AMC Networks Inc (Pre-Reincorporation) (AMCX) 2012 Q4 法說會逐字稿

Good morning. My name is Christy, and I will be your conference operator for today. At this time, I would like to welcome everyone to the AMC Networks fourth-quarter 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. I would now like to turn the conference over to Seth Zaslow, Senior Vice President of Investor Relations.

Thank you. Good morning, and welcome to the AMC Networks full year and fourth 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 full year and fourth 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 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. 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 the call.

Further, we will discuss non-GAAP financial information. We believe the presentation of non-GAAP results provides you with useful supplemental information concerning the Company's ongoing operations and is appropriate in your evaluation of 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 will refer to on this call. I would now like to turn the call over to AMC Networks President and CEO, Josh Sapan.

Good morning, and thank you for joining us. I will provide a brief summary of our financial performance, followed by an update on the business, and then turn it over to Sean Sullivan for greater financial detail. 2012 was a successful year for AMC Networks. We made significant strides on both the financial and operational front, and the fundamentals of our business are quite strong.

In the fourth quarter, the Company reported 8% revenue growth and AOCF declined 4%. As we discussed in our last call, our results for the quarter were negatively impacted by our litigation with DISH Network and the associated temporary drop of our networks from the DISH platform. Sean will discuss the impact in more detail, but as a reminder, our networks were off the DISH platform for essentially the month of October and we incurred marketing and legal expenses related to a dispute during that period. If not for the situation with DISH, we would have reported healthy double-digit growth in AOCF in the quarter. For the full year 2012, we grew revenue 14% and AOCF 5%. Excluding the impact of the dispute with DISH, we would have also reported healthy double-digit growth in AOCF for the full year.

Our overall strategy remains fairly simple and straightforward. I think it can best be described as being content driven. As the overall pay TV ecosystem continues to evolve, we believe that we will be increasingly defined by the content that we create. We have been steadily and fairly significantly increasing the investment in our programming across all of our channels. Our four networks are each in various stages of evolution against that strategy, but the focus for each of them is principally been on that content. In 2012, original programming remained the core driver of our success. AMC, the largest of our channels, has clearly been the most notable for us as its slate of scripted dramas has met with the greatest attention.

The third season of The Walking Dead drove records for basic cable TV. The mid-season premiere that aired earlier this month drew almost 8 million adults, 18 to 49, making it the most-watched episode in the series history. Season to date, viewership key demos adults 18 to 49 has increased roughly 50% over the prior season and has made the show the number one program on all of television among 18 to 49 year olds, out delivering hits such as Modern Family and CIS, the Big Bang Theory and Two and a Half Men on Broadcast.

As we look into 2013, we are pleased that our other scripted series, including the critically acclaimed Madmen and Breaking Bad, will be returning along with the crime drama The Killing and our western series, Hell on Wheels. As you may be aware, we have also created greenlit a new cop story set in Detroit called Low Winter Sun that we expect to air in the second half of the year.

We look to build off the success of these scripted dramas by introducing non-fiction, or unscripted original programming, on the channel as well. The Talking Dead, which is a live talk show that airs following The Walking Dead, has consistently generated ratings that are several times higher than time period average. Earlier this month, we introduced a new programming night, Thursdays, devoted to our expanding lineup of original unscripted series. Our commitment to original content is also in place across of our other networks. At WE tv, primetime ratings in the fourth quarter were up double digits year-over-year in the key demo for that channel, women 25 to 54.

For the full year, primetime ratings in the same demo were up by single-digits, despite being off the DISH platform. Adjusting to the loss of DISH carriage, primetime ratings would've been up double-digits for the full year. WE tv's performance was led by returning shows such as Braxton Family Values, and the introduction of several other successful reality shows -- including a show called Tamar and Vince, which is a spinoff of Braxton's. Mary Mary, a show about two sisters who are Grammy award-winning singers, and several other successful reality shows.

At IFC, we are continuing to develop a strategy of producing alternative comedy across the channel lineup. That effort is led by a show called Portlandia, which stars Fred Armisen from Saturday Night Live, and returned for his third season in January. This series won a Peabody Award in 2012. And just a few days ago, won a Writers Guild Award for comedy, besting some lofty competition that included Saturday Night Live, Colbert, Stewart and Jimmy Kimmel, among others.

