AMC Networks chair says content monetization needs industry sea change

AMC Networks saw revenue climb in the fourth quarter alongside growth of 700,000 streaming subscribers domestically, but chairman James Dolan reiterated views that content monetization mechanisms aren’t working and change is needed.

The Q4 gains brings AMC’s paid streaming count to 11.8 million, up from the 11.1 million it posted at the end of Q3 2022. For the full year 2022 total streaming revenue was up 35% to $502 million. For the fourth quarter domestic streaming revenue grew 41% in the period, while affiliate revenues declined 7.5%. Overall AMC net revenues climbed to $965 million, up 20% over Q4 2021.

AMC Networks has its namesake AMC+ streaming service as well as Acorn TV and Shudder, along with brands AMC, IFC and Sundance TV. It’s also behind hit franchises The Walking Dead and more recently the Anne Rice Universe. After the debut of  “Anne Rice’s Interview with the Vampire,” the show became the number one new series launch in AMC+ history last year and the number two basic cable drama in 2022.

Domestically distribution and other revenues were up 45% to $655 million in Q4.  That includes a 152% surge in content licensing revenue which hit $300 million in the period, thanks to delivery of an AMC Studios produced series to a third party and early delivery of episodes of “The Walking Dead” and “Fear the Walking Dead.” In its home market AMC did see impacts to advertising, with domestic ad revenues dropping 12% to $206 million, attributed to lower linear ratings, a soft ad market and fewer episodes of original programming.

Overall AMC reported an operating loss of $392 million in Q4, and adjusted operating income of $137 million, up 34%. Free cash flow was $128 million.

Just ahead of reporting fourth quarter and year-end results AMC appointed long-time board member and former Cablevision executive, Kristin Dolan as chief executive officer. Dolan, who will take the helm effective February 27, is the spouse of AMC chair James Dolan. According to the WSJ, the Dolans are separated but remain close.  

Content monetization mechanisms not working

At the top of AMC’s earnings call Friday, chairman Dolan took time to comment on the state of the industry, including his view that mechanisms to monetize content need to be reworked, led by large programmers and distributors. AMC is also shifting to operate more as a retailer than wholesaler.

He noted that “across the board the content industry is being disrupted” including by cord cutting and MVPDs, as well as the streaming sector, along with a challenged ad market and rising content costs.

“The current mechanisms for monetizing content are not working. The content industry needs to reorganize itself,” Dolan said Friday, adding most media companies are starting to course correct to improve business economics.

In reorganizing the content industry, Dolan believes that programmers and large distributors will spearhead the change while “AMC will follow.”  

“For now, as the industry continues to evolve, AMC Networks will focus on streamlining our organization, operating more like retailers than wholesalers, driving cash flow and maintaining our strong balance sheet.”

Asked by analysts on the call to expand on comments about incremental steps for operating more like a retailer for its content distribution in the future versus its traditional linear wholesale model, Dolan said it means a stronger focus on the customer as well as pricing, all things that become the responsibility of AMC that weren’t previously.  

“For an organization to move from wholesaler to retailer is to really significantly change its focus,” Dolan said. “Paying attention to things like the customer journey and churn, are all part of becoming a good retailer. The pricing becomes very important. And where you apply your manpower.”

In terms of industry changes needed for a better monetization environment, he noted that AMC does have a bit of control in the sense of the content it produces and creating a product that customers want - but also suggested it’s too small to where the company would take a back seat to larger players that first need to drive industry change.

“I really think that what we have to look for is a sea change across the industry, that’s something AMC is not going to be at the forefront of….because we’re not big enough, we can’t drive that change,” he commented.

That said, AMC needs to be in tune with shifts, including closely watching customer behavior with subscriptions and content engagement. He added that AMC will become more adept at the research and viewership patterns to continue to customize and make products consumers want. While he believes pricing will change, Dolan declined to make a prediction of how that would exactly play out.

When it comes to pricing power AMC has in taking a DTC approach, Dolan reiterated current streaming pricing structures don’t reflect that someone can sign up for a service, binge the product for a month and then leave. He also suggested that finding the right monetization methods won’t be immediate.

As it waits for larger players to lead the way, AMC is maintaining its revenue streams, watching the marketplace and “waiting for our opportunity to take our great content and put it in a vehicle that truly monetizes it,” Dolan said. “That may take a little while.”

Focus on bundles, expanded partnerships

And as it works to optimize content monetization, AMC CFO Patrick O’Connell said the company will continue to leverage 15 FAST channels and utilize data to enhance the value of its inventory with advanced advertising capabilities.

He also noted expanded partnerships with new and existing distributors, with six recent renewals including Charter, Altice, and Bell Canada. And AMC is starting to “see movement towards new pricing and packaging models” including streaming bundles, O’Connell said. One instance of that is with Verizon, which tested out a bundle of AMC+ and Netflix as part of its +play subscription aggregation platform.

“We like the idea of bundled streaming services,” the finance chief said, citing the beta test with Verizon – which AMC believes holds promise. They’ve also been having conversations with other aggregators in the marketplace along those same lines, he noted. To be successful in bundling, the service has to be a strong complement, which AMC views itself as in terms of an attractive price point and partner.

Zeroing in on franchises, compelling content

As it focuses on content AMC is gearing up to further lean into its fandom franchises in 2023.

It has two spin-off Walking Dead series slated for this year, including “The Walking Dead: Dead City” and “The Walking Dead: Daryl Dixon.” A third series in production is planned for 2024 starring Andy Lincoln and Danai Gurira.

The fourth quarter saw the debut of “Anne Rice’s Interview with a Vampire” along with season finale of “The Walking Dead.” The final Walking Dead season commanded the series’ highest pricing across its 11-season run, according to O’Connell. And when the last season of TWD landed on Netflix, in its first week there were 1.43 billion minutes streamed, making it most-watched acquired series on the platform and number two show overall.

Executives said AMC’s also gaining traction with its newest Anne Rice franchise, with the second series “Mayfair Witches” debuting in January.

“Based on the first 30 days of viewership, Mayfair Witches is now the most-viewed season of any series ever on AMC+, ahead of interview and the final season of The Walking Dead,” O’Connell said, adding it’s already a top 10 drama on cable.  Both the Interview and Mayfair Witches series have been renewed for second seasons.  

2022 represented peak content investment year for AMC at $1.35 billion. This year that figure is expected to be to around $1.1 billion in cash content spend for 2023. Going forward, cash content investment will be in the $1 billion area, similar to AMC’s historic pre-Covid levels.

Pulling in spending doesn’t mean the company plans to shift to different types of content like unscripted, with O’Connell saying it will keep its focus on quality but be more efficient and work on monetization models.