AMC Networks Inc (Pre-Reincorporation) (AMCX) 2014 Q2 法說會逐字稿

Good morning. My name is Tishandra and I will be your conference operator today. At this time I would like to welcome everyone to the AMC Networks' second-quarter earnings call. (Operator Instructions)

Thank you. I will 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 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 a discussion of the Company's second-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 the reconciliation of GAAP to non-GAAP information, which we will refer to on this call.

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.

AMC Networks delivered solid financial results in the second quarter, with 38% growth in revenue and 13% growth in AOCF. For the first 6 months, revenues increased 38% and AOCF is up 12%. These amounts include the results for Chellomedia from the acquisition date, which was the end of January, through June.

Today we would like to discuss developments that have driven our financial results in the second quarter and the performance of our business, domestically and internationally, as we continue to capitalize on the success of the content strategy we have executed and invested in over the past several years. First, if we may, let's talk about the recently completed advertising upfront.

There is much industry discussion right now about the lower dollars coming into this year's upfront. At AMC Networks, we are pleased with our performance.

We increased both upfront pricing and volume, with the latter growing in the double digits, and are optimistic that the strength of our shows will draw additional dollars closer to air. It is worth noting that historically we have seen strong demand for our programming in the scatter market.

Last month we received 35 Emmy nominations at AMC, SundanceTV, and IFC. These awards are significant for us not simply because they bring industry recognition; the added attention is also important in helping us break through the clutter, further raising our profile among viewers and elevating our brands. The recognition enables us to continue to attract top-tier creative talent to our networks, and it helps us to build a stronger market and platform for our shows internationally.

Our fundamental strategy continues to be to develop the best original content for our networks. As we think about our strategy going forward, we continue to believe that by investing prudently in the best content we will position ourselves for growth in an increasingly competitive environment, where there are more content options than ever before, new distribution options, and obviously a consolidating cable and satellite affiliate base.

I would like to emphasize that our approach today and going forward differs a bit from our approach in the past. Our current strategy is to increasingly, where we can, own our content. There is more investment at the outset with this strategy, and you are seeing how that impacts our financials.

However, the strategy enables us to constantly adapt to the changing ways people consume content. It allows us to maximize return on our investment through new sources of distribution revenue. And it allows us to widely exploit new markets internationally.

So that owning strategy is distinct from our approach when we first embarked on doing original programming. At that time in the earlier days, we primarily licensed content from others; and therefore there was limited upside, with limited opportunities to capitalize on the content.

While we continue to invest across our networks, we are very mindful of how this accelerates expenses, and I do want to assure you that we examine this very carefully and calibrate all of our investments against their monetization potential. We also continue to look closely for increased efficiencies in our operations across the entire Company, to ensure that we are maximizing resources, all in the service of delivering the outstanding programming that has become the hallmark to viewers, distributors, and advertisers.

For the current broadcast season, viewership across our US networks was strong with healthy increases across all key demos. For the quarter, AMC was a top 10 network Sunday nights, thanks to a full slate of scripted originals.

Mad Men completed the first half of its final season and continues to be the most upscale drama on all of ad-supported TV. The series has been nominated for the Outstanding Drama Emmy for the seventh year in a row, a record for any cable network.

Our new series, Halt and Catch Fire, has been well received and is also attracting a high concentration of upscale viewers. With Mad Men and Halt and Catch Fire, AMC has two of the top three cable dramas this season for the highly desirable upscale audience.

As you may know, we have renewed our Revolutionary War drama series called TURN for a second series. The show attracted a dedicated audience that grew steadily, and we believe can grow viewership during the second season.

Our Breaking Bad prequel, Better Call Saul, is currently in production in Albuquerque, New Mexico, with show runners Vince Gilligan and Peter Gould. And we look forward to this widely anticipated premiere early next year.

WE tv had its best quarter ever in prime, marking the seventh consecutive quarter of year-over-year growth among viewers 25 to 54. The network continues to have a robust lineup of reality programming, much of which resonates with African-American women. The network continues to be a top destination for this audience, particularly on Thursday nights.