At Sundance Channel, we are pursuing both scripted and unscripted originals. Rectify, the channel's first wholly-owned scripted original from the producers of Breaking Bad will premiere in April of this year. Two other projects, Restless an original scripted miniseries that premiered in December played quite well and Top of the Lake, written and directed by Academy Award winning director, Jane Campion, and starring Holly Hunter and Elizabeth Moss from Madman, will premiere in a few weeks. The success of this original programming is increasingly driving our top line performance.

On the advertising side, the National Networks grew revenue by 16% in the fourth quarter versus the prior year. For the full year 2012, National Networks grew ad revenue by 17% despite the temporary interruption by DISH. We saw healthy demand for original programming, most notably, the scripted originals on AMC, and we were able to attract new quality advertisers to our channels, further diversifying our ad client base.

On the distribution side, the National Networks grew distribution and other revenue by 7% in the fourth quarter over the prior year period. For the full year, distribution and other revenue at the National Networks grew 15%. This growth for the full year reflected significant increases in ancillary revenue streams such as digital, licensing and international that are derived from the sale of our original programming, primarily at AMC. As for affiliate revenue, reported growth was in the mid single-digits over the prior year of 2011. Excluding the impact of the dispute with DISH, affiliate revenue would have grown high single-digits for the full year of 2012 as compared to the prior period.

Before I turn the call over to Sean, I did also want to give you a brief update on the activities at our international and other segment. We further expanded our international footprint during 2012 and now have channels in over 20 countries, including Canada and various territories throughout Europe and Asia. We remain committed and excited about the growth opportunities that these markets present, but continue to view this part of our business as a longer-term initiative.

IFC Films, our film distribution business, had a somewhat challenging year, primarily due to some difficult comps with the prior year where we had a few films that worked quite well. However, the business continues to build its library of content, now at over 500 films, and recently received an Oscar nomination, its ninth for the film How to Survive a Plague. During 2012, we also increased our R&D activities with regard to Internet delivery of video. We think that this is an important area to stay focused on and believe that it could lead to some attractive and new opportunities in the future. With that, I'd like to turn the call over to us Sean Sullivan who will provide further detail on the financial results for the quarter and the year.

Thanks, Josh, and good morning. Turning to the results for the fourth quarter. Total Company revenues grew 8.2% and AOCF declined 4%. For the full year, total Company revenue grew 13.9% and AOCF increased 5.4%. As Josh mentioned, fourth-quarter and full-year results, particularly AOCF, were negatively impacted by the temporary termination of our carriage with DISH. This dispute resulted in a meaningful loss of affiliate and advertising revenues, as well as increased marketing and legal expenses in both the third and fourth quarters of the year. Excluding the impact of the dispute with DISH, we would have reported healthy double-digit AOCF growth in both the fourth quarter and full year 2012.

On a segment basis, National Network revenues for the full year increased 15.9%, or $172 million. National Networks AOCF for the full year increased 10%, or $45 million versus the prior year period to a total of $492 million. In the fourth quarter, National Network revenues increased 10.8%, or $33 million. Advertising revenues increased 16% to a total of $157 million. The year-over-year increase was primarily driven by the growth at AMC. AMC benefited from the performance of its original programming, most notably The Walking Dead, which offset a decrease in original programming hours versus the prior year period. Principally related to the airing of one scripted original in the fourth quarter of 2012 as compared to two scripted originals in the fourth quarter of 2011.

Results for the quarter were also negatively impacted by not being carried on the DISH platform for essentially one month. Distribution and other revenues at the National Networks increased 6.8%, or $12 million, to a total of $182 million versus the fourth quarter of 2011. Results reflected an increase in affiliate revenue, partially offset by a decrease in digital distribution revenue. The decrease in digital distribution revenue principally reflected the timing of revenues associated with the SVOD release of The Walking Dead on Netflix. More specifically, we recognized the revenue from the second season in the third quarter of 2012 as opposed to recognizing the revenue from the first season the fourth quarter of 2011.

As for affiliate revenue, the year-over-year growth rate was negatively impacted by the temporary loss of carriage on DISH for the month of October. In addition, based on a fair value assessment of the affiliation agreement with DISH, we determined the fees to be paid by DISH for the period from the effective date, October 21, 2012 through December 2013 are below fair value. This resulted in the recognition of $31 million deferred revenue on October 21 2012. $5 million of this amount was recognized as revenue in the fourth quarter of 2012 as the services were provided. We will recognize the balance, or $26 million, ratable through the year end 2013.

