AMC Networks Inc (Pre-Reincorporation) (AMCX) 2014 Q1 法說會逐字稿

Good morning. 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.

(Operator Instructions)

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

Thank you. Good morning and welcome to the AMC Networks' first-quarter 2014 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 discussion of a Company's first-quarter 2014 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 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 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.

Lastly, following the closing of the Chellomedia acquisition in the first quarter, the Company reorganized its operating segments. The results of AMC and Sundance Channel in Canada, as well as AMC Networks Broadcasting & Technology, are now included in the National Networks operating segment.

Previously, these operations were included in the International and Other operating segment. The reorganization had no impact on the historical consolidated financial results previously reported by the Company.

With that, I would now like to turn the call over to Josh.

Good morning, and thank you for joining us. I will provide 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 are healthy. In first quarter, the Company reported 37% growth in revenue and 11% growth in AOCF.

These amounts include the results for Chellomedia for the last two months of the quarter. If one were to exclude the results for Chellomedia, our revenue growth would have been in excess of 20% and our AOCF growth would not have moved meaningfully from the 11%.

The performance of our business continues to be led significantly by the success of our original programming. At AMC we have several shows that are working quite well. The most notable being The Walking Dead. That show, which concluded its fourth season, continues to break records for basic cable TV and remains the number one program for all of television, broadcast and cable, in the key adult 18 to 49 demo.

For the season, viewership in key demos increased over 20% compared to the prior season. Mad Men, one of the most critically acclaimed shows in the history of TV, returned in April for the first of its two remaining years.

We are quite pleased with the live plus same day ratings, averaging around 2 million viewers per episode season to date. On what's called live plus-3 or live plus-7 basis, we have seen increases up to and over 100% delivery indicating, that viewing patterns are evolving and that Mad Men continues to have extraordinary strength and vitality.

AMC's newest series TURN, about America's first spy ring that takes place during Revolutionary war, premiered in April to strong reviews and has been performing quite well through its now five episodes. We have several new series that will air later this year.

Halt and Catch Fire, a story about the rise of the PC era in the early 1980s in what was called Silicon Prairie in Texas, is coming in June to the network. Better Call Saul, which is a spin-off of Breaking Bad, is scheduled to premiere in November.

Beyond 2014, we have two pilots now in production. The first is Knifeman, a story about medicine in 19th century England, which we think is an intriguing backdrop with great characters. The second is called Galyntine from Ridley Scott's Scott Free Productions. It's a post-apocalyptic view of the world where society has been organized very differently from how we know it today.

We also have several additional projects in development, including a companion series to The Walking Dead and another series based on the graphic novel Creature; that is to be executive produced by Seth Rogen.

At each of our other channels WE tv, IFC and SundanceTV, we are pursuing same focus on original programming. We continue to ramp-up our investment in original content, and these networks are each enjoying solid momentum. As we've said in the past, our focus is to make each of those channels better, which we believe will ultimately make our portfolio of channels stronger and our business more resilient and have better growth in the long term.

At WE tv, prime-time ratings in first quarter were up solid double-digits year over year in the key demos for that channel, women 18 to 49 and 25 to 54. WE tv's performance was led by a combination of new and returning originals, including the third seasons of Braxton Family Values and Mary Mary, both consistent top performers. A new show called Sisters With Voices Reunited premiered in January to record ratings for the network and performed quite well throughout the show's first season.

In July, WE tv will, for the first time, enter the scripted drama arena with the premiere of a new original series called The Divide, a legal drama from Richard LaGravenes and Tony Goldman.

At IFC, we are continuing to produce alternative comedies. That effort is led by Portlandia, which recently concluded its fourth season.

The network aired another show in January called the Spoils of Babylon, executive produced by and featuring Will Ferrell along with Toby McGuire, Kristen Wiig and Tim Robbins. It performed quite well both in profiled and in ratings. Two of IFC's originals, comedy Bang! Bang! and Maron, both premiered new seasons this very evening.

