AMC Networks Inc (Pre-Reincorporation) (AMCX) 2023 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the AMC Networks First Quarter 2023 Earnings Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to the speaker today, Nick Seibert.

Thank you. Good morning, and welcome to the AMC Networks First Quarter 2023 Earnings Conference Call. Joining us this morning are Kristin Dolan, Chief Executive Officer; Patrick O'Connell, Chief Financial Officer; and Kim Kelleher, Chief Commercial Officer. Today's press release is available on our website at amcnetworks.com. We will begin with prepared remarks, and then we'll open the call for questions.

Today's call may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ. Please refer to AMC Networks' SEC filings for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements made on this call. Today, we will discuss certain non-GAAP financial measures. The required definitions and reconciliations can be found in today's press release.

With that, I'd like to turn the call over to Kristin.

Good morning, everyone. Thank you for joining us. While I'm new to my role as CEO of AMC Networks, this is a company I know very well. I started my career here and spent the last decade serving on the Board of Directors. But more than that, my background in programming, cable operations and more recently, data and analytics around viewership and advertising gives me a clear and actionable perspective on the opportunity we have here.

AMC Networks has always been known for great content and the ability to make shows that breaks through in popular culture, receives critical acclaim and engages fans. That is the consistent theme that has defined our presence in the content landscape for years. The question today is how do we take that core competency and evolve the business for a new world of multi-platform consumption that is increasingly being driven by the consumers we serve.

When I look at AMC Networks today, and I think this is key for our future, I don't just see a content company. I see a technology-focused company that delivers its content across an expanding number of platforms here and around the world. I see a nimble and fast-moving organization that relies heavily on data to grow audiences, serve fans and build value for our advertising and distribution partners.

On our last call, we talked about the idea of transitioning from a wholesale to a retail mindset. For us, that means reorienting our company and making sure everything we do is in service of viewers and subscribers. Our customers in this new world of content consumption. We also shared our strong focus on reevaluating the pathways to content monetization as we reduce costs, streamline the organization, maintain a strong balance sheet and drive free cash flow. Our efforts in these areas contributed to a first quarter with healthy margins and increased streaming revenue and consolidated AOI.

We ended the quarter with 11.5 million streaming subscribers in aggregate. And while this represents a slight decline from last quarter, the bigger context is our focus on attracting and retaining higher-value subscribers. Building a more valuable customer base is something I'm very familiar with from my Cablevision days, where we drove higher revenue per subscriber results quarter-over-quarter and year after year. This growth came from a deep understanding of what it takes to acquire, serve and retain customers in a competitive environment. Although the specifics of that distribution focused sales strategy are distinct from what we are doing here, the objectives are the same. Patrick will expand on all of this in his discussion of our financial results, which I'm pleased to say will include reaffirming our guidance for the full year.

Now I'd like to spend a few minutes talking about 4 interconnected areas of focus that frame our current activities and represent what I see as AMC Networks opportunity moving forward. The first is content, which has been the core competency and strength that has driven this company's success going back to the days of Mad Men and Breaking Bad. Our record of producing high-quality breakout content for adults continues with the current slate of original programming that is among the most robust and diversified in our history.

In January, we premiered the second series of our expanding universe around the iconic works of Anne Rice. Mayfair Witches became the most successful premier in the history of AMC+ and the most watched season of any show on the platform. We've greenlit second seasons of both Mayfair Witches and Anne Rice's Interview with the Vampire and we're in active development of a potential third series set in the world of the Talamasca, a secretive organization featured in a number of Rice's novels.

We also continue to serve the legions of Walking Dead fans with 3 new shows focused on the series most popular characters set in iconic new locations. The Walking Dead: Dead City set here in New York premiers in June. We recently completed production in Paris for The Walking Dead, Daryl Dixon coming this fall, and we're in production on a third series that reunites stars Andrew Lincoln and Danai Gurira. You know them as Rick and Michonne. Three new extensions that will engage and enthrall the millions of fans of this continuing universe.

Returning this summer is our acclaimed Western War crime series, Dark Winds, starring Zahn McClarnon. And we have new AMC Series on the way with Parish, starring Giancarlo Esposito; Monsieur Spade with Clive Owen; and a new chapter in our Orphan Black franchise, starring Krysten Ritter.

We promoted all of these exciting series last month at our Upfront event in New York, and we're already seeing strong interest in our early discussions with advertisers. Our streaming strategy of super serving fans of a particular genre represents our differentiated approach that sets us apart from the general entertainment services.