Moving to expenses. Expenses increased 13.5%, or $27 million in the quarter, principally due to increased programming and marketing costs. The increase in programming expense was associated with our continued investment in original programming for our four channels. The fourth quarter of 2012 included a charge of $2 million related to the write-off of our programming asset as compared to the fourth quarter of 2011 that included a charge of $18 million. For the full year 2012, programming write-offs were $10 million as compared to $18 million in 2011. Marketing costs increase principally due to the dispute with DISH and activity at the networks related to our original programming. The DISH-related expenses were incurred in connection with communicating to our viewers through messages such as third-party media buys and direct marketing.

Turning to the international and other segment. Revenues for the full year decreased $11 million to a total of $115 million. AOCF for the full year was a deficit of $30 million, a decline of $25 million versus the prior year period. In the fourth quarter, international and other revenues decreased $7 million. AOCF for the fourth quarter was a deficit of $4 million, a decline of $11 million versus the fourth quarter 2011. The revenue performance in the fourth quarter principally reflects an increase in international affiliate fees, which was more than offset by a decrease in revenues at IFC Films and broadcasting and technology.

The decline in AOCF in the fourth quarter was mainly due to the decrease in revenues, as well as increase in litigation expenses to the VOOM lawsuit. As we discussed on our last call, we began allocating a portion of the VOOM litigation costs to Cablevision in the third quarter of 2012. AMC Networks' share of the litigation costs for $3 million in the fourth quarter as compared to less than $1 million in the fourth quarter of 2011. For the full year, the Company recognized litigation costs of $11 million as compared to $5 million in 2011. For the fourth quarter, total Company net income from continuing operations for the full year was $136 million, or $1.89 per diluted share compared to $126 million, or $1.79 per diluted share in the prior year period. This increase was a result of growth in operating income, which was partially offset by an increase in interest expense.

Total company net income from continued operations was $15 million, or $0.21 per diluted share compared to $29 million, or $0.40 per diluted share in the prior year period. This decrease reflects the expense of $21 million related to the repayment of the term loan B facility in December, partially offset by an increase in operating income. As we noted in our press release, the $21 million of cost related to the term loan B repayment consisted of $12 million in expenses in connection with the extinguishment of debt, as well as an unrealized loss of $9 million on the related interest swap contracts that was included in interest expense in the quarter.

Before I review our capital structure, I wanted to give you an update on allocation of the VOOM settlement proceeds. As we previously disclosed in connection with the settlement agreement, AMC Networks and Cablevision collectively received a cash payment of $700 million from DISH. These proceeds were disbursed on a preliminary basis evenly between the two parties. AMC Networks and Cablevision are working to finalize the allocation of VOOM's settlement proceeds. However, the final amount to be allocated to either party has yet to be determined. I hope you all understand that since is the process is ongoing, we are limited in our ability to discuss this matter in more detail.

In terms of free cash flow, the Company reported $551 million in free cash flow for the 12 months ended December 2012. This amount includes the preliminary disbursement of $350 million related to the VOOM lawsuit settlement that I just mentioned. Excluding this amount, free cash flow for the full year was $201 million. Capital expenditures were $19 million, cash interest was $113 million and cash taxes were $41 million.

Turning to the balance sheet. As of December 31, AMC Networks had $2.2 billion of outstanding debt. We had cash and cash equivalents of $611 million for a net debt position of $1.6 billion. Excluding the $350 million related to VOOM, our net debt position was $1.9 billion and our leverage ratio was 4.2 times based on LTM AOCF of $465 million. The 4.2 times leverage ratio was down from 5.4 times on June 30, 2011 and up slightly with the prior quarter, principally due to the impact of the dispute with DISH on our full-year results.

During 2012, we pre-paid $150 million of the term loan A debt. This consisted of three $50 million prepayments that were made in March, July and November of this year and were in addition to the two $50 million prepayments that were made in 2011. These prepayments totaling $250 million since the spin are consistent with our strategy of using excess free cash flow to delever. In closing, 2012 was a successful year for AMC Networks, and we look forward to the continued success in 2013. With that, we'd like to move to the question-and-answer portion of the call. Operator, please open the call to questions.

