Seth Zaslow - Senior Vice President-Investor Relations Joshua W. Sapan - President & Chief Executive Officer Sean S. Sullivan - Chief Financial Officer & Executive Vice President Edward A. Carroll - Chief Operating Officer.
Michael C. Morris - Guggenheim Securities LLC Anthony DiClemente - Nomura Securities International, Inc. Vasily D. Karasyov - CLSA Americas LLC Ryan Fiftal - Morgan Stanley & Co. LLC Todd Juenger - Sanford C. Bernstein & Co. LLC David Carl Joyce - Evercore ISI Alexia S. Quadrani - JPMorgan Securities LLC Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc..
Good morning. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the AMC Networks' Second Quarter 2015 Earnings Release Conference Call. Thank you. I will now turn the call over to Seth Zaslow, Senior Vice President, Investor Relations. Please go ahead..
Thank you. Good morning and welcome to the AMC Networks' second quarter 2015 earnings conference call. Joining us this morning are members of our executive team, Josh Sapan, President and Chief Executive Officer; Ed Carroll, Chief Operating Officer; and Sean Sullivan, Chief Financial Officer.
Following a discussion of the company's second quarter 2015 results, we will open the call for questions. If you don't have a copy of today's earnings release, it is available on our website at amcnetworks.com. This call can also be accessed via our website. Please take note of the following.
Today's discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that any such forward-looking statements are not guarantees of the future performance or results and involve risks and uncertainties that could cause actual results to differ. Please refer to the company's filings with the Securities and Exchange Commission for a discussion of risks and uncertainties.
The company disclaims any obligation to update the forward-looking statements that may be discussed during this call. Further, we will discuss non-GAAP financial information.
We believe the presentation of non-GAAP results provides you with useful supplemental information concerning the company's ongoing operations and is appropriate in your evaluation of the company's performance.
Please refer to the press release and related footnotes for GAAP information and a reconciliation of GAAP to non-GAAP information, which we'll refer to on this call. With that, I would now like to turn the call over to Josh..
Good morning and thank you for joining us today. Our second quarter results were driven by solid performance across our business, with new ratings milestones and higher viewer engagement at our National Networks and continued expansion of our global reach.
Our strong results come at a time of increasing change in our industry, which is occurring primarily due to technology and the impacts of technology on viewer behavior. Simply said they have more choice and control.
As a business operating in the midst of these changes, we are always looking at how best to navigate, adapt and evolve ourselves in order to continue having success in the current system while focusing on the future. For some time, we've pursued a strategy that has involved us doing a number of things to best set ourselves up for this changing world.
10 years ago, we began to invest in original content at AMC and at our other channels. We devoted our attention to creating shows with high production values and high viewer engagement principles, shows that stood out for much of TV at the time.
We also began owning and controlling much of our own content by forming AMC Studios and producing our first owned show, The Walking Dead. We expanded our business globally, first distributing Sundance Channel overseas, and then last year buying an international channels group, what we now call AMC Networks International.
This purchase allowed us to diversify globally in a meaningful way, and today we operate in more than 140 countries. We purchased a stake in BBC AMERICA aligning ourselves with the BBC, which shares our vision around premium content.
And we've partnered with emerging and leading digital platforms, Hulu, Netflix and others, using windows we think sustain our channels in the U.S. and afford us substantial new revenue streams.
Each of these moves has been part of an overall approach that has we think put us on a right path to prepare us for challenges the industry faces today and has positioned us quite well to continue to thrive as we navigate a changing environment. Now, I'd like to talk about some of the highlights that drove our results in the quarter.
Advertising continues to provide growth for us driven by strong interest, particularly in our original programming. While we continue to face a changing ad market, we think we're positioned quite well. We're seeing healthy price increases for our originals in the upfront, as well as a pick-up in the scatter market.
Our National Networks continued to be recognized as having some of the best shows on TV evidenced by the 31 Emmy nominations we received last month across four of our channels, AMC, BBC AMERICA, IFC and SundanceTV.
AMC with 24 nominations remains at the forefront of creating some of television's most critically acclaimed and popular shows with programming that drives enormous social engagement. In June, Mad Men came to a close after seven seasons. The series finale was the highest-rated Mad Men episode ever and was also met with wide acclaim.
Mad Men was a bit of a game changer for our company and redefined us in many ways, establishing AMC as a destination for unconventional, often daring cinematic scripted programming.
