AMC Networks Inc (Pre-Reincorporation) (AMCX) 2015 Q4 法說會逐字稿

Good morning, my name is Christie and I will be your conference operator today. At this time I would like to welcome everyone to the AMC Networks fourth-quarter and full-year 2015 earnings conference call. (Operator Instructions)

Thank you, I would now like to turn the call over to Seth Zaslow, Senior Vice President, Investor Relations. Please go ahead, Sir.

Thank you, good morning and welcome to the AMC Networks full-year and fourth-quarter 2015 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 full-year and fourth-quarter 2015 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 Security 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'll refer to on this call.

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

Well, good morning and thank you for joining us today. I'll start by providing an overview of our business during the past year before getting into more detail by segment.

2015 was a successful year for AMC Networks on multiple fronts. We had strong financial results including industry-leading ad revenue growth and very healthy increases in distribution revenue.

AMC the channel successfully debuted three new series: Fear Of The Walking Dead, Better Call Saul and Into The Badlands. These series each broke ratings records and ranked as the top three cable series launches of all time among adults 18 to 49 in Live + 3 ratings.

We continued to develop our international business building a new audience for our AMC Global channel and expanding the channel's distribution into key markets including the UK and across Latin America, Central Europe and Asia. And we continue to receive widespread critical praise and industry honors for our TV content as well as our films, including an Oscar nomination for a film titled 45 Years from IFC Films that stars legendary actress Charlotte Rampling.

Our solid financial performance is the outcome of a strategy that we've been steadily pursuing now for about a decade. The cornerstone of that strategy is creating compelling original programming for our networks, in particular, high-quality content that resonates with viewers and deeply, deeply engages them.

Our focus on creating what we call Shows That Matter has afforded us a couple of key benefits. First, people select and watch our shows with specific high intent at a time when that is increasingly required on the television dial or remote.

Secondly, as we've begun to create, own and control more of our own content through our AMC Studios operation, we've tapped into additional ancillary revenue streams. These revenue streams which provided us with a source of stability are growing very nicely year over year.

At a time when people are watching more video on more platforms, it matters greatly, we think, that we have content that people are consuming and engaging with at increasing levels and that it's the kind of content that seems to be the most resilient in an increasingly on-demand world. We believe that continued focus on having such high-quality content, much of which we own, positions us well for our current -- for all the current trends affecting programmers in what continues to be a rapidly evolving landscape.

Now I'd like to provide a little more detail if I may on our national networks results. The success of our content across our networks -- AMC, BBC America, WE tv, IFC and SundanceTV -- continues to drive our top line performance. Advertising continues to be a growth area for us. Advertiser demand for our networks remains high with strong relative ad growth as compared to our peers led by our strongly performing original content.

Increasingly the ratings of AMC's original programming is making a legitimate broadcast replacement for ad buyers, especially amongst younger, more desirable viewers. Our strong ad revenues are also a result of our appealing audience demos.

Last year, AMC had seven of the top 10 most upscale dramas on TV, a competitive advantage that we will look to capitalize on in the coming [upfront].

On the affiliate side of the business, we believe our AMC Networks portfolio with our channel strengths and strong audience affection for our programming remains a very attractive value to distributors. The multiyear nature of our distribution agreements provides us with a fair amount of visibility and stability and supports our strategy for continued content investment.

The AMC channels continues to be the biggest driver for our national networks segment. Over the past few years the network faced an important transition coming off our decision to conclude Breaking Bad and Mad Men, the two series that marked our entry into scripted original programming and which were central to establishing AMC's prestige brand and strong momentum.

Heading into this year 2015 or heading into that year 2015, we were very focused on how to best take advantage of strong consumer affinity for our content in the AMC brand and how best to build on that momentum. And I'm quite pleased to say that through what we think has been a thoughtful and disciplined approach, not only was 2015 one of our most ambitious years ever, it was also our most successful year with AMC becoming a top five cable network in prime time for the first time in its history.

Last year we launched for new original dramas, one each quarter: Better Call Saul, Humans, Fear the Walking Dead and Into the Badlands. Each was the number one cable drama launch in its respective quarter. And as I mentioned earlier, Fear the Walking Dead, Better Call Saul and Into the Badlands now stand as the top three cable series launches of all time among key advertiser demos.