Thank you.

(Operator Instructions)

Your first question comes from Bryan Goldberg of Bank of America Merrill Lynch.

Hi, thanks. Just got a couple quick ones. With all the noise caused from Voom in 2012, we are trying to figure out a clean baseline number for our 2013 forecast. Sean, I think you called up $11 million in legal expense for the year that won't be recurring, but could you frame for us the 2012 full year impact from lost affiliate fees from the carriage disruption, as well as the incremental marketing expense?

Sure, Bryan. I don't think I will be able to satisfy you with a quantitative answer, for obvious reasons as it relates to our affiliate deals and the terms of those, so I need to be somewhat restrained in what I say. But as you guys know, we were off the platform for essentially four months in terms of the affiliate revenue. I think you guys do a fairly good job of modeling what the advertising impact of that would be. I believe the update of subscriber information was in the press release, so can see that.

In terms of the marketing expenses, it's a meaningful amount of money that we spend communicating and really engaging with our audiences. Beyond what we said in the prepared remarks, in terms of where we expected our AOCF growth to be over 11, that's probably the best we can do at this point.

All right, thanks.

And then in looking at the fourth quarter trends, the margins at domestic were a little lower than what we were thinking they would be considering last year's Rubicon write-off. I was just wondering, with programming expense in the quarter, how much was related to ongoing stuff that is on your air as opposed to development spending? I know you guys have a lot of stuff in the pipeline. Was your development spending up a lot in the quarter?

The development spending wasn't significantly up. We have certainly announced a number of pilots, on AMC specifically, but those -- you are not seeing any of those expenses necessarily impacting the fourth quarter. No, I think the theme in the fourth quarter, at least in the technical expense category, is an increased investment not only in AMC, but all four of our channels.

It's WE, it's IFC, it's Sundance as it moves into the scripted originals category, as well. I think as we have said historically, there -- we are going to continue to increase the absolute dollar investment in programming to strengthen each of our four channels. So, that's really what's going on in the programming side of the fourth quarter.

All right, thanks, and just one last one. I've seen a few articles recently about you guys potentially airing some of the AMC scripted originals on your other channels, i.e., potentially playing Walking Dead episodes on IFC and airing old seasons of Breaking Bad on Sundance. Could you walk us through some of the thinking behind us, how it could build audience on other channels and enhance channel brands and how that might impact the P&L?

Sure, Bryan, this is Josh. I think some of those are accurate and specific reports of our plans and some the reports you may be read are speculative. I will share just the way we think about it. If we control rights or license rights, each show and each circumstance is evaluated separately.

So, I think in general and for the most part, a show or a series that airs on a channel is on that channel. We have in the past, I don't know if you've noticed, previewed certain shows on our other sibling channels in order to gain sampling and in an effort to increase audience on the channel that the show will be on, and it's had a good affect. In the case of Breaking Bad, we think that it has some application for Sundance, and so that's an initiative that we pursued with those who hold the rights.

I think as we look at each show going forward, we evaluate whether there is some economic benefits, strategic benefit, programming benefit to either air it on a preview basis to gain sampling and make it more successful when it airs on the channel that it resides on or, if it makes sense, to have a different channel become the place that it goes on a post-premiere channel window. And so those things in the world we live in we'll continue to evaluate.

They're actually -- it's a pretty interesting and rich subject. We think that if we pursue it properly, particularly where we own rights, we can advantage ourselves across different channels. And of course, with that said, we have to be mindful of the brand integrity of each channel. So, that's the sort of basic thinking around it.

Thanks a lot.

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

Thanks, guys. Good morning. Two questions. First, just going back to the question of the technical and operating expense growth. Can you share with us how much of the cash cost growth was relative to the book programming cost growth? Because the question is, your technical and operating expenses were up $33 million in the quarter, excluding the write-down from last year, and we are trying to figure out how much of that is the closing of the gap of book versus cash, and how much of that represents continued expansion of the cash spending, and then I have another one.

Thanks, Mike. In terms of the fourth quarter, I think when you see the K filed later today, it actually -- the amort for the fourth quarter is actually in excess of the change in the programming assets and liabilities for the quarter. So that, certainly, has closed the gap the other way for the other quarter. I will say, just to highlight for the full year, the cash change in asset and liabilities, I think about $70 million ahead of the amort for the year. I don't think the fourth quarter necessarily is a trend on that front, but that's what you will see when the K is filed later today.

