AMC Networks Inc (Pre-Reincorporation) (AMCX) 2016 Q2 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' second-quarter 2016 earnings conference call.

(Operator Instructions)

Thank you I will now 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' second-quarter 2016 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 2016 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 can cause actual results to differ. Please refer to the Company's filings with the Securities and Exchange Commission, for a discussion of risks and uncertainties.

The Company disclaims any obligation to update the forward-looking statements that may be discussed during this call. Further, we will discuss non-GAAP financial information. We believe the presentation of non-GAAP results 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.

Thank you all for joining us this morning. AMC Networks' strong start to the year continued in the second quarter. With double-digit growth in net revenues, ad revenue, and AOCF. Our financial results were driven by our continued focus on a few long-held strategic priorities. Investing in great content that deeply engages viewers, growing revenue streams throughout the thoughtful digital exploitation of our content, and growing internationally.

Among the highlights of the quarter, AMC is now home to five of the top 10 shows on cable TV, among adults 18 to 49 and adults 18 to 54. Quite a feat we think given the competitive landscape in the midst of somewhat challenging overall ratings environment.

The Walking Dead, which had its sixth season finale in the quarter remains the biggest show on TV by a wide margin in the adult 18 to 49 and 25 to 54 demos. Advertising continues to be a significant growth driver for AMC Networks, with very strong pricing power and demand for our shows and content.

Our investment in great content and strong brands continues to drive higher audience engagement across all of our networks, and our shows tend to have significant outsized cultural influence and impact. To wit, last month our networks received a combined 32 Emmy nominations, including a nomination for Better Call Saul for outstanding drama, marking the ninth consecutive year that AMC has received a nomination, in this prestigious category. This validation and recognition reflects our network's ability to attract excellent creative talent and great crew, in a very crowded media field.

We continue to see strong demand for AMC globally, and we have been pleased with the enthusiastic reception for our programming from global audiences and affiliates alike. With new distribution agreements that are bringing AMC, the channel, into parts of Europe, as well as into homes in 21 countries across the Middle East and North Africa.

AMC Networks, we think, continues to be very well-positioned in both the near and long-term. We have what we think is key, strong brands, a proven ability to develop and produce quality content across an array of genres, very strong advertiser appeal, particularly for originals, a uniquely engaged consumer audience and a very, very, competitively priced wholesale affiliate rate. We also believe our increasing ability to monetize our content on digital platforms, due to increasing demand for the type of serialized, very high quality shows we create, positions us particularly well, as our business evolves.

We remain focused on ensuring that there are new pathways to our content, on a variety of platforms, as viewers obviously have more options than ever before for services that enable them to watch TV, whether it's our own networks, Apple TV apps, or being part of services such as Sling TV and Sony View, we expect our shows and our brands will continue to be a part of these new opportunities, as they continue to emerge.

So turning for a moment to our national networks segment. We have essentially completed the advertising up front and are very pleased with our ability to secure a healthy pricing increases at all of our networks, in particular AMC, where we achieved double-digit CPM increases. Due to the strength of our brands and our content, we were able to elevate the quality of our advertiser relationships in a competitive environment.

Despite some ratings pressure, AMC continues to dominate cable TV. Delivering the highest-rated shows on cable, and capturing a disproportionate percentage of younger target viewers. As I mentioned earlier, AMC is currently home to five of the top 10 shows on cable TV in key demos. In addition, we are delivering about a third of all scripted impressions in cable, among adults 18 to 49.

Better Call Saul capped its second season during the quarter, with strong finale ratings and broad critical acclaim that further established the series as one of TVs top dramas. It will return next year for a 10-episode third season.

The debut of our new series, Preacher, made it the number two launch on cable this year, only behind FX's The People Versus O.J. Simpson. This darkly comedic supernatural drama, from Seth Rogen and his partner Evan Goldberg has received wide critical praise, and we have renewed it for an expended 13-episode second season.

During the quarter we continued to expand our original programming by adding a fourth night of originals. We have launched this new night with The Night Manager, what we think is superb BBC/ AMC co-production, starring Hugh Laurie and Tom Hiddleston, that has been just about universally lauded, and was honored with 12 Emmy nominations recently.

And building on our Talking Live After Show franchise, we recently announced an extensive multi-year deal with Chris Hardwick, which we will him host and executive produce, multiple programs for AMC over the next three years. He'll also continue as host of the current and new Talking Live After Show formats, including Talking Dead, which is the number one talk show on TV among adults 18 to 49.

Later this month, Fear the Walking Dead will return for the second half of season two, and Halt and Catch Fire returns for a third season, building on its critically lauded second season.