We think SundanceTV is rapidly establishing itself as a new destination for high-quality scripted content. In February, the network premiered its second wholly-owned scripted original, titled The Red Road, to strong clinical reviews, and recently renewed the project for a second season in 2015.

Rectify, the channels widely acclaimed scripted original, returns for a second season in June, along with a pair of miniseries that are set to air later this year. One is called The Honorable Woman, starring Maggie Gyllenhaal, and another is called One Child. These projects follow Top of the Lake, Carlos and Appropriate Adult as the latest in a lineup of critically acclaimed limited series in Sundance.

Moving to advertising, this area of our business continues to perform quite well, as we have seen particularly healthy demand for our original programming. This demand has helped us further diversify our ad base by attracting new, quality advertisers to our networks, as well as increasing the price of our inventory.

All of this contributes to revenue growth. In the first quarter, the National Networks grew ad revenue 27% over the prior year.

On the distribution side, the National Networks grew revenue by 16% in the first quarter over the prior-year period. Affiliate revenue, the largest component of that overall distribution revenue continued to increase at a healthy pace. Growth for the quarter was in the mid- to high-single digits, a rate that was consistent with the range that we've previously discussed with you.

The non-affiliate portion of our distribution revenue base includes a combination of newer, developing revenue streams from the distribution of our shows on various ancillary platforms, such as digital and the international sale of the shows. In the quarter, we saw a year-over-year growth principally related to the distribution of shows, including the Walking Dead from AMC and two of Sundance's dramas, Rectify and The Red Road.

As for our International and Other segment, we continue to view the international market as one that has the potential to provide attractive long-term growth and value. We are therefore pursuing opportunities to accelerate and enhance our international presence and exposure.

Our approach has been multifaceted and includes a combination of organic investment, as well as opportunistic acquisitions. With the ultimate goal being to reorient the Company by degree, and best position it for future success in an increasingly global marketplace.

As we've discussed in the past, we are consistently evaluating whether to sell our original content, that is developed here in the US, to third parties for distribution internationally or whether we should air those shows on own networks outside the US, in effect selling it to ourselves. These decisions will be made with an eye toward balancing the economics in the near term versus the goal of creating long-term value.

As we've previously discussed, a couple of our shows, such as Rectify and The Red Road, both produced by SundanceTV here in the US, are already going to our Sundance Global channels around the world. We will continue to evaluate the movement of shows such as these based on a number of factors, including the specific series and/or territories involved and appropriately balance the fact they place some near-term pressure on costs with the opportunity for increased returns over the long term.

In connection with that overall strategy, an expanded footprint becomes increasingly important as we consider placing our own content on our networks. As most of you know, we closed on our acquisition of Chellomedia at the end of January. One of the main factors that drove us to acquire Chello was the unique opportunity that it presented to significantly accelerate and enhance our presence outside of the US.

In the roughly 100 days since we closed on that transaction, we have been focused on a number of fronts. We have reorganized the senior management structure, we've begun to integrate our Sundance Global business with Chello, aligning their strategic priorities and goals.

We reoriented the oversight of our MGM Channel, which was acquired as part of the Chello acquisition, to better coordinate its activities across territories. We've made further changes to affiliate sales and content functions to improve efficiency.

We are also opportunistically looking to increase our presence through smaller tuck-in acquisitions, should they present themselves. In April, we announced the acquisition of KinoweltTV, a leading german channel. This was a good deal for us and an accretive multiple for an upscale film channel that further expands our presence in Europe. Going forward, we will keep our eyes out for similar smaller sized opportunities.

At IFC Films, our distribution business, we continued to build our library of content, now at over 600 movies. We think we have a very good slate of films for 2014, including notably a film by Richard Linklater called Boyhood that stars Ethan Hawke, Patricia Arquette, and a young actor who goes, literally, from being age 6 to 18 before our eyes during the 12 years that the director made the film.

In the quarter, we also maintained our development activities with regard to internet delivery of video. We think this is an important new area to stay focused on and believe that it could lead to some attractive opportunities for us in the future.

