AMC Networks Inc. Q3 FY2025 earnings call

• Streaming revenue growth accelerated in the quarter, offsetting affiliate revenue declines, with streaming expected to be the single largest revenue source in the domestic segment this year. • Renewed and expanded branded content licensing agreement with Netflix, benefiting both companies, with new agreement expanding to select international markets. • Renewed long-term distribution agreement with DirecTV, expanding availability across linear, FAST, and streaming. • Worked with Charter to get AMC+ included in Spectrum TV package, with over 850,000 Spectrum customers opting into AMC+; expanded relationship with Cox, with all 5 linear networks in Cox TV Lite. • Launched first triple bundle with Amazon Prime Video. • Digital advertising commitments increased 40% from the prior quarter. • FAST and AVOD business continues to grow, with renewal of distribution with Samsung and Roku and plan to launch 4 new FAST channels by year-end. • Studio produces popular programming and franchises; home to large collection of targeted services; windows owned content across distribution ecosystem; unified technology platform for content delivery. • Film group had successful year with theatrical releases and films performing well on streaming platforms. • Offered voluntary buyout program to U.S. workforce, resulting in less than 5% reduction in employee base.

Domestic Operations revenue decreased 8% to $486 million. Subscription revenue was flat year-over-year with streaming revenue growth of 14%, partly offset by a 13% decline in affiliate revenue. Streaming revenue growth in the quarter benefited from rate initiatives and 2% year-over-year streaming subscriber growth, ending the third quarter with 10.4 million streaming subs. International revenues were $77 million in the third quarter. Excluding favorable foreign exchange impact, International revenues decreased ~50 basis points. Subscription revenue, excluding FX, decreased 6% due to nonrenewal with Movistar in Spain, while advertising revenue, excluding FX, increased 10% due to strong ad performance in the U.K. and Ireland. International AOI for the third quarter was $12 million with a 15% margin.

• Reiterating 2025 outlook: on track to achieve ~$250 million in free cash flow, with $232 million generated in first 9 months. • Consolidated revenue expected to be ~$2.3 billion, reflecting linear headwinds partially offset by streaming and content licensing strength. • Consolidated AOI expected in the range of $400 million to $420 million for the full year.

Q: Just wanted to ask, I was hoping you could talk about your partnership with the Sphere and promoting FearFest. How are you thinking about similar partnerships in the future for other promotions like Best Christmas Ever or content premieres? And then on AOI, margins decreased in the quarter to kind of mid-teens range. I believe in the past, you guys have talked about long-term margins in the mid- to high 20% range. Is that still how you're thinking about margin potential over the long term? And what steps do you need to take to drive margin expansion?

A: Kristin Dolan: Great. Charles, it's Kristin. Thanks for the question on Sphere. As you know, we sell cross-platform all of our inventory, and we do it against specific audiences. And having the opportunity to integrate with the Exosphere capabilities in Vegas has been really attractive to a variety of advertisers, particularly those in packaged goods where we can work with Sphere Studios to create an interesting companion on the Sphere to their linear FAST and AVOD purchases with us. So Kim can you expand a little bit, I think, on who we work with and how that's come together. Kimberly Kelleher: Sure. I'd just add, it's an incredible way to mark the campaign in a marquee global way where the Exosphere goes global on social, and it really -- it marks that kind of signature moment for the advertisers. So most recently with FearFest, we did Bacardi and Kraft Heinz with -- and to a great deal of success. And we do have partnerships in discussion for Best Christmas Ever and into other signature time frames for '26. Patrick OConnell: Charles, on the margin question, I think what we've been -- what we've said in the past is that we're trying to do 2 things at once. We're trying to, on one hand, continue to invest heavily in premium programming and at the same time, drive significant free cash flow through the business. You have seen over the last couple of years that our free cash flow conversion has increased materially. It's quite high, over 60% in 2025. And that will continue to be the focus going forward. So I would pay particular attention to the free cash flow in the business. Obviously, in the last quarter, we actually increased the guide for the year, up from an implied $225 million to $250 million this year. And so that's really the watch where I focus on the free cash flow generation.

Q: Just as you become less of a linear business and more of a streaming business, how does that affect your overall cost structure? Are there ways that it's going to help you? Are there ways where it's going to hinder you? Can you talk how you -- about how you expect that to continue to evolve over the next couple of years?

