AMC Networks Inc (Pre-Reincorporation) (AMCX) 2013 Q2 法說會逐字稿

Good morning, my name is Susan and I will be your conference operator today. At this time, I would like to welcome everyone to the AMC Network's second-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.

Thank you. Good morning and welcome to the AMC Networks' second-quarter 2013 earnings conference call. Joining us this morning are members of our executive team, Josh Sapan, President and Chief Executive Officer; Nate Carroll, Chief Operating Officer; and Sean Sullivan, Chief Financial Officer.

Following a discussion of the Company's second-quarter 2013 results, we will open the call for questions. If you do not 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 can 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 provide 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 Network's 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 some greater financial detail.

We delivered solid financial results in the second quarter and the fundamentals of our business remain strong. In the quarter, the Company reported 16% growth in revenue and 9% growth in AOCF. For the six months of the year, the Company grew revenue 16%, and AOCF grew 14%. Our top line revenue growth continued to be directly stimulated by the success of our investment in original programming across all four of our networks. As we discussed in prior calls, we have been steadily and significantly increasing the investment in our programming. As we look out to the remainder of 2013 we expect this investment to continue as we believe our content will increasingly define the performance of each and all of our networks.

Last month, a very nice note, AMC Networks received a total of 39 Primetime Emmy nominations, the most in the Company's history, and the most for any basic cable programming group. With 26 of those 39, AMC, the channel, tied as the most Emmy-nominated basic cable network. Sundance Channel received 10 nominations, the most in the network's history, reflect what we think of the investment that Sundance has made in its content, and IFC received 2 nominations. In an increasingly competitive business, this continued recognition for our programming and our networks underscores the strength of our strategy to identify and deliver high-quality original programming that really does connect with our target audiences.

Advertisers also continue to respond to our programming. In the second quarter, the national networks grew advertising revenue 14% over the prior-year. During the recently completed advertising up-front market, we took advantage of the success and of our growing ratings for our original programming.

We went to markets for the first time with all four of our networks, which allowed us to perform well in what was a healthy market generally for cable channels. We saw significant demand for our scripted series and were able to attract new, quality advertisers to our shows. We further diversified our at-revenue base, we added volume, and importantly, we increased price.

At AMC, the largest of our four channels, our original programming continues to deliver audiences that are particularly attractive to advertisers. Of note, Mad Men aired in the second quarter and continued to be a real magnet for advertisers seeking an upscale audience.

Looking ahead, we will have three scripted drama series on AMC, starting this coming weekend. The most we have ever had on the network at one time. We will finish out the final season of Breaking Bad, a show that I think is fair to say has become one of the most celebrated series on all of television. Breaking Bad will lead into a new crime drama called Low Winter Sun.

We will also introduce something called Talking Bad, a new life companion talk show to Breaking Bad done in a similar vein as our Walking Dead after show, which is called Talking Dead. Talking Dead has performed extremely well for us and takes advantage of a large audience engagement stimulated by the dramatic scripted show that precedes it. So, we think that plot for Breaking Bad makes a lot of sense.

Finally, the third season of our western series Hell On Wheels one of the network's highest-rated series, will debut this Saturday, August 10, opening up a new night of original programming on AMC on Saturdays. We think there is a real opportunity to create a new destination night for the network, based around the large audience that comes to us specifically for westerns.

The network recently announced two new scripted series for air next year. Halt & Catch Fire, from the producers of Breaking Bad, and the other called Turn, a revolutionary war drama. We are quite pleased with these projects and have several others in various stages of development.

Each of our other networks, WE tv, IFC, and Sundance Channel, are enjoying solid momentum as well. We continue to ramp of our programming investment in order to make each of those channels stronger and ultimately make our portfolio of networks more valuable. As was the case with AMC, developing strong, distinctive content that really resonates with audiences is a multi-year undertaking and we are at a different stage with each of our channels in terms of implementing this approach.