With that, I'd 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.

Before turning to the results for the first quarter, as Seth mentioned, following the closing of Chellomedia acquisition, we reassessed how the Company and its various operations are being evaluated and managed. As a result of this analysis, we made the determination that some of our operations, mainly AMC and Sundance Channel in Canada, as well as Broadcasting & Technology, the Company's technical services business, should be moved to our National Network segment from our International and Other segment.

The reorganization resulted in the shift of approximately $60 million of revenue and approximately $20 million of AOCF on an annual basis between the two segments. It had no impact on historical consolidated financial results previously reported by the Company.

As for the first quarter, total Company revenues grew 37.3% and AOCF grew at 11.3%. At the National Networks, revenues increased 20.7% or $77 million. National Networks' AOCF increased 8% or $13 million versus the prior-year period to a total of $178 million.

Advertising revenues increased 26.8% to a total of $208 million. While we experienced 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.

Looking to the second quarter of 2014, we don't expect to see year-over-year growth rates in advertising revenue similar to what we've reported in the first quarter, due to the relative size of the audience of the originals airing in the second quarter on AMC versus the second quarter of 2013.

Distribution revenues at the National Networks increased 15.9% or $33 million to a total of $241 million versus the first quarter of 2013. As Josh discussed, first-quarter results reflect the aggregated impact of several items.

With respect to affiliate fees, reported revenue growth was in the mid- to high-single digits. The year-over-year growth rate was favorably impacted by the fact we did not recognize revenue in the first quarter of 2013 with respect to one affiliate agreement that had expired.

Adjusting for this item, our affiliate revenue growth was slightly lower but still within the mid- to high-single digit range. As some of you may recall, we subsequently renewed this agreement in the second quarter of 2013, and as a result, the benefit that we received in the first-quarter growth rate will be offset in the second quarter.

First-quarter results reflected a strong double-digit year-over-year increase in non-affiliate revenues due to increases in revenue related to scripted original programs, most notably the international and home video distribution of The Walking Dead, as well as the SVoD availability of Rectify and the international distribution of The Red Road.

Moving to expenses, expenses in the quarter increased 30.8% or $64 million versus the prior-year period, principally due to increased programming and marketing costs. The increase in programming expense was primarily associated with our continued investment in original programming across all four of our National Networks. The increase in marketing expense related to the timing of our original programming.

Turning to the International and Other segment, revenues for first quarter increased $66 million to $77 million. AOCF for the first quarter was a deficit of $11 million, an improvement of $4 million versus the prior-year period.

Financial results in the first quarter reflected the consolidation of the Chellomedia business as of January 31. In terms of revenue, Chello contributed $61 million. As for AOCF, Chello's contribution was essentially offset by the acquisition-related costs of $14 million.

Total Company net income from continuing operations for the first quarter was $72 million or $0.99 per diluted share, compared to $62 million or $0.85 per diluted share in the prior-year period. The increase principally reflected the increase in AOCF, as well as a decrease in intangible amortization.

As you may have noted in the press release, following Chellomedia acquisition we have presented an adjusted EPS metric. This amount excludes the impact of amortization of acquisition-related intangible assets, including Chellomedia. Adjusted EPS for the first quarter of 2014 was $1.04 per diluted share.

In terms of free cash flow, the Company reported $68 million in free cash flow for the three months ended March 2014. For the first quarter, total tax payments were $3 million, cash interest was $36 million and capital expenditures were $6 million.

Turning to the balance sheet, as of March 31, AMC Networks had $2.8 billion of outstanding debt. We had cash and cash equivalents of $159 million for a net debt position of $2.6 billion. This amount reflects the impact of the $1 billion used to fund the Chellomedia acquisition.

Our leverage ratio was 4.9 times based on a reported LTM AOCF of $541 million. However as we outlined in the press release, our pro forma leverage ratio declined to 4.3 times, including a full 12 months of Chellomedia.