A: Patrick OConnell: Sure, Doug. I think we've got one of the most efficient models out there. When you think about how hard our programming dollars work against multiple distribution platforms, right? So when we program for AMC linear, it goes on AMC+ and the amount of incremental programming that's on AMC+ exclusively is relatively small from a dollar perspective. Certainly lots of episodes. There's a lot of Shudder content, et cetera, for subscribers there. So there's always something new with different and exclusive. But from a financial standpoint, the preponderance of our programming investment on AMC really does double duty across both linear and streaming. And then secondly, I'd point out some of the other more targeted streaming businesses where like Acorn, for example, where the unit economics from a cost structure are quite advantageous. The cost of production on those series is much, much lower than on kind of other larger streaming services, the audiences are extremely kind of tuned in and we've got good engagement churn metrics, et cetera. So we feel really good about the efficiency from a cost perspective of the way we approach the streaming business. And I would say kind of broadly across the overall business, we continue to have levers to pull. But we are primarily focused on continuing to invest in premium programming across all of these businesses. And we think we do it well and that we get it to work hard for us. Kristin Dolan: I would just add, Doug, thanks for the question. On the operating side, we continue to remind people that our strategy is to be a wholesale streamer. And in doing that, a lot of the costs end up on the size of our distribution partners, whether it's for acquisition or for customer service or for promotion and bundling. And then the technology work that we've undertaken over the last 12 to 18 months is driving a very predictable approach, right? So digital, when you're doing streaming, we have all of our content is nicely tucked away with Comcast Technology Services and then that supported with their second location, cloud location. So we know that our content is safe, it's stored efficiently and successfully through CTS and then our distribution for streaming and for digital is on the back of that deal, which, as we always say, it's a deal that we know what it can -- what it will cost us to deliver and that is -- it is scalable for as large as we want to grow.

Q: Thinking about advertising, with the components of the upfront commitments you mentioned and the 850,000 AMC+ sign-ons with Charter Spectrum, what would be the glide path do you think with this increased streaming presence to turning advertising into a growth business again, granted the advertising level because of linear is half of what it was like 8 or 9 years ago. But what can make this a growth revenue stream again?

A: Kimberly Kelleher: Charles (sic) [ David], it's Kim. I would point to the number Kristin shared in our successful upfront tied to the 40% growth in our digital advertising, which really aligns actually -- aligns and includes that 850,000 ad-supported Charter subscribers. We continue to kind of expand the inventory we have through our partners of AMC+. So we really continue down the road of focusing on making our inventory digitally or dynamically ad inserted, which actually allows us an opportunity to cross-sell across all our platforms, including CTV, our streaming services that are ad-supported, which we continue to add to with Shudder ad-supported coming shortly. It's just -- it's growing that overall pool, and that will align over time.

Q: I wanted to ask about advertising as well. So you talked about the growth in the FAST channels. I was wondering if you could give us the percentage of either domestic or total advertising revenue you're now recognizing from those FAST channels just so we get the relative size as it grows. And then just on the upfront, we've heard from some peers that at least entertainment linear pricing might have been down year-on-year. So I was wondering if you could give us any color there. And then finally, you talked about streaming revenue as your biggest revenue bucket. Can you just confirm if that's subscription and advertising? And if we compare streaming subscription and advertising to linear subscription and advertising, is streaming now bigger, which I think would be a big turning point.

A: Patrick OConnell: Steven, it's Patrick. I'll do the third piece first, and I'll flip it over to Kim on the advertising side of the business. Our streaming revenue is streaming revenue only. There's not the digital advertising embedded in that. So that's -- you can call it kind of a clean or pure number. Obviously, we've got a number of products in the market from an ad-supported basis, but those dollars get captured in our advertising dollars, not the streaming dollars. So hopefully, that clears up. Kimberly Kelleher: And I would just mention, as Kristin pointed out in her comments, we do have -- we have 33 FAST channels now across 22 platforms with over 250 global feeds, and that's creating a great deal of streaming digital inventory for us. We don't break that out, Steven. That's included in the overall digital inventory that we sell cross-platform. But what I would add is this is not just an advertising venture for us. We look at the FAST and AVOD marketplaces as an opportunity for us to garner interest for our programming with early seasons that actually help drive awareness and promotion and marketing towards our streaming services. So the majority of the new FAST channels we've launched recently are channels that actually sample our targeted streaming services like Acorn Mysteries or Scares by Shudder or ALLBLK Gems. These services samples the -- sample content from our streaming services and give us an opportunity to drive that kind of noncord connected audience to our streaming services directly. So we're really seeing them beyond just an advertising generator, but more of a marketing and promotional opportunity for us in streaming. Kristin Dolan: And I would just add we have one partner right now who's trialing with us the opportunity to click through a FAST channel to purchase the corresponding TSVOD. So that's an interesting experiment for us. So it goes beyond just using FAST as a barker channel. It's actually an interactive mechanism to purchase the correlated streaming service. So we're excited about that and hoping for some positive results.