At WE tv, ratings performance in the quarter was led by a combination of new and returning originals. Including a show called Braxton Family Values, a consistent top performer for the network and a new show called Marriage Boot Camp, which we just renewed for a second season. Ratings for this new series increased steadily over its run, helping WE tv become the number one women's network for young women 18 to 49 and 18 to 34, on Friday nights when it plays. We are pleased to be bringing the series back early next year.

WE tv also recently announced it is entering the scripted area, with a new original series called The Divide, to premiere sometime next year. The series has great talent attached to it. As a network that competes with a range of female-focused channels, most of which trade largely in non-fiction or so-called reality programming, we think there is a true opportunity for WE tv to make a great mark in the dramatic scripted area.

IFC continues to push into developing alternative comedies. IFC's new series called Maron, starring comedian and popular podcast host Marc Maron, performed quite well in the first season and we just renewed it for second season. We have two other shows set to air in the coming months. A show called The Spoils of Babylon, executive produced by, and at times starring, Will Ferrell, and another show, The Birthday Boys, executive produced by Bob Odenkirk and Ben Stiller. As I mentioned before, IFC received two Emmy nominations for our show, Portlandia, which is a bit of a signature show for the channel.

At Sundance Channel, as we have previously discussed, we are transitioning to a traditional ad model in the fourth quarter of this year, following the path previously taken by AMC, WE and IFC, in years past. We believe there is a great opportunity for Sundance under an ad-supported model and we are already seeing great advertiser interest in the channel. We think much of that comes from the success we have had in quickly establishing the network as a new destination for high-quality scripted content.

On Sundance in the quarter, we premiered a series called Rectify, from the producers of Breaking Bad, which received enormous critical acclaim and attention. We are bringing that series back for a second season next year, and we also premiered a dramatic miniseries called Top of the Lake, starring Elizabeth Moss.

We have several other scripted projects currently in production at Sundance Channel. A new scripted series that we wholly own called The Red Road, and a miniseries called The Honorable Women, starring Maggie Gyllenhaal. We think these two projects are quite strong additions to Sundance's expanded scripted slate.

Our ability to produce content that is valuable and monetizable, is increasingly at the core of this strategy and is, happily, driving our top line performance. On the distribution side, National Networks grew revenue by 17% in the second quarter over the prior-year period. As many of you know, included in this line item is a combination of revenues we receive from our traditional MVPD partners -- cable, satellite, and telco companies, as well as newer developing revenues streams from the distribution of our shows on various ancillary platforms, such as digital and international.

Affiliate revenue continued to grow at a healthy rate. Results of the quarter benefited from the renewal of one affiliation agreement that we finalized late in the quarter. Over the past 18 months or so, we have renewed a significant portion of our affiliate base at terms that we have been pleased with, and have resulted in the acceleration of our rate of growth, from what was low- to mid-single digits, to mid-to- high-single digits.

In the next few months, we have a pair of agreements up for renewal with much smaller MVPDs as we are focused on continuing to realize what we believe is fair value for our networks, we believe it is possible that we might encounter some disruption in our service in connection with these renewals as we look to move them in line with our other agreements. Under any circumstances however, we do not expect any potential disruption to have a significant impact on our financial results, as these platform represent a very small percentage of our total affiliate base.

On the International front, we continue to move ahead with what we believe is a disciplined expansion of our footprint of channels outside of the US In the second quarter, we announced an agreement with DirecTV, the largest paid-TV distributor in Latin America, to launch Sundance Channel in that region for the first time, expanding now our overall footprint outside of the US from what was first Canada, to Eastern, Western Europe, Asia, and now, Latin America.

With that I would like to turn the call over to Sean Sullivan, who will provide some further detail on the financial results for the quarter.

Thanks Josh and good morning.