On our other networks BBC America, WE TV, IFC and SundanceTV, we continue to have shows that stand out for their very deep appeal to viewers who have a strong connection to those brands and their programming. At BBC America, we're pleased with the strong performance we've have had recently, including year-over-year total-day growth in audience across key demos. BBC America was recently recognized with four Emmy noms, it's a nice thing, including for Orphan Black's Tatiana Maslany, and for Luther's Idris Elba, who were each honored for their standout work. These nominations reinforce the network's reputation as a home for critically acclaimed content, with great storytelling and really, we think rather exceptional programming.

BBC America recently concluded season four of Orphan Black, its first original scripted series and the show continues to amass an enthusiastic and strong cult following. Season four ranks as BBC America's most-watched program of 2016, and we recently announced the series fifth and its final season to premiere next year.

This quarter, BBC America premiered, get this number, season 23 of BBC's popular Top Gear show. The show continues to have strong following, and is a driver for the channel. This season that reach more viewers than ever before, and it continues to attract a highly upscale audience, ranking among the year's top-five most affluent programs on ad-supported cable.

In July BBC America premiered The Hunt, the first of a series of landmark natural history series the network is co-producing with the big BBC in the UK. The Hunt was extremely well received, by both critics and viewers, and we look forward to presenting a new installment of the much celebrated Planet Earth series next year.

This October, BBC America will premiere a new series from our own production AMC Studios called Dirk Gently. This series is a comedic thriller, adapted from the best-selling novels by Douglas Adams and its stars Elijah Wood, best known for Lord of the Rings films. This very cool, highly anticipated show was met with a great reception at last month's Comic Con in San Diego, and we hope and think this series will attract the sort of pluged-in social, and affluent audience, that craves more entertainment akin to BBC America's Dr. Who and Orphan Black.

BBC America has a great development slate now going forward with projects from creative talent, including comedian Amy Poehler, Natasha Lyonne of Orange is the New Black, the producers behind Top of the Lake, just to name a few.

At WE TV the network continues to build solidly on its success with African-American viewers on Thursday nights. And on Friday nights, it has become a destination for quite buzzed-about reality TV. Next week, we'll air the 100th episode of the network's most popular series Braxton Family Values, reflecting the success of the franchise on WE TV, and the fact that the Braxton's have become one of the longest-running family reality franchises on television. As cable and broadcast networks are catching up to the idea of diversity in their programming, WE TV remains the number one cable network for African-American adults and women on Thursday nights. With quality shows featuring diverse characters and voices.

IFC continues to be the home of smart alternative comedies, attracting top A-list comedic talent, and creating shows that resonate with fans, and create a lot of pop culturally relevant moments. Two of the network's biggest series, the long running hit Portlandia, and the parody series Documentary Now, come from Saturday Night Live executive producer Lorne Michaels, and feature well known cast members Fred Armison, Bill Hader, and Seth Meyers. Both of those flagship shows for IFC received Emmy noms in the outstanding sketch variety series category.

For IFC to have two of the six nominations in that category is something that we are particularly proud of. Documentary Now returns to IFC in September, for the second season debut, that's called The Bunker it's based on, if you are familiar with it, the D.A. Pennebaker documentary look at the 1992 Clinton presidential campaign, that's called The War Room. We are excited for this series to return, with its own weird take on six iconic documentaries, and to have Bill Hader doing his own particular version of James Carville just a few weeks before the presidential election.

We are also looking forward to two new shows, Stand Against Evil, a comedy horror series premiering later this year starring John C. McGinley from scrubs, and a show called Brockmire which is based on a Funny or Die short and stars Hank Azaria, perhaps best known for his work on The Simpsons.

SundanceTV continues to establish itself as a home for intelligent and distinctive scripted originals on Wednesday nights. With shows like Hap and Leonard, which premiered earlier this year and was the network's biggest launch in its history, in total audience, and among adults 25 to 54, and it has been renewed for second season. In October we'll have debut the final season of Rectify, the widely acclaimed Peabody Award-winning drama that's been so important in raising the credibility and awareness of SundanceTV in its new stage. The next year will prepare the highly anticipated second installment of Top of the Lake, a follow-up to the Golden Globe winning mini-series that aired in 2013. Elizabeth Moss, who you may know from Mad Men will return to star, joined by a stellar cast including Nicole Kidman.

Turning for a moment to our international business. The business overall continues to perform well. Last year as many of you know, we executed on our strategy to take the AMC brand and channel internationally, for the first time and populate it across the globe with our own original content. This was a big step forward in our international initiative, and had been in our mind's eye when we made a couple of major acquisitions to move this business forward. The name AMC and the AMC channel is now available to audiences in about 130 countries, and in just a little over a year, we've successfully launched numerous AMC original series on that channel, including Fear the Walking Dead, Into the Badlands, Night Manager and Halt And Catch Fire.