We think AMC is poised to continue this strong momentum and I'll give you a brief overview of a bit of what's to come in 2016. The Walking Dead franchise remains very strong, both creatively and in its early performance of what we internally referred to as Season 6b. The series returned two weeks ago and it continues to outperform everything else and remains the number 1 show on all of TV, among adults 18 to 49.

Last year we executed on our plan to expand the Walking Dead franchise and debuted the companion series, Fear the Walking Dead. The series was very well-received among critics and audiences, delivering the highest rated first season of any in cable history in all key demos. Fear the Walking Dead will return for its second season on April 15 with 15 episodes.

Earlier this month, AMC debuted the second season of Better Call Saul. This Breaking Bad prequel has outperformed expectations pretty much across the board creatively, in audience delivery and in critical acclaim. The series was nominated for multiple Emmy Awards and recently received the prestigious Writers Guild Award among many other accolades.

Looking ahead, AMC has a strong slate of new and returning series that we think continues the solid momentum from last year. We've partnered with the BBC to coproduce the espionage drama called The Night Manager, a TV adaptation of the John le Carre novel, with an all-star cast including Hugh Laurie, who many of us know from House, and Tom Hiddleston and Tom Holland. Its premiere in April will open up a fourth night of original programming on AMC on Tuesdays.

We've partnered with Lion's Gate on a new drama series called Feed the Beast about the travails of two friends who open a restaurant in the Bronx. It's based on a successful Danish series and the show is being adapted by writer show runner Clyde Phillips, who you may know from Dexter and Nurse Jackie, and will star David Schwimmer.

Our revolutionary war drama, Turn, returns in April for a third season and later this year, quite exciting, comes a series called Preacher which is based on the comic book series, a project from executive producer Seth Rogen, Seth Rogen and Evan Goldberg and Breaking Bad's Sam Catlin. Preacher is a provocative sort of wild ride of a show with a standout cast and we look forward to its premiere.

Moving a second to BBC America, it's been just over a year since we began operating the channel as part of a joint venture with BBC Worldwide, the commercial ARM of the BBC.

We are quite pleased with the continued strong performance of BBC America which had a strong year in 2015, growing overall viewership. With some of the most upscale and social shows on TV including names many of you will know Top Gear, Dr. Who, Orphan Black and Luther, BBC America's outsized cultural influence and attractive audience profile are significant for advertisers and something we will look to take advantage of even more in the coming upfront.

In 2016, the network will premiere a new series of one of TVs most successful franchises, Top Gear. We think the show's new cohost, a man named Chris Evans, who is a very popular TV and radio show host in the UK, and actor Matt LeBlanc, are a great pairing who can bring this franchise to a new and even broader US audience.

BBC America is taking advantage of its studio relationships with both BBC and all of AMC Networks, one of the key benefits of our joint venture with BBC Worldwide that really does help ensure a strong programming pipeline for the channel and for the Company.

Coproducing with the BBC the network will introduce a new series called Class later this year, the first-ever spinoff of the 50-year-old Dr. Who series. Allowing BBC America to expand one of the most successful and long-running franchises in TV history.

And the network recently greenlit a new series called Dirk Gently, which is a cult favorite comic book thriller that our own AMC Studios will coproduce. BBC America is now home to the BBC's globally acclaimed Landmark Natural History programming and we look forward to premiering something that is really visually stunning and intense, the natural history series called The Hunt, with Sir David Attenborough this summer.

So those are just a few of the many -- actually many shows on BBC America's 2016 schedule.

At WE tv, viewers in our target continue to embrace an expanding slate of returning series of new shows. In a very competitive but lucrative environment, the network had its best year, growing its prime time audience for the third year in a row with shows including popular Braxton Family Values and Marriage Boot Camp and new series such as Growing Up Hip Hop.

As part of its continued focus on partnering with world-class comedic talent, the IFC channel debuted a celebrated new spoof series in 2015 called Documentary Now -- we refer to it as Doc Now -- from Saturday Night Live's Fred Armisen, Bill Hader and Seth Meyers. The first season was extremely well-received and we're looking forward to its return for a second season later this year. And the network's long-running hit, Portlandia, which is currently in its sixth season is, we think, creatively and in every way as strong as ever.

Turning to SundanceTV for a moment. In 2015, the channel grew its target audience of adults 25 to 54 significantly. Sundance's growth continues to be fueled by investment in high-quality content through owned original series like the widely celebrated Rectify, which returns for its fourth and final season later this year, and a new show called Hap and Leonard, a dark comedy starring James Purefoy from the Following, Christina Hendricks from Mad Men, and Michael Kenneth Williams from The Wire. And that premieres next week.

