AMC Networks Inc (Pre-Reincorporation) (AMCX) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is Christy and I will be your conference operator today.

At this time, I would like to welcome everyone to the AMC Networks first 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)

I would now like to turn the conference over to Seth Zaslow, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning and welcome to the AMC Networks first quarter 2013 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 first quarter 2013 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 AMCNetworks.com. This call can also be accessed via our website.

Please take not 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 this call.

Further, we will discuss non-GAAP financial information. We believe the presentation of non-GAAP results provides you with useful supplemental information concerns 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'll refer to on this call.

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

Good morning and thank you for joining us. 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.

We started the year off with a strong quarter and the fundamentals of our business remain quite healthy. In the first quarter, the Company reported 17% growth in revenue and 19% growth in AOCF. Our growth continued to be led by the success of our original programming. As we've discussed on prior calls, we've been steadily and significantly increasing the investment in our programming across all of our channels.

As we look out to the remainder of 2013, we expect this investment to continue as we believe our content will increasingly define and drive the performance of all of our networks. 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. Prime time ratings at AMC were up roughly 30% in the quarter in the key demos, adults 18 to 49, and 25 to 54.

This performance was led by the third season of The Walking Dead which broke records for basic cable TV. The season finale that aired in late March drew over 8 million adults 18 to 49, making it the most watched episode in the series' history. For the season, viewership in key demos, adults 18 to 49 and 25 to 54, increased over 50% compared to the prior season and made the show the number one program in all of TV, broadcast and cable, outdelivering broadcast hits, such as Modern Family, The Voice, and the Big Bang Theory.

AMC's Mad Med debuted its sixth season at the beginning of April. The premier attracted over 3 million viewers and an upscale audience that is uniquely attractive to advertisers. This summer, AMC is set to air the highly-anticipated final eight episodes of, what I think is fair to say, one of TV's most critically acclaimed shows, Breaking Bad.

AMC's working aggressively to maintain the momentum it's built over the past several years by revamping existing shows, such as the crime drama, The Killing, which is scheduled to return for its third season in June. And green-lighting new scripted originals, such as Low Winter Sun, a cop story set in Detroit that will debut this August. The network has also announced several pilots, the most recently, being one called Line of Sight, a science fiction drama. Each of those are in various stages of production.

We will continue to increase our investment in programming at our other networks as well. With the goal being able to make each channel stronger individually and thus the portfolio of networks more valuable in the aggregate. As it was with AMC, this is a multiyear strategy and each of WE tv, IFC, and the Sundance Channel are at various stages of the implementation of that overall plan.

WE tv operates in a very competitive but lucrative women's marketplace. There are quite a few networks now targeting females in the 18 to 49 and 25 to 54 demo, that demo which is sought after by advertisers. WE tv has had success particularly on Thursday nights with shows such as Braxton Family Values, a reality show centered on the family of Toni Braxton, which has consistently grown its audience with each successive season. And now averages over 550,000 viewers per episode, or roughly 5 times time period average in key demos, women 25 to 54. Mary, Mary, a show about two sisters who are Grammy award-winning singers delivered over 300,000 viewers on average in its recently completed second season, an increase of 10% over the prior season.

With WE tv now available in over 80 million homes, we think there's an opportunity for the channel to invest more aggressively in the coming quarters and years and to reap rewards over time. We will look to increase the number of original hours and to develop more robust content for other nights of the week. We think this investment strategy makes sense in the women's programming niche and will be welcomed by our viewers.

IFC is continuing to develop its approach of producing alternative comedy across the channel lineup. The channel aired the third season of what has become IFC's signature show, Portlandia, which is produced by Lorne Michaels and stars Fred Armisen from Saturday Night Live in the first quarter. And also has several new projects in development, and now on air including a show called MARON, which stars comedian and podcast host Marc Maron. It premiered just last week to a fair amount of press and is doing well in early ratings.