Turning to the results of the second quarter, total Company revenues grew 15.8%, and AOCF grew 8.7%. Second quarter revenue in AOCF growth was driven by increases in our national networks. At the national networks, revenues increased 15.9%, or $48 million, national networks AOCF increased 7.8%, or $11 million, versus the prior-year period, to a total of $146 million.

Advertising revenues increased 13.7%, to a total of $147 million. While we experience year-over-year advertising growth at all of our networks, AMC was the primary contributor. AMC benefited from the performance of its original programming, most notably Mad Men and The Killing, despite a decrease in the scripted, original programming hours versus the prior-year period. Distribution revenue for the national networks increased 17.5%, or $31 million, to a total of $206 million, versus the second quarter of 2012.

As just discussed, the second-quarter results reflected the aggregate impact of several items. On the affiliate site, we saw a low double-digit increase in revenues. Second-quarter growth included the impact of the renewal of an affiliation agreement that was finalized in the quarter. For the first six months of the year, our affiliate revenue growth was in the mid-to-high-single digit range over the prior-year period. Second-quarter results also reflected home-video revenue related to the release of season three of The Walking Dead, EST, our electronic sell through revenue related to AMC's scripted originals, and the international availability of our wholly-owned scripted originals, notably The Walking Dead and Rectify.

Moving to expenses, expenses increased 22.3%, or $38 million in the quarter, principally due to increased programming and marketing costs 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. Second-quarter also included a charge of $7 million, related to the write-off of various programming assets, primarily at Sundance Channel, as we prepare our programming schedule for a transition to a traditional advertising model in the fourth quarter of 2013. The increase in marketing expense related to the timing of original AMC as compared to the prior year, as well as an increase in Sundance Channel, related to the premiere of Rectify.

Turning to the international and other segment, revenues for the second quarter increased $4 million to $30 million. The AOCF deficit improved $1 million versus the second quarter of 2012, to $9 million. The revenue performance in the second quarter principally reflects an increase in our international affiliate fees. The improvement in AOCF in the second quarter reflected the increase in revenue and a $2 million, year-over-year decrease in professional fees related to the Boom lawsuit, as we did not incur any meaningful costs related to Boom in the second quarter of 2013. These two items were partially offset by an increase in expenses at IFC Films.

Total Company net income from continuing operations for the second quarter included $133 million litigation settlement gain related to Boom HD. As a result, net income for continuing operations was $136 million, or $1.87 per diluted share. Excluding the gain, net income from continuing operations would've been $54 million, or $0.74 per diluted share. This compares to $41 million, or $0.57 per diluted share in the second quarter of the prior-year.

In terms of free cash flow, the Company reported negative $154 million in free cash flow for the six months ended June 2013. This amount includes $234 million of payments related to the Boom HD settlement. Excluding the Boom-related payments, free cash flow for the first six months of the year was $80 million. The $234 million of Boom-related payments consisted of $175 million payment that was made in early April to Cablevision, and approximately $59 million in net tax payments that were made in the first half of the year.

As a reminder, $81 million of tax payments related to Boom were required in the first quarter, based on the preliminary allocation of settlement proceeds. We recouped $22 million of this amount for reduction in our second-quarter tax payments as a result of the final allocation of the settlement proceeds and we do expect to recoup approximately an additional $40 million, to reductions in future tax payments of the last six months of the year. So, for the six months ended June 2013, total tax payments were $112 million and this amount includes the $59 million Boom payment I just mentioned.

Cash interest was $56 million and capital expenditures were $14 million. Turning to the balance sheet, as of June 30, AMC Networks had $2.2 billion of outstanding debt. With cash and cash equivalents of $449 million, for a net debt position of $1.7 billion. Our leverage ratio was 3.5 times, based on LPN ACOF of $501 million. The 3.5 times leverage ratio is down from 5.4 times on June 30, 2011 and 3.7 times from the prior quarter.