In 2016, the channel will continue its successful track record of collaborating with international partners on shows including the excellent heist drama, The Last Panthers and a futuristic, very cool show called Clever Man.

Turning now to our international operations. As you recall just over two years ago we significantly expanded our global business by acquiring a collection of regional channels in key markets around the world from Liberty Global. And last year we introduced the AMC brand globally for the very first time, launching in important markets including the UK, Latin America and Central Europe.

We also began airing our own scripted original series on that AMC channel around the world fulfilling a key part of what was our long-term global goal and strategy. With our now two global channels, AMC and Sundance, and approximately 60 regional channels in over 140 countries and almost 20% of our total AMC Networks revenue is now derived outside of the US and we like that geographic diversification.

We've been very pleased with the continued demand for AMC globally and with its performance. The successful worldwide debuts of AMC's Fear the Walking Dead and Into the Badlands got the channel off to a great start outside the US, helping to establish the AMC brand globally.

The premiere of Fear the Walking Dead made AMC a top 10 network in key markets across Europe, Latin America and the Middle East and the show will be back in April airing in tandem with the US premiere of the second season.

Into the Badlands debuted in the fourth quarter and was also a very strong performer, particularly in Central Europe, Latin America and Asia. We also continue to see demand for the Sundance Channel underscored by the recent launch on France's largest pay-TV operator, Canal Sat.

We're quite pleased with the success of our global business and believe we are well-positioned to take advantage of attractive growth opportunities.

Now I'd like to turn the call over to our CFO, Sean Sullivan, who can provide financial detail about our results.

Thanks and good morning. As Josh highlighted, 2015 was a successful and productive year for the Company. We are opportunistic about the outlook for 2016 and will touch on that after reviewing the 2015 results.

For the full year, we delivered strong financial results. Revenue grew 19% and AOCF growth was 27%. For the fourth quarter, we delivered total Company revenue growth of 11% and AOCF growth of 2%. Results in the quarter were essentially in line with the expectations that we outlined in our last earnings call in early November.

I'll touch on that in more detail as I go through my remarks.

Also as a reminder the comparability of our results was affected by two transactions: Chellomedia, which closed on January 31, 2014 and BBC America, which closed on October 23, 2014.

So with that, let's turn to our operating segments. National Networks revenues for the full year increased 22% or $391 million. National Networks AOCF for the full year increased 28% or $177 million versus the prior-year period to a total of $811 million.

In the fourth quarter, National Networks revenues increased 12% or $62 million. AOCF decreased 1% or $2 million versus the prior-year period to a total of $189 million.

For the fourth quarter, advertising revenues increased 13% to a total of $289 million. A portion of this increase related to the impact of BBC America. Excluding BBCA, advertising growth was in the double digits over the prior-year period. AMC was the primary driver as it benefited from the performance of its original programming, most notably the Walking Dead and Into the Badlands.

For the full year, advertising revenue grew 24% on a reported basis. Normalizing for BBC America we delivered midteen growth, an impressive rate, given the performance of the overall ad market.

Distribution revenues at the National Networks in the fourth quarter increased 12% or $28 million to a total of $273 million versus the fourth quarter of 2014. Affiliate fee growth for the quarter was in the low double digits on both a reported basis and excluding the impact of BBC America. As we've highlighted on our previous calls, the core affiliate fee growth rate benefited from rate resets we achieved in connection with several of our recent renewals.

Distribution revenue growth for the fourth quarter also reflect a year-over-year increase in non-affiliate revenues that was relatively consistent with the overall growth rate for distribution revenue that I just mentioned of 12% and with the expectations we discussed in our last earnings call.

The growth on non-affiliate revenues was due principally to the licensing of our scripted original programs on SundanceTV, BBC America and AMC in various ancillary windows.

For the full year, distribution revenue grew 22% on a reported basis. Excluding BBCA we delivered midteens growth with double-digit increases in both affiliate and non-affiliate revenues.

So in summary, National Networks grew each of advertising, affiliate non-affiliate revenues the double digits on an organic basis for the full year 2015, an achievement that we are quite proud of and -- we believe -- demonstrates a healthy balance and strength of our revenue base.

