AMC Networks Inc (Pre-Reincorporation) (AMCX) 2017 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the AMC Networks Second Quarter Earnings Release Conference Call. (Operator Instructions) Mr. Zaslow, please go ahead.

Thank you. Good morning, and welcome to the AMC Networks' Second Quarter 2017 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 2017 results, we will open the call for questions. If you don't have a copy of today's earnings release, it is available on our website at amcnetworks.com. This call can also be accessed via our website.

Please take note of the following. Today's discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of the future performance or results and involve risks and uncertainties that could cause actual results to differ. Please refer to the company's filings with the Securities and Exchange Commission for a discussion of risks and uncertainties. The company disclaims any obligation to update the forward-looking statements that may be discussed during this call.

Further, we will discuss non-GAAP financial information. We believe the presentation of non-GAAP results provides you with useful supplemental information concerning the company's ongoing operations and is appropriate in your evaluation of the company's performance.

For further details, 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, Seth. Good morning, everyone, and thank you for joining us for our second quarter earnings call. We are pleased with our financial and operating performance in the second quarter and for the year, thus far. We're growing revenue year-over-year and are returning capital to shareholders through stock buybacks that reflect our confidence in the future of our business. We also recently completed an $800 million bond offering, and we refinanced a portion of our debt on very favorable terms. Importantly, we remain on track to deliver on our full year total company outlook.

Our consistent financial performance is the result of our long-term focus on investing in marquee content, on building distinctive discrete brands that people associate with quality entertainment and on diversifying our revenue by expanding our global presence and building out our studio operation. We're all quite familiar with the many ways technology is changing consumer behavior, and the impact of these changes is being felt in all areas of the business, among distributors, advertisers and our peers.

We are fortunate to be among those companies that foresaw many of these changes coming. Years ago, we viewed the shifts in media consumption as an opportunity to adapt the type of content we offered and to adjust our business models accordingly. A couple of weeks ago, we celebrated the 10th anniversary of the premiere of Mad Men, which ushered in a new era for AMC Networks and in many ways, altered the television business by making smart, immersive, serialized dramas a mainstay of both premium and basic cable.

Our singular goal at that time was to become a premium television destination on basic cable by investing in and creating high-quality distinctive shows. Our perseverance and success in this pursuit over the last decade has placed us in what we think is a very advantageous and attractive position in what's obviously, a very, very competitive landscape.

So today, we are home to 4 of the top 5 dramas on basic cable, including The Walking Dead, which remains the #1 show on all of TV by a wide margin. We have passionate, engaged fanbases for our brands driven by shows like BBC AMERICA's Orphan Black, AMC's Preacher and WE tv's Growing Up Hip Hop.

Our networks were recently recognized with 27 Emmy nominations across multiple categories and genres, ranging from dramas like AMC's Better Call Saul to comedies like Portlandia and Documentary Now! from IFC as well as a record 10 Emmy nominations for BBC AMERICA's universally lauded Planet Earth II series.

As we mentioned before, our traditional cable distribution position is quite strong, thanks to recent affiliate renewals. These agreements are providing us with visibility and stability as well as incremental distribution gains in particular for our non-fully distributed networks. We're also leading the industry with innovative approaches that ensure our channels, shows and brands are available on a wide array of platforms. We're doing this through new partnerships with traditional distributors like Comcast as well as with emerging so-called virtual MVPDs, such as YouTube TV. These distributors recognize that viewer engagement and attachment matter greatly today. And in order to sustain and grow existing platforms as well as launch and expand new platforms, we need to offer a lineup of channels that are distinctive and meaningful to viewers and that are very, very appropriately priced.

Among our new and what we think are fairly pioneering initiatives, is something called AMC Premiere, an upgrade option that launched last month to Comcast Xfinity customers. AMC Premiere caters to fans of our popular shows, like The Walking Dead and Into the Badlands, and offers real-time ad free viewing of in season original series as well as exclusive and first look content. We're the only basic cable network to create this type of premium television option, and we think this offering acknowledges the importance and resonance of our shows and brands and of how we can drive value for distributors. It's also a way for us to offer something new to the most passionate fans of our programming at scale.

We also recently partnered with Charter in a manner that is entirely new and benefits both of our businesses. Through AMC Studios, we're developing and coproducing original shows that will be exclusive to Charter Spectrum customers. This is a new way for Charter to differentiate their offering, and it enables us to expand our AMC Studio's output. We think this is a recognition of our creative expertise and the value we can bring to content creation for a traditional MVPD.