While we do expect to continue to delever, I did want to reiterate what Josh said in his remarks. We are focused on investing our core business, as we think this will generate the greatest return for our shareholders over 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 consistently grow AOCF over the long term, as we take advantage of the various opportunities we have to monetize our content.

So, with that I would like to move to the question-and-answer portion of the call. Operator, please open the call for questions.

[Operator Instructions]

Bryan Goldberg with Bank of America.

Hi, thanks.

I have two quick ones on advertising, and one on the balance sheet. With respect to Breaking Bad, given the buzz around the final eight hours of the show, can you help us think about your ability to monetize potential rating strength, how much of the ad inventory for a show like this is already committed to upfront buyers versus scattered availability. I guess could you address this dynamic for Talking Bad as well?

This is Ed, Bryan.

On Breaking Bad, we anticipated that the finale of the series would be a big event. It was sought after by advertisers, we sold the lion's share of inventory in the upfront, we did hold back some inventory for the scatter market and so we have a few units that we have held.

Okay. Is that similar for Talking Bad as well?

The percentages are a bit different, but the philosophy is the same.

Okay, and then with respect to advertising inventory across all your channels, and the Sundance launch coming this fall, will all four channels be fully loaded with advertising minutes per hour?

Yes. All four channels will be on a clock, but each channel will not be on the same clock, but they will all match [stand] advertising format -- a mix of national, local and promo time.

Okay. Thank you.

Just for Sean, you guys took in your share of Boom cash, I noticed you didn't pay any debt down in the quarter. I was wondering what your thoughts were on using some of this cash for debt pay down in the back half of the year?

Yes, Brian, again, I think that as I said we will continue to invest in the business, not only AMC, but the other three channels as they migrate their strategy, incremental investment. We did not pay down in the quarter, I don't think that is necessarily a signal for the back half of the year. You know, we have a very attractive LIBOR plus 150 on the term loan A, so the after-tax effective rate of that debt is very compelling. But certainly we will continue to organically delever and we will look for opportunities to pay down to the extent that we do not think there's better use of cash with either internal or external opportunities. So nothing really more to say then that at this point.

Okay. Thank you.

Michael Morris with Davenport & Company.

Thanks guys. Good morning.

A couple of questions. First, on the affiliate fee side, Josh you said again, kind of that mid- to high-single digit growth rate. Based on what you know in the agreements that you have established, as we look out in the future, beyond 2013 -- can you help us understand whether that rate, we should expect that rate to slow as those contracts play out or whether that is a sustainable rate?

Sure. You know, I think that rate is a function of all of our agreements, obviously. We renewed over the last 18 months or so, six or so representing probably over 50% of our universe. So -- and the average deals, they range, but call it anywhere from three to seven years. So that is a big part of our universe, that in the timeframe you asked about, would be under contract.

The newer ones, that would be done, would be a portion of the total universe and depending upon where they fall, would influence that mass slightly up presumably, or slightly down. I wouldn't give you a specific prognostication except to say that during the time period you asked about, the bulk of the math is already written and determined. So if there is variability, it would be modest.

Thank you.

On the marketing costs growth, you mentioned both timing and the new, dispense of the new programming for Rectify. Can you provide a little more detail on both of those elements to it? I assume the timing is Mad Men at the start of the quarter, maybe Killing in the back end. What I am trying to figure out is a little more specificity on marketing per show given that we are moving into a period of having more original hours in the coming quarter.

I think the best way to think about it is, that in general, there is a marketing spend with the initiation of either a new series or a returning series at the beginning -- when it begins. It is the best way to build audience. If one looks at the calendar of premieres, around the time of the premiere, there is a bit of a heavy up in spending to introduce that show and that can be figured into the spend of the calendar. It is pretty regular and fairly predictable.

Is the amount of the spend pretty consistent between Mad Men and The Killing and Rectify? Can we expect the same thing for shows coming out in the third quarter, or does it vary?