With very reasonable levels of content spending, our Acorn TV, ALLBLK, Shudder and HIDIVE services are achieving strong viewership and remarkable engagement. One example is from our HIDIVE service, which is making gains as an increasingly sought-after destination for passionate anime fans, a very potent category. HIDIVE's new series called Oshi no Ko has become a breakout hit, quickly becoming the #1 series launch in the history of the platform and growing audience week over week. I do believe we've only begun to scratch the surface with all of our services, particularly in terms of our opportunity to expand the depth and breadth of our content offerings and attract larger audiences.

The second area of focus relates to AMC Networks being a nimble, innovative and opportunistic company with an expanded distribution footprint and partner relationships that allow us to maximize the value and potential of our content in several ways. Our overarching goal is to distribute the shows we make as broadly as possible to ensure that they are visible and available to viewers wherever and whenever they might want to watch while ensuring we preserve and drive our strong brand identities across all platforms.

AMC Networks has a track record as a sought after and innovative strategic partner for distributors, and this was evidenced most recently with an agreement we reached with DISH Network and Sling for continued carriage of our U.S. channel portfolio, streaming services and fast channels as well as an expansion of our advanced advertising partnership with DISH. It is our long-standing distribution relationships that we believe will form the foundation of what is the forthcoming shift to streaming bundles. These bundles are beginning to gain traction as the marketplace evolves and consumers seek a more simplified and integrated experience when it comes to managing their various services. With our high-quality content and distinct brands, AMC Networks occupies a prime position for this inevitable shift.

As the models of content monetization continue to evolve, another advantage we have is a broad distribution footprint that spans linear television networks, our own digital and streaming platforms and third-party CTV or FAST platforms. With the addition of an ad-supported tier of our flagship AMC+ streaming service later this year, our entire distribution ecosystem will be ad-supported, providing us with important new opportunities to drive revenue and grow our business.

This leads to our third major area of focus, and I referenced it earlier on the call, which is to drive a customer-first mindset throughout our company. This cuts across all the ways we interact with and serve our audiences from how our shows are delivered and promoted to how our platforms and user interfaces are designed and function. Again, this is something we did successfully at Cablevision, which at the time was a mature and fully built-out service-based business.

Even with that market presence, we reoriented the company around data, which helps enable us to deliver the highest levels of customer service. At AMC Networks, it's essential that we become a more customer-centric organization as we establish a direct relationship with an increasing number of viewers. This represents a significant shift in mindset from how we've operated for most of our 40-plus years as a company, and it requires a rethink across the organization to ensure we're approaching our business in a way that best serves our viewers regardless of how, where or when they are watching our content.

Our fourth area of focus and the one I'll close on is efficiency. We are breaking down remaining wells and silos that divided areas and categories of our business and operating as one focused company, making content and delivering it to viewers across all platforms. In so many ways and across so many shows, AMC Networks has proven its ability to punch above its weight and achieve levels of cultural impact and fan engagement that much larger content companies aspire to.

It's a privilege to have the opportunity to build on this legacy as we prioritize long-term growth and subscriber quality, focus on optimizing our customer relationships and drive audience engagement across the AMC Networks ecosystem. I'm grateful to work alongside our exceptional leadership team and every one of our employees and colleagues, I have every confidence that we have the talent and assets to grow AMC Networks into its next chapter.

With that, I'll turn the call over to Patrick.

Thank you, Kristin. As Kristin highlighted, with the strength of our programming, our nimble approach to a dynamic marketplace and our continued focus on operating efficiency, AMC Networks is well positioned to succeed as consumer behaviors continue to evolve. We took several steps over the past couple of quarters to recalibrate the business for increased monetization, and we feel good about the progress we've made to date. We've rightsized our investments in content and streamline costs to drive increased free cash flow in 2023 and beyond. We continue to strengthen our long-standing relationships with key distributors. As Kristin mentioned, we recently completed a multiyear renewal with DISH Network and Sling TV for our linear networks, streaming services and FAST channels.