As new MVPDs continue to enter the market, they need to offer the strongest, most desirable content and brands in order to take root and to grow and compete. That is why 4 of the top 5 major streaming services have elected to feature AMC Networks channels in their offerings. In fact, no other nonbroadcast affiliated programmer is carried in more of these virtual MVPDs than is AMC Networks.

Much has been said, written and discussed about the evolution of the cable ecosystem. The world is changing and there's obviously pressure on underperforming cable channels, channels without brand resonance, viewership or attractive pricing that are actually a legacy of a time when there was some sort of abundant opportunity for one company to create 10 or 15 or 18 channels. We see evidence of this pressure in the windowing of channels that is occurring today, with many network groups reconstituting and converting channels or shutting down channels altogether.

This is not the case for us. We are home to a collection of 5 top-tier channels. We base this ranking on our channel brands, viewer consumption and not unimportantly, the price that cable operators and virtual MVPDs pay us. In today's ecosystem, these are the key considerations that go into the value equation for distributors when determining what channels are worth paying for and are worth carrying.

In addition to nurturing our channels, we continue to ramp up our AMC Studios operation to increase show production and unlock new digital and global revenue streams. We also continued to invest in alternative sources of revenue through the subscription streaming services that we own, called Sundance Now and Shudder, as well as through our investments in other subscription services. They include RLJ Entertainment's Acorn TV featuring British content, Urban Movie channel targeted with African-American content and BritBox, operated with our partners, the BBC and ITV. These services are each associated with various content areas in which our company has proximity, knowledge and expertise. While they're all in various early stages of growth, we know the popularity of these type of platforms is growing well, and we'll continue to maintain disciplined content and operating investment in this area.

In terms of advertising, we're seeing healthy demand for our programming. We saw particularly strong pricing in the upfront for AMC with high single-digit increases in CPMs, at the top of the market. We see this as an affirmation that distinctive series that are among the top-rated on ad-supported TV are an increasingly precious commodity and command very healthy price increases. We also saw strong volume increases for BBC AMERICA, IFC and SundanceTV, with demand being driven by the momentum that occurs around many of our signature shows, including IFC's Brockmire and BBC AMERICA's Planet Earth II. The advertiser demand for these channels, we think, affirms our sustained investment in our national network brands.

If I may, I'd like to share some recent highlights that show how our brand and content investments are attracting and engaging viewers, growing critical attention and awards recognition and making a mark on popular culture. We hope you find these highlights worthy of a few minutes of your attention while we're on this call.

So starting with our cornerstone brand, AMC, the channel, currently has 4 of the top 5 dramas on cable for 2017. With the Walking Dead at #1, Fear The Walking Dead at #2, Better Call Saul at #3, and Into the Badlands at #5, reinforcing its status as the home of some of the most popular and acclaimed programs on TV. AMC, the channel, recently received 13 Emmy nominations, including a third consecutive nomination for Outstanding Drama Series for Better Call Saul.

This October, the Walking Dead debuts its eighth season, kicking off with its 100th episode. We recently shared a sneak preview with fans at the Walking Dead panel at San Diego Comic-Con's famous Hall H to spectacular response. The 5-minute trailer, which is on the Internet, gives -- now gives fans a first look at the upcoming action-packed season. It was viewed online more than 31 million times within the first few days, demonstrating enormous continued interest in this franchise.

And we have several new AMC series we're looking forward to debuting in the coming year, including McMafia, an organized crime drama we're coproducing with the BBC, and The Terror, a thriller based on a best-selling novel that stars Jared Harris from Mad Men and The Crown. And last week, we greenlit a new series we're extraordinarily excited about called Dietland from Marti Noxon, who is a prolific writer/producer, and we think one of TVs smartest and sharpest voices. Her work spans from Mad Men and Buffy the Vampire Slayer to Girlfriends' Guide to Divorce and UnREAL. We're keenly aware that our success is driven by the talented people we're able to work with and we're thrilled to welcome Marty back to AMC.

BBC AMERICA continues its strong momentum with popular and critically acclaimed shows including Orphan Black, which is currently in its fifth and final season in which since its start, has ignited and sustained one of the largest and most active fanbases on TV. And BBC AMERICA's long running Dr. Who, it's top-rated series in target demos, recently captured wide attention for casting the first female doctor in the history of the storied franchise, with the wonderful actress, Jodie Whittaker, who's known for her work on many shows including BBC AMERICA's Broadchurch.

At IFC, recent successes are reinforcing the network as a destination for smart exceptional comedy. IFC has a distinction of being the only network for the second year in a row to receive 2 Emmy nominations in the Outstanding Sketch Variety category for Portlandia and Documentary Now!, our series from Seth Meyers, Bill Hader and Fred Armisen. This recognition follows on the heels of IFC's acclaimed new comedy called Brockmire, created with our partners at Funny Or Die and starring Hank Azaria, which wrapped its first season as the highest-rated new series in IFC history and returns next year for season 2.