Okay, great. And then with regard to the Voom litigation proceeds, can you help us understand what the delay is in the process there, or what is taking so long? Pardon that term, and when the timing of that may be completed. And also, your language in the release said that the ultimate amount allocated could be significantly less than $350 million. Why did you choose significantly less? Could it not be more? How should we be thinking about that comment?

Sure. It's a good question. In terms of the Voom, I don't know that we've managed your expectation at all. I think the process is the process and it's going on as we expect it to. Just to remind you, we are using the Voom litigation sharing agreement. We have a related party transaction policy, we have independent committees.

I sense some frustration, but from our perspective, it is proceeding as planned and will continue. And certainly, I'm not going to sit here and give you a date when we expect it to be resolved and it just goes through the process. In terms of the ultimate settlement, I think that's more just SEC disclosure. I think we are required certainly to let you know that there is a range of possible outcomes in light of this process, so I think it's in the Company's interest to characterize it in that manner.

Great. Thanks a lot.

Thanks.

Your next question comes from Richard Greenfield of BTIG.

Hi, a couple questions. Just another way of thinking about the AOCF issues in the quarter. If you backup your write-downs and just look at what you organically did, you would have had $125 million of AOCF in total for Q4 last year dropping to $105 million-ish this year. Can you give us any color on with the type of growth rate you would've seen without DISH would've been when you add back in that nonrecurring to each quarter, just to get a better sense? Because that's obviously impacting the comparison year-over-year, as well as the DISH issues. So, just trying to isolate DISH from the write-off expense.

And then the other issue is, I think when you talked about international, Josh, you mentioned that there was a -- would've been roughly $11 million related to the Voom settlement. That implies that you would've still lost $20 million -- almost $20 million in international and other versus essentially breakeven in the prior year. Just wondering, how do we think about the profitability of international to business? I don't think a lot of people on the call know a lot about what you are doing there. What is the kind of trend line rate that that business should throw off in a given year? I realize it's volatile, but is that a business that's basically breakeven at this point, plus or minus? Any color would be great.

Sure. I will take the second one first, if I may. The international and other has several segments in it. It's not just -- so one is international channels, which is, they either bear the name AMC, WE, or Sundance. And we are now in, I think as we mentioned, 20 countries. The horizon in general for profitability, and this is general, is probably in the range of five years when we open a new territory.

So, where we have been for five years, Canada, we are substantially profitable. We then expanded into various parts of Europe into Asia, and those territories are in investment mode. So, just perhaps more than you want to know on it, we of course create a plan for each territory, and territory really means feed and encompasses several countries that we go into. And we do a detailed plan before we trigger or say yes to a territory, so we make sure that we have a disciplined plan that is going to achieve profitability. The more we press the button and expand those territories, the more our investment read loss increases. Last year we did expand in Spain and Turkey and other territories, and so that creates more investment and it brings the aggregate look at that one element in the international and other category down.

Also in that category which we touched on, I touched on in the prepared remarks, is R&D, as we call it, which is some experimentation that we are doing in direct to consumer Internet video. And this shouldn't be confused with TVE activities where we are in pursuit or doing that in association with cable operators where we are doing it. But rather, some experimentation as to what would happen as we complement our activities with direct to consumer sort of offerings. Think iTunes like, if you would, of shows, and we think that's an area that it's worth us being educated in and smart in and facile in. So, we increased the investment in that. It's -- I think it's fairly characterized as R&D.

In our broadcast operation, which we refer to as B&T, which is the facility that we use for technical operations, for our own channels, we had in the past had some third-party business that went away. So on the comparability basis, that was negative. And I also mentioned that IFC Films, also in that category, it's a fourth component in that broader category, had some negative comps year-over-year, which really were largely a function of the variability from the prior year period when we'd had a couple films that were inexpensive and performed particularly well. You wouldn't have heard of them, but that film business is a function of comparability, and it varies, so there was a bit of a negative comp there.

So, those are components of the negative. The way it looks going forward, is it probably in general moderates from where we were. But those are the broad components of what happened in that specific variance you asked about.