Moving on to our first quarter 2023 financial performance. Consolidated revenue increased 1% from the prior year to $717 million. Consolidated adjusted operating income increased 2% to $216 million, representing a margin of 30%, which reflects our strong focus on operating efficiency. Adjusted earnings per share was $2.62. In our Domestic Operations segment, first quarter revenue grew 1% to $612 million. Subscription revenue of $348 million grew 1% for the quarter. First quarter streaming revenue was $141 million, representing 29% growth year-over-year. We ended the quarter with 11.5 million streaming subscribers, representing year-over-year growth of 22%. While this represents a sequential decline in subscribers from the 11.8 million we reported at the end of 2022, the decline in subscribers was largely due to our focus on higher-value subscribers and the roll-off of holiday promotional subscribers. The rationalization of our subscriber base, along with pricing actions taken last year, increased the average revenue we generate per subscriber.

As we remain focused on the overall profitability of the company, we continue to program our services efficiently. If you look at the top 5 titles for each of our targeted services in the month of March, 18 of the 20 titles cost less than $1 million an episode and some substantially less than that. This is a powerful illustration of the economic advantage of our strategic approach to the streaming business.

Moving to domestic affiliate revenue. Affiliate revenue declined 11.7% for the quarter. Affiliate revenue performance was driven by declines in the basic sub universe and the 3% impact of the strategic nonrenewal with Fubo that we discussed in our last call partially offset by contractual rate increases. Content licensing revenue grew 69% for the quarter to $103 million. The increase in content licensing revenue was driven by the timing and availability of deliveries, including the final deliveries of Silo, formerly known as Wool, a series produced by AMC Studios for Apple TV that we spoke about in detail on our last call. Deliveries of Silo represented approximately $56 million of content licensing revenue for us in the first quarter of 2023. We do not anticipate any material revenue or expenses associated with this project for the remainder of the year.

First quarter Domestic Operations advertising revenue decreased 20% to $161 million. The decline in advertising revenue is primarily due to lower linear ratings, softness in the ad market and fewer episodes of original programming partly offset by digital and advanced advertising revenue growth. For comparison purposes, it is important to note that the first quarter of 2022 was particularly strong with a more robust ad marketplace and content, including episodes of The Walking Dead and Killing Eve.

Our ad-supported networks and digital ad platforms continue to experience a similar environment as our peers. For the first quarter of 2023, scatter and direct response remained soft given the economic climate with our advertising partners remaining conservative with their spending. Domestic Operations adjusted operating income was $219 million for the first quarter with a margin of 36%, consistent with the prior year. AOI performance was largely attributable to increased streaming revenues and lower investment in programming and marketing, partly offset by decreased advertising and affiliate revenues.

Moving to International and other. For the first quarter, revenue decreased 2% to $108 million, but increased 3% on a constant currency basis. International and other revenues reflect lower advertising revenues due to the impact of the planned wind-down of 2 channels in 2022 and lower ratings in the U.K., partly offset by increased distribution revenues due to the launch of a new channel in Spain and the timing of production at 25/7 Media. International and other AOI decreased 8% to $21 million for the first quarter by a decrease of 9% on a constant currency basis. AOI performance was driven by revenue performance and increased technical and operating expenses, partly offset by lower SG&A expenses.

Moving on to cash flow and the balance sheet. As discussed on our last call, we've updated our free cash flow definition to no longer include distributions to noncontrolling interests. Consolidated free cash flow for the first quarter was negative $144 million and reflected the timing of certain production-related payments as well as the impact of $57 million of cash payments related to our restructuring initiatives. As we stated on our last call, due to the timing of productions in 2023, we anticipate net cash outflows during the first half of 2023, and we expect to generate the majority of our free cash flow for the full year closer to year-end.

We ended the first quarter with net debt and finance leases of approximately $2.1 billion and a consolidated net leverage ratio of 2.8x. We have substantial financial flexibility and total liquidity of approximately $1.2 billion including $764 million of cash in the balance sheet and our undrawn $400 million revolving credit facility. We continue to monitor markets and we'll be opportunistic and active in addressing our 2024 and 2025 maturities. Our capital allocation philosophy remains disciplined and opportunistic. First, we look to support the business with a particular focus towards creating compelling content that resonates with our audiences, while balancing overall profitability and cash flow generation. Second, we remained focused on the balance sheet and addressing our upcoming maturities. Further down our priority list is the pursuit of strategic M&A and returning capital to shareholders.