Comedy Bang! Bang! hosted by comedian-write Scott Aukerman returns for its second season in the third quarter. Several other projects including a show called the Spoils of Babylon, which will be executive produced by Will Ferrell, and another show called The Birthday Boys, produced by Bob Odenkirk and Ben Stiller are expected to air later this year or in early 2014.

At Sundance Channel, we've been focused on increasing the distribution of the network from the less than 30 million subs when we acquired it in 2008, to over 50 million today. We've balanced rate and increased distribution over that time to achieve this growth. We are now in a position to transition the channel to a traditional ad model that creates a second revenue stream for Sundance's next stage of development. This follows in a certain sense the playbook we've used at AMC, WE tv, and IFC at earlier points in time.

We recently aired a pair of original programs that were very well received, Top Of The Lake, written and directed by Academy award-winning director Jane Campion, starring Holly Hunter and Elizabeth Moss from Mad Men, premiered in March to strong reception. Rectify, the channel's first wholly-owned scripted original, from the producers of Breaking Bad, premiered on the channel in April to wide critical acclaim and has been green-lit for a second season. During the first quarter, we also green-lit a second wholly-owned scripted series, The Descendants, that is scheduled to air later this year or in early 2014.

Our ability to produce content that is valuable and monetizable is increasingly driving our top line performance. On the advertising side, the National Networks in aggregate grew revenue by 27% in the quarter, versus the prior year. We saw very strong interest from advertisers in our original programming across each of our networks, but in particular, for The Walking dead on AMC.

On the distribution side, the National Networks grew revenue by 12% in the quarter over the prior-year period. As many of you know, included in this line item is a combination of the revenues we receive from our traditional MVPD partners, cable, satellite, and telco companies, as well as newer developing revenue opportunities from the distribution of our content on various ancillary platforms, such as digital and international.

Affiliate revenue in the quarter grew due to an aggregate increase in rates and subscribers, partially offset by a decrease due to revenue not being recognized, with respect to one expired affiliation agreement that we are in the process of renewing. At our international and other segment, we continue to move ahead with a disciplined expansion of our footprint of channels outside of the US, as well as our various internet delivery initiatives which are in the early stages of development.

Before wrapping up, I did want to briefly address the VOOM litigation and settlement. We went through what we think is a folsum process and we're very pleased to have this matter resolved. And with the ultimate outcome, which includes long-term affiliation agreement with DISH for all four of our networks and $175 million in cash.

With that, I'd like to turn the call over to Sean Sullivan, who will provide further detail on the financial result for quarter.

Thanks, Josh, and good morning. Turning to the results of the first quarter, total Company revenues grew 17.1% and AOCF grew 19.5%. First quarter revenue and AOCF growth was driven by increases at our National Networks.

At the National Networks, revenues increased 18.2% or $55 million. National Networks AOCF increased 19.3% or $26 million, versus the prior-year period, to a total of $159 million. Advertising revenues increases 26.9% to a total of $164 million.

While we experience year-over-year advertising growth at all of our National Networks, AMC was the primary contributor. AMC benefited from the performance of its original programming, most notably The Walking Dead, and its companion show, The Talking Dead, despite a decrease in scripted original programming hours versus the prior-year period.

Looking to the second quarter of 2013, we don't expect to see year-over-year growth rates in advertising revenue similar to what we reported in the first quarter, due to the relative size of the audience of the original airing in the second quarter. And an unfavorable comparison in the number of scripted original episodes on AMC, versus the second quarter of 2012.

Distribution revenues at the National Networks increased 11.7% or $21 million, to a total of $196 million, versus the first quarter of 2012. As Josh discussed, the first quarter results reflected the aggregate impact of several items, most notably affiliate and digital distribution revenues. The increase in affiliate revenues reflected mid-single digit growth over the prior year period and the increase in digital distribution revenue principally reflected the timing of revenues associated with the SVOD release of IFC programming on Netflix, as well as EST, or electronic sell-through, revenues principally related to AMC's scripted originals.