In the coming weeks, we'll debut the second half of Fear the Walking Dead, simultaneous with the US premiere. The show is capturing a strong following abroad with the first half making AMC a top-10 network across many key markets when it premiered earlier this year, and we think that's quite a major step forward for us there.

We're pleased with the performance of our international business and believe we are well-positioned to capitalize on ample opportunities for great content, that are available on different platforms around the world.

With that overview, I would like now to turn the call over to our CFO, Sean Sullivan for some more specific financial information.

Thanks and good morning. As Josh highlighted, our results in the second quarter were strong. The Company delivered double-digit revenue and AOCF growth and generated healthy free cash flow. For the six month, ended June 30, total Company revenue grew 10% and AOCF increased 11%. We're optimistic about the outlook for the full-year 2016, and I will touch on that after reviewing the second-quarter results. In the second quarter, total Company revenue grew 14% and AOCF grew 10%. Our financial results in the quarter were essentially in line with the expectations we communicated on our last earnings call early May.

So moving to our operating segment performance. At the national networks in the second quarter, revenues increased 17%, or $84 million. National networks AOCF increased 13% or $24 million, versus the prior-year period to a total of $206 million. Advertising revenues increased 29%, to a total of $239 million, as expected, results in the quarter were quite strong and benefited from the timing of our originals, most notably at AMC versus the prior-year period. AMC the channel had a particularly active quarter, airing of season finales of both The Walking Dead and Better Call Saul, as well as new episodes of Fear the Walking Dead, Preacher, and Night Manager to name just a few. This programming lineup more than made up for the absence of Mad Men, which aired its final episodes in the prior-year period.

Advertising across the rest of our portfolio of domestic networks, BBC America, IFC, Sundance, and WE TV was, in aggregate, quite strong as we took advantage of a healthy scatter market. Distribution revenues at the national networks increased 10% or $30 million to a total of $333 million, versus the second quarter of 2015. Affiliate fee growth for the quarter was in the mid single-digit range, consistent with the expectations we highlighted on our last call. Distribution revenue growth for the second quarter also reflected a strong double-digit year-over-year increase in non-affiliate revenues, due principally to revenues related to the licensing of our scripted original programs, most notably Fear the Walking Dead on various ancillary platforms. The timing of recognition of these items was in line with the expectations we discussed.

Moving to expenses, total expenses increased 20% or $60 million versus the prior-year period, as expected, expenses in the quarter reflected the timing of originals. Technical and operating expenses increased 25% or $48 million compared to the prior-year period, to $240 million, the increase in tech-offs reflected the continued investment in programming, as well as the various rights that we have on our shows. As for programming write-offs, we recorded $1 million in charges in the current quarter as compared to $4 million in the prior-year period. SG&A expenses increased 12% or $14 million compared to the prior-year period, to $135 million. The increase was principally related to marketing costs, which reflected the timing of originals most notably at AMC.

Moving to our international and other segment, revenues for the second quarter increased $5 million to $118 million. AOCF for the second quarter decreased $1 million to a total of $8 million. The timing and amount of some of the various revenue expense items in the quarter in our international networks business, resulted in modest upside, approximately $3 million to $5 million, relative to the expectations we outlined in our last earnings call in early May.

At our international networks, reported revenue increased $8 million over the prior-year period, due to a healthy increase in both distribution and advertising revenues, which more than offset a $3 million negative impact from foreign exchange. On a constant currency basis, our international networks delivered double-digit revenue growth over the second quarter of 2015. AOCF at our international networks was potentially flat year over year, reflecting the increase in revenue offset by an increase in expenses, as we execute on the strategy Josh articulated. Foreign exchange did not have a meaningful impact on AOCF on our international networks.

At our IFC Films business, revenues decrease as compared to the second quarter of 2015, due primarily to the absence of ancillary revenue from the theatrical film Boyhood. AOCF for the quarter increased modestly year over year due to a decline in expenses principally related to prior-year marketing. Lastly, within the international segment second-quarter results included a modest year-over-year increase in investment, in connection with our various digital initiatives.

Moving to net income, total Company net income for the second quarter was $77 million or $1.05 per diluted share. As detailed in our earnings release, included in this amount with $24 million of charges related to foreign currency transaction losses on intercompany loan, excluding these charges diluted EPS would have been $1.28. Excluding the impact of amortization of acquisition related intangibles, adjusted EPS for the second quarter was $1.14 per diluted share on a GAAP basis, and $1.37 per diluted share excluding the charges related to foreign currency. I

n terms of free cash flow, the Company generated $196 million in free cash flow for the six months ended June 2016. Through six months, cash interest was $69 million, tax payments were $75 million, distribution to non-controlling interests, primarily related to BBC A, were $9 million, and capital expenditures were $24 million. Program-rights amortization for the six-month period was $373 million, and program-rights payments were $466 million, resulting in a use of cash of $93 million. This compares to a use of cash for programming of $69 million, for the prior-year period.

