AMC Networks Inc (Pre-Reincorporation) (AMCX) 2013 Q3 法說會逐字稿

Good afternoon. My name is Rachel and I will be your conference operator today. At this time, I would like to welcome everyone to the AMC Networks' third-quarter earnings conference call.

(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' third-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 third-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 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 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 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'll 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'll provide a 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.

Before I go over the performance for the quarter, I wanted to briefly address the announcement we made last week regarding Chellomedia. As we discussed on that conference call, we have entered into an agreement with Liberty Global to purchase Chellomedia, a portfolio of international cable networks for EUR750 million or approximately $1 billion.

We are very excited about the long-term growth opportunity that the Chellomedia business represents for the Company and its shareholders. Over time, we will have much more to say about this transaction.

However, I hope you understand that, due to the fact that the deal has not yet closed and the various confidentiality provisions associated with the agreement, we will be limited in our ability to discuss the transaction in great detail, at this time. As appropriate, we'll continue to keep you updated on further developments.

So, turning to our financial results. In the third quarter of 2013, we delivered solid financial results and the fundamentals of our business remain strong. For the quarter, the Company reported 19% growth in revenue and 25% growth in AOCF. For the first nine months of the year, the Company grew both revenue and AOCF 17%.

As you may recall, our results for the third quarter of 2012 were impacted by litigation that was ongoing with DISH Network related to the VOOM HD business. The litigation and the associated temporary termination of carriage negatively impacted our affiliate and ad revenue, and caused us to incur incremental marketing and litigation expenses. As a result, our current period performance with respect to these line items benefited from the favorable year-over-year comparison.

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've discussed on prior calls, we've been steadily and significantly increasing the investment in our programming. As we look out to the remainder of 2013, and into 2014, we expect this investment to continue, as we believe our content will increasingly define the performance of each and all of our networks.

In an increasingly competitive business, this investment in our programming and our networks is crucial in allowing us to continue to identify and deliver high-quality original programming that truly connects with our target audiences. Advertisers continued to respond to that programming.

In the third quarter, the national networks grew advertising revenue 36% over the prior year. Our growth was led by AMC, the largest of our four channels, where we saw significant demand, particularly for our original scripted series.

Breaking Bad, which was recognized with two Emmy Awards including best drama series, wrapped up its run with -- I think it's fair to say -- eight wonderfully crafted episodes. Ratings for the final season were up over 100% versus the prior year in key demos.

The Walking Dead premiered its fourth season in October and attracted the most viewers in the series history. The premiere delivered 16 million total viewers and over 10 million viewers in the key demo, adults 18 to 49, an increase of roughly 40% over the prior-season premiere.

The premiere was the most-watched drama series in basic-cable history ever, and outperformed all of broadcast TV, including Sunday Night Football, for the week in key adult 18 to 49 demo. With time-shifted playback included, the premiere exceeded 20 million total viewers. Season to date, the show is up over 35% in the adult 18 to 49 demo, as compared to the prior season.

The network recently announced several new scripted series that are in development, including a companion series to The Walking Dead, and something called Better Call Saul, a spinoff of Breaking Bad featuring the character Saul Goodman from Breaking Bad, who is played by Bob Odenkirk.

Each of our other networks, WE tv, IFC, and Sundance Channel are enjoying solid momentum, as well. We continue to ramp up 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 resonates with audiences is a multi-year undertaking. And we're at a different stage with each of our networks in terms of implementing this long-term plan. At WE tv, ratings performance in the quarter were led by a combination of new and returning originals, including the second season of a show called Tamar and Vince, which has become a consistent top performer for the network, and a new show called Marriage Boot Camp, which we renewed for a second season.

IFC continues its push into developing alternative comedies and continues to attract well-known and proven comedic talent. IFC's Comedy Bang! Bang!, starring comedian Scott Aukerman and Reggie Watts, is performing quite well in its second season. And The Birthday Boys, a sketch comedy show that premiered in mid-October, is off to a good start.

Portlandia, which stars Fred Armisen from Saturday Night Live and is returning for its fourth season, along with another show called the Spoils of Babylon, which is executive-produced by and features Will Ferrell, are both set to air on IFC in January.