Moving to expenses, total expenses increased 21% or $64 million versus the prior-year period and were essentially in line with the comments we provided in early November on our last call. Excluding the impact of BBC America, expenses increased in the high teens compared to the fourth quarter of 2014.

Technical and operating expenses increased 19% or $39 million compared to the prior-year period to $251 million, year-over-year variance principally related to the impact of BBC America as well as our continued investment in original programming across all of our networks. In the quarter, we reported $16 million in charges primarily related to our decision to write off various programming across our portfolio of networks. This amount compares to write-offs of $28 million in the fourth quarter of 2015.

SG&A expenses were $128 million in the fourth quarter, an increase of 24% or $25 million versus the prior-year period. The increase primarily related to BBC America and an increase in marketing costs, due to the timing of originals, most notably Into the Badlands on AMC.

Moving to our international and other segment, revenues for the full year increased $18 million to $453 million. AOCF for the full year increased $5 million to a total of $30 million. In the fourth quarter, international and other revenues increased $9 million to $119 million, AOCF was $9 million -- an increase of $6 million versus the prior year.

The timing and amount of some various revenue and expense items in the quarter at both our international networks and our IFC Films business resulted in modest upside approximately $5 million relative to our expectations. In the fourth quarter, revenues increased at our international networks, as growth on a constant currency basis more than offset a $10 million negative impact from foreign exchange.

Our IFC Films business also saw an increase in revenues due to the timing of its release schedules. As for AOCF, the results in the fourth quarter primarily reflected the increase in revenue, partially offset by a negative impact of $2 million related to foreign exchange as compared to the prior-year period.

Total Company net income from continuing operations for the full year was $367 million or $5.01 per diluted share compared to $261 million or $3.63 per diluted share in the prior-year period. For the fourth quarter, total Company net income from continuing operations was $90 million or $1.23 per diluted share compared to $78 million or $1.06 per diluted share in the prior-year period.

Adjusted EPS for the full year and fourth quarter of 2015 was $5.39 and $1.31 per diluted share, respectively, excluding the impact of amortization of acquisition-related intangibles. EPS and adjusted EPS for the fourth quarter of 2015, including $9 million in restructuring charges related to the elimination of certain positions and $6 million of miscellaneous income.

Miscellaneous income reflected a $16 million gain recorded on the acquisition of a controlling interest in a previously non-consolidated joint venture. This gain was partially offset by unrealized foreign currency transaction losses.

In terms of free cash flow, the Company reported $299 million in free cash flow for the 12 months ended December 2015. For the 12 months, tax payments were $187 million, cash interest was $120 million and capital expenditures were $60 million.

Program rights amortization for the 12-month period was $749 million and program rights payments were $839 million, resulting in a use of cash of $91 million. This compares to a use of cash for programming of $60 million for the prior-year period.

Turning to the balance sheet, as of December 31, AMC Networks had a net debt position of $2.4 billion. Our leverage ratio, based on LTM AOCF of $838 million, was 2.9 times. When adjusted for consolidated entities that are less than 100% owned such as BBC America, this ratio increases slightly about 10 basis points.

In terms of capital allocation, our primary focus remains investment in our core business as we believe this will allow us to continue to grow AOCF on a sustainable basis. Beyond that, we are consistently evaluating our strategy and we'll look to be opportunistic but disciplined in our use of capital, our focus being on how best to generate the greatest return for our shareholders over the long term.

Looking forward to 2016 we feel good about the outlook for the Company's performance. At our National Networks, both advertising and distribution are expected to continue to be growth drivers. Advertising should benefit from a strong original programming lineup across all of our networks but most notably at AMC.

As Josh highlighted, we are excited about AMC's lineup which includes a mix of new and returning shows.

With respect to distribution, we expect -- we continue to expect growth in our affiliate fee revenue. Our current expectation, given the visibility of deals, is to return to mid- to high-single digit growth as we cycle through the various renewals and resets that benefited 2015.

With regard to non-affiliate revenue, we expect continued double-digit growth in our non-affiliate revenue stream as we look to take advantage of opportunities to monetize our content and ancillary windows.

On the cost side, while we expect to continue to invest in content, mainly in the form of programming and marketing, we would anticipate managing the National Networks business to a margin that is largely consistent with the 2015 level.

At our international and other segment, assuming a constant currency ,we expect to continue to see growth as we execute our strategy of further developing and expanding our international footprint. With regard to our performance in any given quarter, we anticipate continued variability as a consequence of the specific timing of our investment in content and the airing of our shows.