WE tv continues to find success with its unscripted programming, with double-digit rating increases across key demos, thanks to originals like Braxton Family Values and Growing Up Hip Hop, building on the momentum of last quarter's WE tv big hit series called Mama June. The network also announced the highly anticipated return next year of its early significant series, Bridezillas. The series, which last aired on WE tv in 2013, was a bit of a pop-culture phenomenon and a brand defining show that launched the spinoff series and hit WE tv franchise Marriage Boot Camp.

And SundanceTV is delivering on its promise as a platform for bold storytelling from world-class talent. Top of the Lake: China Girl, the newest effort, I think it's fair to call it a masterwork, from Oscar-winning director Jane Campion, stars Elisabeth Moss and Nicole Kidman and premieres in September. It is superb in every way.

Next week, Amazon Studios, Golden Globe and Emmy award-winning series Transparent, created by Jill Soloway and starring Jeffrey Tambor will debut on SundanceTV. We're quite pleased that Amazon chose to partner with SundanceTV for the linear TV premiere of what we think is an important award-winning series.

And also premiering in September is Liar, a captivating psychological thriller starring Joanne Froggatt from Downton Abbey.

At our global business, we continue to fulfill on our ambition to deliver AMC originals to our channels around the world. In the second quarter, we debuted 3 of our hit series, Fear the Walking Dead, The Son with Pierce Brosnan, and Into the Badlands on our AMC global channels. These original series, each have global appeal and have performed quite well for us around the world. Their strength helps us cultivate our growing subscriber base and expand our footprint into new territories, including recent launches in South Africa and Eastern Europe.

And we continue to carefully manage our IFC Films business, which performs with financial stability year-over-year in what is a fundamentally volatile business. New releases include a film called Rebel in the Rye, starring Kevin Spacey, about the life of J.D. Salinger, and a documentary about famed surfer Laird Hamilton called Take Every Wave directed by acclaimed documentarian Rory Kennedy. These 2 upcoming films are 2 among many that reinforce IFC Films' reputation as a home to prestigious independent fare.

We feel quite good about the progress we've made in the streaming services that we own, which I mentioned earlier, Sundance Now, which focuses on award-winning, high-quality TV series and independent film and Shudder for fans of suspense and horror. Both services are in the development stage, and we're pleased with their trajectory, both as direct-to-consumer offerings as well as through third-party retailers like Amazon.

This has been a quarter of momentum and activity and validation, we think, across the industry of our approach and commitment to strong meaningful brands and outstanding storytelling. And that is why we're confident in our ability to continue to deliver solid financial performance and value creation for our shareholders. Now I'd like to turn the call over to Sean Sullivan for an update on our financial performance.

Thanks, and good morning. As Josh highlighted, we're quite pleased with the results in the second quarter, and we remain on track to meet our targets for the full year. I'll touch on the outlook for the rest of the year in more detail later on in my remarks.

In the second quarter, total company revenue grew 4% and AOI grew 8%. Adjusted EPS was $1.88.

With respect to the performance of our operating segments, at the National Networks, revenues increased 6% to $605 million. AOI was $232 million, an increase of 13% as compared to the prior year period.

Distribution revenues of the National Networks increased 8% to a total of $359 million.

Nonaffiliate revenue continued to be a significant contributor to top line growth with year-over-year growth in excess of 20%. The increase was due principally to the licensing of our scripted original programs in various ancillary windows, most notably, Fear the Walking Dead, Into the Badlands and Preacher.

Affiliate fee growth in the quarter was in the low-single digits as a result of a contract resolution with one of our distribution partners.

Overall, we're quite pleased with the outcome in terms of both rate and distribution. In fact, we achieved a significant increase in our subscribers through the positive repositioning of Sundance, IFC, BBC AMERICA and WE tv. We've now cycled through any impact from the recently completed consolidation among our distribution partners. And as a result, we expect affiliate fee revenue growth to accelerate into the mid-single digits in the back half of the year, and we continue to expect a modest acceleration in affiliate fee revenue for the full year as compared to 2016.

As Josh highlighted, we believe that we have unique strength and positioning with our distribution partners and this will serve us well as the pay-TV ecosystem continues to evolve.

Moving to advertising. For the second quarter, advertising revenues increased 3% to a total of $245 million. We saw a strong sequential improvement in advertising due to the timing of our originals, most notably, Better Call Saul and Into the Badlands at AMC. We also saw increased pricing, which helped to offset lower delivery.