Consistent with our previously communicated expectations, the 4.3 times leverage increased roughly one turn from the end of 2013 and we do expect to delever through a combination of AOCF growth and free cash flow generation.

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. Accordingly, we will continue to increase our investment in programming across all of our channels. As a consequence of this increased investment and the specific timing of our shows, we expect there will be variability in year-over-year AOCF comparisons, particularly in the second and third quarters of this year.

Specifically, in the second quarter, there will be fewer Mad Men episodes than last year. We will premiere two wholly-owned shows on AMC, TURN and Halt and Catch Fire.

In the third quarter, last year we had Breaking Bad, and in 2014 we will premier wholly-owned showed, The Divide on WE tv. In the fourth quarter The Walking Dead returns, and we also premier Better Call Saul.

Over the long term, we believe that our strategy and disciplined approach to targeting investment will allow us to continue growing AOCF, as we take advantage of the various opportunities we have to monetize our content.

In closing 2014 is off to strong start for AMC Networks and we look forward to continued success in the remainder of the year.

With that, we would like to move to the question-and-answer portion of the call. Operator?

(Operator Instructions)

Bryan Goldberg, Bank of America.

I have two, one on Chello and then one on advertising.

With Chello, now that you have had some time to be more hands-on with the assets, are the areas of opportunity with respect to revenue and cost still consistent with what you thought going into the deal?

Could you outlined for us how we should think about the timing of these opportunities? How they might materialize for the Company? What's more immediate versus longer term? Then I have got a follow up.

Sure, Bryan, it is Josh.

We think about it as we did 100 days ago. We think that they were run well, the assets, and carefully by Liberty, and that's an asset. We will continue to be careful as the channels are many and small.

The opportunities remain, as we saw them. If I were to attempt to prioritize, I think I would say they are first in expanding distribution footprint in territories where there is opportunity for the expansion of distribution footprint.

Latin America, particularly, is significantly under distributed if you look at the entire territory as it relates to the Chello assets and we think that there's significant opportunity in Latin America and additional opportunity in Western and Eastern Europe.

I'd say that distribution of existing channels is first and foremost. I think there is an advertising opportunity that probably is behind it, but will take longer to recognize, as we need to improve the strength and content profile of the channels. That, of course, creates some invitation for increased costs.

We will balance the investment with a profile of return, which we see occurring first on the distribution side and then later on the advertising side.

Thanks. That is helpful.

I wanted to just ask about your comment about evolving viewing patterns. Given the increased time shifting of the big L plus-7 uplift from admin, can you just refresh us how you are able to benefit from that pickup with advertisers currently? What plans you might have in place to try to better monetize that time-shifted audience?

Sure. It is a rich question, Bryan. It contains both opportunities and challenges in terms of the macro environment for monetization of advertising.

The challenges are obvious, which is that people can move through commercials on a fast-forward basis on a number of incarnations of delayed viewing. That affects us and everybody else.

The benefits are that the exposure of the content to a wider population is also possible through all of the avenues of delayed viewing, and that creates the potential in combination with SVoD off-season for creating the opportunity for people to find these shows, get acquainted with them, like them. Then, it there's enough urgency, watch them on a realtime basis. We are in this technological and content system, and we are subject to some of the same forces.

If I could answer broadly, I think we have enjoyed a fair amount of benefit from it largely because it has created the opportunity in later seasons for TV shows to be found by audiences that did not find them in earlier seasons to be introduced to them and then to watch them later. We still advertising in those things.

We've seen a contrary pattern to most TV shows, which is we've seen big uplifts in seasons two, three, four and five in a number of our TV shows. Some challenging, some good.

Aside from that, the entire industry, on the technology side and the disabling fast-forward side and dynamic ad insertion and whether C3 remains term of art, is undertaking a number of initiatives that will, hopefully, allow more revenue to flow from video consumption that may not flow today. Those things are macro. They will be approached by not only us but many others.

I hope that answers your question. That's the way we see it.

Yes. That was great. Thank you very much.

Michael Nathanson, MoffettNathanson.