Much like Breaking Bad, Mad Men is an iconic series that will always be an indelible part of the AMC brand with its legacy contributing to viewer attachment, engagement, trust, and importantly as we go forward, sampling of our new shows.
AMC's artificial intelligence series Humans made an impressive debut in June, attracting one of the biggest audiences for a new cable drama this broadcast season among adults 25 to 54. We recently renewed the show for a second season.
And AMC's new docu-drama called Making of The Mob also performed quite well continuing the channel's successful expansion of original programming on to Monday nights which also includes TURN, the network's Revolutionary War period drama. TURN just completed a strong second season.
The series has a growing fan base and delivers one of the most affluent audiences on TV. It is this strong audience profile and the show's creative strength that led us to recently renew it for a third season. The second season of AMC's Halt and Catch Fire just ended this past Sunday.
While the audience hasn't been quite as large as we hoped, we like many TV critics and viewers think the series is well done with a strong cast. We'll make a determination about a renewal once we've thoroughly review the season's results. Looking ahead to the coming months, we think AMC has a strong lineup.
In just over two weeks, on August 23, the network will debut Fear the Walking Dead, a companion series to The Walking Dead. Set in Los Angeles for the new group of characters not navigating the beginning of the zombie apocalypse, we think the execution around this show is quite strong.
The team behind it led by show runner Dave Erickson and The Walking Dead creator Robert Kirkman along with a wonderful cast has done quite a job bringing this new storyline to life.
Last month, we premiered the first trailer from the series in front of about 7,000 fans at Comic-Con in San Diego and it's nice to note that of all the new shows presented during the convention, attendees ranked Fear the Walking Dead as the number one most engaging.
So there's good awareness of the show and we're pleased to be airing it simultaneously on the AMC channel around the world in 125 countries, making it a true global TV event for fans. Fear the Walking Dead will lead right into the new season to The Walking Dead.
Heading into its sixth season, we think The Walking Dead is as creatively strong as ever and we look forward to its return in October. In November, the network will premiere a new original series from AMC Studios called Into the Badlands, a martial arts action adventure series.
And over at WE tv, we're very pleased with the strong performance in the quarter. The network was up double digits in its key demo, women 25 to 54 versus the second quarter of last year.
WE tv's successful quarter was fueled by the highest viewership we've seen for two of its franchised series, Marriage Boot Camp and Braxton Family Values as well as a new series called Cutting It, all of which have built quite a strong fan base particularly among African American women.
Our other networks, BBC AMERICA, IFC and SundanceTV continue to focus on having shows that stand out for their deep appeal among viewers, series with dedicated fans and often wide critical acclaim.
Shows like BBC AMERICA'S Orphan Black, which we've renewed for a fourth season and was just nominated for its first Emmy Award for lead actress Tatiana Maslany, who gives what many say is a virtuoso performance in her portrayal of multiple characters.
We think BBC AMERICA is one of the strongest brands on TV, and we're quite pleased with how quickly it has become completely integrated into our company. Our broader partnership with BBC Worldwide includes jointly developing and producing select projects, and we've just green lit our first two co-productions.
A political thriller called Undercover and a mystery and psychological drama called Thirteen, both set to air next year. Next month, BBC AMERICA will bring back a new season of the enduring series Doctor Who, which remains a powerhouse franchise. And later, in the fall the network will debut a BBC epic historical drama called The Last Kingdom.
At IFC, adding to the network slate, that includes the recently Emmy-nominated show, Portlandia, is a new spoof series called Documentary Now!, featuring Portlandia's Fred Armisen and comedian, Bill Hader with Seth Meyers producing, that premieres later this month.
SundanceTV's original programming continues to receive what we think is well-deserved critical praise, especially for new series, Deutschland 83, and Rectify, a much praised series that we've just renewed for a fourth season.
Following the two Peabody Awards SundanceTV received earlier this year, the network was also recognized with four Emmy nominations for the miniseries, The Honorable Woman, which we co-produced with the BBC. Globally, demand for our channels continues to grow.
We achieved a major milestone in the quarter announcing our first distribution deal in the UK with British Telecom which will launch the AMC channel later this month. In addition to bringing Fear the Walking Dead to our global audience later this month, we will also air Into the Badlands in November, simultaneously in the U.S.
and across our AMC Global channel. With that overview, I'd like to turn the call over to our CFO, Sean Sullivan..