Moving to expenses. Total expenses increased 2% or $6 million versus the prior year period. Technical and operating expenses increased 11% to $266 million. The variance principally related to our continued investment in original programming across all of our networks. Programming write-offs did not meaningfully impact our results for the second quarter of 2017 or 2016.

SG&A expenses were $119 million in the second quarter, a decrease of 12% versus the prior year period. The variance primarily related to a decrease in marketing cost due to the timing of originals.

Moving to our International and Other segment. In the second quarter, International and Other revenues decreased $7 million to $111 million. AOI was $1 million, a decrease of $7 million versus the prior year. Revenue in our international networks decreased slightly on a reported basis. Excluding the unfavorable impact of FX, revenue increased as distribution revenue growth more than offset some advertising headwinds. Revenue also declined modestly at IFC Films due primarily to timing as well as at DMC.

Adjusted operating income in the second quarter reflected the decline of revenue as well as increased investments on our various digital initiatives.

As a reminder, since our last earnings call, we announced the sale of DMC, the Amsterdam based technical operations facility. We're pleased with the transaction, which closed in July, as it removes a noncore asset from our portfolio.

Moving to EPS. For the second quarter, EPS on a GAAP basis was $1.54 compared to $1.05 in the prior year period. The year-over-year increase principally reflects the increase in AOI as well as the absence of a $24 million of charges related to foreign currency transaction losses in the second quarter of 2016. On an adjusted basis, EPS was $1.88 compared to $1.15 in the prior year.

In terms of free cash flow, the company generated $113 million in free cash flow for the 6 months ended June 2017. Through 6 months, tax payments were $124 million, cash interest was $57 million, capital expenditures were $40 million, and distributions to noncontrolling interests were $13 million. Program rights amortization for the 6-month period was $433 million, and program rights payments were $458 million, resulting in a use of cash of $25 million. This compares to a use of cash for programming of $93 million for the prior year period.

Turning to the balance sheet. As of June 30, AMC Networks had a net debt and capital leases of $2.6 billion. Our leverage ratio based on LTM AOI of $880 million was 2.9x, up slightly from 2.8x at the end of the first quarter.

In July, we also took advantage of the interest rate environment to refinance a portion of our debt and strengthen our liquidity position by issuing $800 million of 4 3/4% notes that mature in 2025 and extending the maturity date of our term loan to 2023.

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 adjusted operating income on a sustainable basis. We will continue to be disciplined and opportunistic in our use of capital for repurchases and nonorganic investments.

In the second quarter, we continued to take advantage of what we believe were attractive trading levels on our stock. In June, the company announced that the Board of Directors authorized an increase of $500 million to our previously announced program. This new authorization was in addition to the $500 million authorization that was announced in March of 2016.

During the quarter, the company repurchased $153 million of stock. This represents approximately 2.8 million shares. Subsequent to the end of the quarter, the company has repurchased an additional $52 million or approximately 925,000 shares. As of last Friday, the company had $480 million available under its existing authorization program.

Program to date, we've repurchased approximately 13% of our outstanding shares. We view our equity as an attractive investment alternative and expect to continue to utilize our share repurchase program opportunistically.

During the quarter, we also announced the broadening of our strategic partnership with RLJ Entertainment. We believe this investment is strategic as it expands our presence on emerging digital platforms.

Overall, we're consistently evaluating ways we can be opportunistic but disciplined in the use of our capital, with our focus being on how best to generate the greatest value for our shareholders over the long term.

So looking ahead, for the full year 2017, we continue to expect to grow both total company revenue and adjusted operating income in the low to mid-single-digit range. And at National Networks, we continue to anticipate managing the segment to a margin that is largely consistent with 2016. At our International and Other segment, we now expect a modest decline in revenue year-over-year due principally to the sale of DMC. And we continue to expect a modest decline in terms of absolute dollars and adjusted operating income.

With respect to the third quarter, at the National Networks, we expect healthy revenue and AOI growth led by distribution revenue. Within distribution revenue, we expect affiliate fees to be the more significant driver of growth in the quarter due to the expected sequential acceleration I mentioned earlier in my remarks as well as the timing of availability of our content in ancillary windows, which will impact our nonaffiliate results in the quarter.

With respect to advertising revenues, we expect year-over-year growth as favorable programming comps more than offset delivery. At our International and Other segment, we expect a modest decrease in terms of absolute dollars in both the revenue and AOI year-over-year as organic growth in our international networks is offset by FX headwinds and continued investment in our digital initiatives.

So overall, we feel good about how the business is positioned for 2017 and the various opportunities for growth that are ahead of us.