I have one for Sean and one for Josh. Sean, can you just help us?

You guys reclassified the Canadian channels and the distribution business into National Networks. Did that reclassification help or hurt your reported revenue growth for the quarter?

No, it is not that meaningful. As I said in prepared remarks, Michael, it was $60 million on an annualized basis, so effectively 25% of that moved from International and Other to National from a revenue perspective.

Those businesses grow, in aggregate, slower than the overall growth of that line item, right?

Yes. Slightly.

Okay. On the cost side, same question. Anything unusual from those businesses year over year on the cost side?

No, nothing unusual.

Again, to remind you it's the AMC and Sundance Channel in Canada, which are good channels, and it is the Broadcasting & Technology, which largely is supporting the uplink of our four national networks. We do have third-party business. There's nothing unusual that you should expect.

Okay. Let me turn this to both you guys.

Given the cost growth this quarter, the lumpiness surrounding the launches of all your new programming and the marketing of that programming, how should we adjust --? Maybe you want to do it on a full-year basis?

Just into the next quarter, what is the range of expense growth we should be thinking about maybe in short term for the second quarter? Because 30% 31% was a little bit above what we thought, and we understand its lumpiness. Can you give us any kind of range that next quarter on expected cost growth for the second quarter?

Yes, Michael. I think on a sequential basis, if you look Q4 to Q1, I don't think you saw a significant increase. I think there was some uplift in terms of cost.

Certainly, year over year we saw a meaningful increase. I think you should look at the programming amortization in the past Q. It's a Q that we will file later today, we have been spending 30% plus incremental investment across the channels.

I am not going to give you forward-looking guidance, but I think we have certainly been gesturing the fact we are spending more money. We are spending more money on WE. We're spending it on IFC and we're spending it on Sundance.

Obviously, the mix of the shows, if you're looking at amort versus cash, and this is somewhat to my comments and my remarks, is to the extent we have more wholly-owned shows versus license, that will impact the ultimate expense realization in the P&L versus historical periods. Hopefully that is helpful color, but that's the way we think about it.

Okay. Thanks.

Michael Morris, Guggenheim Securities.

Just a couple more on costs.

First of all, if you look at National Network's cost in the first quarter, was there anything in there that you would consider nonrecurring or a little lumpier, whether it's content write-down or something like that?

Second of all, trying to get a bit of handle on margins and how you are thinking of it. I know you guys say it will be lumpy from quarter to quarter. We understand that.

If you look at AOCF margin, it's been declining relatively steadily over the past several years. Of course, this quarter is down from the prior year. When you think about the investment, we understand the investment, but do you get to a floor in terms of the AOCF margin?

In your mind, again, I know you don't like to give guidance, but are we getting to a floor where you think that these investments are going to start ramping the revenue higher than this cost growth? Any color you can give on that would be helpful? Thanks.

Sure, Mike.

On your first question, as you know, we did not green light Line of Sight. There is several million dollars in the first quarter associated with the pilot that we expensed as a result of not green lighting that show. That is one that we did not specifically highlight, only given its relative size in terms of dollars.

In terms of your margin question, we don't necessarily, again, we're not going to give guidance. We're not going to give a floor. I think the helpful color is, this is a multi-year evolution for each of the channels.

AMC being more mature is, obviously, -- we don't break it out this way, has a very healthy margin. As where investing in WE, IFC and Sundance, it, obviously, is going to take several years to recapture and capture the investments as related to the shows that we are investing in.

To the extent you are seeing margin pressure in the near term, as has been historically in the near term, it's as a result of us significantly investing in the shows on those three channels. It's really incumbent upon us to recapture that through the three main revenue drivers that we have to ultimately get there.

That is the color. We're, certainly, conscious of the margin. We are very focused on AOCF growth, but I think what you are seeing is impact of those investments on those three channels.

Would you mind just two clarifications. The size of a pilot, how big is that compared to just a normal episode?

