the increase, which was--looks like $40 million to $50 million seems quite high given that many episodes.

Yes, I think the unexpected item in the quarter, and again I need to restrain myself, is the current and prior season of "Mad Men" that we recognized are share in the quarter.

Okay, thank you.

Thanks your next question comes from Ben Mogil from Stifel Nicolaus.

Thank you for taking time to answer my question. Following up on Alan's question, when you look at the mix of ad spot deliveries in the third quarter, was it more weighted towards programming that you had less economic interest in like "Mad Men" than you say that 4Q will be weighted for?

Ben this is Josh. It was a mix of programming. Each of these deals is different.

They actually have different-- if we have a studio partner, we negotiate each one literally, differently. There are different percentages of everything, including all ancillaries, home video, electronics through digital ad spot, international. So in the quarter there was a mix of all of it occurring, and Sean gave you the picture of what was in that aggregate amount of money.

Just following up on that, when you look at 4Q, is there-- remind us again, you would have recognized all of the revenue for "The Walking Dead," ad spot on September 30th, 2012. Is that correct?

For season two?

Yes, sorry. For season two.

Correct, so looking ahead, we don't provide guidance, but as you've seen the show is on the air. It's likely that the international distribution of "The Walking Dead", would be the most meaningful item in the fourth quarter, beyond whatever normal EST or home video DVD sales we recognize.

Thank you.

Then flipping over to some of the comments that you made earlier about Michael's question about programming, inflation etc. Again, not looking for guidance, but just general concept, are you seeing, particularly as the ad spot services start to roll out their own original programming, are you seeing any material cost inflation as you talk to the various studios, and various producing partners?

Excuse me, cost inflation?

In terms of the availability to go out and do original programming. An original program. You've obviously looking at it for a couple of years. You're now seeing all the ad spot services start to do some of their own original programming.

You're seeing Starz rev up. There are a lot of people trying to do this now. Are you seeing any material cost inflation as you're talking to programmers?

No, I don't think we are. All we see is we see differences in costs by program type. But I don't think that there is a market tightening or market effect, that is in any way influencing costs. We, and actually the other companies you name are on a spectrum basis fairly small in the entire system of what is being commissioned and purchased. When you look at the amount of television being manufactured for all outlets today.

There is no market effect. What is most in my mind more important in it and telling relating to the economics of our businesses are program types. Very simple principles, scripted dramas that are open ended, tend in general to be in a cost level, that is the highest cost level and probably difficult to do them for much less, and be in that arena meaningfully. Situation comedies we don't participate in, so I won't comment. But the type of comedies we're doing on IFC have their own cost basis. They're often referred to as single camera and they cost substantially less than scripted open end drama and often a little more than nonfiction or so called reality.

Those are the buckets, if you will, that are on the expense side. But, again, nothing is being influenced by developments in the market.

That's great. Thanks Josh.

Thank you. Your next question comes from Alexia Quadrani from JPMorgan.

With "The Walking Dead" beating all expectations and really having tremendous rating success, can you give us a sense of how you are able to monetize that with the advertisers? Essentially, how much of that was already pre-sold in the up front, and how much is left in the scatter where you can really take advantage of these great ratings?

Right, it's a good question. So the ratings were extraordinarily strong, and scatter generally has a premium to up front. We did see benefits on both sides, it was strong last season and then stronger this season.

Then it had more appeal in scatter than it did in the up front or more power because of the size of the of the audience. It was all a play to our benefit. I probably should mention that the benefits of it extend in a number of other ways beyond the ancillary value of the show, which we touched on when we discussed SPOD. There is a show that follows it, called "The Talking Dead" which is a discussion of the "The Walking Dead."

We had pretty good results of people who watch "The Walking Dead" wanting to stay with it and continue to participate and watch a talk show, which is actually pretty good, about the very show they watched and to call in. There's a way to extend the value, and the extend the monetization.

Not just through the available inventory on the show, but through related activities, and in this case related programming. As well as some web activity. There are a number of extensions of "The Walking Dead" because it is so unique and so strong, and we're enjoying some of those benefits at the moment.

Given that point you just made and the extensions you're getting from your success with "The Walking Dead", When you look at the two new pilots that you have coming on next year, what is the early reaction, are you beginning to sell advertising, I don't know how much you may have sold ahead of time. Do you have a benefit because you've had so much success, in terms of starting off with a decent CPM? Any color you could give on those.

The pilots, we are in post production, so we haven't yet seen the assembly on them. We'll do that evaluation before we talk about specific pricing on it.

Okay, thank you.

Operator, we would like to take one last question, please.

Thank you, your final question comes from Ben of March began Morgan Stanley.

Josh, can talk about the impact of ad sales in the quarter from Dish. The loss distribution Your ratings on the originals were so strong, I wonder if you were able to deliver all --I know you don't sell a show per se, but how much do you think Dish hit you on the ad side and then a follow up for Sean. Sure. It had impact, of course, because it represents a piece of our distribution footprint. We were in the enviable position during the quarter of having a number of shows perform so well, particularly "The Walking Dead", that they created record without the Dish distribution. So the quarter was, of course, a snapshot in time with that one-time unique event occurring not being on Dish. We see the results that we reported, so in aggregate the impact on overall ad sales what it was, because, as I reported we did well. We presumably had done better if we had those available households. It's in general better to have more available viewers, obviously, as you go forward. That's a simple math in that. There is a nice take away for us from it it's something that we've been focused on for a long time, which is the desirable content and content that people really care about most is something that we've been trying to do for five years. In the case of ad sales in the last quarter, we had a nice affirmation that that approach makes sense, even in the case of disturbances of our sort of activities.

Thanks. And just it follow up, Sean, separately. I don't know if you want to quantify the total expense impact from Dish in the quarter, you mentioned litigation cost and marketing as well. The write down on the quarter, is that related to the killing or is that the remaining balance off that show or if there is more to come there.

In terms of Dish, all we feel comfortable talking about is the litigation of $5 million. We certainly spent a meaningful amount of money on direct media buys, and I'm sure you saw on local and national markets. I'll stick to what we said.

We expect a very healthy double digit AOFC markets if not for that. In terms of the write off, the write off in the quarter relates to a miniseries called "The Prisoner".

It's a show that we saw no future utility to, and we took that off in the quarter as it relates to the killing, as Josh said last quarter we're continuing to use the show. We think it has great utility. We think it's a great show, and we'll continue to evaluate that as we do with our entire programming utility every quarter as we go forward.

Thank you.

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

Thank you, this does conclude today's conference call. You may now disconnect.