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

(Operator Instructions) Your first question comes from the line of Michael Morris with Guggenheim Securities.

Two topics. The first, I'm curious if you can share any more detail on kind of the relative economics of the 4 non-AMC channels. You spoke about them a lot. I know you've done a lot to bolster the programming there. Are they -- are those networks becoming a larger relative contributor to ad revenue, affiliate revenue, if you could talk at that level of detail? And is the revenue contribution sort of keeping pace with the incremental program investment there? So that's my first question. And the second one is just on AMC Premiere. Obviously, a very new product. I'm curious if you can share any detail of how it's being presented to the consumer, how they access it, and whether you would consider expanding the content on there beyond the content from the AMC Networks.

Sure, Mike. It's Josh. On BBC AMERICA, Sundance, IFC WE tv, we -- I'll say this, we manage them carefully. We manage them as individual P&Ls within our company, and we manage all aspects of what they do and how they perform. We've happily grown their distribution rather dramatically over the past 5 years. They've been a big growers, which has been against industry trend. So we're really pleased with each of those channels, which we take and treat each discreetly with absolute focus. In terms of their economic contribution, as a pattern, as you know, we don't tend to provide individual P&Ls within our operating business. In general, I would say they probably occupied a similar sort of percentage of our aggregate economics on the top and bottom line, and they're all very, very good performers. If I could just offer one broader comment against that financial comment, which I think is important, which is we believe that each of these things are brands, and they matter to a discrete audience. And they have to be supported by content that makes them relevant because what's occurring in the industry, which we see in virtual MVPDs and the not breakup of the big fat bundle, but certainly some loosening of it, is that every channel needs to stand for itself in its stature, it's strength, it's rate, it's efficacy and it's economics. And we followed that discipline since we developed, bought, partnered with or made each of these channels, and I think it served us well, Mike. I would point to an industry, which I think was arguably less careful about the sort of sanctity of the brands and the content that supported each channel, and I think that that's perhaps not served the industry as well as it might. And so there's a bit of a day now of reconsideration of whether 15 and 20 channels that don't have discrete brand identities and a core constituent audience and frankly, adequate investment, makes sense. So we think we did establish a proper path, and we will continue to pursue that path. As to AMC Premiere, we're very pleased to be partnering with Comcast on something that is admittedly novel. And it's extraordinarily early days, so I can't give you much of report other than to say it was a long time in development. It's driven by considerations that we think are sort of profound and fundamental for us, meaning that people like our content and they want to access it in various different platforms and different ways and that the more we give them the chance to access it with our MVPD partners, the better off we'll be and they'll be. And that sounds sort of simple and fundamental, but it is similar, if I may in tone to my earlier comment, which is that all of this material matters a lot. It's not just the set of numbers that move around and can be managed for 12 months. They're brands and they're shows that people actually care a lot about. So we're really pleased with Comcast, of course, Xfinity, offering now a commercial free option for a price, very early days, very encouraged about what it is. And frankly, we'll monitor and see where it goes.

Your next question comes from the line of Michael Nathanson with MoffettNathanson.

I have one for Josh and one for Sean. Josh, following up on the Comcast AMC relationship, I wonder, if this idea takes hold across other places, does it make you reconsider how you sell your products to SVOD services in the future? And what will allow you or what will stop you from going to Apple and Amazon and selling a channel package direct-to-consumers or direct through their platform as well over time?

Right. So Michael, I think that the -- on the first part of your question, we've attempted to be very careful about the pattern with which we offer and the bad word is exploit. The content that we increasingly own to domestic SVOD platforms because we live within the current ecosystem, and it's a very important part of our constitution and our economics. So we've worked with our MVPD partners when we windowed content and in a general sense, as you may know, have maintained round numbers a year of delay before content goes from the linear window to an SVOD, third-party SVOD owned service. And that has been I think a reasonably good pattern to pursue, that has put us in reasonably good state our current MVPD partners and has had some beneficial effects, frankly, on exposure, awareness and attention to our series and has also maximized economics and allowed us to step up our studio content investment from what was several years ago, one show, to today, more than a dozen that are in production around the world that we're the beneficiary of the rights and the rights management of. We'll have to see how all of this goes as life goes on. We tend to have longish term deals in general, not all of them, longest term deals with all of our distribution partners on every front in every format, we think that provides stability for us.