Thanks and good morning. As Josh highlighted, our results in the second quarter were strong. Company delivered healthy revenue, AOCF, and free cash flow. We are optimistic about the outlook for the remainder of 2015. I will touch on that after reviewing the second quarter results.
In summary, the second quarter delivered total company revenue growth of 15% and AOCF growth of 22%. Results in the quarter exceeded our expectations due to the favorable timing of certain revenue and expense items, primarily at the National Networks. I'll touch on these as I go through our second quarter results.
Also as a reminder, the comparability of our results was affected by the BBC AMERICA transaction, which closed in October 2014. So, with that, let's turn to our reporting segments. At the National Networks, revenues increased 23% or $91 million. AOCF increased 33% or $46 million versus the prior year period to a total $183 million.
Distribution revenues in the National Networks increased 29% or $69 million to a total of $303 million versus the second quarter of 2014. Consistent with the first quarter of the year, affiliate fee growth for the quarter was in excess of 20% on a reported basis.
Excluding the BBC AMERICA contribution, growth was in the mid-teens, primarily a result of rate resets we achieved and highlighted on our last call.
Distribution revenue growth for the second quarter also reflected a strong double-digit year-over-year increase in non-affiliate revenues due principally to ancillary revenues in the licensing and international distribution of our scripted original programs.
Most notably, Halt and Catch Fire on SVoD, The Walking Dead in home video as well as international distribution of both TURN, and Halt and Catch Fire. The timing and amount of some of these items within our non-affiliated revenue stream resulted in approximately $10 million of upside relative to our expectations.
Advertising revenues increased 13% for the quarter to a total of $186 million. The majority of this increase related to the inclusion of BBC AMERICA. Excluding BBCA, advertising growth was in the low single digits over the prior year period.
Results at WE tv, IFC and Sundance were strong with each network reporting double-digit growth over the prior year period. At the AMC channel, advertising was down versus the prior year quarter due primarily to a modest decline in ratings in the performance of some of its original programming. Moving to expenses.
Expenses in the quarter increased 17% or $45 million versus the prior year period. Excluding the impact of BBC AMERICA, expenses increased in the mid-single digits compared to the second quarter of 2014.
In the aggregate, expenses in the second quarter were about $10 million to $15 million favorable to what we had anticipated in early May when we reported our first quarter earnings.
No one item in particular drove this variance, rather it was a combination of several items related to the timing of programming, production and advertising, and marketing expenses. Technical and operating expenses increased 19% or $30 million compared to the prior year period to $192 million.
The year-over-year variance principally related to the impact of BBC AMERICA as well as our continued investment in original programming across all of our networks. In the quarter, we recorded $4 million in charges primarily related to our decision not to move forward with a third season of The Red Road at Sundance.
This amount is consistent with the write-offs in the second quarter of 2014. SG&A expenses were $121 million in the quarter, an increase of 14% or $15 million versus the prior-year period.
The increase primarily related to the consolidation of BBC AMERICA and was further impacted by the timing of marketing expenses related to the airing of originals most notably, Orphan Black. As for the other domestic networks, AMC, WE, IFC, and Sundance, marketing costs were relatively flat year-over-year.
Moving to our International and Other segment, consistent with our expectations, revenues for the second quarter decreased $12 million to $113 million. AOCF for the second quarter decreased $11 million to a total of $9 million versus the prior year.
The decrease in revenues primarily reflected an $18 million negative impact of foreign exchange as well as the absence of a one-time contract termination benefit in the prior-year period, which more than offset an increase in affiliate and advertising revenue.
As for AOCF, the results in the second quarter reflected a negative impact of $5 million related to foreign exchange as well as an increase in program rights amortizations at AMC Networks International and an increase in expenses at IFC Films as compared to the prior year period.
Moving to net income, total company net income from continuing operations for the second quarter was $83 million or $1.14 per diluted share compared to $60 million or $0.83 per diluted share in the prior-year period.
Adjusted EPS for the second quarter of 2015 was $1.23 per diluted share, excluding the impact of amortization of acquisition-related intangibles. EPS and adjusted EPS for the second quarter of 2015 included $11 million of miscellaneous income related to foreign currency transaction gains and $3 million in restructuring charges.
In terms of free cash flow, the company reported $157 million of free cash flow for the six months ended June 2015. For the six months, tax payments were $99 million, cash interest was $61 million, and capital expenditures were $33 million.