It is a little bit of both. There is a range depending upon our calibration of how much incremental audience we think we can yield, as a consequence of a greater spend. So, in a sense, we do a mini-RLI on the marketing spend around a series, but there is also a bit of a floor and ceiling, so that variability occurs within a range, if that makes sense to you?

Yes it does.

Mike, just to add Mike -- you know, you are correct -- the timing of The Killing and Mad Men versus prior-year, I think on a six-month basis there probably was a material change in marketing dollars as you look forward, you know for adding shows, you would expect the aggregate dollars to increase in terms of marketing. So, I guess that's the way I would look at it if you are trying to model it.

Thanks. That's helpful.

Vasily Karasyov with Sterne, Agee.

Good morning, Sean.

I wanted to follow-up on your remarks on cost continued investment in programming. So if I do, back of the envelope math here, it looks that national networks expenses grew 20%. That is both, technical, [and IP rating] and SG&A in the first half of the year. So is there anything that you see that will change that rate of growth in the second half of the year?

I do not know, again, as we invest incrementally in content, I think I said this in my remarks, there will likely be variability. Yes, if we have more original hours and more scripted shows -- not only on AMC, but now on WE and now on Sundance, you would expect the rate of growth to increase. I think as a Company, we have been very disciplined and we have been able to monetize and maintain our margins with some variability as a result of that strategy.

I think that the aggregate dollars will increase, I think if you look back over the last several years, our content investment has increased in terms of amortization. In excess of 20% on a CAGR basis. So I think that we add new shows and we think it is the right thing to do, it is likely that those percentages will either stay or expand. But we think we have been able to successfully monetize the content, we obviously understand the revenue streams, and the timing of recognition of revenue, so there will be some lumpiness but all-in-all we feel good. So hopefully that is helpful color.

It is helpful, but just a quick follow-up. If you look at it on a one-year basis, not quarter-to-quarter and factor in the revenue trajectory in it. Would it be correct to say that variability on a full-year basis, you are mindful of the impact on the margins, on a full-year basis and that is something that you factor into the decisions?

Correct. We are mindful, we talk about it all the time. Again, every 12-month period, again, we are in an investment cycle given our growth in trajectory, but we are mindful of margins. But appreciate that there could be some pressure on margin as we ramp up and monetize the content across the multiple platforms.

Okay. One last question.

You are de-leveraging at a pretty quick clip here. Philosophically, what kind of leverage do you think a company with a business model like AMC Networks should have? I mean it is no secret that some of your peers believe that 2.5 times to 3 times is where that range is.

Yes, again, I think the management team's philosophy is that we think leverage less than where we are today is preferred. We understand we are, and expect, to de-leverage at a rapid rate. Again, we are cognizant of where our peer groups are in terms of their leverage and target leverage. But, again, we are still, I think in high-growth mode, in investment mode, so we think again, we will continue to naturally de-leverage. As of today, we haven't necessarily set a target other than -- less than where we are today.

Thank you very much.

Thank you.

Todd Younger with Sanford Bernstein.

Hi, this is David Bickle in for Todd.

I was wondering if you could speak more specifically about the upfronts, and in particular with respect to Sundance Channel and some of the programming there, and maybe if you could also provide more color on the magnitude of audience guaranteed increases in pricing that you experienced?

Overall I would say we were pleased with the performance of all of the networks. We saw gains in both volume and CPMs and demand was largely driven by our original content that was led by the series on AMC, and we continue to benefit from some industry trends -- such as viewer migration from broadcast to cable and closing the CPM gap again particularly where our [regionals] were concerned. Regarding Sundance, this is the first upfront that we sold at inventory on all four networks at one time. We think we still benefit from that, particularly for Sundance. So Sundance had previously been in a sponsorship format. So as we sold in this upfront, in the ad sales format, we saw significant increases on a percentage basis, but in absolute dollars, not that significant yet. It is sort of a startup conversion to [SL4] as we have done previously with our other networks.

Great. Thanks.