Moving to expenses, expenses increased 17.3% or $30 million in the quarter, principally due to increased programming costs. This increase was partially offset by a decrease in marketing expenses, related to the timing of airing of our original programming, versus the prior-year period. The increase in programming expense was principally associated with our continued investment in original programming across all four of our networks. AMC made up the largest component of the year-over-year variance as the channel saw increases in both scripted and unscripted programming over the prior-year period.

Turning to the international and other segment, revenues for the first quarter were essentially flat at $26 million. The AOCF deficit increased approximately $2 million versus the first quarter of 2012 to $10 million. The revenue performance in the first quarter principally reflects an increase in our international affiliate fees which was more than offset by a decrease in revenues at IFC Films. The decline in AOCF in the first quarter was mainly due to an increase in professional fees related to the VOOM lawsuit. AMC Networks incurred costs of approximately $2 million in the first quarter, primarily related to the finalization of the allocation of settlement proceeds, as compared to $1 million in the first quarter of 2012.

Total Company net income from continuing operations was $62 million or $0.85 per diluted share, compared to $43 million or $0.60 per diluted share in the prior-year period. This increase was primarily the result of growth in operating income.

Before I review our capital structure, I wanted to give you a final update on the allocation of 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. On April 8, AMC Networks and Cablevision entered into an agreement, finalizing the allocation of VOOM settlement proceeds. As a result of this agreement, AMC Networks retained $175 million and paid the remaining $175 million of the $350 million that was preliminarily distributed to the Company to Cablevision in the second quarter.

Other than the professional fees that I mentioned, the finalization of the VOOM situation did not have an impact on our first quarter earnings. However, in the second quarter, we expect to report a litigation settlement gain of approximately $133 million as a component of operating income.

In terms of the cash flow statement, during the first quarter, we were required to make tax payments of $81 million related to the VOOM settlement. These payments were based on the preliminary allocation of proceeds. We expect to recoup approximately $60 million, or roughly three-quarters of this amount, through reductions in future tax payments over the remainder of the year. In the second quarter, we expect the combined cash outflow associated with VOOM to be approximately $155 million, which represents $175 million disbursement to Cablevision, partially offset by a reduction in our tax payment of approximately $20 million.

In terms of free cash flow, the Company reported negative $46 million of free cash flow for the three months ended March 2013. This amount includes $83 million in tax payments, $81 million of which related to the VOOM lawsuit that I just mentioned. Excluding the VOOM payments, free cash flow for the first quarter was $35 million, capital expenditures were $8 million, and cash interest was $35 million.

Turning to the balance sheet, as of March 31, AMC Networks had $2.2 billion of outstanding debt. We had cash and cash equivalents of $555 million, for a net debt position of $1.6 billion. Excluding the $175 million that was transferred to Cablevision in early April, our net debt position was $1.8 billion and our leverage ratio was 3.7 times based on LTM AOCF of $490 million. The 3.7 times leverage ratio is down from 5.4 times on June 30, 2011, and 4.2 times in the prior quarter.

While we expect to continue to de-lever I did want to reiterate what Josh said in his remarks. We are focused on investing in our core business as we think this will generate the greatest return for shareholders in the long-term.

Accordingly, we will continue to increase our investment in programming and marketing across all of our channels, and as a consequence of this, there will be continued variability in both AOCF growth and margins. We believe that this strategy and our disciplined approach to programming investment will allow us to continue to consistently grow AOCF over the long-term, as we take advantage of the various opportunities we have to monetize our content.

With that, we'd like to move to the question-and-answer portion of the call. Operator, can you please open the call for questions.

(Operator Instructions)

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

Oh, thanks. Just a couple quick ones. With regards to the mid-single digit affiliate growth you mentioned, can you help us? What was the core underlying affiliate growth, on an apples-to-apples basis, excluding the impact of this expired affiliate deal that Josh called out?