Moving to our outlook. We are reiterating our 2023 financial guidance today. We continue to expect consolidated net revenue to be approximately $2.9 billion, largely due to the well-understood dynamics impacting the industry. We expect moderated growth in our streaming revenue for the full year as compared to 2022, driven by lower gross additions and due to lower levels of marketing spend as we drive marketing efficiencies. Regarding affiliate revenue, we anticipate that cord-cutting trends will continue, and our year-over-year comparison will be incrementally impacted by several percentage points due to the nonrenewal with Fubo that occurred at the end of 2022. We anticipate a decrease in content licensing revenues as our year-over-year comparison is affected by the 2022 deliveries of Silo and certain Walking Dead universe titles, which will be partly offset by new international licensing revenues.

Moving to advertising. We expect 2022 trends to continue through 2023, including lower linear ratings and a soft overall ad market, partially offset by digital and advanced advertising revenue growth. Lower linear ratings for the full year will be partly the result of fewer original hours. Notwithstanding that, the programming cost savings we expect represent a multiple of the advertising revenue those titles would have generated.

Regarding adjusted operating income, we are realizing the benefits of our strategic cost measures, including material year-over-year reductions in programming, marketing, staff and other costs. For the full year of 2023, we continue to expect the consolidated AOI will be in the range of $650 million to $675 million. We also continue to expect to generate free cash flow in the range of $70 million to $90 million for the full year. This range represents free cash flow on a reported basis and includes the negative impact of approximately $115 million of onetime cash payments associated with our restructuring plan. Our free cash flow outlook would be in the range of $185 million to $205 million of free cash flow, excluding these onetime items. Additionally, we believe we can maintain and grow this level of cash flow over time.

Regarding content, we continue to focus on making efficient and highly curated content decisions to super serve our audiences. We are past peak content investment, and we continue to expect cash content investment to be approximately $1.1 billion for 2023. Looking out further than that, we anticipate that our cash content investment will be in the $1 billion area, consistent with our historic pre-pandemic levels. This is more than enough content to drive a strong slate of content and support our businesses and frankly, represents a rationalization for a prior period of overinvestment. 2023 will be a key year for AMC Networks as we execute our differentiated strategy. We are encouraged by the progress we've made, streamlining our organization and optimizing our monetization, and we continue to expect to meaningfully grow our free cash flow over time.

With that, operator, please open the line for questions.

(Operator Instructions) Our first question comes from Michael Morris with Guggenheim Securities.

This is Charlie Wilber on for Michael Morris. Just a quick question from me. On the AMC plus ad-supported tier, can you share any more details on the anticipated price point and expected ARPU there and just kind of your expectations about the ad ARPUs and whether those would offset a lower price point and kind of how you're thinking about consumer choice between the multiple tiers. And then as you're making that determination, are you considering any ad-supported tiers for your other niche streaming services?

Thanks, Charlie. It's Kristin. As you mentioned, we did announce at our recent upfront ad-supported tier for AMC us. We're looking at an October launch for that tier. We see it as a great opportunity to continue to super serve and expand our audiences, give more choice to consumers and obviously provide a more holistic and robust advertising solution for our current and future advertisers. But I think it will be probably the next call that Kim will give you more details on pricing and expectations on the ARPU front.

Our next question comes from Tim Nollen with Macquarie.

This is Ross Compton on for Tim. Interested in your background on media measurement with 605 and if you guys could discuss how you're using alternative measurements to sell ads now in your linear business or to come in the streaming business? And do you use 605 in addition to other measurement services, are others in place? And does 605 or any other measurement services give you kind of an advantage and increase in CPMs?

It's Kristin. I'll start, and then I'll hand it over to Kim. 605 provides 2 services to AMC Networks. One is the measurement capability that we use internally and the other is for attribution. I would say for the bulk of the tenure, Kim's ad sales team has used the attribution service to really validate and show the level of sophistication that our advertising team has in targeting and segmentation and then delivering results that are probably most of the time provable to be more successful than just a general ad placement. So 605 is really providing the back-end capabilities to measure and to show the attribution capabilities. But we're not currently participating in alternative measurement currencies other than to use them internally to look at our own media spend and how we can maximize that through our agency known. But I'll let Kim talk a little bit more about the integration of that and our Audience+ announcement.

Building off what Kristin was just sharing, Ross, I'd say we're very open and willing to partner with clients on alternative currency measurement in this coming upfront and year. And we're in ongoing dialogue with all the various alternative measurement companies, including iSpot, VideoAmp, Comscore and, of course, 605, who we work closely with. Our standing is we're -- we've been with Nielsen a long time, and we're actively evaluating their new Nielsen ONE ad products prior to their launch. But I think that we are also following along with interest, active member on the VAB board, and we're a member of the newly formed JIC, the Joint Industry Committee. And we're taking our front row stance on witnessing the innovation that comes out in this ad marketplace for certification of unified streaming measurements.