Last month, the network premiered its first scripted original series, The Divide, to widespread critical acclaim. We think that Tony Goldwyn and Richard LaGravenese, who made the show, delivered a great one. We know it will take time for the network to establish itself as a destination for scripted content, but we do believe we can build on the success of WE tv's reality programming lineup by adding highest-quality scripted shows.

At IFC, we continue to attract a young audience in prime time. Ratings in the quarter were up 25% year-over-year.

The network just completed its successful second season of the series Maron, focused on the comedian Marc Maron, with strong rating gains over its first season. IFC's star-studded Spoils of Babylon, in which Kristin Wiig was nominated for an Emmy award for Outstanding Lead Actress in a Miniseries, was recently green-lit for a second season, which will again feature Will Ferrell, surrounded by an A-list cast.

At SundanceTV, we continue to be highly praised for a provocative programming slate that really does break the mold in what is an increasingly competitive scripted environment. Sundance has been receiving press kudos for the second season of our series called Rectify, which we wholly own.

The network recently premiered its newest original scripted show, The Honorable Woman, a well-regarded and especially timely drama about the Middle East, which stars Maggie Gyllenhaal. The channel also recently renewed its original scripted series, The Red Road, for a second season.

At IFC Films, our film distribution company. We are pleased with the critical reception and box office results to date for a movie called Boyhood, directed by Richard Linklater, that stars Ethan Hawke and Patricia Arquette. Somewhat unique in construction if you are not familiar with it, the film was shot over a 12-year period and follows a young actor from age 6 to 18. It is making many critics' favorites list, and we think is demonstrative of our long-standing commitment to and belief in creative visionaries and the creative process.

Turning for a moment to our international operations, it's been about 6 months since we close on our acquisition of Chellomedia, and we are now executing on our strategy to build a global platform for our content. Earlier this week we announced the rebranding of the MGM Global Channel to be called AMC Global.

The network will begin launching later this year in all of our major markets, including Latin America, Europe, Africa, the Middle East, and Asia. This marks the first expansion of AMC outside of North America, and we think there is really a great opportunity to build the brand internationally, much as we have grown it in the US and then Canada, establishing it globally as a top destination for quality entertainment for viewers and distributors.

We think that with our experience in bringing high-quality content to market, we will be able to really fill a gap and take advantage of an opportunity in the current global pay-TV marketplace. The network will launch with two of our own series, Halt and Catch Fire and The Divide, fulfilling a key part of our international approach, which is to create a global infrastructure and platform inhabited increasingly by our own content.

The expanded platform presents new long-term drivers for our business, giving us new opportunities for growth. We do think we made the right choice at the right time in acquiring those assets, and believe we are now well positioned to take advantage of what is an expanding global pay-TV market.

As I mentioned earlier, we are investing in the development of high-quality original programming that builds and supports our national and now international network brands. We believe this is the best way to build audience, to attract advertising dollars, and to cement and increase our value with our distribution partners.

Our strategy is also being shaped by new opportunities to grow around the world via new technologies and new ways to distribute the content that we own. But one thing that does seem to be, amidst all that change, a constant is that creating compelling content and appealing, must-watch programming is essential for success.

It seems to be more true today than at any other time in the history of our industry. And that, above anything else, is our overriding mandate.

This does require a willingness to take some risks and has historically been done in companies that have some entrepreneurial spirit. It remains to be seen whether consolidation and being much bigger, which certainly has some benefits, may risk some of the creativity that exists in somewhat smaller organizations that has helped spawn some of the best shows on TV today.

So while we are carefully monitoring the landscape and keeping a close eye on developments within the industry, we will continue to execute our strategy in a manner that is financially responsible and focused on creating long-term sustainable value for our shareholders. We hope this has been a little helpful in describing how we see things today and how we are thinking about the future.

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

Thanks, Josh, and good morning. Turning to the financial results for the second quarter, total Company revenues grew 37.6% and AOCF grew 13.5%. As Josh noted, these amounts include the results for Chellomedia from the acquisition date.

At the National Networks, revenues increased 8.7% or $32 million. National Networks AOCF decreased 9.4% or $14 million versus the prior-year period to a total of $137 million.