Right. Bryan, this is Josh. I'll answer it just completely, if I may, which is, the line includes the MVPD revenues. Then it includes digital and international revenues. That's how it's reported.

There were two things going on in the quarter. Slightly, they had different effects on the reporting. One is, revenue not recognized from one MVPD agreement because we're in the process of renewing it. And the other is, the effect of several agreements -- in fact, six -- which have been newly signed over the past year or so.

We've had historically been seeing MVPD growth in the range of low- to mid-single digits, ex that one agreement which we're in the process of renewing. That number is trending substantially upward.

Okay. Thanks. And then on Sundance, could you just update us on the progression towards the advertising model so far? How are you positioning the channel, the advertisers, and issues up-front?

When do you expect to get Nielsen rated and rectify viewership levels? How should we think about that relative to the channel average or other programs you have?

I'll answer the first part. I'll turn it over to Ed Caroll for the second. What we're doing with Sundance, as I mentioned in my prepared remarks, follows the pattern that we have undertaken, first for AMC, then WE tv and IFC. And that is, that the approach is to expand the distribution of the channel, to change the affiliate agreements which historically had not embraced or expected advertising. And then with the opportunity to create and enjoy a second revenue stream with hopefully increased subscribers to invest in content.

We're at the final stage of that plan which is being implemented finally in the fourth quarter. And just I'll ask Ed to comment on the specifics.

Sure, Bryan. This will be the Sundance Channel's first participation in the up-front. We are coordinating that effort with our other networks. Sundance ad sales is under common management with AMC, IFC, and WE ad sales so it's a coordinated effort.

We transform to and actual ad supported format beginning in the fourth quarter. We're out there now having conversations. Advertisers have obviously taken note of our first originals which were mentioned by Josh, Top Of The Lake and Rectify. We think there will be an appetite for hopefully high quality dramas on Sundance along with its mix of films that appeal to an upscale audience.

Okay. And then just finally for Sean. The cash tax benefit is going to come back to you, that $60 million. I think you said $20 million's going to come back in the second quarter. Should we expect $20 million in third and fourth quarter? Will it all come back this year?

I think a ratable recoupment over the remaining nine months is a reasonable estimate.

Thank you.

Your next question comes from Michael Morris with Davenport and Company.

Good morning, guys. Thanks. Two questions, first on advertising.

If you could talk a little bit more about the drivers of the strength in the quarter? Particularly, I'm thinking about ratings versus pricing on Walking Dead. I think historically, the pricing on Walking Dead hasn't been quite at the level of Mad Men, which is your highest price program.

Ultimately, what I'm trying to figure out is, as we look at the additional originals over the course of the year, what the up side is on the pricing side for them. And how much is ratings driven? And then I have a follow-up.

Sure. I'm not sure that answering your question, which I'm glad to do, or try and do, is going to necessarily give you the clear ability to model the rest of the year. But I'll certainly answer the question, which is the ratings -- audience size on The Walking Dead is probably the most significant piece of what drove revenue because the audience is so large. I think it was effectively monetized.

But the pricing on The Walking Dead has escalated substantially and it is now either near, approaching, or in some cases, at broadcast comparables. The pricing has moved up near or at parity because of the embrace of the show and the quality of the show. It was really two factors causing the good performance in the first quarter.

I'm not sure you could necessarily take a cue from it and apply it to other shows which have different audience sizes and different pricing components and different appeal to different advertisers for the rest of the year. I hope that helps.

Yes, it does. Second question on the subscribers. You disclose the Nielsen calculation of subscribers and I'm curious as to the numbers at March 31, whether those reflect number one, any changes from your renewed agreements with Comcast and Verizon at year-end, and number two, the impact of the relationship which you weren't paid on during the quarter. Thanks.

Right. I think I understood your question. The numbers we reported don't, I think, reflect because they were brand new agreements, significant changes as a consequence of the agreements from the MVPDs that you identified, with the exception of DISH. I'm not sure it was included in your question. There was a transition that occurred there, rather completely or comprehensively, and quickly.