Program rights amortization to the six month period was $343 million and program rights payments were $412 million, resulting in a use of cash of $69 million. This compares to a use of cash for programming of $45 million for the prior year period. Turning to the balance sheet. As of June 30, AMC Networks had a net debt position of $2.5 billion.
Our leverage ratio based on an LTM AOCF of $786 million was 3.2 times. When adjusted for consolidated entities that are less than 100% owned such as BBC AMERICA, this ratio increases slightly about 10 basis points. In terms of capital allocation, we expect to continue to delever through a combination of AOCF growth and free cash flow generation.
There has been no change in our strategy or approach to capital allocation. Our primary focus remains investment in our core business. We believe this will continue to allow us to grow AOCF on a sustainable basis and will generate the greatest return for our shareholders over the long term.
Looking to the back half of 2015, we are optimistic about the outlook for the company's performance. At our National Networks, advertising should benefit from strong original programming across all of our domestic networks, most notably at AMC. We're excited about a lineup that includes a healthy mix of returning and new shows.
With respect to distribution, we continue to expect normalized growth that is excluding the impact of BBC AMERICA in the double digits for the full year. On the cost side, we continue to anticipate managing the National Networks business to a margin that is broadly stable with 2014.
With regard to our quarterly performance, we anticipate continued variability as a consequence of the specific timing of our investment in content and the airing of our shows. Looking ahead to the third quarter, we anticipate delivering a solid quarter with performance led by our National Networks.
At the National Networks, in terms of advertising, we expect growth to improve relative to the second quarter given the programming line-up.
With respect to distribution, we expect affiliate revenues to remain in the double digits but slow modestly from the rate of growth we experienced in the first half of the year as we begin to cycle through our recent renewals.
As for non-affiliate revenue, due to the timing of the availability of content, we expect the third quarter to be the largest quarter of the year in terms of absolute dollars, but anticipate a significantly slower year-over-year growth rate than what we experienced in the first half of the year.
On the cost side, we expect to see an increase in the year-over-year growth rate and expenses as compared to the first half of the year due most notably in the inclusion of BBC AMERICA in our reported results as well as an increase in programming and marketing given the timing of the airing of our shows.
These factors in aggregate are expected to result in solid double-digit AOCF growth to the National Networks on a reported basis for the third quarter, subject to the current advertising market including scatter as well as the premier of some of our upcoming original shows.
At our International and Other segment, third quarter revenue and AOCF are expected to be down year-over-year due primarily to foreign currency rates and lower results at our IFC Films business. As a reminder, the third quarter of 2014 included the theatrical release of the film Boyhood.
As for the fourth quarter of the year, we'll have more to say on our next call but we do want to remind everyone that we will begin to lap the impact of the BBC AMERICA transaction. So, with that, we'd like to move to the question-and-answer portion of the call. Operator, please open the call to questions..
Thank you. And your first question comes from Michael Morris with Guggenheim Partners..
Thank you. Good morning, guys. Two questions. One, the first is just on advertising and the relative content spend. And so specifically what I'm asking is, it seems that the demand from advertisers for the originals is growing at a healthy pace but demand for other, the non-original content is declining.
Can you just talk a little bit about the dynamic between those two? And then also, as you look at your content spend going forward, is there opportunity to reduce your content spend on the non-original side? Would you shift it into the originals, or is that an opportunity for some cost savings? And then I have one on OTT..
Sure. Hey, Michael. It's Josh. I think you've got the trends broadly right. The greatest desire and the greatest upward pressure that we're experiencing is in our originals. We think that's a good thing.
That's the direction and has been the direction of our company for some time for reasons including advertising attractiveness and many others, sustainability of brands, and durability in a changing environment, and many other reasons. So, it is the case that we are seeing the greatest demand and the greatest price increase is for our originals.
We take that broadly as good news. In terms of our content spend and sort of if what was is your question is a question about efficiency or ROI and whether money goes to originals versus other things, I think that we were ever mindful that we want an ROI on every dollar of content investment that we make.
So, we do spread and mix the type of originals that we do both in terms of their editorial nature and in terms of their ownership qualities, which affects price. I'll give you a couple of examples.
While shows like Mad Men and The Walking Dead, which, or Better Call Saul, which are scripted dramas and have higher price tags attract the highest CPMs and the highest demand. We also did a series on AMC called Making of the Mob which was, frankly, a lower-priced show. It had a little less profile.