Advertising revenues increased 11.3% to a total of $164 million. While we experienced year-over-year advertising growth at all of our National Networks, AMC was the primary contributor. At AMC, the network benefited from the performance of its original programming, most notably, Mad Men, TURN, and Halt and Catch Fire, despite a year-over-year decrease in the number of benefits episodes of Mad Men that aired.

Distribution revenues at the National Networks increased 7% or $15 million to a total of $234 million versus the second quarter of 2013. The second quarter results reflect the aggregate impact of several items.

With respect to affiliate fees, our core growth rate for the second quarter of 2014 was in the low single digits. As a reminder, our results in the first quarter benefited from the expiration of one affiliate agreement in 2013. This agreement was renewed in the second quarter of 2013 and had an offsetting impact on our growth rate in the second quarter.

Our affiliate revenue growth rate for the first half of the year was in the mid to high single digits, consistent with the range we previously discussed with you.

Second-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 distribution of the full season of TURN and a portion of the first season of Halt and Catch Fire.

Expenses in the quarter increased 21.5% or $46 million versus the prior-year period, principally due to an increase in technical and operating expenses. Technical and operating expenses were $162 million in the second quarter, an increase of $39 million or 31.7% versus the prior-year period. Programming expense and amortization represented $31 million of this increase, as we continue to invest in original programming across all four of our networks.

AMC represented the largest portion of this investment, as the mix of scripted originals shifted towards wholly-owned content. In particular, we premiered two wholly-owned shows, TURN and Halt and Catch Fire, in the quarter.

The second quarter also included a charge of $4 million related to the write-off of various programming assets. This compares to write-offs of $7 million in the prior-year period.

SG&A expenses were $106 million in the second quarter, an increase of $9 million or 9.3% versus the prior-year period. Marketing costs were the largest component of this increase and related to the timing of original programming as compared to the prior year, in particular, the premiere of three scripted originals on AMC as compared to two in the prior-year period.

Turning to the International and Other segment, revenues for the second quarter increased $111 million to $125 million. AOCF for the second quarter was $20 million, an increase of $34 million versus the prior-year period.

As we mentioned, these results reflect the consolidation of the Chellomedia business, which contributed approximately $100 million of revenue and $25 million of AOCF in the quarter. With respect to revenues, the remainder of the year-over-year increase related to our IFC Films and Sundance Global businesses.

As for expenses, expenses in the quarter increased $78 million versus the prior-year period. This increase was almost entirely related to Chellomedia.

Technical and operating expenses increased $55 million, including an increase of $8 million in program amortization as compared to the prior-year period. SG&A expenses were up $24 million, but flat year-over-year when Chello is excluded.

Total Company net income from continuing operations for the second quarter was $60 million or $0.83 per diluted share, compared to $136 million or $1.87 per diluted share in the prior-year period. As a reminder, the second quarter of 2013 included a $133 million litigation settlement gain related to VOOM HD. Excluding the gain, net income from continuing operations was $54 million or $0.74 per diluted share.

Adjusted EPS for the second quarter of 2014 was $0.90 per diluted share, excluding the impact of amortization of acquisition-related intangible assets.

In terms of free cash flow, the Company generated $159 million in free cash flow for the 6 months ended June 2014. For the 6 months, cash interest was $61 million; tax payments were $32 million; and capital expenditures were $19 million.

Programming -- program rights amortization for the 6-month period was $291 million, and program rights payments were $336 million, resulting in a use of cash of $45 million year to date. This compares to a use of cash for programming of $40 million in the first half of 2013.

Turning to the balance sheet, as of June 30 AMC Networks had $2.8 billion of outstanding debt. We had cash and cash equivalents of $284 million, for a net debt position of $2.5 billion.

Our leverage ratio was 4.1 times, including a full 12 months of Chellomedia. The 4.1 times ratio is down from 4.3 times in the prior quarter.

So consistent with our previously communicated comments, over time we 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 continued variability in the year-over-year AOCF comparisons.

Looking ahead to the third quarter, advertising will be impacted by a decline in the number of episodes of scripted originals airing in the quarter on AMC versus the third quarter of 2013, including the absence of Breaking Bad, which aired its final episodes in last year's third quarter. As it relates to programming expense, this item will reflect an increase in the airings of wholly-owned scripted originals, with Halt and Catch Fire on AMC, The Divide on WE tv, and Rectify on Sundance.

