AMC Networks chief financial officer Patrick O’Connell anticipates that the now-resolved Hollywood strikes will have “no material impact” on its revenue, profits or cash flow.
“We understood and sort of expected there would be some type of work disruption that would arise. We were in the process of reducing our volume of produce content already. So we had a lot of stuff that was going to be on the shelf,” O’Connell explained. “And so we were the beneficiaries of partly good planning, and then partly a little bit of luck, the strikes didn’t last as long as we feared.”
“I wouldn’t go so far as to call it a nothing burger, but it’s as close to that as it can be financially,” he added. “So we’re set up well going into 2024.”
During AMC Networks’ third quarter earnings call, O’Connell lowered the company’s revenue guidance for full year 2023 from around $2.8 billion to $2.7 billion, citing softness in content licensing revenue and continued difficulty in the advertising market.
However, he reiterated the company’s 2023 adjusted operating income guidance range of $650 million to $675 million, reflecting continued and better than previously anticipated cost discipline, and its 2023 free cash flow guidance of $120 million to $140 million.
Prior to the COVID-19 pandemic, AMC Networks was spending about a billion dollars per year on programming expense, O’Connell said Tuesday, which peaked at about 1.35 billion. He noted that AMC is still spending “very healthy amounts” on programming and reiterated that total content spend for 2023 would be closer to $1.1 billion and that it would fall closer to $1 billion thereafter.
“We produce a lot of our own content. So we have a studio, we do produce some third party content for others, not a lot these days but we are opportunistic there. We produce for ourselves and what that means is that we own the vast majority of our of our slate on AMC and across many of our other channels and so we have ownership economics there,” he added. “We could choose to not take ownership economics of some of those shows, we could choose to co-produce, we could choose to license in shows as a way to kind of drive near term margin and cash flow while we wait for a more opportune moment to take bigger swings, but we’ve, I think, modulated it in the right way and we can continue to monitor the market and there are further levers to pull if we need to.”
When asked specifically about what’s been driving content licensing softness, O’Connell pointed to AMC’s media peers all pulling that lever at the same time.
“In today’s market, you probably want to be a buyer rather than a seller of content and so we’ve seen some softness as a result,” he said. “I’d also note we’re on both sides of that market. So whilst we have been a little bit disappointed in the rate that is on offer for some of our content in the market, we’ve been disciplined about not doing deals we don’t think are economic.”
O’Connell also addressed the recent carriage agreement between Disney and Charter Communications, which bundles the former’s streaming services with the latter’s linear TV packages.
“I think in hindsight people will look back and see that as a seminal moment in the evolution of the media landscape,” he said, adding that the agreement would be “very much a template type structure for negotiations going forward.”
“We’ve been running this play ourselves for many years now. So it’s good to see the industry kind of come back to something approaching economic reality,” he added. “We think this bodes well for folks like us who have not been double dipping, who have not been over earning and who have not been kind of channel stuffing.”
While acknowledging that the secular advertising and affiliate markets remain challenged going into 2024, O’Connell sees opportunity in the rebundling of programming, noting that the company has had conversations with “just about everyone,” including traditional distributors and its programming peers.
“We did a really interesting pop up test with with Max this past fall. AMC at one point sported, I think it was five at the top kind of 10 shows on that platform, so we feel really good about how our content resonates, when it is in front of a large audience like that,” he noted. “So I think you’ll see more of that and I think we see line of sight towards some of these bundles kind of emerging, maybe even sort of beyond the ad supported SVOD businesses being the building blocks of a new bundle 2.0. We think there could be other innovative ways to partner with some of our programming neighbors, so to speak, to create bundles that drive value across the ecosystem.”