In other agreements, and if you don't mind, I'll not answer specifically, we do balance the rate that we're paid with the distribution gains that we have an ambition to make. More often than not, those will take place generally over time because the MVPD, particularly if it's cable or telco versus satellite, are operating in different geographies with different head ends. And sometimes different packaging and pricing, depending on the MVPD, whereas satellite is universal in the manner in which it manages its platform.

I hope that answers your question. The quick answer is that the subscriber changes were not specifically influenced at that point in time much by the recent agreements.

Just to put a fine point on it, did you have additional subscribers from the agreements done at year-end that are not necessarily reflected in these numbers? As these numbers that you disclosed did not increase from December 31, 2012, to March 31, 2013?

The answer is yes, but they may occur over time.

Okay. That's very helpful.

Your next question comes from Richard Greenfield of BTIG.

Hi. Josh, last quarter you talked about margins continuing within the historic range of relatively flat, as you reinvest the potential margin upside in continuing to create better original programming. We saw relatively flat margins in Q1. I think, during earlier comments, you talked about volatility quarter-to-quarter, but should we still be comfortable that overall the Company is still targeting maintaining an overall margin profile, as you build to the future?

And then, as you think about the international line item, is that a number where there's a path to profitability over the next couple of years? Or is there still a lot of investment that's going to lead to that number continuing to be in investment phase? Any way to think about the bunch of moving pieces within that international and other line.

Sure. If you don't mind, Richard, I'll try and respond to the international and other line first. The international and other line has, first of all, separate components as a segment that we report on. One needs to look more carefully at each of them to understand the aggregate, of course.

Let me respond, if I may, to specifically what we're doing with our international channels. Just to say what they are, is you would travel to Canada and see AMC. You travel to Europe and see Sundance. You travel to Asia and see a channel Sundance or WE tv.

In aggregate, what we've said is that they are in aggregate, today, essentially break even. The markets that we got to first are profitable and the markets that we get to later have an investment horizon that's several years. They take that profit and it disappears as a consequence of the investment.

In terms of the profile over time, we look at each territory with a discrete ROI. We look at when we go into a territory, what will it cost? What are the platforms like? What rates do we expect? What pace of growth do we expect? How much program investment and what's the horizon look like for a return?

We think, if I can add to it, that it is, quote, a strategic undertaking for the Company, because it's very good to have distribution outside of the US, if it can be managed well with a clear eye towards profitability. And we think that over time, it already is good but it will be particularly good over the longer term.

In terms of projecting exactly where it is in two or three years, it's a little challenging. What I would say is that if we have opportunities to invest in a territory that we think provides a good return, it could potentially weigh down the aggregate economics of the international line, in international and other. We saw a good investment opportunity and we wanted to take it.

If we did less, it would probably show more rapid profit and that actually may not be what our first desire is. I hope that answers your questions. I'll talk about margins and see if it answers it --

Before you get to margins, what about the other pieces within international? Anything you can add color-wise?

Yes, we have our film company, IFC Films, which is, we think, also an important and strategic asset. As I mentioned in prepared remarks, we have initiatives that really are embryonic in internet-delivered video and television which we think is very worthwhile to be exploring.

Then we have something that's not necessarily material to the economics. We have a broadcast transmission facility that operates mostly on our own behalf but with some third-party business. In any given quarter, some of the performance of those things can influence the aggregate.

Thanks. And then on margins?

Sure. As we mentioned broadly, as I said and as Sean repeated, we think that content and good shows will drive our value to MVPDs and our ad monetization. And then increasingly, our digital sales both on EST and SVOD.

Ultimately, just to link back to your earlier question, if we ever had enough distribution of our channels outside the US, we could be the buyer of our own shows. Today, we don't have enough breadth to necessarily be the buyer of our own shows and the prices are too good to pass up a sale to a third party.