As we previously discussed on September 30, Sundance Channel transitioned to a traditional ad model following the path previously taken by AMC, WE, and IFC in years past. We believe there is a tremendous opportunity for Sundance under an ad-supported model, and we are already seeing significant advertiser demand for the channel. And we think much of that comes from the rather rapid success we've had in establishing the network pretty quickly as a destination for high-quality scripted content.

Sundance has what we believe to be two, terrific scripted original series now in production. Rectify, Sundance's first wholly owned scripted original, which premiered earlier this year to strong critical acclaim, is set to return for its second season next year. Joining Rectify is another wholly owned scripted series called The Red Road, we think it's a really unique story set against the backdrop of two dueling communities that live side by side.

The Honorable Woman, a miniseries starring Maggie Gyllenhaal, is the latest in a line of critically acclaimed limited series from Sundance following in the footsteps of Top of the Lake, Restless, and Carlos, each of which enjoyed good success. We think all of those projects are strong additions to Sundance's expanded scripted slate.

Our ability to produce content that is valuable and monetizeable is increasingly driving our top-line performance. On the distribution side, the national networks grew revenue by 11% in the third quarter, over the prior-year period. Affiliate revenue continued to increase at a rate that was consistent with what we previously discussed.

On our last call, we mentioned a pair of affiliate agreements with smaller MBPDs that were up for renewal in the second half of the year. I'm very pleased to say that we were able to reach resolution on both agreements at terms that we think fairly reflect the value of our networks.

The non-affiliate portion of our distribution revenue base includes a combination of newer developing revenue streams from the distribution of our content on various ancillary platforms such as digital and the international sale of our shows. In the quarter, we recognized revenue from the availability of some of our AMC scripted originals on the Netflix platform, most notably The Walking Dead season three and Hell on Wheels season two.

And on the international front, our activity going forward will, of course, be significantly informed and influenced by the acquisition of Chellomedia. We continue to move ahead with the expansion of our existing footprint of channels outside of the US. Of particular note in September, we launched Sundance channel for the first time in Latin America, in partnership with DirecTV, the largest pay-TV distributor in the region.

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

Thanks, Josh. Good morning. Turning to the results for the third quarter, total Company revenues grew 19.1% and AOCF grew 24.5%. As Josh mentioned, compared results to the third quarter were impacted by our dispute with DISH in the prior-year period.

At the national networks, revenues increased 20.2%, or $62 million. National networks AOCF increased 24.5%, or $29 million, versus the prior-year period, to a total of $145 million.

Advertising revenue has increased 36.3%, to a total of $146 million. A portion of the increase related to the favorable DISH comparison. Excluding this impact, AMC was the primary driver of growth as it benefited from the performance of Breaking Bad, as well as an increase in the aggregate scripted original programming hours on the channel as compared to the prior-year period.

Distribution revenues at the national networks increased 11.4%, or $23 million, to a total of $221 million versus the third quarter of 2012. The third-quarter results reflected the aggregate impact of several items.

With respect to affiliate fees, reported revenue growth was in the mid-teens as the results in the prior year reflected the absence of carriage on the DISH platform. Adjusting for this item, our affiliate revenue growth was in the mid-to-high single-digit range over the prior-year period.

Third-quarter results reflected non-affiliate revenues that were essentially flat year over year, as increases in revenue related to AMC scripted original programs, most notably The Walking Dead, offset nonrecurring digital and licensing revenues in the prior-year period.

Moving to expenses, expenses increased 17.5%, or $33 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.

Third quarter also included a charge of $3 million related to the write-off of various programming assets compared to a charge of $8 million in the prior-year period. The increase in marketing expense related to the timing of originals on AMC, which more than offset the impact of the dispute with DISH in the prior-year period.

Turning to the international and other segment, revenues for the third quarter increased $2 million, to $31 million. The AOCF deficit was essentially flat versus the third quarter of 2012, at $9 million.

The revenue performance in the third quarter principally reflects an increase in our international affiliate fees. AOCF in the third quarter reflected the increase in revenue, offset by an increase in expenses.

We incurred professional fees of $3 million in the quarter related to the Chellomedia acquisition, as compared to $5 million in the prior-year period related to the VOOM lawsuit. An increase in expenses at IFC Films principally offset the decrease in professional fees.

Total Company net income for continuing operations for the third quarter was $58 million, or $0.80 per diluted share. This compared to $37 million, or $0.51 per diluted share, in the third quarter of the prior year. In terms of free cash flow, the Company reported negative $92 million in free cash flow for the nine months ended September 2013. This amount includes approximately $215 million of payments related to the VOOM settlement.