Turning to the balance sheet, as of June 30, AMC Networks had a net debt position of $2.4 billion. Our leverage ratio based on LTM AOCF of $885 million was 2.7 times, unchanged from the first quarter of the year. As disclosed in our press release, the Company repurchased $48 million worth of stock during the quarter, and an additional $27 million subsequent to the end of the quarter. This represents approximately 1.3 million shares at an average price of $58.49. As of last Friday, the Company had $425 million available, under its existing authorization program.

The Company also made a mandatory payment of $37 million on its credit facility in the second quarter, we are required to make similar quarterly payments throughout 2016 as per our credit agreement. 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. We will continue to be disciplined, an opportunistic in our use of capital for repurchases and/or non-organic investments.

Looking ahead, we remain optimistic about the outlook for the Company's performance and our full-year expectations are pacing to be on track with the targets we set coming into the year. At our national networks, we expect to deliver healthy revenue and AOCF growth for the full year, and we continue to anticipate managing the national networks business to a margin that is largely consistent with the 2015 level.

With respect to our quarterly performance, our results were expected to be impacted by the timing of our programming lineup. We anticipate tougher comparisons in the third quarter, and more favorable results in the fourth quarter, putting the year in aggregate in good shape. The national networks we expect our advertising performance in the third quarter to be relatively flat year over year, before accelerating in the fourth quarter as price increases are anticipated to mitigate headwinds from ratings.

With respect to distribution, we expect non-affiliate revenue to continue to deliver strong double-digit growth, due to the amount and timing of our content. On the cost side, we expect our results to be impacted by the timing and mix of our originals. In the third quarter we anticipate the rate of expense growth on a year-over-year basis at the national networks to remain generally consistent, with the rate of growth we experienced in the first half of the year.

At our international and other segment, assuming a constant currency, we expect revenue AOCF to be relatively flat year over year, on an absolute basis as growth in our international networks is offset by timing at IFC Films and continued investment in our OTT digital initiatives.

Overall, we feel good about how the business is positioned as we look ahead.

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

(Operator Instructions)

Your first question comes from Michael Morris of Guggenheim Securities.

Thank you, good morning guys. Two questions for you.

The first one is on Hulu. Josh, you mentioned that you expect to be part of new opportunities, and I'm curious if you will comment on your expectations for being included in the Hulu virtual MVPD service? And whether your relationship on the SVOD side has any impact on a relationship -- on a linear product with them? And then -- well let's just start with that, and then I will ask my follow-up.

Sure, Mike.

So, just by way of background, as you know, we are part of Sling, we've felt that was a good initiative on behalf of Dish and some of our participants in it. We are part of Sony View, so we do think, in general, that being able to access our brands and contents on reconfigured platforms that come from conventional, and less conventional aggregators and retailers, is a good thing. Hulu -- as you know we do have an SVOD relationship with Hulu, so we enjoy proximity and ongoing commerce with them. And I think it's been a fluid a very healthy and happy relationship. As you might imagine, we are in regular conversation with them. I think their business and their plans are being formulated. We read of something just a couple of days ago that included Time Warner. So I wouldn't want to comment specifically. I would just say that we're close to the company. We believe in and support what they're doing and we look forward to a future with them if it all works out.

Great. Thank you for that.

And then my second question is on your mix of owned versus licensed shows -- a topic we speak about frequently. It feels that you're moving more toward owned; however, the two most recent series on AMC, Preacher and Feed the Beast, were licensed. I guess my question is twofold: how are you thinking -- how should we think about going into next year, what your mix of owned versus license programming will look like? And maybe more broadly, are there things that you are doing or need to do behind the scenes that maybe we don't appreciate but that better position you over time to own more of your slate. Thanks.

Sure. I think you got, pretty much got, the picture. What guides us, and has guided us over the past several years, has been a bias, as we call it, to own. The bias to own is because, in success, the rewards -- they are greater. So Walking Dead, Fear the Walking Dead, and other shows that we own -- we're able to control the rights to exploit and enjoy revenues from the growing series of opportunities, both domestically and internationally.

But we have said to ourselves very clearly, and what we have done is, we have -- I would not call it, made exceptions -- but we have gone with non-owned -- licensed, or coproduced -- there is a spectrum of ownership; it is not by binary, it is not like you own it or you rent it. You can, to use real estate parlance, you can be a co-owner, and you can do all sorts of variations in which you share in ancillary rights. And what occurs, perhaps very obviously, is that your cash upfront moves with those spectrums of rights.

So if there is creative material that we think is very strong, and we can make financial arrangements that we think is sane and appropriate, the we will go forward with it. We coproduced The Night Manager with the BBC. We are very pleased with the creative material. We are very pleased with the performance; and we think the financial arrangement was good for them, and good for us. So we will continue to do those deals as they come up, with a bias to own.