We think that content investment is key and we think it is truly important over the near- and mid- and long-term. We think that we'll be in the general range margin-wise of where we are but we think depending on the performance of the shows which are all not quite predictable. When they're done, we could see some reasonable, if not substantial, volatility relative to investment and success or failure and the ability to monetize near-, mid-, or long-term. It's not a sure business. It is a business that has obviously some fickle and unpredictable components.

Thank you very much. Is there any other show that you feel particularly strong about, in terms of the new schedule of originals?

There are actually many. I will mention that Ed talked about two shows on Sundance. And we're paying, as you might imagine, particular attention to Sundance because we're undertaking final stage of ad support and the full on effort to sell it.

We premiered the show called Rectify, which met our hopes in that the critical reception was extremely strong. We think that signals vitality for the direction the channel is going in. I can mention a long list after that but I'll stop short of that and leave it to one, lest I just give you a list of enthusiasms.

Thanks.

Your next question comes from Anthony DiClemente of Barclays.

Thanks a lot. A couple of questions. I think we calculated that your original programming hours were up about 13% in 2013. I'm not sure if we're on the right track with that.

Was wondering, as you look into 2014, how you think about the growth or the trajectory in original programming hours? Is it something like that degree of growth?

And is there anything about the competitive landscape that informs your decisions on content investment? There are some investors out there who, I think, would say that the original programming landscape is getting a little bit crowded. Just was wondering your thoughts on the competitive environment.

And then, one other question, if I may. I think you had an interesting strategy of pre-launching a number of Rectify episodes on VOD to the MVPDs ahead of the linear premiere. I was just wondering if there's anything instructive to you, Josh, about that experience.

Did it incrementally drive any interest or viewership in your internal research? Or has the SVOD strategy been more of a stimulant to linear viewership? Thanks for answering the question.

Sure, Anthony. On the last piece of it, we did do something that's probably somewhat different than others have traditionally done, which is for those who are not aware of it, we launched multiple episodes of Rectify on cable VOD in advance of the premiere, which is in a certain sense counterintuitive to how to launch a TV show. Normally, one deprives people of the opportunity to see it, and then tries to use what I would call blunt force marketing to bring everyone to the television set when it airs because that's how it's monetized.

We got our piece of instruction from what we've seen occur between seasons, particularly on scripted dramas, our own and others. There is, on cable VOD and digital SVOD, significant utilization between seasons one and two, two and three, three and four, et cetera. Then we've seen subsequent seasons on linear rise and we think that there's a correlation.

There's a cause and effect and that is that new people are coming to the show. They are, to use the common parlance, binging on them and then they get excited enough that they watch. They don't want to wait until it's available a year later on SVOD, which is what we do. They come to the next linear season and we've actually built viewership between seasons.

We tried to, if this all makes sense, replicate some of that effect before season one of Rectify. We tried to get people to watch and to refer their friends and others to it and I think we met with a reasonable degree of success.

This is deep in the weeds, but we also actually pre-premiered the series at 16 movie theaters. And actually invited through related companies what we think is the right audience to come in and have a movie binge experience with a community of people pre-premiere. We think that we built up a bit of a head of steam which resulted in good ratings for Sundance and also a lot of talk about it. Yes, we rammed that SVOD playbook in advance of season one.

Just on the competitive frame, the other part of your question is we do think that the competition is increasing. We do think that there are a number of channels that are making noises increasingly about scripted. We think they'll operate in an increasingly competitive framework which is another reason that we want to step up our investment. And I'll turn it over to Ed, if I may, for comments about 2014.

I'll just add to that, Anthony, on the competitive frame, there is more competition. There's more outlets. It can make the development process more expensive.

I think some advantages that we enjoy, we have platforms that have established brands. We have a reputation of developing successful shows. So if you're a producer or a show runner and you have a show concept that you're going to shop around, you want to look for a platform that has a history of developing and producing successful shows.

You also would be likely to look for a network that has a high percentage of renewing shows. Right now, if you look at the major shows that we've had on these networks, our percentage of multiyear renewals is very, very high. If you're a producer or a show runner and you have a hot concept, I think you take note of that when you're shopping the show. It is a competitive landscape.