In the fourth quarter we expect advertising results to improve, mainly due to the return of The Walking Dead in October and more favorable comparisons on the expense side. So over the long term, we believe that our strategy will allow us to continue to grow AOCF as we take advantage of the various opportunities we have to monetize our content.

So with that, if we could move to the question-and-answer portion of the call, operator?

(Operator Instructions) Bryan Goldberg, Bank of America Merrill Lynch.

I've got two quick ones. First one is on M&A. There has been a lot of talk lately on this in this space, and even some recent press around you guys with respect to BBC America. So if you have any comment on that, or if you are able to, that would be great.

Otherwise, could you just remind us what your philosophy is with respect to acquisitions? What are the most critical criteria you look for when evaluating opportunities?

And then from a balance sheet perspective, your leverage I think you said was 4.1 times pro forma for Chello. How should we think about your ability or your capacity right now to be active here?

Sure, Bryan. This is Josh. We are not in a position to be able to comment on anything that was recently written. I hope you understand.

The overall point of view we have I think is somewhat informed, probably, by our past experience and it is in evidence. We have made two acquisitions over the past several years. 5 years ago we acquired the Sundance Channel, and then we recently acquired Chellomedia.

What brought us to those acquisitions were that they fit into what we considered to be the highest priorities of the Company and the areas in which we operated, we hope, with some degree of competence, if not excellence. They were in programming upscale-oriented, quality, domestic networks; and that brought us to Sundance. We thought we could add value to it, and we believe we have, having grown at 30-odd-million subs and really advanced, I think, its profile since acquisition.

What brought us to Chellomedia was our activities that were organic in advance of that, in the development of Sundance global around the globe, and AMC Canada in Canada, along with IFC in Canada.

So they were unique. They were, we think, right and our wheelhouse, if not sweet spot. We think they were sweet spot.

So our general point of view is informed, I think, and demonstrated by them. Which is to say we will keep our eyes open for things that we think we can do extremely well, hopefully better than others, that are very proximate to what we do today, and that we can really add value to and see a great return on and in.

Those things have been pretty selective, and not a lot of them. And we don't anticipate as we go forward that there will be a lot of them either in the future.

We do, however, think that should something come along that has those characteristics of good financial profile, close to what we do every day for a living, and manageable against our desired level of leverage, we will be active in it. We will -- we have looked at small -- I guess they could be called tuck-in acquisitions internationally that can add to our international profile.

There are some individually owned channels in the broader arts, independent film arena around the globe that are still operated by the individuals that started then. It's not the case in the US. So there is one that we found that we think makes sense, and we moved on that.

They are very small, relatively, but we think those things could make sense. And should there be something larger that met all the criteria, we would examine it. So I hope that answers where you are.

In terms of the leverage, when we were separate in Cablevision, I think we went out at -- we were at about 5.3 times. We paid down to what was below 4 before we did Chello, well below, heading toward 3 at year-end. And we're at 4.1 now, as Sean said.

I will turn it over to Sean just in terms of optimal leverage levels for any more color on this.

Yes, I don't think there is any different approach. We are taking a very disciplined view to it, as Josh said. We are comfortable with where our leverage has been, where it is going.

We have obviously increased it where it made strategic sense and the examples that Josh mentioned. I think that this team again is focused on the core business. We will look opportunistically at nonorganic opportunities, but I don't think there is anything new in terms of our approach as it relates to leverage and deleveraging.

Thanks. That's helpful. Then I guess my second question is on Sundance. Rectify I think was one of the most critically acclaimed shows on -- was it Metacritic this year? I am just wondering; how is your investment strategy there paying off with respect to your discussions with distributors?

What does the affiliate renewal pipeline look like again for the next 6 to 12 months? And how should we think about the opportunity for Sundance to maybe be more broadly distributed, I think, relative to its current 57 million reach today?