Excluding the VOOM-related payments, free cash flow for the first nine months of the year was $123 million. For the nine months ended September 2013, total tax payments were $124 million. This amount includes $40 million of net tax payments related to VOOM. Cash interest was $90 million and capital expenditures were $18 million.

Turning to the balance sheet, as of September 30, AMC Networks had $2.2 billion of outstanding debt. We had cash and cash equivalents of $510 million for a net debt position of $1.7 billion. Our leverage ratio was 3.2 times based on LTM AOCF of $529 million.

The 3.2 times leverage ratio was down from 5.4 times on June 30, 2011, and 3.5 times in the prior quarter. As we announced last week, our leverage ratio is expected to increase by approximately one turn as a result of the Chellomedia acquisition.

We do, however, expect a de-lever over time through a combination of AOCF growth and as a result of the strong free cash flow characteristics of both our existing assets as well as the Chellomedia business. In terms of capital allocation, we remain focused on investing in our core business as we think this will generate the greatest return for our shareholders over the long term.

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

(Operator Instructions)

Michael Morris.

Thanks. Good morning, guys. A couple questions about -- on the expense side, especially as we look forward to the big slate that you have in the coming year.

First, can you talk a bit about how much you think the cash programming spend will increase next year as a result of the bigger slate of original scripted programming? Also, can you help us with how much of the scripted programming is owned versus licensed?

And if you could share how that impacts on the amortization -- the pace of amortization, relative to some of the licensed shows that you've had in the past. And then, finally, the marketing cost -- as you have more shares, is it a one-to-one relationship in terms of increased marketing spend for the programming? Or, do you get some scale as the slate gets broader at AMC? Thanks.

Thanks, Mike. Again, it's probably best to talk about it in the context of what our historical discipline and focus has been, in terms of investment. Obviously, given our lack of guidance in terms of formally telling you what next year will look like, I think it's fair to say that we continue to invest incrementally.

As you look at the programming amortization, our business, it's increased in excess of 20%. That's consistent, again, as we look at the nine-month period 2013 versus the prior-year experience.

We are not only doing that at AMC, what we are doing it on IFC, WE, and Sundance, because we think, in the long term, that it's the best strategy for long-term value creation. In terms of the mix between owned and original, I think as Josh and Ed have said, quite often we look for great content that we think will engage with our viewers across our respectives. So, of course, we want to own where we can.

However, we still do a fair amount of licensing of content, too. So, we're looking for the best material that meets the brand that meets the screen that engages with consumers. I think everyone on the call is fairly well informed in terms of how we account and recognize expense.

So, if it's an ownership model, it's on an ultimate, to the extent it's a licensed product, it's a straight line. To the extent it's co-owned or co-produced -- and a co-owned situation will be ultimate, as well.

So, I think that, again, hopefully gives you the parameters of how we're looking at the business in our investment profile and the cash needs to achieve our strategy. As it relates to the marketing, as you know, it is a discretionary expense. So, I don't necessarily think we believe that ultimately there is leverage in the spend, but we are looking at each show and how best to launch that, whether it's through trade media, whether it's through cross promotion, whether it's cross promotion across all of our channels.

I think we do have the discretionary ability to incrementally invest in marketing or pull back.

Yes. We don't market every show. Some of the shows we rely on social media and press as the drivers for those shows.

Other, on the scripted side, we generally launch a new season and you see our scheduling strategy, where we will do something like follow The Walking Dead with Talking Dead and then into the unscripted show, Comic Book Men. So we do look for synergies in the scheduling strategy. And we are selective about which shows we significantly spend against.

Michael Nathanson.

I have one for Josh and one for Sean. Josh, just a sense of strategy. On the shows that you're about to launch that you own, how fast would you consider putting those shows into an SVOD player, given the success SVOD's had to drive awareness? How do you think about that relationship? And then I have one for Sean.

Sure. It's something that we've been obviously paying a lot of attention to, with the goal of trying to balance several things, including the strength and propriety of the MVPD platforms. And, secondly, the money that we might realize, and do realize, from an SVOD sale.