I do not know what the number of shows that we own today at AMC Studios -- it's well upwards of 10 or 12 that we're currently producing -- so it's a pretty big factory, which creates a whole series of options, and it creates a growing library. So we end up having, broadly, studio qualities, as well as channel qualities, in our Company. By which I mean we're an IP owner and controller. And that is both good, and it comes with certain, as you know, vagaries -- the vagaries of performance. So we, having come from a channel history, probably had a slightly more defined and disciplined financial orientation to our participation in owned production, because it can succeed -- and as we all know, it can not succeed. So that's a very long answer to your question.

We have two significant series coming up that you may or may not have heard about. One is called The Terror, which is -- and the other is called The Son. And I can tell you what sort of the log lines are: The Terror is a mid-19th century transatlantic ship that gets stuck in the ice way up north, and then there are supernatural qualities that come into the story. It's based on a great piece of primary material and we own that. And there's another thing, also from a book, called The Son, which is a multi-generational -- you could call it Western, but it is more than Western; it really goes into larger stories about family and multi-generation, international, and ethnicity; and we also own that. So we have a big bias to own where we can, but we do not exclude opportunities, if the creative is very strong.

The behind-the-scenes is not mysterious. It is really just deal. What are the economics? How at risk are we? What spectrum of rights do we get? And what's the risk and reward look like? That is pretty much the story, not terribly complicated.

And Mike, this is Sean.

Just to punctuate a couple of things that Josh said -- again, ownership is not a binary thing. Every deal is different. So there are shows that, we are coproduction partners that may appear to be licensing relationship, but we actually do control certain ancillary rights, and we have the ability to monetize those. We obviously don't necessarily articulate the nature of every deal, but I would just highlight that it is not necessarily black and white. In every deal we are negotiating for a set of rights at a certain price.

That's helpful. Thanks, guys.

Thank you; your next question comes from Anthony DiClemente with Nomura.

Great. Thanks and good morning.

First, for Sean, or maybe Ed -- on the expectation for flat domestic ads in the third quarter, I am just wondering to what extent is it the tough comps year over year, as compared to ratings underperformance, versus your internal expectations for the new shows? To what extent is strong pricing making up for some of that potential underperformance? And then, to what extent is the Olympics a factor in your third-quarter expectation?

And then follow-up; a question for Josh. I think you did something creative with Preacher, where AMC made the first five minutes available to watch on Snapchat before it aired on the network. Do you expect to do more of that? How did it go?

And then more broadly, when you look at some of these technology platforms, like Snapchat, like Apple -- Apple is buying content for the first time. Like Amazon -- Amazon is doubling it's spend content in the second half of the year. Josh, are you surprised there haven't been more business partnerships with the big tech platforms? Or even acquisitions of media companies by those big technology players? Thank you.

I will take your second question first, if you don't mind. We have had a long-held view, Anthony, that platforms that one can think of as competitive, are often better thought of as companions and opportunities. And so we are really always on the lookout for how we can find an emerging or established platform or exhibition enterprise to partner with. And I can list a whole range of things we've done that at the time were sort of novel: the first company to put movies on cable, VOD, and in theaters the same day and time. We did a movie in a mini-series and we did the TV mini-series before we released Carlos as a movie, and it won a Golden Globe and then was a successful movie.

So we are actually intrigued by the manner in which companionship with newer platforms -- like Snapchat particularly, and others -- can elevate through sampling and attention and promotion, what we're doing, which is rather expensive long-form serialized drama for the most part. So they are, I believe, and we believe inherently great promotional partners. And just one more element in my long speech and I will try to turn it over to Ed. It is also the case that younger people, as we know, are not watching one screen only. They are on two screens almost all the time. And sometimes three. And so to ignore those screens is silly.

We think that there is super-rich opportunity. And so we did the Snapchat thing, we liked it. We actually are percolating as we speak several new ideas -- they're in stages of development -- about how we can lead the exploitation and the invention of the manner in which people move and find content from mobile platforms, to fixed TVs that are attached to walls, to screens that are midsized, commonly called tablets, that they carry around, and how they would like to follow their characters. And so we did something with AMC which actually was fairly notable. We did short form that got picked up from The Walking Dead, and we are currently probably running after about six new ideas.

So long speech. We love it; we think it adds what we do and we can be partners with those entities.

So Anthony, it's Ed.

On the second half of the year, the third quarter we have some unfavorable comps in terms of the number of original scripted hours. We also, as you know, there are macro influences that are making ratings more difficult to achieve across pay-TV and broadcast TV. In the fourth quarter, we really see the benefit of this up front, where we were able to drive favorable pricing, double-digit price increases on AMC. And we think that will offset some of the headwinds on delivery. So that's really the outlook for the second half.