Ben Swinburne with Morgan Stanley.

Hi, good morning, this is Ryan Fiftal calling for Ben.

Josh, I was wondering if you could comment on what you're seeing in the competitive environment for finding new content and filling your growing development pipeline. I believe, I think Time-Warner said that HBO is developing more pilots right now than any time in their history. I know looking at Starz, they are ramping their originals pretty quickly. That is only two examples, but I'd imagine that generally, it is pretty competitive out there.

Yes, it is, there are more outlets developing, scripted series then there have been in the past on the cable front. So, because of their success -- and we have enjoyed that success, I think -- and we are doing, as Sean mentioned, more content development and production by a significant factor than we ever have, including pilots. So we are in that too. I would offer that I do not think that the word competitive necessarily defines the greatest challenge. If you do not mind a broad answer, there is not a limited commodity of great TV shows, and they are not ascertainable before the fact. It is not like sports rights, that get bid up. So, if one looks at the successful shows, most successful shows on our channels and others, I think what you might find is that -- they were not necessarily known to be successful before they occurred, some come with creative people who have enormous pedigree, and some come with creative people who were developing that pedigree.

So, I think the greatest challenge is actually not competitive bidding, which it could seem at first blush, but rather how keen our ability is to identify what is most appropriate for AMC, Sundance Channel, WE tv and IFC, and to organize a set of financials that support that. That allow us to do it at the level that we need with the right return. So our greatest, interesting new challenge is, the identification and development of great material with great people. I do not think it is specifically competition.

That's interesting, too.

Do you think is a function maybe, compared to say five years ago that supply of content is rising to meet demand? Or is it that you think that there was good content out there that was just maybe being under monetized in the past and now that there are more people mining it, and mining it effectively, the market has just grown?

I think that this is going to be an expensive answer. The broadcast networks always were the biggest developers of TV shows, and remain so, in terms of volume, as an industry. The quality, scripted dramas particularly that have predominated on cable and captured a lot of attention are newer to the little system of television, I think and I think we think that have been buoyed, particularly by technology. Which is, that people are able to find them on demand, both cable on demand and [Xbox.] That gives them a more comfortable time to view and appreciate dramas that are more nuanced and frankly, they have risen to greater attention as a consequence of the technology. So they were earlier, potentially there, but they were not being realized in the technological system of fully-linear television. The fact that it is now significantly influenced by that which is on demand on all platforms, has made this so-called third age of Golden television emerge. I think that is what is happening.

That's great. Thank you.

Ben Mogil with Stifel.

Hi guys, good morning, two questions.

In terms of anything in the expenses that was noteworthy, is it just the $7 million Sundance program write down, is that about it?

That is correct, yes.

That was mainly Sundance, they were relatively low-profile reality series. I believe there was one AMC show in there, as well.

Josh, larger question for you. As you went through the upfronts, you know, when you got Breaking Bad rolling off and you only have one season left of Mad Men, obviously respect to confidentiality. Can you talk to us a little bit about sort of, how you're talking to advertisers, can in some ways it's the same conversation we're all having with investors about sort of how you see the world going, you know, once these two big shows roll off. I am kind of curious, is it more, you know -- we may not have a couple shows that initially rate anywhere near what these ones do, but we think in the aggregate, we will have sort of more shows that together will rate around that number and will give a -- sort of more like scripts or discovery where it is less about one or two shows and more about the overall ratings profile. Curious what you could share with us?

Sure. I think one note of course begins with The Walking Dead, which is by far and away, the most significant audience deliverer that we have across all four channels. The Walking Dead is young, we hope that zombies really do live, either forever or at least a decade. (laughter) We just finished year three and you may note that we have tended to do many more episodes of The Walking Dead in a season, than we have other scripted dramas. In addition, as I mentioned in the prepared remarks, we have a companion series to Walking Dead that holds a substantial amount of that audience right after Walking Dead. So in terms of real delivery and inventory, it is a very significant piece of it.