It delivered very good audience and was an excellent piece of business for AMC. So, we think that's a good indicator of an area that is smart for AMC to go into. Perhaps to state the obvious, on WE tv, our originals are relatively very efficient in terms of cost and return.
We do so-called reality shows like Marriage Boot Camp, Braxton Family Values, Tamar & Vince, the new show Cutting It, and they come at a much lower price tag. So, I think if I'm answering your question, the highest prices and the best returns we get and the best brand build are for the most prestigious originals. They are the most expensive.
We're populating our overall mix with some stuff that is somewhat less expensive. But we do think originals ultimately sort of win the day..
I guess. Do you see an opportunity to reduce the spending on the non-originals side or do you think you're kind of at a steady state in terms of that, the amount of content you need for the rest of the slate..
I think it really is – it's an eternal work in progress because we monitor ratings, of course, in the changing landscape daily and monthly, of course, and quarterly. And so, I think that Sean pointed out that we're sort of talking about broadly stable margins.
So, in aggregate, we think we've got a balanced business, and we'll monitor and be careful about the expense out of the house. I don't think there's any immediate opportunities to eliminate content spend on some material that helps fill out the schedule, if that's what you're asking..
Yeah. That's right.
And then, just quickly on OTT, is there any limitation in your existing agreements either with your traditional distributors or with your third-party partners like Hulu or Netflix that would prevent you from possibly having an OTT solution of your own, not an or but kind of an and sort of like an analogy would be CBS All Access which they're still in the bundle but they also have another product.
Are you prohibited from doing that, or could you do something like that?.
So, if you don't mind, Michael, I'm not going to comment on the exact things that are in all of our affiliated agreements. I'll only point out, if I may, that what we've chosen to do – we're mindful, of course, of the world. We're pretty careful, I hope, and thoughtful about these agreements which have increasingly become longer term.
So, we're aware that we live with them in some cases as long as seven years. And therefore, flexibilities that we may require need to be baked into them. I'd point to our current behavior as being most important which is we are parts of packages that are offered OTT today with other services, and that is our MO for today and for the time being.
We keep our eye on and are careful about what we write that has significant timeframe in front of us so that we protect our ability to go where we need to go..
Thank you very much. Appreciate the answers..
Thank you. Your next question comes from Anthony DiClemente of Nomura..
Hi. Thanks a lot for taking my questions. I have one for Josh and one for Sean.
Josh, from time to time, we hear from other media executives who talk about providing a more extensive array of on-demand content, be it stacking rights or some people call it bankable content to the MVPDs in order to get more value from the MVPDs, whether it's higher affiliate rates per sub, value in their agreement.
But some of us are just asking does that have an impact on diluting advertising dollars which are driven off of measurement of linear viewership. So, I just really wanted to get your view on that tradeoff, if you see it that way in terms of the stacking rights versus the rolling five that I think you do in most of your agreements.
And I have a follow-up for Sean. Thanks..
Hey, Anthony. It's Ed. I think you asked a good question. And I think we have been very mindful of the ecosystem. And I think the deals we've done have preserved both the value on the MVPD side of the house and we've provided the value on the linear and the VoD side and increasingly are selling digital advertising as part of our VoD offerings.
But then also enjoyed I think fairly top-of-industry deals on the SVoD side and we really view that a bit, Anthony, as our syndication window and we tend to have hold backs that are close to a year before we exploit that. So, there's not one sentence I can give you. It is a balance. We're always on the VoD side of the house with our MVPDs.
There are some shows where we will grant more lucrative what you call stacking rights to encourage sampling. There are other shows that we hold back and sort of preserve more value for other windows. It's a constant balance that we work against..
Okay. I understand. Sean, thanks. Thank you. Sean, thank you for the detailed outlook. Going forward, you mentioned that ex-BBCA advertising would improve in the 3Q off of the 2Q, which you said was low-single digit growth.
Can you just give us hopefully a little bit more detail as to the drivers there? So, I think supply of new original hours you mentioned but is it more supply or more what you're seeing – what you guys are seeing in terms of ad demand in the marketplace? And then if you could just talk about the fourth quarter, should we expect a similar and a relative ad growth versus what we just saw in the 2Q and the 4Q as well? Thanks..