Looking into the first quarter at the national networks in terms of advertising, our results will be impacted by the timing of our originals, most notably at AMC.

On the cost side, we expect relatively modest year-over-year growth in the National Networks expenses as a result of the timing of our originals. At our international and other segment, first-quarter revenue in AOCF are expected to be relatively flat with the prior period as growth in the underlying business is mitigated by anticipated foreign currency headwinds.

So overall, we feel good about how the business is positioned as we head into 2016.

So with that, it's move to the question-and-answer portion of the call. Operator, if you could please open the call to questions.

(Operator Instructions) Michael Morris, Guggenheim Securities.

Two questions. First, Josh, you spent a fair amount of time talking about -- you mentioned a couple of times time shifted and VOD consumption.

My question is, given the importance of your content to time-shifted consumption and the growth in that, are your economics keeping pace with that growth as you look at the affiliate fees and your ancillary revenue streams? Or is there additional opportunity as you work through contract cycles that you think maybe that growth should accelerate given your importance to the time shifted ecosystem? And then I have a follow-up after that. Thanks.

Sure. Well, I guess, Mike, you saw last year what our rate of growth was on the affiliate side. So I would say that that is testament, I think, in the numbers to the value that MVPDs see and the strength that they see in our channels and our content. And from their point of view, your comment, I think, has wisdom whether consumed on a linear basis or consumed on an on-demand platform.

And I think that I further add that when we say immersive and must-watch and with intent to view, we mean it. It's urgent material. We have -- even though we have greater numbers of people watching on delay, we also have the greatest number of people watching it live as it happens and same day.

So, we think that we have -- we are as strong as you can be in terms of content that matters a lot, content that people want to get, content that people will watch live and delayed for an MVPD and it positions us well, and we'll continue to execute on that. And we think over the year and over the years, it is as important a factor as you can have for strength.

Thanks, Josh. And then on the outlook for affiliate growth, some of your peers have noted a rate normalization factor which I think has been a function of some consolidation on the distribution side of the business.

Do you expect to have -- in the coming year do you expect an impact from consolidation on your rate of growth in that guide that you gave, Sean, the mid-to-high singles. And then more broadly, how are you thinking about consolidation of distribution on the growth profile?

So, I think Sean just indicated where we think our performance will be on rate of growth in 2016 and there's a lot in that, Mike. Everything that we anticipate occurring in the next year what you referred to in every other variable, subscriber growth and every other consolidation is factored into that view of 2016. So it's all in there.

As one goes further beyond 2016, of course, the longer, it goes without saying -- the longer the horizon, the less specific and clear one can be. But we think what we've seen in the strength of our content and in the fact that each of our five channels are a truly meaningful brand: AMC, IFC, WE, Sundance, BBC America are -- and supported by content that matters a lot that it puts us in a good and strong position.

Great. Thanks, Josh.

Anthony DiClemente, Nomura.

One for Sean and one for Josh. Sean, why don't we hit on the margin guidance? So in the prepared remarks you talked about how excited you are about the new shows in 2016.

By our estimates, and who knows if we are right, we think you're increasing the number of programming hours a lot in 2016 ,maybe north of 30%. So can you just help me with if you include all of these new programming hours year over year, what are the dynamics that allow you to be confident in your guiding investors to broadly stable margins 2016 versus 2015?

And then maybe I'll follow up for Josh after that. Thanks.

Sure, Anthony, thank you for the question. So, just to reiterate what I said, I think we expect, given the number of hours of originals, the state of the advertising market both scatter and what that may or may not indicate for the upcoming upfront. I think that that should be a positive growth driver in the advertising in terms of the affiliate core, affiliate rate of growth which we just chatted about with Mike, I think that given the visibility we have there.

And then lastly the non-affiliate where we are distributing it to SVOD, to international platforms, et cetera, in terms of the nature of those arrangements, that gives us comfort. Obviously, we are launching a lot of new shows, not all of which have been announced, no other number of episodes then. So I won't comment specifically the percentage increase until the channels have actually announced all of those things.

So, those are a lot of reasons why I made the comments I made in terms of our philosophy managing to a largely consistent margin in 2016 versus 2015. So, that's how we feel about it. That's our best information as of today.

Okay, thanks, Sean. And then, Josh, back to the broader topic of distribution. Over the last year or two, I think your Company has been aggressive on pushing for distribution for all six of your networks in the recent renewals. And you've had success there in terms of DIRECTV renewal and NTTC.