Sure. We are particularly, by the way, pleased with Rectify; it is being applauded pretty widely, as Metacritic evidences, and it has been performing well on Sundance. So it is nice to see that. It's in its second season, and we do think it's consistent with and emblematic of the very type of thing that we want to do with Sundance, which is to be at the top of the heap in doing the very, very, very best, most critically acclaimed material on television.

By the way, if you haven't seen Honorable Woman, I will just take the opportunity for a 30-second commercial: Check it out. It performs too, Bryan.

I think that when we purchased Sundance I think the subscriber count was 28 million. As you point out today, 5 years later, we are closer to 60 million. So there was a lot of work in that and, I think, acceptance by the MVPD community of the value of Sundance and recognition that the brand, which of course has its own spectacular qualities, was being now more closely met with original programming, and the promise of what that could mean when original programming comes to the name Sundance.

So I think distributors are really recognizing it and appreciating it. They know what is going on. They are paying close attention.

Probably the first thing we were looking to do, not surprisingly, was expand the footprint. Because it is step one to economic return. We have done it and continue to do it; we don't think we are done, the 28 million to 58 million.

The second -- and I will get to advertising in a second, not in direct response to your question but in terms of just economic return, because it is part of the mix. The big story on MVPD reception and program investment is: radically expand the distribution so you can take advantage of, of course, that scale in terms of more subs paying you and also the advertising opportunity.

So I will add on to my answer -- I hope it is not too long-winded -- which is, fairly recently after 4 years of operation and undertaking all of the efforts we had to do to make the contracts with our MVPDs allow for and embrace advertising, we put on a full load of advertising. And that playbook, if you will, is something obviously that we have experienced with AMC, WE tv, and IFC. A little different with Sundance, but not too much.

So we are now selling advertising on shows that are increasingly prestigious and hopefully more widely viewed. And the Sundance viewership numbers are up dramatically.

So a complete answer to your question is: advertising is actually a part of it, because the wider subscriber universe really does create the opportunity for monetization in a second way.

Thank you very much.

Todd Juenger, Sanford Bernstein.

Hi, good morning. Thank you. I wanted to see if maybe you could provide some color that I think would be helpful to us as we assess the rate of investment going forward. I appreciate your comments in the prepared remarks about how you think about return on investment over time.

Of course, we have to make assessments of the pace of how that will continue. I would like to think that maybe if we break that down a little bit, I would love to hear your comments on how that breaks down.

Because I think you could simply maybe say that there are three factors that drive the rate of programming investment that show up in the P&L. One is the number of hours of original programming that you add over time; the second might be the percent of those hours that are owned versus licensed or acquired; and the third impact is the different amortization schedule for owned content versus acquired programming.

So all of those have been growing -- number of hours, percent owned, and the amortization impact. But as we think about how that progresses, even over a multiyear period into next year and out, any color you can give on how each of those line items progresses and how sensitive the expense P&L is to those? Thank you.

Hi, Todd; it's Sean. I think you have got the majority of the factors, but just for everybody's benefit, to review again: certainly the number of series on each of the channels has an impact; the number of hours, those that are owned versus those that are licensed; as you say, the timing of launch, obviously matters; and the commensurate marketing dollars that we have to support those. So those are really the levers that are flowing through the income statement.

Again, just for context to give a bit more color, as you guys look back at our historical results, we have operated this business with a relatively stable margin historically while delivering very strong AOCF growth. As you look in any 90-day period, there is certainly volatility; and we have seen that this quarter, and a gesture to it for the third.

But I think the point is that I think things are going well. I think we are operating according to our plan. We are managing to a relatively stable margin in the future, and we will reap the benefits of ownership such that we will have strong AOCF growth and strong free cash flow. I don't know how to guide you guys relative to our posture any more than that.

Fair enough. Just one quick follow-up on your comment, if you don't mind, Sean. When you talk about a relatively stable margin over time, obviously that margin profile is different today than it was in the past. Would you be willing to say what that stable margin is? Thanks.

No -- of course we are not going to give you a number, because things change. But at the same time, I am talking in broad terms in trying to give you a sense that I think that the model that we use to invest in original owned content is a disciplined one relative to the ancillary revenue streams that have existed and continue to exist in very strong markets.