Sure and thanks. So, I think that we'll probably have more to say about the fourth quarter on our next call. But as we look ahead to the third quarter or in the third quarter now, we're seeing a very positive scatter market with improved pricing.
And I think I highlighted this in my comments, we have obviously a fairly strong original programming slate, premiering with The Walking Dead, August 23. So, obviously, the key factors are the state of the ad market today. We see very positive signs in scatter.
Obviously, the delivery of the show that's launching on August will indicate how well we do in the third quarter. So, I think you understand the factors at play. I think we have a good market. We think we have a good content slate. We're optimistic about the results but certainly subject to those things..
Cool. Thanks a lot..
Thank you. Your next question is coming from Vasily Karasyov of CLSA..
Thank you. Sean, I have a question. By the way, thank you again for the guidance and for the color on the upcoming quarter. My question is about AOCF to free cash flow conversion. What do you feel the run rate of the business model should be this year and whether it's a typical year or not? And then I have a quick one for Josh..
Yeah. I think that what you've seen in the first half of the year and what we've done, we feel very positive about the conversion. We're obviously reinvesting into original programming. We expanded the slate on an incremental basis every quarter. I think you'll see something that's consistent with last year.
As you know, we are full taxpayer, and that is obviously burning the free cash flow as well. So, I don't believe that – again, I'm not going to provide necessarily an outlook over the next 6 to 12 months. But I think that what you've seen and experienced over the last 18 months is not dissimilar to what our expectations are..
Okay. Thank you. Josh, and I have a question about Humans. I know you're not 100% owner there.
So, in case the show's performance diverges in the UK and in the U.S., whose decision is it to renew the show or not in future seasons? How does that work?.
So, generally, I won't speak to any one show. But generally, in the agreement with the studio, the network has the ability to trigger a renewal. And we have – in the case of Humans, we have exercised that and we've triggered the renewal for Season 2. So, it's pre-negotiated contractually, generally..
Thank you. Have a good day..
Thank you. Your next question comes from Ryan Fiftal of Morgan Stanley..
Great. Thank you. First, I guess, a clarification on the guidance. I think, Sean, you said strong double-digit National Networks AOCF growth in 3Q.
I'm assuming that's on a reported basis, meaning that it includes the benefit of BBC?.
That is correct..
Okay. And then, I guess, trying to tie that back with the broadly stable margins guidance as well, I think there's obviously noise in assumptions you make. But I think with that kind of growth, you'd have to have margins down pretty decently in 4Q to not see some full-year expansion.
So, is that consistent with your expectations, or is there some margin safety built in, or how should we be thinking about that?.
I think that I'm going to restrain myself from talking about the fourth quarter. I think that hopefully the philosophy and articulation of how we're managing the business and the margin profile is probably the best I can offer. And again, reported basis, solid double-digit and managing to a broadly stable margin.
So I apologize for reiterating, but that's how we look at it..
Okay. And then maybe one more on the margin side, international margins, I think they compressed some year-over-year. You mentioned the one-time favorable benefit.
I don't know if that was a major driver of it or, I guess maybe more broadly, are we in a period this year where we're going to see margin compression there as you invest in content in anticipation of future growth?.
Yeah. So, just to articulate, International and Other obviously contains really three separate things that are going on. We have our AMC Networks International, we have our IFC Films business and we have some of our emerging digital initiatives that are flowing through that segment. So, it's certainly a bit muddy for you to assess.
Again, foreign currency on a year-over-year basis as I articulated continues to weigh a bit on the segment in the international business. We did have a favorable one-time impact in 2014 that's impacting this year's results. I think that again the margins, I don't expect them to be further depressed. Our hope is to manage to a margin that is expanding.
Obviously, we have a lot of exciting things that are going on internationally in terms of the launch with BT and exporting a lot of our content. So again, the international business is going well. We're excited about the content investment. We're excited about what's occurring there.
But as we have always said, that is more of a mid to long-term exercise again. And then on the IFC Films side, third quarter of last year as I said, had the theatrical release of Boyhood in it, so that will impact comparability, too. So, those are some of the factors at play..
All right. That's helpful. And then if I can ask one for Ed and Josh as well. On the upfront, I think you were selling BBC AMERICA I think for the first time really integrated with the rest of your network.
Can you talk about how successful that strategy was? Any success bringing new advertisers to that platform, maybe closing a CPM gap, anything along those lines? Thank you..