Our next question comes from Brett Feldman with Goldman Sachs.

Great. Just 2 questions about the evolution of your streaming strategy, if you don't mind. So the first one is kind of high level, Kristin, you've talked about being a much more customer or retail-centric oriented business. And I was hoping you can maybe elaborate a bit in terms of where you think you are on that journey to being more focused that way. So I'm thinking about it operationally, do you think you actually have the operational structure in place to do that as well as you think the company needs to? And is any additional investment needed? Do you potentially need any partners to do it? And maybe even at a higher level, if you just comment on culturally where you think you are in terms of this evolution of the business.

And then sticking with streaming, we've seen a lot of your peers in the media space begin to consolidate their streaming services into flagship platforms. You came to market with a portfolio of niche streaming services that have done very well in their demos, but you've really started to have a lot of traction with your own flagship, which is AMC+ and I'm wondering if you can elaborate a bit around your thoughts on continuing to maintain this diverse portfolio streaming products versus maybe potentially consolidating all of it into AMC+.

I'm not going to ask you to repeat the question, Brett. So operationally, all right, I'll start there. So I'm an operator. That's why I was brought into this role at a time when the industry is shifting and the company was in the midst of a lot of moving pieces, right, between the transition from linear to digital the new different ways that we are looking at advertising and then just having a 40-year-old company. And so for me coming in, we took a lot of pain in the fourth quarter last year. We said goodbye to a lot of colleagues that had been with us for many years, and we really needed to reorient the business.

So we've moved past that. We're looking forward to new opportunities and a lot of them do involve streamlining the operation, not from a headcount perspective because we've done the bulk of that work, but more from looking at how we service our customers, both our distribution partners as well as our direct-to-consumer customers. So reimagining our call center and our customer service functions in general, which is something I have a lot of experience with.

Reimagining the back end, as most people know, there's not really a straight out off-the-shelf solution for streaming. And because we acquired certain streamers and others we built ourselves, we need to unify that back end and figure out what the most efficient and effective sort of future-proof technology we can put in place to facilitate as our streaming businesses grow. So those are 2 big areas, really the customer service function and the back-end infrastructure.

As far as additional investment, we don't see anything dramatic in either of those areas, but I would leave that to Patrick to speak to and then the other thing, I think, that's really important is just overall morale here at the company. And as we said in the opening remarks, eliminating some of the silos, reimagining how we interact with each other. We had set up different swim lanes. So you have linear as one bucket of employees, you had streaming as another, and then the brands were also bifurcated and trifurcated.

So we've kind of eliminated all of that sort of major season now put stuff into a more streamlined approach where people own the brands and the platforms that they're delivered on. And then we have what's been, I think, a very forward-looking advertising sales group for the last 3.5 years under Kim. So having a sales team that came from digital that understands cross-platform measurement, attribution and sales has been really beneficial. So we're in good shape there.

On the distribution side, we don't -- again, I'm a cable operator at heart, I would not that against the MVPDs and the virtual MVPDs to find new and unique ways to solve kind of the customer management question of multiple services and streaming versus linear and really providing a great user experience across the board. So I love the fact that we have long-standing relationships with these distributors from a multi-platform perspective. So I think their success will be our success. And our goal is to have our brands front and center everywhere we possibly can. So that's a good piece.

And then on the consolidation, as you said, we have our transactional services, which are transactional VODs which are unique in their approach and in what they deliver. But we also do have the more broad-based AMC+, which does well for us and now includes Sundance, IFC and Shudder as sub-brands within AMC+. So we don't anticipate any other combinations at this point, but AMC+, I think, would be our broadest general service and the others continue to be targeted. So Kim, do you want to add anything else?

The only thing I would add is I think we're well positioned for the emergence of the bundling that we're going to be seeing, which actually really meets the consumer need for choice. And you can see bundling as being part of our strategy going forward.

If you wouldn't mind, if I could squeeze in a question on a different topic. We're starting to get asked about the writer's strike and I'm curious your take on at what point this could end up affecting the business, particularly in terms of series orders and deliveries.

Thank you. I would say we're very well positioned for all of this year and into next year. So we have no real concerns about the writer's strike at this point.