And Rich, back to your first question in terms of AOCF. Again, I will point you back to the script. On a reported basis, we said we would've delivered healthy double-digit AOCF growth. Again, I'm not going to size the exact impact of DISH for obvious reasons, but I will say that, as you know, there's a lot of quarter to quarter variability in this business as it relates to the premiering of our originals as well as the marketing of those shows. If you just look at the full year results, I think the -- after accounting for the write-offs, it's double-digit growth. Again, we are very pleased with the year.

Give me just one last way to ask the question. When you look at 2011, on national you actually had a 43% national network margin, excluding the write-off. Is there any reason to believe that you won't be able to perform at or above that margin level in 2013, just given that you now are back on DISH and your revenue growth has been significant since 2011?

I don't know the -- I think -- here's the general answer, if I may. We have not seen over the past few years much variability in our margin. It's been, I'd say, broadly pretty consistent, and we have been able to grow revenue while investing. That revenue growth has come from significant increases in advertising. This other revenue that we've been able to develop from international sale of shows and SVOD and TVOD are transaction video exploitation, and then the affiliate part of our world, which moves less quickly.

So, I think that we will continue to invest in content. We particularly think that we need to invest in Sundance. Pointededly, we think that it is sort of undernourished and really is both in need of it and rich with opportunity. And that AMC is a pretty good example of the payoff of investment in terms of what can happen from a overall dimension of an asset point of view. That sort of a guiding principle which is that we will continue to invest. We think that this investment is -- gets rewarded now, not by two revenue streams, but by really three, meaning the exploitation of owned content and then over time, a fourth, the expansion internationally.

So, that's a general statement. It doesn't specifically comment on our margin profile in '13 and '14 and beyond, but I do think it's fair to say we have been generally within a band pretty consistent on the margin basis -- on a margin basis historically.

Beyond the one-offs of 2012.

Well, 2012 was a unique, specific circumstance.

Correct. Thank you. That's actually very helpful.

Thank you. Your next question comes from Chris Merwin of Barclays.

I know you can't comment on what the actual final collected amount might be for the Voom settlement, but I think a lot of investors are focused on the timing of when you receive that cash and what your priorities are. Are debt pay downs still the first priority, and is there a leverage ratio where you start to think about buying back your stock, maybe sometime later this year?

Thanks, Chris. Again, this management team's priorities are obviously to continue to invest in the Business, delever with excess free cash flow. And we are still not in a position where we are going to socialize what a leverage target is, other than to say less than where we are today.

Okay, thanks. You recently reached a short-term carriage deal with Time Warner Cable for IFC and WE TV. Can you give us any color on the terms of that extension compare to the prior deal? And is there anything you can say about when you might expect to reach a longer-term agreement for those networks?

Right, so there really isn't too much to say, except by way of background, that we had a 25-year, I guess almost 30-year relationship with Time Warner, and I think we enjoy a very good relationship with them. We are in very, very regular conversations with them, and we are hopeful that we will reach firm and final agreement in the natural order.

Thank you.

Thank you. Your next question comes from Ben Swinburne of Morgan Stanley.

It's Ryan Fiftal for Ben. Josh, I think you said that you've struck a number of deals in 2012 with some leading distributors. First, can you give us any indication of how much of your carriage is up in '13, either -- just even broadly if it's an above or below average year? And then second, I know you can't comment on any specific deals, but generally, could you comment on how you think those negotiations ended up relative to your expectations? Maybe your expectations a year and a half ago when you guys spun out. Obviously, you're competing for distribution dollars against some much larger programming groups. I'm wondering how you think AMC is competing along those lines, and if you're getting fair value for your content.

Right. It's sort of a rich question. I think, first of all, in terms of deals completed, I think you are aware that in 2012 -- perhaps you are not aware. We completed, of course DISH, Suddenlink, Verizon, AT&T and Comcast on a long-term basis. So, I think we were, in general, pleased with the breadth of agreements and the number of agreements, and I think in a general manner, with the terms of those agreements.

On your question about 2013, there is, in general, something always up as the agreements tend to be somewhere between on the short end, 1 or 1.5 years, on the long end, 7 or 8 years. They tend to group into 3 to 5 years most commonly. So there tends to be -- if you look at 9 or 10 companies being responsible for the lion's share of the domestic cable or paid universe, there's almost always something coming up.