Okay. And then the other questions were: can you concede -- have ratings fallen short of your internal expectations for some of those originals? And then also the questions about the Olympics. Is that something people called out for the third quarter as a competitive headwind. Is that relevant for AMC?

Not particularly. The Olympics -- we certainly know that they are there; we know they are happening and we anticipated them. The scatter market continues to be healthy. Our internal estimates -- I think we do a good job estimating. We certainly gauged the performance of our original series. We look at their track records. I think we are realistic, and that gives us the best ability to monetize the impressions aggressively.

I think the thing with advertisers is, AMC has what is increasingly a rare commodity, which is a large audience of 18 to 49 year olds, particularly with a male concentration, which, outside of sports, you don't see in abundance on pay cable. That gives us the ability to be very aggressive with advertisers on pricing, because the market demand -- and it's up front -- the demand for our original content was as high as we've ever seen it. So we feel good about the overall.

Good. Thanks a lot.

Thank you, your next question is coming from Michael Nathanson of MoffettNathanson.

Thanks, I have one for Josh and one for Sean. Josh, let me start with you.

Many of your competitors -- like Fox, Turner, Viacom -- have said they're going to cut commercial loads this year. And given that your commercial loads are lower at AMC than any of its peers, can you talk a bit about your view on commercial clutter and the willingness to increase commercials if ratings falter in the next couple of quarters?

I think you probably said it, Michael. We are substantially lower than some of the entities that indicated that they were going to decrease their loads. So we think -- we've been mindful, I hope, from the start, about what commercials do and don't do to the type of content that we put forward. And I think we have -- and we do study this as well as we can -- I think we've hit it right levels. And we monitor it pretty carefully, for the consumer experience, and of course to maximize revenue, and of course to add promos as well, because it's a good platform for our own promotion of shows.

So we think we are at the right level. Anything that we adjust or move we move with extraordinary care, because we think that the consumer experience is primary to what we do. We are asking for the allegiance of consumers, to come back to us, and have a good experience. And we are also, frankly, mindful of commercial-free competitive alternatives today. When people go home they can flip much more easily than they used to, to streaming SVOD services that are commercial-free or commercial-light. So we think we got it right. We move it around only teeny bits, and with great care, and we think we, at least today, for the foreseeable future, are at the right load.

Okay. And for Sean -- there was a press report of buyouts offered for about 200 employees. Can you talk a bit about whether or not that was true? And what the cost savings would be if that actually happened?

Sure Michael, this is Josh, yes.

That is occurring in the Company and we are in the midst of it. We think it's an opportunity to reward people who may be at a point in their careers with us, who, when it is time for them to -- when it is a good time with a reward -- to depart. We're actually in the middle of it as we speak. We think it's a good undertaking. We hope that it will be and is being well received, by the people who are here, and we hope we accomplish a few objectives.

One is that we are able to be more efficient, and be financially better structured. Along with it, we will undertake some -- we will look at some modest structural changes that set us up for the fact that our world is today more digital than it was in the past. And we will have better organized Company. We haven't done that, but we have done a cost examinations, and we have had some changes in each of the past, you may note, couple of years, and we've have reported some restructuring charges. So I think it is part of the evolution of a media company in today's world.

Okay. Thanks.

Thank you your next question comes from Todd Juenger of Sanford Bernstein.

Oh hello, thanks. I've got one for Sean, and one, I suspect, for Ed.

Sean, a couple of your peer companies have made changes to their program amortization recently. Actually going in different directions. So, at least one company we know has accelerated their program amortization, saying that program has a shorter useful life than it used to. And then we learned yesterday somebody else is going the other way, and saying program has a longer life. You have your own very specific way of amortizing owned and acquired programming. Are you exploring that? Do you think there's any changes to the useful life, generally, for your programming? Anything we should think of on that?

And then, Ed, probably for you -- you've talked about a rare commodity that you have the liberty of taking to the marketplace, which is sizable audiences of people inside original programming. One thing that's less rare is original programming generally. If you think about -- I'm just curious -- the discussions with advertisers and the pricing you agree upon for your inventory -- part of that, I think you used to give a pretty good premium just because of the premium environment that originals provide for advertisers, and part of it is the size of the audience. Is it fair to say, with all of the investment across the industry and originals, it's not so rare anymore? Is the discussion changing? Is it harder to get premiums associated with originals because that's a less rare thing? And is it turning more and more to the size of the audience?

Anything you could share on that would be very helpful. Thank you both.

So on your first question -- as a blanket statement, we evaluate the vitality, utility, useful life, of our programming on a quarterly basis. So that is something we have done and will continue to do. As it relates to play patterns -- that certainly factors into repeatability, and audience factors into our evaluation. As you know, we use an ultimate method of accounting, in terms of [revenue] attribution, for our owned originals. So, as some of these ancillary revenue streams have emerged, evolved, and increased, and whether that's SVOD or international distribution of the show, we are attributing the expense against those in the play pattern of the shows.