We have some terrific new dramas coming on. We mentioned some of them, I do not want to be too enthusiastic about shows that have not aired, but we've piloted them, we have seen them and we are really quite pleased with Low Winter Sun, with Halt & Catch Fire, with Turn, with The Divide, with The Red Road on Sundance, and The Divide -- first time on WE tv and frankly, advertisers are sharing our enthusiasm.

So as we have another season to play out of which on Mad Men is to be fully determined and Walking Dead, we have this great moment --an explosive moment of the end of Breaking Bad, which we will hope to take maximum advantage of and I think we are in a position of great momentum, and we would like to keep that momentum. Of course that is a creative challenge, but we feel pretty good about the challenge and we feel particularly good about the expansion of our programming initiatives.

Not only on AMC, where they are ramping up and up, but on Sundance Channel, where we have caught some real wind of late, and we mentioned those 10 Emmy Awards there. They're a nice symptom, we think of quality and on WE tv, which has done great non-fiction and now turns to scripted, and The Divide, which we think is a killer show. And IFC, which sort of began with Portlandia, we have Comedy Bang Bang on, we have this show called Maron, we have Spoils of Babylon coming on, we have The Birthday Boys. We think we are in a strong position, not everything will hit, but we think it's a pretty good moment for us. And advertisers are sharing the view today.

That's great. Thank you Josh, I appreciate the answer.

Andy DiClemente with Barclays.

Hi, this is James Kopelman in for Anthony. Thanks for taking the question.

I have one bigger picture for Josh. We heard comments from one of your peers about what the ecosystem might look like if there were not unbundling over time, but just smaller, customized bundles and where different content would fit in, whether it's sports, broader stuff, serialized, premium, et cetera. I am curious where you think your content, which is obviously, highly differentiated, fits in the picture in this type of scenario and how do you think it would fare if consumers had, say, more ability to customize packages? Any color on how you think this will play out or sort of, how you approach it from a strategic perspective? Thanks a lot.

Sure. We do think about that and we do not know exactly what changes might occur under what timeframe, and in what form. One could speculate and develop a range of scenarios. As we think about it, frankly, offensively and defensively, we do think that if there is greater consumer discretion in what comes into the home and any flavor it takes, what will matter, to state the obvious, is choice and desirability and perception of value. So we are programming each of our channels that way now and it is why -- as Sean mentioned -- we are increasing our investments in these shows that work in today's world where we monetize through affiliate fees in the current system and to ad sales, but we actually increasingly monetize through the sale of those shows through subsequent S5 windows a year later, on Netflix members, and through iTunes, and through sale to international outlets in our own channel.

So, in a certain sense, we are getting a bit of a preview of that possibility. Through the ancillary market's perception of our content. Specifically, if a show sells very well on iTunes, you can say that show is valuable and if it was part of our offering, less structured environment, it would be valuable. So we think that the trend is, no matter which specific way it goes, have stuff that people really like, really want, really identify with, and really value.

Great. Thanks a lot. That's really helpful. Appreciate it.

Operator, why do not we take one last question please.

Certainly. Your final question comes line of Amy Yong with Macquarie.

Can you just outline your [S5] and electronics sell through strategy. How important is it to your growth and does it impact your mix of licensing versus owning content? Thanks.

Sure. We think that we developed an approach to S5, in which we window it substantially after, in most cases, it is premiered on linear channels. It is good economically, it is good for the current ecosystem, and it actually, in many cases we actually think helps the performance on linear because we bring new audiences to it on transactional or iPod or whatever one might call it. We think, if done right, it can actually help the perception of a cable bundle value. So, we think it is a part of, I hope I am answering your question, a part of our world, a part of our economic world and it will continue to be so. So we do anticipate those revenues, where we attend to them and it is part of the fabric of what we do.

Great. 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 for participating in today's conference. You may now disconnect.