And so I wouldn't comment on whether Premiere and the -- an expression that is without commercials on an existing partner might or might not influence that in 2, 5 or 10 years. We'll really have to see how it goes. You may see also that we did something with Charter, which is different than Premiere, which is brand-new shows. Not in the AMC channel mix. That will premiere on Charter and they'll come to AMC later. So that's variation on a theme to be, if you will, and we think it's an interesting way to relate to a distributor because we take what we think is our wherewithal and capability and we give them, I hope, incremental benefit from it in an absolute economic partnership manner, where truly, we're aligned. And it's a commanding, and we think interesting approach with Charter. So to say it simply, the sort of world is changing as we all know, and we like to be part of all of those changes in a way that sits squarely within our strategic approach, which is great stuff that we own, partners that work with us and who have alignment. And so we may see a change in the mix of manner of consumption and economics, and that's what we've been charting and doing for a decade plus.

And then for Sean, the question I have for you is, when you look at your cost buckets over the first half of the year, the growth rates we've seen, and on the second half, you have more originals coming on. So can you give us a sense of whether or not the 2 rates of growth, we've seen the 2 big buckets, tech operating expenses and SG&A. Will those be consistent with the second half of the year? Or would there be material changes in rates of growth?

I guess, Michael, I would say that if you look at the 6 months, I think SG&A and tech and ops as a percentage of revenue really haven't changed that materially. I think the best thing I can do to guide you for the back half of the year is the comment I made in my remarks about managing to a consistent margin. So I think we take a balanced approach to programming investment, to supporting and marketing the shows in the context of the monetization opportunities that we have. So again, we expect to manage to a largely consistent margin. As you know, there will be quarter-to-quarter variability given the timing and significance of the premieres on the shows that are returning. So I'll leave it at that.

Your next question comes from the line of Ben Swinburne with Morgan Stanley.

Maybe for Ed, could you talk a little bit about the advertising market and the industry of countervailing forces of the strong pricing and down deliveries, particularly in the context of the upfront results you talked about, strong pricing growth? I'm curious as Walking Dead in particular matures and let's assume we extrapolate the last couple of seasons that, that show declines, do you still get the kind of high single-digit pricing growth on that show and really driving the portfolio? Or does the relative size of that show versus other shows start to weigh a bit on the power ratio? How should we think about that over time?

Thanks, Ben. So Walking Dead is interesting. It is unprecedented. It's been the top television show now for a long time, and it becomes more valuable in terms of its ability to reach a large audience and an audience that advertisers highly value in terms of demographic and overall appeal. And what we saw in this upfront, and I would say generally, it was a strong upfront, we're happy with the way it went. As Josh mentioned, it wrapped earlier than anticipated, which probably speaks to the relative strength. And specifically for The Walking Dead, we have something a little special as we're premiering the 100th episode of the series so that generated even more enthusiasm and passion from advertisers to sort of be a part of that. So we're excited about the show. And if anything, Ben, it has increased its lead over any other show on television. So we think it's strong. We're very excited about the season to come.

Great. And just one follow-up for Josh or Sean, if you're willing to go there, guessing you probably won't be but I'll ask it anyway. With YouTube TV now in the market for, I guess, 3 or 4 months, when you guys look at your subscriber trends, particularly for your primary networks, eliminating kind of the beneficial tiering you talked about, are you seeing any improvement in the underlying trend? And if you're not willing to comment, do you expect to see any, given what you know about YouTube TV so far? Any color since we're all trying to understand these trends even though the numbers aren't out there, it would be appreciated.

You know, Ben, I can't -- I'm not sure what I'm going to say is really helpful to you. I would say the -- in general, on virtual MVPDs, you probably have a better number than I do. I think the (inaudible) somewhere just south of 3 million today, around that. It's an interesting number. I don't know if we all would've thought when Sling launched that, that number would be in place today, the 3 million. I don't know if we thought -- if we would've thought that Sony would've had an offering, essentially through its home game devices and/or that, of course, DirecTV would've had an offering or that YouTube and Hulu would've launched. So there've been some surprises, I think, over the past, sort of say, 24 months. I think that -- I find that to be an encouraging number and I do think that YouTube has done a spectacular job with their interface and their marketing. I think it's world-class. So it's encouraging to me and we partner with them actively. And I hope they do it not just because we're hopefully nice people but because we have content that really matters for their offering. And what that suggest to me, but this is not a quantitative response to your comment, is that there is a big part of the audience, of course, that thinks device and mobility first and then they think content second. And so they are younger people, of course, and they talk about apps, they tend to talk about apps, not channels. And so I am encouraged that we can see a major uptake of a new form of linear TV aggregation and consumption that is -- will put us in good stead, and I think we see signs of it happening. I probably can't give you any early trends that would be something that you're not privy to. Just a sense of encouragement but I will say an appraisal of particularly YouTube as being just extraordinarily strong in their execution.