I think strategically, we were happy with the way we were able to integrate BBCA into the upfront. Specifically, that means we were able to sell the original series together with the AMC, for example, and Sundance and IFC original series. So that's good. I will say an important strategy for us was to increase the rate card of BBCA in this upfront.
And I think we made good progress in that area..
Thank you..
Thank you. Your next question comes from Todd Juenger of Sanford Bernstein..
Oh. Hi. Good morning. I have a very quick one and then a more open-ended one for whoever wants the pleasure of answering.
The very quick one would be, I'd just love to hear, especially given what's going on in the market, what your sense of your subscriber count is for your fully distributed networks this year compared to, say, last year and any trends you see going on there? The more open-ended one.
I would just love to hear a little more on the renewal decisions, especially on TURN and when you think about Halt.
I appreciate the prepared remarks you made on that, Josh, but is it just as simple as comparing the certainty that you feel you have when you renew an existing franchise? You sort of know what you're going to get in absolute audience and the trajectory and then comparing that to sort of the risk involved with trying something new and maybe shooting for something higher? Are there any other dynamics that we don't know about that we should think about? Anything in your sort of output deals with the SVoDs that favors returning series or just the value of re-runs in your own network, anything like that? Begging sort of the question is, is the performance that we see on TURN and Halt sort of as good as you hope for or expect to get from those types of franchises in your portfolio? Thanks..
Yeah. So if you don't mind, Todd, I'll take the renewal question first. It's I think said at its simplest, it is ultimately economic. And so there is an ROI that you can get on any one show that is a look at its cost, net cost to you and revenue streams today and into the future. That's the simple way to look at it.
The net cost is influenced by of course how much you pay.
If you own it is a big consideration, because if you own a show and you're able to enjoy the various revenue streams that come from ownership which might otherwise be owned by a different studio if you're leasing it, so-called, then you have more opportunity if you've set yourself up to sell that show either on a predetermined so-called output basis or on an as-sold basis.
So ownership is a big factor. It actually influences the financial view of it. After that, I think variables, the softer variables include a projection of vitality and endurance.
And if you begin with that economic analysis, you'll start – maybe I'll start first with, will it, if it's owned, perform and continue to yield revenue from the less immediately visible United States ad sales and contribution to sustaining affiliate fee from MVPDs, which is, of course, not variable, it's contractual and locked.
And then the softer part of that is how will the show do next year and the year after? And that gets to be more coffee-table conversation, that hopefully, on our part is influenced by research that we do, that get at the dynamics of viewer appreciation, acceptance, engagement, length of tune, C+3, C+7, utilization on a delayed basis and several other things.
The yield of all that is ultimately a decision about whether it is worth 10 more, 13 more or any more. And the end decision has some judgment in it.
The piece of it that's the most fun to discuss is – but it's not necessarily the most central – is can a show grow and can it get better? And just to rewind our own little clock, we have seen certain shows which is different than most television history, at least broadcasting where shows tend to come out stronger and then they decline year-over-year and you see how long it takes until they expire and become non-economic, and then you cancel them.
And so, we're in a different business and we actually have seen many shows grow as a consequence of their exposure on ancillary platforms. And that can help advertiser appreciation sales and escalating CPNs. So, that's a very slightly non-clear answer, but that's all it goes into the mix of a aye or a nay in a final decision.
On the question of – I hope that satisfies you. On the question of the sub-count, if it meant to be a quick answer, we have had – everything that's occurred to-date has been pretty much in line with our expectations of where subscribers would be within a reasonable band. Nothing has surprised us.
The pressures, I think that are on the system have been fairly obvious for some time. I think we've discussed them. And so, I can just – I'll leave that comment there unless you want me to comment further on where we sit in it and our rates and renewals..
Well, thanks, Josh. And I don't want to be a hog of time, so I won't – but just one very, very quick thing.
So, more just on the distribution of basically AMC Networks, fully distributed network, is there anything you're seeing that is changing in the overall subscriber universe the number of multichannel subscribers who are you getting paid for on that network? I think we'd all appreciate any insight you have on that given it's so central to the market this week? That's it.
I'll leave it there. Thank you..
Sure. All I would say is – and I don't want to confuse the subject. We broadly see what you see. We're looking at the same data. There are some nuances, Todd, and I don't – I think they're probably going to be more complicating and clarifying. I'll just mention a couple of them. Some of our deals are unit-based.
