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Virtual providers help AMC Networks boost sub base by 3% in 2017

Bucking industry trends, AMC Networks Inc. boosted the subscriber rolls for its U.S. networks during 2017.

In reporting its fourth-quarter and full-year 2017 results, the programmer said its national networks' portfolio increased 3% in 2017, adding 11 million subscribers.

AMC Networks President and CEO Josh Sapan told analysts on the company’s March 1 earnings call that the company has "the distinction of being available on more virtual MVPDs than any other independent programmer."

In turn, he referenced the company’s affiliation with Philo, the livestreaming service that also proffers networks owned by A+E Networks, Discovery Communications Inc., Scripps Networks Interactive Inc. and Viacom Inc

Sapan also discussed today's announcement that the company reached a pact with sports and entertainment streaming service fuboTV that not only covers its basic networks, but also encompasses AMC Premiere, an ad-free offering of its original programming that launched last year with Comcast Corp. Sapan said the package will be added later this year by Alphabet Inc.'s YouTube TV, and the company is in talks with other distributors about adding the ad-free option.

"AMC Premiere gives us a whole new platform in which to engage viewers, and to that end, this week we made our new AMC (US) drama series "Mafia" available in its entirety to AMC Premiere subscribers immediately following the linear premier on Monday. This was a first for us,” he said referring to the eight-part organized crime show that the company co-produced with the BBC. "We think it's a perfect show to make available to AMC super fans who want a bingeable ad-free option."

The company's biggest show, zombie series, "The Walking Dead," has sustained ratings erosion in its eighth season and a drop in attendant ad revenue. "As anticipated, the trajectory of 'The Walking Dead' delivery predictably moderated in the quarter as did the trajectory of the related programming 'Talking Dead.' This affected our rate of growth slightly more than we anticipated," said CFO Sean Sullivan on the call, noting that national networks' fourth-quarter ad revenues declined almost 10%.

Assessing advertising position overall, COO Edward Carroll said AMC Networks likes "the strength of our programming lineup" that includes four of the top seven dramas on cable television, with high concentrations of advertiser-coveted 18-to-49 viewers.

"If you think about the other high quality scripted content, they're really on formats that overwhelmingly do not accept advertising. So that's the distinct market for us in the marketplace," Carroll said, noting that digital advertising grew at a double-digit clip in 2017.

For the upcoming upfront selling season, Carroll said AMC Networks will deploy resources prioritizing audience segmenting and targeting and is "not planning any adjustments to our advertising inventory at this moment." NBCUniversal Media LLC on Feb 28 said it would reduce the ad load in its original programming across its broadcast and cable networks starting this fall.

AMC Networks' fourth-quarter 2017 net revenues dipped 0.4% to $726.9 million from $729.6 million in the prior-year period.

National networks, principally comprising AMC, BBC America (US), SundanceTV (US), IFC (US) and WE tv (US) and AMC Studios, dipped 1.3% year over year to $606.1 million. Distribution revenues improved 6.8% to $337.0 million, owing principally to a rise in subscriber fees, as well as content licensing. As mentioned, advertising revenues receded, declining 9.9% to $269.0 million, with lower audience delivery blunting higher pricing.

International and other revenues, comprising AMC Networks International, IFC Films and subscription streaming services, Sundance Now and Shudder, increased 6.9% to $126.8 million. Results reflect an increase in revenues at the international programming networks, partially offset by the absence of AMC Networks International-Digital Media Center, the Amsterdam-based media logistics facility that was sold in July 2017.

Operating income surged 55.7% to $161.5 million, reflecting a 6.5% decrease at the national networks, countered by a 77.6% narrowing of an operating loss at the international and other segment, principally related to $68 million in charges incurred in the fourth quarter tied to the aforementioned Amsterdam facility.

Net income attributable to AMC Networks' shareholders totaled $145.5 million, or $2.33 per share, up from $14.5 million, or 20 cents per share, in the prior-year period.

Results in the fourth quarter benefited from a one-time tax benefit of $67.9 million stemming from the enactment of the Tax Cuts and Jobs Act, and a one-time increase in income tax of $11.0 million, while the prior-year period reflected the charges tied to the Amsterdam facility.

The S&P Capital IQ consensus EPS estimate for the fourth quarter was $1.49 on a normalized basis and $1.38 on a GAAP basis.

Full-year net revenues increased 1.8% to $2.81 billion from $2.76 billion, with national networks up 2.4% to $2.37 billion and international and other revenues off 0.6% to $457.2 million.

Operating income grew 9.9% to $722.4 million, as national networks increased 4.3% to $817.6 million, while the international and other segment recorded an operating loss of $88.9 million, compared to $120.9 million deficit in 2016.

Net income attributable to AMC Networks’ shareholders totaled $471.3 million, or $7.18 per share, versus $270.5 million, or $3.74 per share, during 2016.

The S&P Capital IQ consensus EPS estimate for 2017 was $7.17 on a normalized basis and $6.26 on a GAAP basis.