Your next question comes from the line of Todd Juenger with Stanford Bernstein.

If you don't mind, pick up right where Ben left off on the advertising side, and then I have a super quick one for Sean. I hope you don't mind me sort of breaking the advertising question down to a really, really simple mechanics and maybe this is for Ed or Josh, whoever wants to take it. As outsiders, we see Nielsen ratings and ultimately, we see revenue and we always try and understand how those are related. Can I just ask very basically? For your big original program franchises, do you tend to sell your advertising with audience guarantees, or not, to the extent you sell them with guarantees? Are they on traditional metrics, like C3 and demos like 18 to 49 or 25 to 54? And to the extent you have guarantees of traditional metrics, as we think about any of the big original programming franchises and the promises you're making for next season, any comment on sort of do you think those guarantees are sort of flattish or more likely down in terms of absolute audience? And then finally, sorry, to the extent that the ultimate delivery falls short of your guarantees, what options do you have to burn off those make good assuming that your advertisers expect make goods? So I know it's a long chain of logic but it would really be helpful, to me at least, to at least hear some of the answers of mechanics. And might as well while I'm on the line, just a super quick one for Sean. There's this miscellaneous net line on the P&L and you mentioned sort of last year, there was the FX minus 25%. This quarter, there was a plus 19%. Just wondered what was behind that, if you can simplify it. And then I know, I guess it's really hard to predict, but anything that you can see on that line forward because it tends to be kind of a swing factor.

It's Ed. To your first question, there's not one answer to it. We do sell, in some cases, individual programs. We do sell other programs that are packaged without a broader schedule, with a rotation of movies and/or other specials. We do tend to guarantee audience delivery. We obviously, model our projections carefully at the beginning of each quarter, and we are seeing, in this upfront, we are seeing an increase in delivery on our digital platform, the so-called advance platforms and those can extend beyond live, same day and beyond the 3-day period. So sort of all of the above is in the mix. I would just say, generally, we think consumption of many of our shows is up overall, but it's not always within the live, same day. Sometimes, it's over a longer window. Sometimes, it's over the advance or so-called digital platforms. So we work harder and more specifically with the advertisers on each of those media buys to monetize those plans, and we think we have been and will continue to be successful doing that.

And Todd, on the miscellaneous net, I think you'll get more information when we file the Q later today, but at least for the 3-month period, roughly $10 million of what you're seeing in miscellaneous net is related to our investment and relationship with RLJE. The remainder of the balance is foreign currency. Unfortunately, I can't give you a guide against the back half of the year because some of these, obviously, are tied to the changes in market price of the either RLJ security or underlying derivatives. But you'll see in the Q today, they'll be a little more disclosure that may help you at least in the historical periods.

Your next question comes from the line of Bryan Kraft with Deutsche Bank.

I wanted to ask another question on subscribers. I don't think you said this specifically but -- and if you did I apologize, but what are you seeing as far as subscriber declines at the fully distributed networks? And how has that trend changed over the past couple of quarters? And then also, how long do you think that runway you spoke about is to grow distribution on the non-fully distributed networks when you consider some of those broader trends that you're talking about in the industry with respect to virtual MVPDs and also even smaller traditional packages?

Sorry, to the second part of your question, forgive me if I just want to make sure I understood it.

So you were talking about how there's a -- how you're seeing growth in the non-fully distributed networks. And my question is, how long do you think that runway for growth is when you consider the other trends that are going on in the industry, which is more virtual MVPDs and smaller, traditional packages increasing as a percentage of the mix?

Got it. Okay. So the -- just on the first part of your question, really, when we make a reference to fully distributed, we're talking about AMC, and the other 4 channels are not fully distributed. They're not essentially in every or nearly every household that is available. So as you know, there's been some decline in aggregate subscribers in the paid MVPD universe in America over the past few years, and it moves by quarter. You'll get the best track of it just by counting, of course, from the actual companies themselves as they report because that's the purest count and not a surrogate count, either through a programmer like ourselves who is sort of second probably it or through the Nielsen UE which creates a little vagary in the math. The fundamental trend, which I think is important if I could just stay on what is fundamental is there's been some erosion in the overall universe. I would say that round numbers, it seems that half of that erosion has been offset by virtual MVPDs, round numbers. And so that's that trend. I personally really can't predict, but I personally encouraged that offering Internet first, whether it's from an incumbent MVPD or a new MVPD is attractive for multiple reasons, including price flexibility, interface, et cetera. And the MVPDs are also improving their job too, they're better. When you look at their interfaces, they're really getting a lot better. I'll make a self-serving point within that and then get to your second question, which is that the -- it is much as there is a bit of a shift from sort of Internet first whether it's an incumbent MVPD or a new one, and there's a reorganization and a reelection of the channels that are carried there, which there often is, that we've seen. It serves us and it serves us because we have a higher bang for the buck and frankly, a low-price for great stuff. So that trend will be singularly positive for AMC Networks, singularly positive for AMC Networks. So that's just a good thing. More specifically on your question of our uptick in subscribers on incumbent MVPDs, where we get repositioned which Sean referred to in his prepared remarks, we've come along way and there's still headroom. So we have some existing room to go on getting IFC, WE tv, BBC AMERICA and Sundance further, better positioned, if I could use those words, where we are carried, we just accomplished a major improvement in that regard that Sean mentioned when he talked about second quarter, which is great to see for us and it's an affirmation of we think of the quality that we have and of course, the results, and good economics. There's more headroom there. And a separate issue, probably not to be confused is the opportunity that then goes on with virtual MVPDs and the trajectory of their growth.