And there's now a third factor, which is the apparent benefit, not yet quantifyable exactly, that occurs from exposure on an SVOD platform and can deliver benefit to subsequent season or seasons on MVPD. So, the terrain has gotten a little bit more complicated and actually a little bit more interesting.

The approach that we've taken to date, which we think is the right approach, is to essentially put in most cases, not every one, roughly a year between MVPD exhibition and availability on SVOD. We've done that historically.

We seem to have benefited from it in that we are among the most, if you want to call it, conservative, meaning longest period of time that a show has from linear MVPD to internet delivered on demand. And we think we've benefited pretty reasonably, in some cases significantly, from sampling and exposure on SVOD.

The one thing I'll just add, if I might, which is just another piece of it, which is not talked about as much, is iVOD, not to use too many words, but transactional. Meaning, sale of shows which is another windowing question and cable on-demand, or MVPD on-demand which is increasingly available, increasingly significant in its capacity, and increasingly used by people.

So there's, for us and everybody else, a lot to balance in that mix. We'll continue to monitor as we go forward. We don't necessarily think that an answer today is the absolute answer for tomorrow. We think we're in the right zone.

Okay. Thanks, Josh. And then one for Sean. As you just called out, there's a one-time nonrecurring item, digital licensing (inaudible) this quarter that affected the comparability.

When we look at the fourth quarter of comparability, in the nonaffiliated (inaudible) distribution line, is there anything that's nonrecurring or different about the compare from 4Q to 4Q that we should be aware of?

Yes. The comparability was the result of what we recognized in Q3 of 2012 as it related to Q3 of 2013. In terms of the fourth quarter, I don't believe there's any real comparability relative to the prior year.

Okay. Thanks.

Todd Juenger.

Two seemingly unrelated questions. One on the advertising side. Can you just give a sense of -- and clearly, I'm sure you were bullish on your hit shows coming into the year. They're probably exceeding, maybe even your own expectations.

Wondering if you could share with us some sense of how much of that inventory you sold upfront, which I suspect you probably didn't even promise this sort of audience against, versus how much you held back for scatter? Also, looking forward to the rest of the upfront season, the next three quarters on that basis.

The second question relates to distribution. It looks like you actually picked up an extra 100, 200 bps of more households across most of your networks, even from just three months ago.

So, I'm wondering, where is that coming from? Is that moving networks onto more popular tiers? Is it just a natural progression of households to digital? Is it aggressive? Is it something else? Can we expect that to continue? Thanks.

Sure. On the advertising side, as you might imagine, we engage in an awful lot of planning and modeling and forecasting of how we'll do, in order to maximize revenue.

We did have, on the shows that performed particularly well -- the end of Breaking Bad and the new season of The Walking Dead, we had trend lines that were heading up. Actually, this joins with the earlier question and comment we had about what happens between seasons.

So, we were anticipating growth and we actually thought that Breaking Bad was a very special circumstance, because of the ending and because of the amount, frankly, of heat and attention that it was getting. So, I think we did a pretty good job of balancing aggressive expectations in what we sold with some degree of sanity in inventory that we held. And I think we came out pretty well, in terms of maximizing it.

So, on the distribution question, as a consequence of recent MVPD deals, we've enjoyed universe growth, particularly on Sundance, WE, and IFC. That's another way that we are able to use the leverage of the hit series, not only for increased rates, but for increased exposure for all of our networks.

So, should we expect that -- if you don't mind me following up -- to maybe continue growing? Or (inaudible) to a new level that at least will continue to roll over for another few quarters?

That was the focus of us, to grow the universe. It's a goal in every MVPD negotiation and so we sort of go at it deal to deal.

Fair enough. Thanks, guys.

Richard Greenfield.

A question related to allocation of capital. You talked about how you're just converting what is your final major US network to an ad-supported network.

Obviously, not just on AMC, but as you look across the portfolio of IFC, WE, and Sundance, there's a tremendous amount of opportunity that you have to -- for lack of better term, create the same type of magic you've done with Walking Dead, but to build that into a far broader set of assets in the portfolio. Just wondering, putting $1 billion overseas versus using a substantial amount of capital to accelerate original programming in the US, how did you balance -- how you thought about the use of that capital decision?

Sure, Rich. I think we do view the opportunity in the US as you described it. We do think that the conversion of IFC to add support and just to the earlier conversation, the expansion of its universe, domestically, represents a good opportunity.