So I think that I am trying to leave you with a degree of confidence that we are very conscious of it, without guiding to the absolute number.

Okay. Thanks a lot, guys.

Anthony DiClemente, Nomura.

Hi, thanks. I have one for Sean, a similar type of line of questioning; then one for Josh. Sean, you mentioned the third quarter. But as we look to the fourth quarter, can you address the postponement of Better Call Saul from November into the first quarter of 2015?

If we look -- if we think about the number of original hours in the fourth quarter versus last year's fourth quarter, it sounds like you are more optimistic for growth in National Networks ad revenue in AOCF, notwithstanding the postponement of Better Call Saul. So I would just love to hear a little bit more color on the fourth quarter, if you can.

Then one for Josh separately. You mentioned this film Boyhood in your press release and your prepared remarks. Can you just talk about your economics on that film? How big of a rights holder is IFC Films in the various aftermarket windows?

And more broadly, would success here inform your future investment strategy? Just maybe on the thesis that there is an increasingly underserved portion of the moviegoing audience that would be receptive to films like this one. Thank you, guys.

Hey, Anthony; it's Ed. Your first question I will address, looking at the fourth quarter. First of all, Better Call Saul, we moved that from fourth quarter to first quarter for creative reasons. Because when you're doing, hopefully, the quality shows that we try to do on these networks, we give flexibility to the artists; and that seemed like it was in the best interest of the creative evolution of the show. So that was the reason for the move.

So for fourth quarter we will be roughly flat on the number of original scripted hours. But we feel good about fourth quarter because we felt good about the volume in the upfront, and The Walking Dead is back, and we felt good about how we did in terms of CPMs in the upfront. So that is how we are feeling about it now.

Okay, thanks.

Got it. On the subject of Boyhood, the reception is great and it's had a couple of good weeks at the box office. For an independent film, it is going wider each week. It has been sold internationally reasonably well.

I just would give you a couple of parameters. Against the backdrop of AMC Networks our, as we call it, IFC Films business is not a big business. We mentioned Boyhood in the materials because it is in the, quote, conversation and is doing well. But we shouldn't lead you to believe that it has a substantial effect on the aggregate AMC Networks performance.

With that said, we have operated this film company for a decade, and we think it is strategic and beneficial economically for us. Our approach is mostly to distribute as opposed to finance; we occasionally finance.

The rights we own when we distribute are generally smaller than when you finance. But they don't need to be, depending upon the arrangement you made.

Specifically with Boyhood, we are essentially the owners of the film with the filmmaker, and so we will enjoy the economic benefits of it. For what is a relatively small individual piece of business, it will have very good performance.

More broadly, it touches on something -- I think you touched on it -- about consuming appetites and where they go. I am going to now turn the conversation to something that is more speculative, and so I won't spend much time on it, which is to say that some of the material on the television screen that is commanding a lot of attention domestically and now increasingly internationally was not like it used to be. Meaning shows like Madmen, Breaking Bad, Rectify, are not shows that 10 years ago on television were commanding a lot of attention.

That is true out of our own channels, on the great shows being done by others. So we think the independent film world has some nexus to this, because people working historically in film are to some degree now interested in TV, and that will provide some benefit to us prospectively and opportunistically.

But it is a delicate piece of business with the creative people, who are very attached to their work and want it to be exhibited in a manner that they, frankly, often want to control. So we think it is a good thing for this Company to do because of the area that we operate in, in television.

We will continue to do it. We are very pleased with Boyhood, but we are not going to pop the champagne bottle on the economic side for AMC Networks because of it.

Okay, thank you.

Ryan Fiftal, Morgan Stanley.

Good morning, guys. Two questions if I may. First, just a follow-up on an earlier question on the M&A side. As you look at your portfolio and the landscape and opportunities that are out there, do you have any bias -- or maybe preference is a better word -- towards international versus domestic expansion at this point?

I think it is fair to say that -- well, if you just look at our past behavior, we spent the most significant amount of money we have ever spent on an international acquisition. That was $1 billion. Sundance Channel was less than half of that.

We probably do have a bias toward international versus domestic. There may -- there could be anomalies that would cause us to focus on domestic, if the circumstance was extraordinary and singular.