So I do not think that you are going to see a dramatic change in it. I cannot comment specifically. I am familiar with the two references you made about our peer companies, but we think what we're doing is very appropriate and at the same time we will continue to evaluate on a quarterly basis.

So Todd, this is Ed.

On your question about getting premiums, a couple of things to think about: one, in this upfront, we saw our money flowing into the upfront. We saw many marketers who had allocated large portions of their budgets to digital in prior upfront, moving back to television because they felt that they could track the success of those advertising dollars. So we just saw a robust demand generally in the marketplace. Then I would say specifically -- keep in mind, with hit shows, or shows that are perceived as hits, those that appear on some of the SVOD platforms are outside the advertising ecosystem. So there are no impressions there to be sold.

So then you go to television and that's where a show like The Walking Dead really stands out, because it's the number one show on TV among 18 to 49, and its nearest competitor has about 40% less viewers in the demo. So a hit like that stands out, and then Josh talked about in his remarks, AMC joining in roughly 1/3 of the 18 to 49 impressions against dramatic series. We have 5 of the10 top dramatic series. So that is a long wind up to the short answer, which is, broadcast replacement premiums, and the ability to raise pricing certainly present in this upfront. And AMC and the other networks who are able to enjoy it also demand for originals like Orphan Black and Dr. Who as well. It's a very healthy increase.

Okay. Thank you.

Thank you; your next question comes from Vasily Karasyov of CLSA.

Thank you. I have a two-part question. I think it's for Ed and Sean.

So, if we look at your first-quarter results on national networks and do the math -- sort of on apples to apples terms -- I think your advertising revenue growth was much better than the reported 1%, right? And that is because of the inventory management, and that was despite the average decline for the Walking Dead ratings of 15%. So if we take into account what we know now about the upfront, and about expected ratings, is your ability to grow advertising revenue on apples to apples terms enhanced, since Q1, given the advertising market conditions now? And then I have a quick follow up.

You know, I think we're just going to say what we've already said -- I will restate what we said about the outlook. We feel good about the second half of the year. We feel good about the upfront. We feel good about our pricing. I think we have good estimates that really take into account the recent performances of all of our shows. The new ones that are among the top shows in cable, as long as the ones that have been around for a number of years. I do not think we will go much beyond that.

Okay, and then along the same lines, the pricing between The Walking Dead, and Fear the Walking Dead -- Hulu and Netflix. Is that predicated on ratings at all? And could you give us an idea of how comparable per-unit prices are for the two shows?

This is Josh.

We are not at liberty to get into the details of our SVOD arrangements. So, if you don't mind, I'm sorry, we can't tell you how they're all priced. They're private commercial contracts. So I can't answer your question directly. I can say that they're probably, in general, broader and less specific. And companies have long-term relationships; meaning we do with Hulu; and multi-show, multi-year relationships. So I just wanted to give you a flavor for how we engage with our SVOD partner and past partner.

That helps. Thank you.

Thank you, your next question comes from Ben Mogil with Stifel.

Good morning, thanks for taking the question. So two questions.

The first one. In terms of the TV environment, clearly there's a lot more competition than there was just a few years ago, in terms of the number of original scripted, and that's been well-discussed. Maybe talk a little bit about, when you're launching programming, and more around the marketing promotion of it, how you approach this change, say, since you launched Mad Men, or Breaking Bad, which were the dawn of this new era, if you will?

Sure. So, I can answer and Ed might want to chime in.

It is a more, as people would like to say, cluttered environment; there are more options. There are particularly more scripted drama options. So the world has changed since Mad Men. What I think is interesting, is that an issue that is undergoing evolution -- I'll just start with this -- is the importance of brands. Which is not a specific question about whether one is spending $3 millions, $5 million, $8 million, or $10 million to launch a show. It really has to do with something that we are beginning to see more of. And that is that consumers who have new interfaces in their homes -- and we know what the interfaces look like on SVOD, but the interfaces from the MVPDs are becoming in better and better by the day. So if you're on X1 or if you're on Spectrum, you really have something that looks, now, enhanced and it has great facility.

It didn't used to have that sort of facility. And what we've been seeing with our MVPD partners -- this sounds like it's not an answer to your question but it really is important -- is that people are going in the front door of those MVPD stores, if you will, and they are going in through brand tabs. And so I don't know how long that will continue, whether it is a trend that's emerging and it is a consequence of the rapid improvement of those interfaces from MVPDs. But it makes sense, right, if there's so many gazillion options out there, where do you go and how you filter? Intuition would say, well, you sort of filter with the brands or channels that have reliably delivered things to you in the past.