Our next question comes from Douglas Creutz with TD Cowen.

I noticed your SG&A costs in the quarter were the lowest had been, I think, since Q3 or so of 2020. Is that -- is this a good level to use if I'm thinking about SG&A costs going forward? Anything sort of noteworthy in the quarter you'd call out that might make it abnormal?

Doug, it's Patrick. Thanks for the question. Over the last quarter or so, we've taken significant steps to take cost out of the business. That starts with both programming and marketing. Those are the 2 kind of biggest cost levers that we've had. So we've sort of done what we said we're going to do in that regard. A part of that, to Kristin's point earlier, was having to take it by to a number of our colleagues in Q4. And so you see the results of that kind of flowing through into the Q1 numbers here.

So I would say, yes, that's a reasonable number to use going forward here. And I think more broadly, what you should understand from us is that we are very much driving this business for margin. And so as a result of some of the cost actions we've taken both on the programming side and on the marketing side, we're seeing those reductions yield margin and AOI in this quarter, and we expect that to continue on through the balance of the year.

So while we recognize it's a balancing act between investing in the business and having kind of growth levers to continue to attract the audiences and the partners that we have that there's also an imperative here to drive the business for free cash flow today. So that's kind of, in summary, where we stand from an overall kind of cost kind of apparatus.

Our next question comes from Robert Fishman of MoffettNathanson.

Can you provide some more detail behind the strategic nonrenewal at the end of 2022 that impacted the affiliate fees? And whether we should expect more of these decisions going forward? And then on the international strategy, just given the focus on cash flow, does it make sense to pull back on investing outside the U.S. and even sell some of these international linear networks?

Yes. Robert, it's Patrick. On the strategic nonrenewal, we have identified that as Fubo. We consider that to be a one-off. I think Fubo had a strategic imperative to drive their business more towards live sports programming. We were one of the last remaining entertainment bundles that they carry. Obviously, we have an imperative to maintain kind of price discipline in the market as well. So as sorry as we were to see them go, it didn't make sense to continue the relationship kind of given the economics that we're on offer.

And I would just add to that, this is Kim. Robert, I'd just add, obviously, in Kristin and Patrick's remarks around DISH, we are well into conversations with all our key partners and anticipate long and successful partnerships.

Great. And on the international plan, I would just say international is really interesting. We serve a variety of different regions, and they have very different constructs in the U.S. right now. So for example, Northern Europe is very -- Hungary and Romania in those areas, basic cable is $20 to $22 a month. There continues to be healthy margins coming from the international businesses that we have. Spain, we just had a major renewal in Spain that -- sorry, I just want to confirm I’m allowed to speak about that.

So we're widely distributed throughout Spain, and we will grow some streaming there. The U.K. is a little bit different. So we're working through that. But overall, even though it's a small percentage of our business, international is very healthy. It throws off very reasonable margins, and we continue to plan on spending time and energy there as appropriate.

Our next question comes from David Karnovsky with JPMorgan.

Just on domestic advertising, I wanted to see if there was any color you can give on how demand trended through the quarter or into April. And then Kristin, I wanted to get your view on the content direction of the company, you're arguably at a time of transition with Walking Dead ending and some spin-off series beginning. So I guess, first, what gives you kind of confidence in the health of that franchise? And then secondly, are there areas from a programming perspective where kind of you see room for improvement?

David, it's Patrick. I'll start on the ad side and throw it to Kim for some additional color. Obviously, the decline in this quarter was expected on our part, it was due to lower linear ratings softness in the ad market, which we've spoken to and a few episodes of some of our tentpole franchises, including The Walking Dead. In particular, we are lapping a tough comp in Q1 in 2022, I would say, with both Walking Dead and Better Call Saul. So these were anticipated.

And frankly, we did a little bit better than we expected. So we feel actually pretty good about it. And as I said earlier, there's an immediate return on these reductions in programming that is significantly in excess of the foregone ad revenue. So clearly, driving the business for near-term ROI balanced against continued prudent investment. I'll let Kim talk to the color.

David, just building off what Patrick just shared, I'd say, yes, we're seeing a similar environment to competitors in our space, the soft scatter and marketers really being conservative with their spending right now because of the economic uncertainty. That being said, we're seeing real category strength in both health and pharmaceutical spending as well as telecom, personal care.