Describing it absent a singular circumstance, responding generally, I would say generally we think the international market is more opportune specifically in terms of what is likely to come forward and where growth prospects are that would create, as you called it, first a bias or a preference. But it wouldn't necessarily rule out something singular if it had the right attributes. Sorry to be vague, but that is exactly the way we would think of it.

Okay, no, that's helpful. Thanks. Then I have a question on the relative bargaining power between SVOD distributors and content owners and how that is evolving. There are a lot of puts and takes; obviously, Netflix is growing. It could be starting to achieve some real market power.

But there are other SVOD bidders out there for content. But dollars are moving back and forth into allocation for originals, and there is more supply probably for original scripted out there. So a lot of puts and takes.

I was just wondering how you see that evolving and netting out, and how it impacts the value of your content in that window.

All right. I think that first thing that is probably worth noting is that it is a growing market, obviously. There are now a few big ones -- Netflix, Amazon Prime, Hulu, Hulu Plus -- and then there are smaller ones that have tended to be more niche-oriented in terms of content options; it doesn't mean they always will be.

So it's -- to state the obvious -- rapidly evolving SVOD marketplace domestically. And it is moving internationally because, I am sure as you know, those same companies are operating overseas.

So against that backdrop of very significant growth, a few phenomenon. I think one is that I think it is the case, generally agreed to, that scripted dramas probably have among the highest value on an SVOD service in which people are paying, A, monthly bills, and B, consuming in a manner commonly referred to as binging.

So that material is high up in the food chain and very different than in a linear environment where it coexists with what we commonly call reality, which can yield a pretty good return. I think reality plays generally less well in SVOD services.

I think the second thing is, as it has grown, there is increased competition. So that, if you are a seller to it -- which we are -- is a nice thing.

And the third is the degree to which those services are manufacturing their own. And that probably has a mildly, if you looked at it in the macro, moderating effect -- probably truer over the long term than the immediate -- on appetite. Because as you grow, as we have seen with ourselves, we became happier to make our own rather than so-called rent.

So it is all in the mix. I think if we were to describe it today, because -- and you mention all the pulls and pushes and ins and outs. I think we think we're in a nice position for the foreseeable future, being a producer of the right spectrum of material for our base business and having a pretty good track record of consistency in that material, and that the market will be rewarding for it. So I hope that answers your question.

Yes, always helpful to get your view. Thanks, Josh.

Michael Morris, Guggenheim Securities.

Thank you. Good morning, guys; two questions. One, Josh, your more recent scripted originals on AMC have not achieved the same ratings levels, but your big three programs have. I don't know that that is a fair comparison. But I am wondering if you just talk about why you think that is: whether it is the competitive environment, whether it is simply just popular acceptance of the programming, whether it had to do with timeshifting. I am curious your thoughts on the ratings levels there.

Then secondly, for Sean, appreciate the color on the trends in the coming quarters. Can you help us a little bit with maybe an estimate of how much of the advertising historically comes from the scripted originals on the AMC Network, and also whether we should also expect a lower marketing spend in conjunction with the fewer original episodes? Thanks.

Sure. I think a few things. One is, I do think that there are certainly more options for scripted originals on the TV dial and on-demand than there were 8 years ago. So consumers do have more options, and that is a factor.

I think it is probably worth pointing out that our experience with our scripted originals, Mad Men and Breaking Bad, is they began small and they accelerated in seasons 2, 3, 4, and 5. So, what is curious about all that -- and I think it applies potentially to our shows, TURN, Halt and Catch Fire, Rectify, etc. -- is that if they are good they may well be the beneficiaries of between-season referral, social media recommendations among friends, frankly references to things like Metacritic. There is a lot of inside baseball being played by people who like this stuff and by SVOD sampling, because it provides a wide platform for people to be introduced and not everybody has the time to watch day one in linear.

I will give you -- I can give you a stupid anecdote, which I am sure you have all experienced. I was on the subway this morning, ran into a woman I know and she said: Yes, I am starting on episode -- season 1 of -- and she mentioned one of our old shows; so she is 5 or 6 years behind. So we do see that phenomenon occurring, but it really does occur.