And so if that's true, then a couple of things matter a lot. One is that you have momentum from your existing programs and you have reputation and legacy, so that you have reliability. And I hope I don't brag, when I say, in the last 18 months, while having The Walking Dead, which is a killer platform to promote, the AMC channel has introduced the following TV shows: Fear the Walking Dead, which is the pantheon of top TV shows; Into the Badlands, pantheon of top TV shows; Preacher, second highest-rated drama this year; Better Call Saul, top TV show; The Night Manager, great critically acclaimed TV show; and Humans, which is a British show that did extraordinarily well.

So I think the reason I give you that long answer is, we were able to take advantage of our reputation, our brand prominence, and momentum, and audience, to introduce new shows probably more efficiently and more successfully than other brands or aggregators or producers who were moving left or moving right, perhaps into scripted. And you actually see that in the numbers. If you do a study of who is doing what, and how much success or lack of success they met with on series premier introductions and ratings, I think what you'll actually see is that certain shows that one might have calibrated at blank did half of blank.

And part of that is because the place that they came on was not necessarily known for that. And so they were underappreciated and underconsumed. And that maybe -- we will see -- an increasingly important thing in the media future, when it relates to the introduction of new shows. Meaning you can have a doubling of the scripted dramas, and if they are in unlikely places, it increases the task to get someone to go there. You really will get some dissonance; and the instruction to the consumer of, it's here, pay attention, you can actually watch it here, may fall wanting. Outside of that, there is a whole lot to say on the subject, and I will put everybody to sleep if I carry on about media mix, use of television, digital sampling, and new technology, so I will leave it at that, if I may.

That is very helpful; thank you Josh.

There's one more, I'm not sure for Sean or for Ed -- in terms of how you ended the quarter, I'm not sure if you, in the past, have given the make-good balance. I'm not sure if you want to give it now. Maybe talk about whatever the make-good balance was and put it in some kind of context either against where you ended 1Q or where you ended 2Q of last year?

Yes, we don't -- we're not going to publish it here on the call. I think what I will say is, we're very comfortable with the balances. We're very comfortable with the team that's doing the inventory planning and pricing and management of that, and we feel we are in fine shape

Great. Thank you very much.

Operator, one last question, please.

Sure, your final question is from coming from Ryan Fiftal with Morgan Stanley.

Great thank you. And good morning.

I have one on the affiliate [rev] side, one on the cost side. First, Sean -- maybe clarification on your 3Q guide. I think you mentioned strong double-digit growth -- was that for distribution revenues in its entirety? Or was that just the content licensing piece of that?

That was primarily the content licensing.

Okay. And then, can you help us, since affiliate [revs] are part of that, can you help us think about the impact of MVPD consolidation in the back half, or next year? Are we already seeing some pressure from contract resets now? Are they still to come? And should we think about those like 2017, 2018 events? How should we think about that?

So I would say a couple of things if I may -- this is Josh.

I think consolidation has been part of our lives now for not a year or two but probably five or eight. But it increases. With it comes what we've seen over our renewals over the past several years, which is, there is some increased pressure in the system. And we, I think, over the last several years, have had probably a pretty good time operating in an increasingly consolidated world. I think you're well aware of what our rate of increases has been against that backdrop. And I think it's because, if I may, while size matters on the supplier side, meaning us, I think price matters; and I think we are well priced and potency matters most. And I think we have had the material that is important for the consumers of these retailers and they have ultimately valued it.

We are currently not in a period where there is heavy contract renewals upon us. Big ones -- we had a few in the past year, so that's not upon us. So we had some activity occurring, some recently consummated deals, and then we'll have renewals that will occur that will get heavier, but they are staged and calendarized, I hope, well, in the years as we go forward. So we will have to take each of those pieces as they come.

Okay. Thanks.

And then on the cost side -- Sean, maybe a wonky one on amortization: in the call, but I think it was announced, Turn was renewed for a fourth and final season. Do you have capitalized costs still on the balance sheet for the first three seasons? And if so, how would those get amortized for a show that we know has a finite life going forward. Thanks.

Sure, Ryan. So that's Turn, as you point out, is an owned show; it will reach its season finale. It is a show that we do ultimate accounting in the revenue attribution model for. So the good news is there is a significant portion of the amortization is usually realized in the first two years of its airing. So there are costs that are on for prior seasons. But again, guided by the ultimate model.

And then, do those costs and get accelerated if you only have one season left, versus if it were, say, indefinite continuation?

No they don't get accelerated. There are dollars still on the balance sheet related to that show. It is because there is a revenue monetization that is occurring in current or future periods, or we have a play pattern on repeats, et cetera, that justifies the carrying value of the asset.

Okay. Thank you.

All right; 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.