Then also, if we look at the margin compression, would you say most of that was from the incremental channels that you are investing in relative to AMC? Is it at AMC as well? Thank you.

Michael, on the side of the pilot, they range depending on the show and, obviously, the period. Rule of thumb might be 1.5 times the pattern budget or series budget for a pilot, would be a normal range.

Again, Michael, not much to add other than, yes, I think AMC margin has been relatively stable. Yes, the pressure is coming from the other three channels.

That's great. Thanks for the answers, guys.

Ben Swinburne, Morgan Stanley.

It is Ryan Fiftal on for Ben. Two if I may? One for Sean and one for Josh.

Sean, just one quick follow up again on the OpEx side. Obviously, we should see OpEx increasing based on the total volume of original programming that you guys are clearly ramping. I'm wondering if you are also seeing any inflation on the cash cost that you are paying per episode of original programming say versus a couple of years ago?

Yes. I think the marketplace for original scripted series is a competitive market. That does cause some pressure on pricing. Really, the biggest indicator of what we pay on the so-called series or pattern budget has to do with the series, if it's special-effects heavy, if it's time period heavy.

Then, one of the things that you see is as series our successful over the long term, the cost of those series, the cost of talent and cast tends to ramp up. Its possible that a series can become less profitable over the long term, particularly when they are licensed by a studio. Obviously, if we own them then we are in a position to capitalize long term over exploiting ancillary revenues.

Okay. Sure. That make sense, thanks.

Then, Josh, advertising growth was clearly strong in the quarter. I realized your ad trends probably have less correlation with the overall market then some others since it's pretty show specific. I'm just curious what seeing as far as demand in the scatter market?

Then, as we approach the upfronts, curious if there's any chance to how you're thinking about balancing your upfront sales versus holding back inventory for scatter? Thanks.

The scatter market is fine. It is stable. It moves along, so I think pretty good shape is, I think, the report.

The upfront is not yet begun. We really are in the prelims. I think the best way to characterize our experience, without really having any real activity of significance yet having occurred, is to say that our products are being really will received.

I think, not only as AMC but the original shows on IFC, WE and Sundance are increasingly better known by name. I think that is enhancing the perception of the brands.

When you speak to buyers and planners they know exactly what you are talking about. They have appetite. They think, I hope, they think, I think they do, that we are above the crowd, and that we will do well. Certainly, relatively well. We are positioned pretty well.

Okay. Thank you.

Vasily Karasyov, Sterne Agee.

Sean, I have a couple for you.

The incremental margin at National Networks this quarter was 21% or so. I understand your point about investing, but is that the kind of incremental margin we should expect? Then, at what point that elevated spending on programming on smaller networks will stop and when will you actually move to the harvesting stage of the elevated programming?

Then, I have one more.

Vasily, I'm not sure there's much more to say in terms of what profile you should expect in terms of incremental contribution, incremental margin. I think that this quarter is not abnormal.

As we said, we are investing significantly in the scripted dramas on WE and Sundance, with Sundance having now its second with Red Road and Rectify coming back. Sorry to frustrate you, but I think that is effectively, that's the color that I can provide.

No, I'm not frustrated. Another one if you don't mind? You mentioned about when you are talking about de-leveraging you said that you see investing in your businesses the priority.

I was wondering if you are saying after having considered maybe buyback in the future or do you feel you are not at that phase where you could even consider that? I was wondering if you considered all different uses of cash?

Yes. I think we consider all of it. We talk about all of it. There is now real change in strategy. As we've said, we're investing for the long term here.

We will do opportunistic and disciplined M&A, Chello, Kivowelt, as we said in the prepared remarks, when possible. If at some point in the future, to the extent we don't see opportunities to drive incremental upfront growth, we will reassess. Today, as we sit here, there's real no change in strategy.

I don't think we answered the second part of your question. You asked about the other three networks and the horizon for them. I will add additional comment, I hope helpful.

Just to remind you that we added advertising to IFC 24-plus months ago to Sundance last year. They have grown their, what we call UE, their distribution size, rather significantly each. We're now not no longer at 40 and 50 million subs, we are 70 and 80 million subs.