Similarly, for Sundance, and even less well developed for Sundance, in terms of its universe, and the recency of the introduction of advertising. So, there's a lot of opportunity there, we hope.

We were very, very attracted, and have been, to all the things that brought us to the Chellomedia acquisition and they include the fact that the business is a good business today. The good business has, we think, reasonable margins and very strong cash flow characteristics.

We think that it has the opportunity for growth as we make determinations over where to deploy overseas, the increased amount of original programming that we own and/or control. And we think that it's good for our business to be in multiple businesses and in multiple geographies. So, we thought of it as a great priority, obviously.

The balance of the allocation of capital is something that we considered with great care and determined that this was, particularly in light of our current leverage, and the fact -- as Sean said, from June, a couple of years ago, when we went out at 5.5, roughly, and being down to 3.2 roughly -- that we had the wherewithal to do it. And, frankly, to accomplish with a reasonable amount of today current leverage and a horizon of deleveraging, based upon the nature of business, that we could pretty comfortably take care of both activities.

Can I read into your comment, essentially, that by having the global footprint now it will make it easier for you to finance your own original programming that you wholly control because you are not just looking at it against the US, you are looking across a much wider footprint?

I'd say broadly, yes. More specifically, what it will give us, Rich, is greater opportunity to make specific determinations with future shows about whether they're sold to third parties, whether we keep them for ourselves, which shows will work in which geographies and on which channels.

About half of the channels in the Chello portfolio are movie and entertainment. They're obviously a more welcome and easy home for some of our material.

Some of the other channels are different in their editorial construct and are less obviously an immediate home, and they have different geographies. So, it is a bit of a puzzle, but we think that it creates very nice options. And we have been, of course, been selling our shows internationally and operating channels internationally, so we're not unfamiliar with it today and, of course, we're inheriting a great management team.

So, yes, we think that it gives us more option to do that and to do it better. I'd stop short of saying more perfectly. But I'd say more surgically.

Thank you.

Vasily Karasyov.

Can you tell us, please, if there was a write-off in the quarter on the national networks in 3Q? Or is it all run rate amortizations?

I'm sorry, Vasily, can you repeat the question? You're cutting in and out. Please.

Sorry. Was there a write-off in Q3 in the network segment?

Yes. There was a programming write-off in the quarter of $3 million. I think I mentioned that in the prepared remarks, and that was various programs across each of our channels.

All right. And then a couple more. One, last quarter when we spoke about margins, I think you guys were very specific about saying that there will be year-on-year volatility from quarter to quarter that margins can compress.

And yet, when I look at today's margin -- Q3 margin, it actually expanded year on year. Does that mean that the advertising revenue was higher than you expected internally?

Yes. Again, to reiterate, what we've said fairly consistently, we expect to maintain a relatively stable margin. Quarter to quarter, you will see volatility based on the timing of our original programming spend and the related marketing, because those are substantial investments and costs that can fluctuate the number.

Again, we're not displeased. I think the margin that we experienced this quarter was not unexpected.

Okay. And the last one is, looking at the international and other AOCF, one would think that the comps from last year's comps were easy, because you had litigation expenses. Yet, it seems that the run rate is constant, around $9 million loss at quarter.

So, is there anything unusual in the first three quarters of this year that amplified losses and should we expect improvement in that run rate?

As you know, there's quite a number of things that go through the international and other segments. So, it is a bit challenging, I recognize.

In the current third quarter, as we talked about, we had expenses related to, obviously, the Chellomedia activities. We had the VOOM expenses in the prior year, as it related to the litigation.

Also in the current year, as I indicated, we saw some incremental expenses year over year in our IFC entertainment and films business. So it's hard for me to give you what the normalized run rate is, given the various activities that are flowing through the segment.

All right. Thank you very much.

Thank you.

Ben Mogil.

So, going back to the whole scripted drama and the competition that's out there. Clearly, that's a very high area for not just you but for a lot of other folks. On the cost side, are you seeing any material cost inflation either on production or the promotion cost from even just a year or 18 months ago?

And then, flipping over to SVOD, with so much product being out there and everyone understandably seeing SVOD's a great way to build awareness for a show, are you seeing SVOD beginning to push back, either on what they're taking or on pricing?