But it brings to light a broader question longer term. It sounds to us when we talked to executives in the media industry that there is -- there are varying degrees of flexibility in terms of whether or not new or light packages that are being created would or should include secondary and tertiary networks. So for you, the non-AMC network.

Just wondering if you can give us an update on your philosophy and strategically as these new distribution packages -- or call them skinny packages or lighter packages are created -- what's your degree of willingness to detach the non-AMC networks from a lighter distribution package with either your existing partners or newer partners? Thank you.

Sure, sure, of course. So thanks for the question, it's of course one that's on our minds. Although it's on our minds,, I would say what's occurred to date as opposed to what's been talked about is quite different.

What's occurred to date is that there are in those packages that you identify what's really manifest to date are, I guess most notably, Sling from DISH and Sony. And then there's some experimentation, I guess one might call it, going on in early ways but different ways at Amazon.

So I think the experience to date may be different from what everybody is conjecturing about. And we don't know actually what will happen, what will be deployed, what pricing will be and what the landscape will actually invite and lead MVPDs to go with. And I think it's worth noting that because otherwise there is a presumption that this is occurring when in fact it's not.

With all that long preamble said, we really do think that brand shows that support brand and price will determine if things move around where strength sits. And so we think that if we have brands that really are in people's heads and that we have a core constituency that cares about BBC America and about IFC and about Sundance Channel and about WE tv, that will stand us in very good stead.

And if we have shows that -- and I won't list them all but you heard us talk in the prepared remarks about what we're making, what we've achieved and what we're investing in. So we take seriously that we have to be accountable and really good and have shows supporting each of those channels.

If we have those and if we're fairly priced, and we think we are very fairly priced, not underpriced for our value that we will be in very good position as any evolution occurs. Sorry for the length of that answer.

It's helpful. Thank you very much.

Ryan Fiftal, Morgan Stanley.

I have one for Josh and one for Sean. Josh, one of the advantages of Walking Dead is obviously it's such a strong platform for you to launch new shows. Worked very well with Badlands last year and I think Fear already has the tonnage to be used in a similar way.

So I'm wondering if you've decided how you can use those assets to launch new shows this year?

Ryan, this is Ed. I think we're doing it. I mean, there's a couple of things that we've done both to extend the franchise and do what we call superserve the fans.

So, Talking Dead just registered the biggest performance number that it has in its history coming out of the premiere of Walking Dead a week ago Sunday. And you talk about the success of Fear and we will continue to use both Fear and Walking Dead to introduce new shows or to promote to shows on the next night.

One of the things that's important to AMC now is establishing a new beachhead of original content Sunday nights and increasingly in 2016 you'll see our originals on Monday night. So the observation that you made is an important one and it's one that we spend a lot of care within our scheduling strategy.

Okay, thanks, and I guess a similar one on launching new shows. Wondering if there's any change in the margin on how you're putting marketing dollars to work. So SG&A was up quite a bit in the quarter -- it was up 24%, I think. I understand some of that is BBC America and some of it's show timing but it was still a bigger number than we expected. And I'm curious if you're finding it makes more sense to put more marketing weight behind some of these new shows than perhaps you're used to?

You know the spending on marketing, we really look at it on a show-by-show basis and we look at the schedule. We look at where in the year we are, what our competitors have on and most importantly we look at the profile for the intended audience and where we think we can target them.

It is interesting on some of the shows, I should say historically on cable, marketing spends were frontloaded, enormously frontloaded. But now as programmers are thinking about getting to season 2 are thinking about sampling; are thinking about catch up on VOD. One of the trends that you're seeing is marketing spend a bit more spread out over premiere seasons. So it's something we spent a lot of time analyzing and we look very closely at target audience and their habits.

And, Ryan, just specific to the fourth quarter, we obviously launched Into the Badlands which was a new show, which was a contributor to that increase and obviously the Walking Dead was in the fourth as well. So those are probably the two contributors to your expectation.

Okay, thank you.

Michael Nathanson, Moffitt Nathanson.

I have one for Josh and one for Sean. So Josh, increasingly a lot of your peers are now putting the Nielsen subscriber counts in their press releases because there is new claims of sub counts not being totally accurate. You guys put it in. It shows very little erosion of your subscriber base.

So I wonder how accurate from actuals to what Nielsen reports is the change in your subscriber base? And how much has Sling paid a part of that because Sling is now reported in the Nielsen numbers?