In terms of the growth of shows, I think the number you quoted is in the right neighborhood. I won't project on 2014 only because our development process is fairly disciplined. It's probably been part of our advantage, which is to say, if we're not happy with the way a show is developing, we take it offline, we retool it, or we simply don't go forward with it. I think that's helped us on the quality index but it does make it hard for us to sit here now and project out hours.

That's helpful. Thank you very much.

Your next question comes from Todd Juenger of Sanford Bernstein.

Good morning. I've got a couple that I think are quickies. And depending how fast I go, I may see if I can squeak in a more strategic one. Let's do the quickies first.

On this MVPD deal under renewal, my question is, is that revenue being deferred upon hopefully successful completion of a deal? Or are you actually black somewhere and that revenue is gone?

The second question is on Sundance advertising, following up on a question. Obviously, we're all trying to figure out what that could be worth. I doubt you'll tell us. One way I've thought about maybe establishing a floor for that. Maybe this is silly.

We don't know what the format's going to look like, but if you just filled it up with nothing but direct response so the lowest bottom feeder prices, would you be willing to comment on how much that would be, order of magnitude? And obviously, that's not your plan. I'm sure you hope to do better. Or any comment you can make to help us figure out some way to think about a number there that's greater than zero.

Todd, this is Sean. On the first question, the services are still being provided. We are not dark anywhere, related to that one example -- or situation Josh mentioned, and the accounting rules did not allow us to recognize the revenue in the first quarter. Once that deal is papered then we'll get paid for the period of time in which we provided the service.

On the advertising front, it is a little difficult to model going forward admittedly. Our approach is to make the platform as valuable a platform as possible for the advertisers and to establish strong pricing and to establish its effectiveness. The point of departure is, and I know you were just using it as an illustration from a mathematical modeling point of view, but the point of departure for Sundance is its editorial invitation, which is to say it has independent film and high quality storytelling genetics.

The original shows that we begin with, we mentioned two, Top Of The Lake recently, and Rectify, we think it's an ad term or have very high engagement, have people who care an awful lot about them and will build. And we do have nonfiction shows on Sundance as well.

We think that we can build up real momentum and strength by having the channel be a home for some of the best TV shows on TV and that advertisers will find value in that. That probably challenges your math a little bit. But it's actually the approach we're taking. Short of just looking at a UE and a baseline projected rating and a CPM, I'm not sure that we can guide you to a particular way to inform the model.

All right. That's fair enough. I understand the comments you're making around the type of advertisers that fit in that environment. That makes sense. Thank you for indulging the question.

If you don't mind, just one final one, and you can make it a short answer if I'm being greedy with time. Your enthusiasm for Rectify, I think we understand why it's there. When you think about the trade-off between putting such a potentially strong -- searching for a better word -- show on Sundance, obviously, it's a long-term objective of growing the distribution and establishing advertising. If you wanted to maximize your money right now, I'd suggest you could probably put it on AMC and make more money this year.

That's going to come up more, time and time again. How do you think about that trade-off? Can you have your cake and eat it too? Can you imagine a scenario where some reruns or something that originally showed on Sundance, might show up on something like the AMC network?

It's a good question. It's probably worth noting that we are right now showing reruns of Breaking Bad on Sundance. It seems to be performing quite well. We actually have premieres of Rectify going into reruns of Breaking Bad on Sundance at this moment, Both those shows have a common producer.

I think the main answer is we have separate development teams and Sundance will look for the best product that we think will best benefit the brand in the short-term and the long-term. AMC has its development team and AMC's issue is, as I look -- and maybe I'm optimistic -- as I look at its slate of pilots, we'll have hard choices to make. We won't be able to go forward with everything. I think the answer is having strong development people that are attentive to the aspirations of that network.

Fair enough. Thanks a lot, guys.