Sure. I think the larger arena of scripted drama has changed a bit. There are new entrants into the area that's closer to what we've been doing. And so that has probably having -- it's affecting the overall dynamic, sort of, in realtime.

The networks are doing some shows that look more like cable dramas. SVOD services are themselves doing scripted dramas with some success. And so I think the full implications of that, over time, are not yet entirely understood.

We, along the way, have continued to have pretty good success, not only on AMC, but on Sundance as we mentioned, when I read the prepared remarks -- on Rectify, we are very encouraged on this new show called The Red Road and we're doing a scripted drama for WE tv called The Divide.

So, there appears to be significant appetite and increased appetite. On the larger question of whether there's ever saturation for that appetite and under what circumstances it occurs, the answer is really unknown.

To your question about SVOD -- and I'll talk about costs in a second -- actually, the effect on SVOD and its contribution is unknown. We know it's beneficial. We don't know exactly how beneficial.

The SVOD, or the broader on-demand landscape is changing, because it's not just the internet, it's also the MVPD themselves. It has not, to date, affected costs in any significant way.

So, we're not seeing any inflation in costs, other than those that existed previously, where, if you're a licensor of a show in success in later seasons, you tend to pay more, which contributes to our bias to own.

So, that's the landscape for the moment and for the foreseeable future. We think the appetite's strong. We think that the consumption of it is being aided by technology really dramatically. You see it on the network dial. You see it on the cable dial. You'll see it on the SVOD lineup and we think it's a good business.

We will continue to monitor it. And at the moment there's no significant cost escalation and there's worldwide appetite, so it's a pretty good model.

Following up on that. When you guys are looking at just regular VOD that you're offering as part of your overall MSO deals, what's your thought -- I know that there's been sort of a view by some of the programmers not to offer the entire season on VOD, under the view that it's going to impact DVD sales and potentially even SVOD license fees.

What's your thought around that? I know one of the complaints from a customer perspective is that, if I can't see a whole season -- if I'm on episode six and I can't see the first five, I'm kind of lost, if you will. What's your thoughts on enhancing how much you offer on VOD?

That gets to be a very specific question, obviously, about number of episodes, and when and where. Our general point of view on it, is that the MVPDs are absolutely our primary distributors. They're our lifeblood. That's where we live.

So, we want to be in full service of their needs and agenda, and we think that's good for our business. So, we have rights considerations to deal with depending upon who owns the show and there's always economic considerations.

But we begin and stay through those conversations with a bias to be in service. And it sounds simplistic, but we mean it -- to be in service of them, our wholesale customers, A, and, B, the consumers who are connected, either to their hard-line services or to their electronic signals that come from the satellite. So, that's sort of what we do, and then we bang out the details of it.

Okay. Thanks, Josh.

David Joyce.

I was just wondering if you can provide some more color about some of your upcoming companion shows or spinoffs, such as with Better Call Saul. Might you get some shared economics in that, going forward?

Is it possible that, that could be produced in time to replace Breaking Bad on the schedule next year? Or is that going to (inaudible) to the following year? Also, if you could comment on how much longer you have rights to some of those license shows such as Breaking Bad, and what sort of lift you are still seeing on your various networks where you air them? Thank you.

I won't comment specifically on the deal terms with Sony. I will say, generally, Better Call Saul is a licensed show. But there our deal points inside that, that I can't get into. We do not, at the moment, have a target date; we're sort of in the early stage of development on the show. So, we don't have a launch date.

We continue to enjoy rights to Breaking Bad and do for some time. We continue to air it to good effect on AMC. It's still a pretty hot show and advertisers still like running in it.

Great. Thank you very much.

Ben [Flemmer].

This is Ryan Fitts on for Ben. Just a follow-up on some the earlier SVOD questions. I'm curious if SVOD's success has at all impacted your marketing strategy, particularly around your wholly owned originals?

It seems like the off-season build and interest is increasingly important. So, I'm wondering if you guys have thought about marketing around the SVOD releases or if you really leave that to your SVOD partners?

We actually have thought a lot about it. In the broader picture of on-demand, as opposed to just SVOD. If you don't mind me making that comment, I've said it a few times.

I think it's important to the conversation when one thinks about it. We do think that -- I hope I don't give too long a speech, it just interests me an awful lot -- that there's an awful lot of screens that you can go find stuff on at your leisure. You can find them on them on -- if you have an iPad or a tablet device, cable on-demand, menu, and a phone.