Some are an amount of money with an escalation on flat – on the amount of money. So, that would have an impact on our net take, obviously. And then one other comment which is, as you point out, AMC is near fully distributed. Some of our other channels are not. That means they're either not on a system or they're on a slightly more elevated tier.
And the impact then on aggregate basic video counts in the U.S. can or cannot take direct impact on WE, IFC, BBC, et cetera because someone who maybe leaving that package may or not be leaving the higher package. It depends upon where they're going. So, nothing as I said, it's probably going to be complicated answer, a nuance that may mislead you.
I think we broadly say we see what you're seeing..
Okay. Thank you so much for your thoughtful and comprehensive responses. Thanks, guys..
Thank you. Your next question comes from David Joyce of Evercore ISI..
Thank you. Just a little bit further to the – maybe to the content decision process as it pertains to your international networks. How much does that – the carriage outside the U.S.
contribute to your decision making on the renewal and actually on the green lighting of new series? And then, secondarily on the international networks, can you talk about how your subscribers for carriage, in those – at the various markets have been trending? What sort of upside do you have in your markets? Thank you..
Sure. So, on the second point, David, we've converted – we've almost completely converted now what the MGM Network to AMC. We're in about a 125 countries and we are rolling now the AMC content at some of our shows onto our international channels. So, we see, as those deals come up, we then are in negotiation for higher fees.
And so, you – there will be a lag obviously between the time that we're putting the content on the channels and when those deals come up and then we're able to significantly increase the affiliate fees. We also are endeavoring to grow the advertising business in all of those territories.
To your first question, I would answer hopefully distinctly and say not much. The question was how – the question, if I understood it right, was how much the fact that an AMC Studio show is playing on an AMC Network globally versus any other network globally.
What's first and foremost, the consideration is how the show is performing, blow the ROI considerations that Josh alluded to before. We really wouldn't – in terms of the international we really wouldn't view differently if that show was playing on our network or another network in terms of the renewal decision for that single series..
Great. Thank you..
Thank you. Your next question comes from Alexia Quadrani of JPMorgan..
Hi. Thank you. I just have a quick sort of clarification question about the quarter. You mentioned AMC Networks having softer ad revenues in the quarter.
Can you just elaborate a little bit were the number of programming hours down, original programming down year-over-year or was it really just simply a ratings issue?.
Mainly a ratings issue. We saw some decline in movie ratings and we saw a slight decline in season two of returning series TURN and Halt and Catch Fire. And that mainly attributed for the decline..
Okay. Thank you..
Operator, why don't we take one last question, please?.
Sure. Your final question is coming from Ben Mogil of Stifel..
Hi. Good afternoon – good morning and thank you for taking my question.
Sort of, first one for, Sean, Sean the $10 million sort of outperformance that you mentioned, I guess on distribution and licensing, is that $10 million kind of a timing issue or is that you actually got an aggregate $10 million more of licensing than you originally sort of hoping for?.
Yes. It's primarily timing, Ben. We don't have perfect visibility with our partners in terms of how things are performing in the ancillary market. So, we anticipate the majority of it is timing..
Okay, great. Thanks.
And then, sort of one for Josh, Josh, when you're looking at say something like Halt and Catch Fire and deciding on whether to go forward or not, beyond the obvious linear ratings in the C+7 and the delayed viewing, when you talk to your SVoD partners, what kind of role sort of broadly speaking, do they have – not they have – what kind of sort of input you sort of get from them in terms of that final decision-making process, if you will?.
Yeah. I think as I mentioned, I think the ancillaries on an owned show are a consideration. I think so we value what our partners think of the shows that we have. The true economic flows – so we do value any sort of distribution partner or buyer that we have if we are an owner.
It doesn't necessarily mean that we're dependent upon their enthusiasm or decision depending upon the nature of the deal. Some of the deals are obligated deals and some are not. So, I would say that, in general, we really pretty much have control over the decision process about what to do and we've maintained that control.
There are or can be provisions in different deals that could give them degrees of participation which we would need to take into account, they're occasionally there, not always there, but more broadly, we certainly are interested in their opinions..
Okay. That's great. Thank you very much..
Well, thank you, everyone, for joining us on today's call and for your interest in AMC Networks. Operator, you can now conclude the call..
Thank you. This does conclude today's AMC Networks' second quarter 2015 earnings release conference call. You may now disconnect..