Right, Michael. Nielsen, as you know, is the arbiter of trade today and the trade and commerce moves around the numbers that they report. You probably know their methodology better than I do and the vagaries and changes in how they collect data, sample and project.

It is a matter of trade. So I would say that we are engaged with them as the arbiter of trade and we accept it and we use it and I'll restrain from comment on any imperfections or vagaries and leave it to that and simply say we're engaged with it today. We do think and hope that ever more accurate data will be a benefit to us and the industry.

But directly, Josh, if you look at the subscriber numbers in the press release on page 7, based on what you know to the actual numbers, is this a good representation of AMC's changes in the subscriber levels year-over-year?

I would say it's a reasonably good representation of what we've seen over time, yes.

Okay. And then for Sean, can you remind us again? You mentioned your capital usage thoughts but what's the right target leverage ratio for AMC Networks at this point in time?

So Michael, as you know we haven't socialized a target leverage. What I would just say is remind you of the history. We obviously entered 2015, levered four times, we exit 2015 at 2.9. We are very much focused on investing in the core business organically delevering -- generating strong free cash flow and at the appropriate time, the management and the Board will evaluate capital allocation policies and whether or not we need to stay at target leverage.

And then you're going to socialize it to us, right?

(laughter) Thanks, Mike.

Todd Juenger, Sanford Bernstein.

I wanted to hit, if I could, on two of the harder to forecast revenue items for your Company and see what you could maybe help us with. So on the international side, forgive me if I missed it, Sean, if you said but anything you could provide, maybe an organic rate of growth compared to the currency headwinds impact?

And then may be something on advertising versus affiliate growth? I think it's mostly affiliate fee growth. So anything there on price versus volume. Obviously, just basically anything you'd say that would help us gauge the stability going forward would be great.

And then separately on the advertising line item, let me just put it out there. A very frequent but probably poor way that we on the outside go about this is, we often start with thinking about The Walking Dead right and thinking about how that is looking year over year. And then thinking about the new shows you're launching and the audience that they add back, or contribute on a new basis. And trying to figure out where we think that all comes out from an audience perspective; mapping that against the demand assessment and coming out with the revenue projection.

I'm sure there's a better way to do it. So, can you suggest -- is that as best as we can do or if there a better way that the outsiders based on the evidence we have should think about the overall advertising profile of your business, we'd love to hear it, thanks.

Todd, I'll attempt to respond if I may. I don't know that I'll be any more helpful. You're fairly expert at modeling and projecting ours and other businesses. So, I'm not sure I'm going to be a contributor.

I think that the performance of our shows, the demos in them are, of course, key variable. I'm not saying anything terribly enlightening.

The urgency of our shows, I think, matters a lot. If you're selling products or advising clients about the sale of products, it really does matter. It does help move the needle on what comes off of shelves or out of car lots. And we think we are rare in that strength.

So that's a softer rather than a harder metrics to evaluate, so -- but I think it's one that you'll actually see at work.

And I also think that size a bit matters. We mentioned broadcast replacement. We are very different now a significant size. We can matter to an awful lot of clients a lot in terms of meaningfully impacting what they have to do and their marketing budgets in that year.

So those are, I guess, less absolutely tangible in creating a model in which numbers rise and fall and I might just suggest that they are worth evaluating.

Other than that, you do understand, of course -- we all do -- that the numbers are numbers, and you can run math 18 different ways from Sunday and you develop CPMs and GRPs and buys.

And the only thing -- last thing I'll say is that softer stuff, which is not soft it's actually meaningful to moving products, is something that advertisers we want when we buy advertising. And so it's worth paying a lot of attention to. It's why we think we have an awful lot of strength and desirability that we've evidenced and that we will see going forward.

Todd, on the international side, I would just say to be helpful that affiliate revenue does represent the biggest part of revenue on our international business but the rate of growth on the advertising side is actually quite high.

Josh mentioned in his remarks when we introduced Fear the Walking Dead to the AMC Global feet around the world, it made us a top performing network that night and that month. And so adding these shows has really ramped up our ability to monetize the advertising revenue side. Fear of the Walking Dead makes a day and date premiere -- it premieres in the US April 10 and it goes day and date around the world.

So both -- and the investment in content on AMC Global is actually driving the whole portfolio on the affiliate side. So we feel good about the top line on both advertising and affiliate. And I would say the rate of growth on advertising is most aggressive.