In terms of expectations, it's an interesting question because we have invested, as we talked about, and will continue to invest. We think it is important to get fair value for the content that we are putting on our air and making available on various platforms to our distributors, and I think we are doing okay. The situation, which I am sure you are aware of, is that our distributors are feeling margin pressure and probably particularly margin pressure on video, so they come to the table with that disposition, and we have this increased investment and we think very strong performance.

So, there is some tension around those conversations, obviously. I think that we think that they are going okay. It would be nice if they were a little smoother, but they probably can't be. So, that is sort of the state of the union today, and we will continue to just work through it with the distributors who we value immensely try to reach fair ground and try and trade values in a way that is successful for everybody.

Okay. That's very helpful, thank you. And then just one last one. I think you confirm The Killing is coming back to AMC this year. It sounds like Fox is looking for another partner or additional partners on that. Were there any changes to your rights for that show versus seasons one and two, and should we think about any change to the cost that you will incur for that show? Thank you.

So, just by way of background, so The Killing was -- we thought was a strong show, and we had a lot of attachment to it. Not emotional attachment, but attachment to it because we thought it had a lot of creative life and opportunity left in it. And we will get an indication of whether that judgment is true, of course, as the series comes to AMC. We did sort of alter where we were about it, because the economics when we made the decision originally not to go forward looked like they were questionable, and then we were able to work with Fox to basically, bring them into a place where we finished, where we thought they made sense against what our expectations were. There's nothing, I don't think, radical in the alteration of rights. There may have been some things on the margin. We moved pieces around with Fox, our, in this case, studio supplier, and we were able to make it work.

Okay. Thank you.

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

Thank you, good morning. Sean, I have a question about this DISH affiliate revenue value. Question number 1, why did you have to make that determination in the quarter, and what does it tell us about the rate that you have now with the DISH -- with the new affiliate agreement there? And also, would that be benefiting the bottom line in 2013?

I'm sorry, 20 which?

2013.

2013, yes. So, why did we account? We finalized the settlement on October 21, our services were restored to the DISH platform on November 1. And as you can --for the --not sure you're counting background, but this is a multi element arrangement where we needed to account for the relative fair values of the elements of the deal. So, as we looked at the affiliate agreement, the new affiliate agreement with DISH, given that there's a ramp up in '12 and '13, there was a true-up, so they are going to pay us -- they paid us certain monies for November and December. They are going to pay us certain monies in 2013, and we're going to true-up by $31 million incremental revenue to get what we believe is fair value and then from that point forward, we believe the deal we have with DISH is fair value.

So, it's really an accounting driven thing. When you see the K today, again, there will be more disclosure. We have deferred litigation proceeds on our balance sheet with a preliminary disbursement of the cash. So, our affiliate revenue stream in 2013 will benefit to the tune of $26 million incremental for what DISH will be paying us.

All right. Thank you (multiple speakers). Yes, somewhat. The question I had about Walking Dead. The ratings were really high. To what extent were you able to monetize for an average episode?

I think we monetized them quite well. The Walking Dead, now in its third season, is well established. We -- in the up front, we, I think, judged well and did well in terms of selling an appropriate amount of inventory and leaving an appropriate amount of inventory, and I think the market was reasonably good and cooperated. And so both on an absolute unit basis and on a price basis, we did quite well with The Walking Dead and had the slight added benefit of this talk show following it called The Talking Dead, which in its own small way is a bit of a phenom for us in that we find 2 million-plus people in the demo staying with the talk show about The Walking Dead right after The Walking Dead ends. So, it's been a very good experience all around, and I think on the pricing and volume and unit -- sales unit basis, pretty good.

All right. Thank you very much.

Thank you. Your next question comes from Ben Mogil of Stifel.

Good morning, and thanks for taking my question. Sean, I want to make sure I'm understanding this correctly. From the GAAP or an income statement perspective, 2013 sort of sees the DISH affiliate revenues being recorded at fair value, so the plus $26 million that you talked about. So, then when we look into '14, the year-over-year change is more whatever the general contract inflation is, and the bigger change is actually on cash, not on the income statement. Is that the right way we should be thinking about it?

Yes. On terms of your -- yes. The first part, yes. So, fair value and '13 including in the $26 million back to what the contract stipulates and in terms of the cash. As you know, we received a preliminary distribution. The cash that we will receive that will be attributable to that fair value, true up has yet to be determined since we haven't finalized the allocation with Cablevision.