And to your point about early April, we're seeing signs of life and spending from automotive coming back. So a trend we very much hope to see continue. The only other thing I'd just mention is we're also seeing very strong growth from our automated programmatic partnerships, which is enabling us to capture many more advertisers, which is giving our business more predictability and a solid foundation on the digital side.

Great. And then I'll take the content question. David, The Walking Dead continues to be a very popular universe. And I just watched I just screened the 2 Dead City, the first 2, that will be premiering next month, and that's the one that features New York City in the background. And this show is as compelling and engaging and dramatic as it's ever been. So we're excited to continue that franchise. I will say we were really, really pleased with the performance of interview with the Vampire and particularly Mayfair, which is -- and we have very high hopes for continuing to activate the Anne Rice universe and grow a whole another franchise through that acquisition of all of that IP.

And then looking at the slate coming up that we spoke about in opening comments, Monsieur Speed with Clive Owen is killer. The show Parish, with Giancarlo, is amazing. It's another New Orleans-set kind of fast action, really interesting drama. And then Lucky Hank, which we had our final episode last Friday, did incredibly well and actually grew audiences week over week as people became more enamored, particularly for those of you that watched it after Episode 5, which is like the pivotal point of the series.

And then on the other, on the streaming services, we have some great films that we've acquired. So Corsage, The Lost King and I think a lot of people read and heard about Skinamarink, which was a sort of breakout horror film that we acquired this year that did really well. Between that and just as we mentioned, some of the anime content like Oshi no Ko and some of those shows, we're feeling really strong. The other great premier that's coming up later this month is on Acorn, which is Happy Valley, which is Season 3 of a really good British crime drama that was like the top of the conversation when Season 3 premiered in the U.K. a couple of months ago.

So I feel really good about our slate, as Patrick mentioned, like really settling down at around $1 billion mark in investment is where we were successful throughout the teens and into the early 2020s. So like we feel very comfortable that, that's an appropriate level that we can maintain and still present everything that really speaks to our success in the past as creating great franchises and really delivering excellent high-quality breakout content. So feeling really good about the content.

Our next question comes from Ryan Gravett with UBS.

Maybe just on the licensing business. You mentioned that it would be down this year just given the deliveries that you had towards the end of 2022. But just curious how you're thinking about approaching licensing in 2023 and beyond, especially with some of your big franchise IP coming back? And I guess, do you see more opportunities to leverage your production capabilities like you did for the Apple TV series.

I think this is like a 3-parter, so I'll start. Overall, we're definitely sort of walking the line between we don't want to be an arms dealer. We have very strong brands and very strong franchises. So what we're doing, I think, is looking at optimizing the distribution of our franchises and our films everywhere that we can in a way that still allows us to preserve the brand equity that's associated with each of those series. So you'll know it's coming from AMC. You'll know it's coming from any of our brands because we will make the effort and particularly with franchises that we already own that are visibly AMC content like The Walking Dead, we will continue to distribute those and monetize them as much as possible. But I think the main thing is to preserve the brand equity and to keep doing what we're doing on linear and also on our streaming services.

The only thing I'd add to Kristin's point is we're thinking it's -- with our portfolio of content, we think show by show. And what is the best way to monetize that and making sure that it is in front of the fandom and the viewers that want to see it? So at the international level, that means going region by region, more so than globally right now, but we're open to those conversations on certain shows. Domestically, it's very much the same approach. We consider each show and map a plan to how we're going to distribute and perhaps license that show. So while it's down year-over-year with the Silo comps, which Patrick will talk to in a second, I actually feel like we are optimizing and maximizing the yield in our content licensing strategy.

Yes. Ryan, it's Patrick. The only thing I'd add there in terms of our tactical approach to the market vis-a-vis being a “arms dealer” is that we will characterize it as a highly tactical approach. There's no project that we have to do, right? We program our own networks that gives us a fantastic sort of perch and web of relationships that we can monetize. Our production of Silo, which premiered a couple of days ago, is evidence of that. If there's an economic equation that makes sense and we can earn a reasonable margin at a reasonable risk, we will take those swings, but we don't have to be in the market chasing deals to generate revenue because we produce for ourselves. So again, highly tactical and the economics have to make sense.

This concludes our question-and-answer period. I would now like to turn it back over to Nick Seibert for closing remarks.

Thank you, everyone, for your time today. This concludes the call.

Thank you for your participation in today's conference. This does conclude our program. You may now disconnect.