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AMC Networks at crossroads amid CEO change, streaming competition

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AMC Networks' stable of linear cable networks has been home to hit shows like "Mad Men," "Breaking Bad," "The Walking Dead," "Killing Eve" and "Portlandia."
Source: AMC Networks

With its longtime CEO stepping back, AMC Networks Inc. is at a turning point as it adapts to a media environment that is increasingly going digital.

Under Josh Sapan's 26-year tenure as CEO, AMC Networks grew its stable of linear cable networks to include AMC (US), SundanceTV (US), WE tv (US), BBC America (US) and IFC (US). These networks have been home to hit shows like "Mad Men," "Breaking Bad," "The Walking Dead," "Killing Eve" and "Portlandia." But the company must find a way to compete in the rapidly evolving streaming ecosystem. Analysts say new leadership may help on this front but note that a sale to a larger entity may also be necessary.

The media industry at large is in the midst of a consolidation wave, with Discovery Inc. looking to acquire Warner Media LLC and Amazon.com Inc. awaiting approval to purchase MGM Holdings Inc. These follow on the heels of deals like the remarriage of Viacom and CBS to form ViacomCBS Inc. and The Walt Disney Co.'s purchase of key Fox assets.

AMC Networks and Lions Gate Entertainment Corp. are now the two primary remaining companies with notable intellectual property and libraries of scale that could prove attractive to larger media and tech players, FBN Securities analyst Robert Routh said in an interview. Routh did not name specific potential buyers.

Full stream ahead

If AMC Networks aims to grow its nascent streaming business, it will need to invest heavily to compete with the likes of deeper-pocketed rivals, including Netflix Inc., Amazon, Disney and Discovery/Warner Media, according to analysts.

AMC's niche-oriented streaming business includes British fare on Acorn TV, horror content on Shudder and African American-aimed programming on ALLBLK. The broader streaming service AMC+ presents top shows from across the company's cable networks and also provides access to the dedicated streaming services Sundance Now, IFC Films Unlimited and Shudder.

The increasingly crowded streaming market makes it "more difficult to gain confidence in smaller scale players," Wells Fargo analyst Steven Cahall said in a research note.

In order to get from six million streaming subscribers today to AMC's stated goal of more than 20 million by 2025, "We think AMC is effectively transitioning from niche to more mainstream, and that's where scale in dollars will matter," the analyst added.

AMC did not respond to requests for comment, but in an Aug. 24 news release announcing Sapan's move to executive vice chairman, Sapan said he looks forward to working with the company in his new role "to focus on how we maximize our unique content to accelerate our streaming goals." AMC's share price has remained relatively flat in the week since the news broke.

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Scaling up

While AMC has had a number of hit shows over the years, the original "The Walking Dead" and "Breaking Bad" spinoff "Better Call Saul" are both nearing their conclusions. AMC has connected with a "high series batting average" over the years, Moody's analyst Neil Begley said in an interview, but if it encounters a slump for a year or more, churn could derail its longer-term subscriber goals.

Moreover, AMC has traditionally released only four to five original hit series annually. By comparison, Begley said Disney and HBO Max will be joining Netflix in making new shows available on a weekly basis — a pace that AMC will find difficult to match at its current spending levels.

Netflix's content budget alone is $17 billion this year, while AMC Network's overall market valuation is $2 billion. That makes for a tough hurdle to jump relative to customer acquisition and retention, Peter Csathy, chairman of advisory firm CreaTV Media, said in an email.

On the market?

Matthew Blank — the former chairman of Showtime Networks and a senior adviser at the Raine Group, a merchant bank — has signed a one-year deal as interim CEO while the company searches for a full-time replacement.

With Sapan stepping back, Csathy said, AMC is either signaling to Wall Street that it is ready to sell, or that it knows it needs a leader more entrenched in the streaming business. He pointed to WarnerMedia's hire of Jason Kilar, who was previously the founding CEO of streaming service Hulu.

"We've all seen how Kilar has shaken things up at WarnerMedia in a streaming-first world — much to the delight of investors, and much to the chagrin of movie theaters and several creatives," Csathy said.

By turning to a digital-native leader, AMC would proclaim to investors that AMC Networks is "all in" in on media's new world order, according to Csathy.

Whether AMC ultimately decides to pursue a sale will influence its leadership search, FBN's Routh noted.

On the one hand, running a company that delivers high-quality, niche-focused content should present creative appeal, he said. On the other hand, some potential CEO candidates "might not want to be CEO just for a year or so."