We really do see a fair amount of opportunity with the growth in each of the platforms. The response that we have had to the content on Sundance, for instance, since the advent advertising, we've aired, we mentioned the two series Rectify and The Red Road, in that rough time frame. They've both, I think, been extremely will received.

Rectify is coming back for a second season shortly, and we are very encouraged by it. It really was -- it's on all these lists and all that stuff.

We've done those limited series; we mentioned them. Some of them proceeded advertising. Each has been extremely successful.

It is hard to provide a horizon for when it so-called stops, if you want to call it that. Because we do think that they are under exploited as economic assets. The blocking and tackling and the early stages of what to do to enjoy that exploitation is being done as we speak.

We're putting on lots of subs. We are getting people to watch more and they're developing profile. The individual shows are getting well known.

In our of evaluation and experience, that is so-called the playbook. Where we get to own the shows, which we do in those instances, on the series I just mentioned, we get to sell them into ancillaries. We get to export them to international channels. It is a pretty good puzzle.

It, of course, not everything works, but we've had reasonably good success ratio. We're fairly encouraged. We're going to proceed accordingly, and realize the economic value that we think is within them.

Thank you.

Ben Mogil, Stifel.

Two, one for Josh and one for Sean.

Josh, when you look at, for example, TURN -- you've mentioned a little bit some of the difference between live ratings and C plus-3 and C plus-7 ratings on Mad Men. Can you give us some sense of what you're seeing on TURN? Are you seeing a similar relationship or trajectory?

As an adjunct to that, when you look at new shows -- beyond pilots that never make it past that stage, when you look at new shows and in terms of deciding whether to green light them for the second or third year. When you get in those ratings zones that are not massive breakout hits but you're not quite your either, how do you guys think about if you go forward or not?

Hey, Ben, its Ed.

The first question on TURN, we are seeing live same day on TURN of about 1.5 million households and the critical acclaim has been strong. We like what we're seeing so far.

The relationship on TURN and live plus-7, it's not as extreme. We have more people, a higher percentage of people watching the show live same day or live plus-3. We did get a little bump on live plus-7, but not as extreme. We are exploiting most of the audience within a shorter timeframe, which is, generally, a positive thing, a positive trend.

Generally, about season two and season three for the shows, it's hard to point to one formula. It very much is a feel thing. We look at the creative of the show. We look at what if it's accomplishing where it is going.

We look at the show runner and story arc and do we feel we have a compelling story to tell, again, in sequential seasons. And then, of course, we look at the numbers and we calibrate the enthusiasm, which translates to demand from advertisers. All of that goes into the mix and assessment.

The new variable is some of these shows, as Josh mentioned earlier, then get exposure on SVoD platform. That can help build audience to the sequential season. That is all in the mix.

Is TURN being sold to Netflix already domestically?

No, TURN won't be on Netflix for awhile. Generally, the shows air on AMC and then a little less than a year later they're on the Netflix platform.

No, I understand that. Have you actually done a deal with Netflix yet, not has it aired yet, but have you actually pre sold it to Netflix yet?

TURN will appear on the Netflix platform.

Okay, great. Sean, one for you.

It looks like in the two months that you owned Chello in the quarter, you basically highlight $14 million of costs that were why EBITDA was what it was. As you look forward, is that $14 million of costs all one-time transition costs and call it a low 20%s margin? Which you did last, but 10 months in you would've done in the quarter, adjusted for that? Is that a decent framework for us to start to ballpark?

Yes. The margin profile is a decent ballpark. Just to clarify, Ben, the $14 million is our transaction cost.

As we go forward, as I think Josh and Ed have talked about, as we further integrate Sundance Global with the Chello platform, we will, obviously, incur certain integration costs that will be non-recurring. When a highlight the $14 million, it is purely transactional related. They are not integration related.

Okay. That's great. Thank you very much.

Anthony DiClemente of Nomura.

Couple questions.

