AMC Networks already walking the bundled path – analyst

This quarter, analysts at MoffettNathanson say that post-Charter and Disney’s programming dispute and ultimate agreement, media companies are questioning what the development means for them. And in a Monday note to investors the firm suggested AMC Network should be less affected than some because it’s already pursuing that path, as it has bundled AMC+ with linear pay TV distribution for a while.

“Given the more limited negotiating power without sports or other must-have live content, hard bundles are already the company’s current reality,” wrote analysts led by Michael Nathanson in a November 6 note.

The analyst firm believes the Charter-Disney dispute and resolution – which among other things saw Disney DTC apps bundled into certain Spectrum linear pay TV packages - “means a lot” for some, such as Paramount.

Bob Bakish, Paramount CEO, on the company’s third quarter earnings call last week touted benefits of hard bundles that bring together pay TV and SVOD services in the U.S., including growing subscribers with significantly reduced or no subscriber acquisition costs and reducing churn.

Fox, meanwhile, has a skinnier sports and news portfolio and is “relatively unaffected by pressures to drop long tail networks and bundle SVOD services because they sold off their ‘long tail' and SVOD exposure years ago…,” the analysts said.

And the firm thinks AMC Networks, which counts both entertainment linear networks and its standalone AMC+ app, lands closer to Fox, albeit for different reasons. Developments in the distribution landscape over the past month shouldn’t mean that much for AMC Networks, “because, in fact, they are not really all that new for them.”  

As AMC Networks reported Q3 earnings on Friday, CEO Kristin Dolan cited a “period of experimentation and innovation” and highlighted both long-standing and more recent partners as “critically important” for where the company can go. That includes distribution models for AMC+, which out of the gate launched in 2020 on Comcast and Dish Network, “and is now carried by all major cable providers in the U.S,” she said on the earnings call.

Affiliate relationships are particularly important and familiar to Dolan, she continued, given her background at cable operators. And the chief executive expressed excitement for Charter and Comcast’s Xumo joint venture, which while different than the situation with Charter and Disney, brings access to their collective tens of millions customer relationships. The Xumo Stream Box debuted last month and is Charter’s Spectrum go-to-market video sales product going forward, as well as marketed to broadband-only customers, and being offered to Comcast’s Xfinity customers.

“We are pleased that our linear networks, streaming services, and several of our FAST channels are featured in Xumo, and we’re very much looking forward to being a part of the offering and seeing where this powerful combination goes from here,” Dolan said Friday.

Following AMC Networks Q3 earnings, Nathanson in the Monday note to investors said the company’s "streaming revenues have already reached more than 70% the size”  of its domestic affiliate fee revenues.

“This may be a positive read through to what could be in store for other media companies only now starting down this path,” wrote the firm regarding hard bundles.  

In Q3 AMC reported a domestic revenue drop of 8% year over year to $541 million as it saw lower advertising and affiliate revenues at home, partially offset by growth in streaming revenue. Advertising revenue was down 18% in Q3 to $147 million, attributed to expected linear ratings declines, a challenging ad market and fewer original programming episodes in the quarter.

Domestic subscription revenue, meanwhile, was down 5% to $332 million, driven by declines in the linear subscriber world, partially offset by streaming revenue. Within subscription, affiliate revenue dropped 13% compared to a year ago, driven by basic subscriber declines, including a 3% impact on revenue from not renewing a carriage deal with Fubo at the end of 2022. Still, AMC Networks saw streaming revenue climb 9% to $142 million, driven by year over year subscriber growth. The company added 100,000 streaming subscribers compared to Q2 2023, for a base of 11.1 million.

Analysts at MoffettNathanson acknowledged that it’s not clear how much of the existing streaming revenues are driven by bundled deals versus standalone direct-to-consumer SVOD subscriptions. And they said with plans to further reduce content spend this year to help maintain margins, AMC might see the “unfortunate effect” of challenged standalone DTC subscription growth, “further weighting revenues to those tied to the linear bundle.”  

With those elements in mind, the firm views AMC Networks’ affiliate and streaming subscription revenue grouped as one. Taken together, that so-called revenue bucket dropped 5% in Q3, and the firm projects a 4% decline for the full-year 2023 following several years of growth. Nathanson noted affiliate fee growth this year was negatively impacted by virtual MVPD Fubo dropping carriage of AMC’s network portfolio.

MoffettNathanson also pegged challenges for advertising and distribution revenue to continue into 2024.

“A rebound in the ad market would add upside to our numbers, but as things stand, AMC Networks has a tough hand competing for ad dollars with its general entertainment lineup,” wrote Nathanson. “A reduced content slate weighed 2023’s advertising numbers and 2024 will likely have even fewer original programming hours.”

AMC Network’s net revenue declined 6.6% year over year in Q3 to $637 million. Total operating income was down 19.8% to $121 million.