The dramas particularly that we're talking about that are playing on AMC and on Sundance, and now soon on WE tv, are the type of material that benefit from greater focus and personal attention, as opposed to trying to launch into a linear schedule. So, we've actually messed with and played with the windows, to take maximum advantage of the way people are paying attention and consuming, particularly, scripted dramas.

So, just for instance on Rectify, which premiered, as we mentioned, quite strongly and to great critical reception on the Sundance Channel, just for instance, we actually made it available on demand on cable TV before the linear premiere. And that would've historically been seen as heretical. When you have propriety, you don't give something away before it occurs -- that's anathema.

And we give it away before it occurs because we felt that the word of mouth stimulated by the consumption of it, and frankly, the time and attention required would benefit the actual linear exhibition. We think we were redeemed.

So, we will continue to look at all the on-demand platforms as a way of maximizing attention, sampling, consumption, and we think the patterns will continue to change. It is an interesting subject.

The one thing -- the guard rails of it all, of course, are money. And you have to make sure that where you get your money from is working as you're in service of consumers and that you're operating in complete sympathy with those businesses on which you're dependent.

Very interesting. Thank you.

Alan Gould.

Thank you. I've got two questions. First, Sean, you provided us with the affiliate fee comp normalizing for DISH last year. I know there'd be some additional assumptions. But can you give us the same comp for total revenue and operating cash flow?

And then, for Josh, I know it's early days, but this must come up in your affiliate negotiations. What are the prospects for sharing ad revenue on cable VOD as dynamic ad insertion is implemented and measured? And how big a market do think that could be?

Alan, on your first question as it relates to DISH -- if you don't mind, as we've said in the past, I think that the impact of the business, in terms of advertising revenue, in terms of the marketing spend to reach our consumers directly, during the DISH dispute, obviously, the litigation expense, I think we've given, hopefully, broad enough strokes.

Anything beyond that, I think, is too hard to be too scientific, in terms of what shows would have rated on their platform, et cetera, and what the impact was. So, I think we've given as much color as I think we are prepared to on the DISH situation.

I think, on the advertising on VOD, that's been at work and a work in progress for now a number of years and it's getting technologically better by the day. So, dynamic insertion and all the things that aid it will, we believe, make it increasingly fertile territory.

The sort of rules of engagement are not, I believe, entirely yet set for every different type of content. Sorry to be vague about it, but they're often determined by the sort of existing relationship on that content, so they may be different for different stuff.

I think it's probably fair to say that there's been a blueprint created in linear, that's pretty widely adopted by everyone, in which there's a percentage of inventory that is taken by the affiliates versus the program or entity. That's probably the most significant piece of history that will serve as a guidepost for the future.

Okay. Thanks, Josh. Thanks, Sean.

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

Alexia Quadrani.

You mentioned a few smaller affiliate deals this year and I believe you had a few more sizable ones in 2012. Could you give us a ballpark of what you may have, roughly, up for renewal next year?

And, my follow-up question is just, I want to clarify I understood an answer to a question earlier in the call. Did you say that we should not expect any SVOD revenues in the fourth quarter?

On the affiliate deals, you know, in a general sense, the deals are broadly most often between, call it, three and seven years, which is fairly standard, I think, in the industry and for us, some shorter, some longer.

So, if one looks at a horizon, there is generally always something expiring. In coming to an end in some year, generally something of significance, I think 2012 was a particularly heavy year for us. We mentioned the smaller ones because we thought it was important to convey that information prospectively for very specific reasons, because they weren't at the time going well.

So, we'll always have, in every year, expiring agreements, almost certainly. Some will be significant, almost certainly. That's what our future looks like.

Yes. In terms of the comment, I didn't say that we had no SVOD revenue in the fourth.

I think the question was more about the comparability of fourth quarter 2013 versus fourth quarter 2012 and that there wouldn't be any one-time nonrecurring items that would skew the comparability of those two quarters. But I think, to the extent you fully appreciate the windowing of our marketing shows on AMC -- The Walking Dead, Hell on Wheels -- those are revenues we recognized in the third quarter. So, hopefully that's helpful.

Yes, that is. Thank you very much.

Thank you everyone for joining us and for your interest in AMC Networks. Operator, you can conclude the call.

This concludes today's conference call. You may now disconnect.