Seeking Alpha
Research analyst, growth, value, IPOs
Profile| Send Message|
( followers)  

AMC Networks (NASDAQ:AMCX) saw shares drop this week as the company reported fourth quarter and full-year earnings. The company has seen its shares in the spotlight this year with the success of "The Walking Dead." Can a new move that the company is considering send shares to new 52-week highs?

AMC has an amazing hit with "The Walking Dead." The show continues to be the number one watched show in the key 18-49 demographic on all of television. That's right, the show that is on the AMC Channel is more popular than primetime shows on network television. Now imagine that "The Walking Dead," the highest rated show is moved to another channel. That's exactly what the executives at AMC Networks have considered doing.

Rumors began to spread around the internet that AMC had considered moving the show to IFC or Sundance. That speculation was somewhat confirmed during the question-and-answer segment of the earnings call. Chief Executive Officer Joshua W. Sapan had this to say when asked about the rumors:

I think as we look at each show going forward, we evaluate whether there's some economic benefits, strategic benefit, programming benefit to either air it on a preview basis to gain sampling and make it more successful when it airs on the channel that it resides on, or if it makes sense, to have a different channel become the place that it goes on a post-premiere channel window.

So why would AMC consider moving the most popular show in America? The answer is of course centered around subscription revenue, advertising revenue and viewership. When cable companies want to carry AMC, they are forced to carry the other channels from the company. However, cable providers like Time Warner (NYSE:TWC) are now fighting these unspoken rules and trying to pick and choose channels for their customers. AMC is one company that would probably lose out from changes to this normal practice.

AMC's smaller channels of IFC, Sundance, and WEtv struggle to maintain viewers and the cable companies are complaining. AMC could easily move "The Walking Dead" to one of these channels, but it would risk losing fans and also hurt its flagship brand of the AMC channel. Here are a few options for AMC Networks:

  • Air reruns of "The Walking Dead" on one of its other channels.
  • Air new episodes of "The Walking Dead" several hours later on other channels. The company reports that additional airings of the new episodes get millions of viewers.
  • Show episodes of "The Walking Dead" on another channel simultaneously, thus counting advertising revenue from two sources.
  • The least likely option is moving the show to another channel completely.

Here is a look at what the AMC Network channels command on average from cable providers:

  • AMC $0.29 per subscriber
  • IFC $0.21 per subscriber
  • Sundance $0.16 per subscriber
  • WEtv $0.12 per subscriber

As you can see, AMC does not generate a lot per subscriber from the major cable providers. AMC sees $0.78 for all four channels bundled together. By utilizing the strength of the number one show in the country, it could easily boost advertising rates, but also help to negotiate long-term deals and boosts the averages paid for its unpopular channels. To put this into comparison, Disney (NYSE:DIS) collects $5.50 per subscriber for the popular sports channel ESPN. Similar channels to AMC like FX and USA get $0.51 and $0.64, respectively.

The recent mid-season premiere for Season 3 of "The Walking Dead" set new records for the show and basic cable. The episode was watched by 12.3 million people, which made it the highest watched episode in the show's history. The previous high was 10.9 million for the premiere of Season 3. When counts came out three days after the mid-season premiere and included DVR numbers, over 14.9 million watched. Episode two had a slight drop to 11.0 million viewers.

Fourth quarter revenue was up eight percent for AMC. Full-year revenue increased 14%. National advertising increased 16% in the fourth quarter, and 17% overall on the year. Distribution revenue increased 7% in the fourth quarter and 15% for the full year. This was of course hurt by the lack of channels on DISH Network for a full three month period. Earnings per share came in at $1.89 for the full year. Fourth quarter earnings were down last year due to the DISH network impact, a pending lawsuit, and a $21 million loan repayment.

The biggest impact on fourth quarter and full-year earnings was the loss of AMC Network channels from DISH Network (NASDAQ:DISH).

Here's a look at what is in store for the media company's channels:

  • AMC - "Mad Men," "Breaking Bad," "The Killing," "Hell on Wheels," new cop drama will premiere in the second half of 2013, "The Walking Dead," "Talking Dead" - a one hour follow-up discussion that airs after "The Walking Dead."
  • WEtv - "Braxton Family Values," "Tamar & Vince," "Mary Mary."
  • IFC - "Portlandia."
  • Sundance - "Rectify" from the producers of "Breaking Bad" will premiere in April, "Restless" premiered in December, "Top of the Lake" will star Holly Hunter and Elizabeth Moss premiering in a couple of weeks.

AMC continues to focus on original programming to boost viewers for its four owned channels. AMC is the prize channel, but lately things have started to turn around for the company as a whole. In the fourth quarter, primetime ratings for WEtv were up double digits in the key women 25-54 target audience. "Portlandia" continues to do well on IFC and racks up an impressive amount of awards against strong competing shows.

In August of 2011, I recommended buying shares of AMC after their spinoff from parent company Cablevision (NYSE:CVC). The company at the time was a buyout target of mine. I think the company is in play once again as it has a lot of original programming to offer. As a Bloomberg article pointed out, a larger cable provider could do a better job at managing subscription revenue and bundling premium channels together. With the cable and television companies now fighting, a deal for AMC could be on the backburner for others.

I think ultimately AMC will only move "The Walking Dead" as a trial or air the show on two channels at the same time. This will help the company on all financial accounts and hopefully not mess with viewership or that hardcore following the show has built. Either way, shares of AMC are worth watching on pullbacks and buying in 2013. The company will see "Breaking Bad" come to an end in 2013, but has a bright future ahead.

Source: AMC Networks Considers Boosting Revenue By Moving Walking Dead To Another Channel