First, Sean, at risk of frustrating you, just another question on the cost side. A lot of conversation about cost growth.

Maybe if I could just ask? I think for your licensed shows like Mad Men, the amortization of those expenses are more straight lined, whereas I think what you are trying to communicate is for wholly-owned new shows that the amortization is heavier in the earlier period. Am I right on that first?

Secondly, for AMC, specifically, isn't this cost situation just a little bit of a perfect storm of sorts where your still taking licensing for prior periods this year in addition to the heavier front-loaded expenses from newer wholly-owned shows. Which would imply there is a point at some point in the future where, when license expenses start to fall off that you would see some sort of an unwinding just in terms of the way the waterfall works? Is that on the right track?

Yes, I think, Anthony, you understand it completely.

Okay. (laughter) Alright. Thanks. That is helpful.

I have, maybe a bigger one for Josh, which is a follow up to an earlier question, which was talking about, how long of a leash do you give new originals in this day and age? Maybe the answer you would be prone to talk about the accretive uplift of viewership from SVoD and when you have the off-season, it gives viewers a chance to see the show, generate more interest, incubate the show and that season back to linear. I get all of that.

What I am wondering is, have we, in this arena -- and you, Josh, and you guys get a lot of credit for being so early on this concept. I'm wondering if what we've experience is the prisoner's dilemma of sorts where the accretive uplift of that SVoD viewership or discovery, let's call it, on the Netflix was only beneficial to the earlier guys like yourself on that strategy?

Given like everybody is doing it or many more programmers are starting using SVoD in that vein? Yes, the SVoD provide it themselves, of course, going down the road of originals to a much greater degree competitively. Is the accretive uplift or benefit from the latter season SVoD build starting to dissipate a little bit, do you think?

Yes. I think it is actually a good question.

It's, on a full-trend basis, hard to know where we are when we are in the middle of whatever we are in. We absolutely have seen and were earlier to the benefits of quality open-ended scripted dramas being introduced off-season, if you want to call it that. Or during season, both on cable, VoD, on DVRs and on SVoD, not only SVoD, to audiences that didn't see them in linear and seeing what were historically inverted patterns of sequential season viewership, which is to say they it went up and up and up and up, as opposed to down and down and down, which is conventional.

My best answer is, I don't think it's over. I think that there is an inherent human logic in it, which is to say that -- I will say it idiomatically, if a friend tells you about a show to watch and you haven't seen it in season one, you may check it out if you like the friend's opinion. And/or if you read a review, you may check it out. That is not over. That is something that will continue.

We don't rely on that occurring in every show, every time, no matter what. We cancel shows when they are not good. We cancel them after one season. We cancel them after two seasons. We cancel them after three seasons. We don't go to series if we don't like the pilot. Not everything works.

You've seen that both in our pattern of behavior and you've seen it in our economics. Where we think, based on data and based on judgment, that we think that a show has life.

I would add, the data part is very important. We examine all the data, including the minute-by-minute viewership, including metadata, including what we get from SVoD, what we see on DVRs.

If we think that there is life that is not exploited, that is monetizeable through the three ways that we monetize, then we make a judgment that says we should give it more opportunity to enjoy that life. We monitor it carefully, I think.

We are appropriately unforgiving about under performance. When there is under performance, we kill it. That is, I think, what is in our pattern and that is what we'll do going forward.

Thanks a lot, Josh.

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

Alan Gould, Evercore.

Seth, could you tell us how much the cash program payments and the amortization was on the cash flow statement for the first quarter?

Also, I understand the accounting differences but is there a significant cash difference, in general, for your originals shows versus licensed shows and new original shows versus new licensed shows?

Alan, this is Sean.

First question, the amortization for the quarter was about $150 million. The net change in programming rights and obligations was $185 million, so about $35 million of working capital in excess of amort for the quarter, which you will see in the Q. In terms of the license versus known, I don't there's any material difference in terms of the cash outflows whether it's licensed or owned.

Okay. Thank you.

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

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