Okay. Thank you guys, both.

Ben Mogil, Stifel.

So, when you look at the originals that you are airing on your networks, the new ones coming up and leaving aside sort of Better Call Saul. For those that are licensed are you seeing any ability or any greater ability to get either the SVOD rights directly or have some participation and as VOD sort of thinking you guys are the gatekeeper to letting shows get aired and having an SVOD life. And sort of how much leverage you are on the non-owned shows and getting participations around that?

Sure, Ben. I think it's a good question and it's an area that has developed over time. I think the best way I can respond is really every deal is different and the deals are really quite custom.

It depends upon who initiates. It depends upon what the nature of the show is and you are quite right that we are participants in as VOD in varying degrees both on percentages and on activity, which is who holds the contract, if you will.

And so we determine that with our producing partners or if it's a studio, studio partner and if we approach it on a reasonably fluid basis, so that both partners when -- and there is one in reference to those that are license a benefit. And so we work it out, it's articulated. We arrange it and it's fair to say just as you indicated that we do have both an equity role and an activity role frequently even when we do license.

And if you look back over the last, say, three to four years, that spot has become obviously much bigger change and disruption to the ecosystem. Are you seeing your leverage in those discussions with licensed parties better, worse or is it really a bunch of one-off situations?

I guess I would say that we have, as you know, had relationships and have relationships with the major SVOD outlets. And we think we've had pretty strong track record and flow of content. And I guess I would say I think that they think we're likely to have that flow continuing.

So I think that we're seeing -- I don't want to say better things about us than people may think but I think that we're seeing as a reliable quality producer and therefore that expectation is helpful to us as we organize deals. That's my best attempt to answer your question, if I may.

Fair enough, thanks, Josh. And then one quickly for Sean. Sean, on the programming right upside, are these almost always originals or are you still writing off occasionally sort of some syndicated movies, older programming where ratings haven't sort of met the threshold test?

Yes, I think for the most part we identify the write-offs. I think, typically, they are originals that they are either licensed or owned.

And should we sort of assume that that number stays a percentage of either programming expenses nationally or is it a percentage of the cash outflow for programming? Is that kind of like a reasonable proxy, if you will, for 2016? Or alternatively on your 2016 guidance on costs, is there sort of some general provision that you've gotten there for write-offs?

We evaluate the programming utility every quarter at the end of every year. We obviously plan for success not failure. So I don't, frankly, forecast impairment or write-offs.

Okay great, thank you very much.

Operator, we'd like to take one last question please.

Alexia Quadrani, JPMorgan.

My question is on really the opportunity on the affiliate side. Years ago when you first started looking at the Company I think there was a great story in terms of you guys were being underpaid and there was a step-up expected in to your affiliate rates and we've seen very good affiliate revenue growth sort of during that period.

I know you have sort of gone through large part of your renewals but it's always ongoing. I guess I'm trying to get a sense of how much do you think you're sort of under earning still? And how much opportunity do you think there still is ahead of us in terms of kind of a reset, if you will, in terms of getting paid what you think you deserve?

Alexia, I don't want to mislead or misguide you. I think -- I'll tell you a couple of things if I may in response -- this is Josh. We do think, first of all, that system and relationship between MVPDs and programmers has its obvious points of tension as we are all aware. So we've been navigating in it now for quite a long time. We've been navigating it most recently in an increasingly consolidated on the MVPD side terrain, and we've been navigating it, I would say quite successfully; our numbers speak for themselves.

So when we said several years ago that we thought we were undervalued, even in a fairly sometimes pressured market, I think that that's been evidenced. We do think that, given the changes in how people are consuming TV and the fact that there is more intention involved and less random channel flipping and therefore shows that don't have really big constituency are losing and their value by a degree, that we are emerging as increasingly meaningful, which you see in our ratings and you see in critical reviews and you see in all of those -- in other symptoms, if you will, of strength. So I think and we think that we have more strength and that our value is greater than it is.

I guess I would caution you just a little bit to say that making that manifest in commercial contracts that often go anywhere between three, seven, eight years is a separate subject to take up when one puts numbers to that.

So that I think our position is strong. Sean articulated what we think the next 12 months look like and we think that we are very well-positioned and situated for a longer horizon, and that's the backdrop that will have to effect and act in.

Thank you very much.

Well, 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 conference call. You may now disconnect.