So I think that our creative efforts have been recognized with these shows. They are being praised. I think they have really good creative quality that can be looked at in reviews or Metacritic.

They have strongly appealing qualities, and they are different marketing animals. So the story won't be told for a bit of time, and it doesn't mean everything will be a home run or necessarily a triple.

It is truly hard to know, I believe, increasingly harder to know in season 1 or even 2 where you are against your opportunity. I will mention just as an interesting example, Rectify, because it was brought up.

So we did season 1; we are now in the middle of season 2; and it is top of the charts at Metacritic. So where does it go? It is on a smaller platform, Sundance; that is not true for the AMC shows.

Hard to know what the ceiling is. So we evaluate that constantly, try and determine ways to, of course, make it happen and get all the value we can out of it.

Then I will just reference one thing Sean said, which is not about potential upside but about business model. Which is that where we own -- and I referred to it in my prepared remarks -- we are able to enter into a series with more revenue than ever being in some predictable form, coming to us for multiple years. That creates a very nice, I think, profile of risk when you do shows.

And it is quite different than we used to have. It really does come to some degree encourage you to take a couple more at-bats and -- because your risk is reduced and your potential return is higher.

So, Mike, on your second question. In terms of the marketing, I think, as you think about the future the marketing is probably driven more by the number of premieres in a quarter as opposed to the number of episodes. So that is how I would think about it.

And, two, in terms of advertising, certainly the number of scripted episodes impacts the results. But as we look forward, I am certainly not going to guide you. We don't necessarily sell the way you are asking the question. So if you don't mind, I will leave it at that.

Great, thank you.

Vasily Karasyov, Sterne Agee.

Josh, I have a question on programming scheduling. I am swimming at the deep end of the pool here, but it seems that your originals tend to be concentrated on Sundays. So I am wondering what is the magic of Sunday for you, because it is almost like a premium pay-TV channel strategy.

Then as you grow your originals lineup, would you be interested in expanding into other days of the week? Or do you think this is the right niche for you, and why? Just curious about your strategy there.

Sure, Vasily, it's Ed. We have had success on Sunday nights, since it is where we started with Mad Men and where we followed with Breaking Bad. So we do think that we have developed some loyalty among audiences, that AMC is at the top of the set of networks that people who like hopefully high-quality drama become in the habit of checking out.

Now, we are -- we did move Hell on Wheels to Saturday night. We just premiered season 4, actually last week, and it did very, very well. So we think that is a good night for Hell on Wheels.

Interestingly, we are following Hell on Wheels, by resequencing TURN. And it seems to be opening up a sampling by a whole new group of folks who hadn't seen it when it premiered on Sunday night. So hopefully there is a good story in the making there.

But generally, we like Sunday night because it has treated us well historically, but we are open to looking at new nights. And as we contemplate our 2015 schedule, it is something that we are considering on AMC.

With our scripted originals on other networks, on Sundance and on WE, we have not had them. We have actually steered clear of Sunday nights for competitive reasons, and we have chosen to premiere them on other nights.

That's helpful. Thank you.

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

Ben Mogil, Stifel.

Thank you very much for letting me in the queue. In terms of -- less has been asked on issues I care about, so I'm just more curious in terms of the upfront. Maybe you can give us a sense compared to last year.

I think you said CPMs were up, I believe it was high single digits; and I don't know if you talked about volume. Maybe you can give us a sense of where volume and rate card was up on a year-over-year basis.

Well, the overall market was less robust than we had seen in recent upfronts. There is no question about that.

We are very pleased with our own performance. We were able to achieve double-digit increases in volume, which I think situates us quite well among our peers. We also did see CPM increases.

The demand really continues to be driven by demand for our original content. That continues to be the key for us. And anticipating your next question, no, we didn't sell it all; we held some back for scatter.

So, you are going into the year and this is not biased with just a little bit less -- with less scatter exposure than prior years?

No, I think we are in the same range.

Okay. That's it for me. Thank you very much.

All right, well thank you, everyone, for joining us on today's call and for your interest in AMC Networks. Operator, you can conclude the call.

Thank you. Ladies and gentlemen, for joining today's call. You may now disconnect.