Your next question comes from the line of Tim Nollen with Macquarie.

I've got a couple of things, please. Another advertising question, I'm afraid. A lot of your total viewership, it looks like, is from metric beyond live or 3-day or 7-day. And I wonder if you could speak to how you are monetizing that viewership if you feel like you're getting the full value in terms of advertising for the viewership beyond, even beyond the C3 system. And secondly and separately, could you speak a bit more about international please, because I think despite how surprisingly, I think for most of us, good your advertising numbers were and how stable the distribution numbers seem, the international was not a good result. If you could speak a little bit more about underlying what your approach will be to improve the performance there?

Sure, Tim. It's Ed. I'll start with international. I can speak to the networks, where we're seeing growth in affiliate revenue. We think that growth continues through the year and we think that's going to be offset a bit by some weakness in ad revenue. That's mainly in the U.K.. Generally speaking, I think we've been making good progress within international assets. We've rebranded one of the large channels to be AMC Global, and that's now in about 140 countries, and we put a lot of our shows on there, so Fear of the Walking Dead and Badlands and Humans are on it. The Terror is forth coming to it. And just in the past few months, we have sort of dramatically increased its footprint with launches in places like Poland and Portugal and the Ukraine. We also operate some regional sports channels in Central Europe, which have been showing strength and regional movie channels in Iberia, which are doing very well as well. So -- we've completed some rather large affiliate renewals lately. So you know, the affiliate side, we think, is good. A hiccup in terms of the advertising in the U.K. is sort of the story on international this year. Your question as it relates to advertising, monetizing beyond C3, Tim, I think it was, yes, that's important to us, and it is increasingly important going forward, selling on the digital or the so-called advanced platforms and we're seeing consistent double-digit growth in that area and we continue to focus on it.

And Tim, this is Sean. Just to close out the International and Other segment, I think that you're referring to for the quarter, so just as a reminder, the DMC business was a drag. And therefore, that's now a divested asset. It includes IFC Films, our independent film business, which as you know, has some variability given the timing of releases on the P&A associated with distributing movies. And then Sundance Now and Shudder are 2 developing OTT services and the investments we're making in that area. So that's also in that segment and certainly colossal to the results you saw.

Operator, we have time for one last question, please.

Your last question comes from the line of David Joyce with Evercore ISI.

Can you just help us think about some of the ancillary revenue streams? Basically, your rights that are feeding into the distribution line on the National Networks, and also internationally, where do you stand on what you can still sell off the content where you did have the rights. Just trying to think of how we can be -- looking for some upside swing there as you continue to have more demand for your content internationally?

Yes. So David, just again, the ancillary revenue stream, just to highlight, as you say, in the National Networks. The exploitation in the subsequent window domestically on the SVOD services, the exploitation internationally for the programs. Again, it's been a great area of growth for the company. You can see the historical result. We had greater than 20% growth in the second quarter. As I said in my remarks, we still think there's a great market, great demand and therefore, the more that we invest in original programs where we control those rights, we're seeing the benefit of that. Again, on a quarter-to-quarter basis, based on the timing, availability and the window being opened and exploited, will obviously impact the quarter-to-quarter variability, but we continue to see that as a great area of growth for the company.

And internationally, on the networks, you mentioned that you have recently rolled out some of the originals. There's some delay there. What is the demand internationally to be more day and date with your originals here? And do you have the rights to do that?

Yes. It's a good question. So increasingly, that has become important in the international marketplace to get as close to day and date as one can do. And we have been achieving that with a high profile AMC series. We have done it with Fear the Walking Dead and Into the Badlands, and we anticipate doing that with The Terror as well.

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.

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