Leaving aside the allocation of Cablevision, in '13, let's assume that this doesn't get resolved in '13, the cash. But I'm sure it will, but just for the sake of simplicity. For the sake of simplicity, is it fair to say that in '13, your revenue from DISH will be $26 million higher than your cash receipts from DISH?

Correct.

Okay. So, when we -- if you were to have in '14 a contract that had no inflation escalator, your revenue would be flat year over year from an income statement perspective, but your cash receipts would be $26 million higher in '14. Is that correct?

Right, assuming there's no increases in the deal, correct.

Yes, just to make it easy, okay. So, then slipping over now -- you obviously have in your filing that you expect that you believe your DISH deal is below fair market value, DISH, in their filings, as you deal with being above fair market value. In terms of settling with Cablevision, I know you're obviously not there yet, how important are these two public data points?

I don't -- I think you need to look at the litigation sharing agreement. I think it speaks to how you deal with all proceeds, both cash and non-cash, and whether they are attributable to the settlement as it relates to the affiliate agreement or not. That's where I would direct you back to that agreement.

Okay. And then lastly, just in terms of the commentary that both you made in terms of that had fourth-quarter DISH been there for the full quarter, you would've had a double-digit EBITDA increase. I want to make sure you are working off of reported 4Q '11 number, not adding back to the write-offs. Is that correct?

Correct. I think we said on an as-reported basis.

And then when you look at that, I know you're not going to break down as a percentage, but just directionally, would you say that it was more revenue focused or more cost focused? The sort of -- the EBITDA impact, if you will.

The EBITDA impact of DISH?

Yes.

As we've spoken about in the past, in terms of what the affiliate ad, and we obviously have litigation and market expenses, so I will leave it at that.

Okay. Thanks, guys.

Thanks.

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

Thank you. Most of my questions have been asked, but the one question I do have is, Sean, you must have a pretty good idea of what your programming expenses are going to be for 2013 at this point. Can you give us some sense -- I know some of your competition gives some guidance on how much program expense is going to increase for the year. Is it going to be greater than midteens growth rate this year?

Yes, Alan. Thanks for the question, again. Again, I'm certainly familiar with what other people have said. We don't give the guidance, unlike -- similar to those people. I think as Josh said, and we have said consistently for the last 18 months, we are going to incrementally invest in programming. So, on an absolute dollar basis, that will happen. I apologize I can't guide you further, but we're going to increase the investments.

Alan, this is Ed. We can look at the number of series. We have said that on the scripted side, we are going up from five series to six series at AMC, we are adding unscripted series. We will have approximately eight unscripted series on AMC we anticipate by the end of the year. And as Josh mentioned with Sundance, we are investing more. We have our first fully-owned scripted series which premieres in April, and we anticipate a second scripted series fully owned on Sundance to premiere in the winter/spring.

Okay. That's helpful. Sean, could you give us now, though, what the program -- cash program payments and amortization were for 2012 as opposed to waiting until the 10K is filed?

Yes, sure. Hold on a second. Let me put out. So, the total fourth-quarter amortization on programming is $120.5 million, and the net change in the rights and obligations is a use of $98.9 million.

Use of $98.9 million. Thank you very much.

Operator, why don't we take one more question, please?

Thank you. Your final question coming from Alexia Quadrani of JPMorgan.

Hi, thank you. This is Caroline Anastasi for Alexia. Just a couple questions. First, can you update us on what you are seeing in the scatter market? And then secondly, can you give us a sense of how much revenue growth you've seen from international distribution of the Walking Dead this season versus last season and maybe with the opportunity there is going forward?

Sure, Caroline. I think the scatter market is fine, so we are -- it is proceeding. Of course, I think it seems to be in good, stable shape and it's responding quite well to our originals on AMC and WE and IFC. So far, so good. The sale of The Walking Dead, did you mean it in EST? Or which -- I wasn't sure your question what you are exactly referring to on the sale of The Walking Dead, forgive me.

I think she was referring to the International sale to Fox.

Oh, yes, so basically, the sale to Fox year-over-year is fairly consistent, so you see -- it's a per episode cost and it doesn't change much, that specific sale to Fox for international rights.

Great. Well, thank you, everyone, for joining us on today's call and for your interest in AMC Networks. Operator, you can now conclude the call.

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