Your next question from Ben Swinburne Morgan Stanley.

Thanks. Good morning. I had clarification question for Sean on affiliate revenues and then one for Josh.

In the prepared remarks, I think you said National Nets were up 11.7% and you said the affiliate revenue growth from MVPD were mid-single digits. I just wanted to clarify if that was correct. And then the difference between those two would be digital growth? Is that the right way to think about it?

That is correct. That's what I said, mid-single digits. The two things that we saw was the digital growth, not only what we're experiencing with The Walking Dead, Madmen, I think I mentioned also in the prepared remark, IFC and some of the things they delivered to Netflix in the quarter.

And lastly, we continue to see the international distribution of The Walking Dead, is also something you saw in the first quarter over last year's period. It's a number of factors.

Thank you, Sean. Josh, when you guys first spun out of Cablevision, you talked a lot about the opportunity to drive your affiliate fees higher. I think you thought you were underpriced, et cetera.

I'm curious, when you look at the business today, how you think about the opportunity in affiliate revenues versus advertising. It seems like over those last few years, the power of serialized content, thanks to SVOD players, has just become so much more significant in terms of driving ratings. And you have a huge head start there. If you look at the broadcast fragmentation, it seems to be further helping that opportunity.

On the flip side, arguably, the MVPD pressure points have gotten tougher about paying up for content. I'm just wondering if you think about the business' long-term growth opportunities a little differently you did, two or three years ago?

You've certainly got all the variables and all the pressure points. We actually don't think about it differently. We modified our tactics a bit. We actually have the same view that we expressed a couple of years ago which is that we were underpriced, that we are incrementally altering that. It's a big shift to move.

We do balance, as we mentioned, subscriber growth with rate increases. So I think if you look back to 2008 to today, we've probably have grown somewhere in the range of 60 million subscribers across the four channels which, of course, is important for ad monetization and opportunity over the long-term, while having gone from mid-single digit rates of increases to something now moving higher than that. We also have our eye on helping maintain the entire ecosystem which is why this process we engage in to put our shows on SVOD has probably the most significant delay, between linear MVPD exhibition, and SVOD window, versus any other cable TV channel.

So we look at it the same way. I think our tactics will alter. We'll just adjust all the time. To your comment, we think that scripted, which we thought several years ago was an unmined opportunity for all the reasons you identified, including fragmentation and technological wind at the back, which we think continues, so same plan, slightly adjusted tactics, as each thing rolls out.

Thanks, Josh.

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

Your final question comes from Ben Mogil of Stifel.

Great, thanks very much. Thanks for taking the call. So just two quick questions.

Josh, talk a little bit if you can about the move to Saturday night on a couple of your key shows. It's obviously been a dead zone in the past, which I guess is both the opportunity and the concern. Maybe if you could just talk that for a little bit.

Sean, because the Q hasn't been filed yet, if you can just give us the national expense breakdown between operating and technical that would be great. Or just the national expense breakdown on just technical and other. That would be great as well. Thanks.

On Saturday night, it's rather singular. It has been and is a somewhat neglected night on TV for good reasons, historically. We on AMC had historically particular success with westerns on Saturdays, going way back to Broken Trail, which was a miniseries that we did several years ago that, at the time, set ratings records. Even Hell on Wheel can find a very happy home on Saturdays. It's uniquely strong and interesting.

We see linear viewership affected in the evening by what actually plays in the morning and midday, which in the extreme suggests that people are planting themselves in front of the television set and staying with it for a uniquely extended period of time. It's enough to almost make you worry about them. But they seem to be doing it and we thought it was an interesting opportunity to take advantage of. We'll see how we do with it. That's the [thinking] behind it.

Obviously, those people don't have little kids. And on the cost front?

The technical and operating expense for the National Networks was about $120 million for the quarter.

And what about the other expense line?

Are you talking about the SG&A? $84 million.

That's great. Thanks, guys.

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 AMC Networks' first quarter earnings call. You may now disconnect.