Seth Zaslow - AMC Networks, Inc. Joshua W. Sapan - AMC Networks, Inc. Sean S. Sullivan - AMC Networks, Inc. Edward A. Carroll - AMC Networks, Inc..

Michael Morris - Guggenheim Securities LLC Anthony DiClemente - Nomura Securities International, Inc. Michael B. Nathanson - MoffettNathanson LLC Vasily Karasyov - CLSA Americas LLC Todd Juenger - Sanford C. Bernstein & Co. LLC Benjamin Mogil - Stifel, Nicolaus & Co., Inc. Ryan Fiftal - Morgan Stanley & Co. LLC.

Ladies and gentlemen, thank you for standing by, and welcome to the AMC Networks' Third Quarter 2016 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will open the call for your questions. . It is now my pleasure to hand our program over to Mr.

Seth Zaslow, Senior Vice President of Investor Relations. Sir, the floor is yours..

Thank you. Good morning, and welcome to the AMC Networks' third quarter 2016 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 third quarter 2016 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.

Of particular note, as disclosed in today's earning release, the company has renamed the non-GAAP performance measure, formerly referred to as adjusted operating cash flow or AOCF to adjusted operating income or AOI. The definition and components of adjusted operating income are identical to the definition and components of AOCF.

For further details, 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 all for joining us. During the third quarter, AMC Networks continued to execute on our long-term strategic goals and we're on track to deliver solid results.

For the full year 2016, across the company, we remained focused on investing in and monetizing high quality content through traditional revenue streams such as affiliate fees and advertising as well as through new revenue streams resulting from our expanded ownership and control of content.

At the same time, we're aggressively managing our cost structure to maintain healthy growth and margins and we're generating strong levels of free cash that allow for a balanced capital allocation strategy. We believe these strategic priorities will best position our company to take advantage of changing consumption patterns in TV.

We like the composition of our revenue base, which is growing nicely up 7% year-to-date and is becoming increasingly diversified. Our domestic affiliate relationships continue to provide us with a desirable and predictable revenue stream.

Given the particular strength of our channels and brands we think we have an attractive if not relatively low wholesale price. Based on our consumer appeal, we think we are quite additive to any and every pay-TV package.

Given the multi-year nature of these agreements and the timing of agreements now in place, we expect the distribution of our brands and channels to both traditional MVPDs and new entrants will continue to provide us with a reliable source of growth well into the foreseeable future.

This past quarter we entered into an agreement with DirecTV Now, AT&T's soon to launch over the top streaming service. So we now have agreements in place with the three alternative TV packages that have recently merged. DirecTV Now from AT&T, as well as Sling and Sony Vue. And we're having productive discussions with several other entities.

Moving to our other traditional revenue stream. Advertising continues to be a growth driver for AMC Networks, as we've said before while our results in any given quarter can be impacted positively or negatively by the timing and performance of programming, we continue to grow this area of our business.

Year-to-date our domestic advertising base is up 6% as a result of strong pricing power and demand for our shows and content. We had particularly strong demand for our content in the most recent upfront, securing healthy price increases across all of our networks.

Due to the strength of our brands and our shows, we were able to elevate the quality of our advertiser relationships in a quite competitive environment. I'd like to take a moment if I may to talk about the several steps we've taken over the last several years to diversify our revenue base.

Excuse me – five years ago, essentially all of our revenues were derived from either domestic affiliate or advertising revenue. Today approximately 30% of our revenues come from sources other than U.S. affiliate and advertising.

So we now have an international channels business that spans over 140 countries and through the expansion of our studio operations a rapidly growing licensing and distribution business, as well as several developing digital initiatives.

In terms of our digital interests we continue to invest in and develop our in-house subscription video-on-demand capabilities with our two streaming services that are named Sundance Now and Shudder. In addition, we've recently entered into an agreement with RLJ Entertainment.

We've provided that company with a loan and have the option to become a larger strategic partner in the company. RLJ Entertainment, if you don't know owns two streaming services one called Acorn TV and the other Urban Movie Channel or UMC.

In aggregate, those two services have about 400,000 subscription video-on-demand subscribers and they operate in content areas that are sympathetic to what we do and we think this business provides an interesting opportunity as we go forward.

As many of you know several years ago we saw the landscape changing and intentionally shifted our business with the goal of becoming a more significant content producer.

By establishing a studio operation through which we own, control and distribute our own content, we saw an opportunity to enjoy the upside of delayed viewing, to take advantage of sales to various platforms and to reduce our reliance on domestic advertising and affiliate revenue streams.

Today, our AMC Studios operation is an important and thriving part of our business. We currently have eight AMC studios owned scripted dramas airing on our own channels and three more in production. That's a level of output that rivals some of the more well-established TV studios.

Our increasing ownership and control is meaningful to our economics in many ways.

We benefit when our content plays in the linear window, when we sell our shows into domestic subscription video-on-demand platforms like Hulu and Netflix, we benefit from licensing and merchandizing and when we sell our content overseas to our own AMC Networks international channels as well as to third-parties.

Over the past several years, the revenues generated from ownership and control of our content has grown at a very rapid rate. So, content remains the engine that drives the success overall of AMC Networks. It's the most important part of what we do, and if I may, I'd like to touch on a few recent highlights.

On AMC, The Walking Dead just premiered its seventh season, with a powerful episode that was watched by more than 20 million total viewers, with 17 million tuning in live. The premiere was watched by 13 million adults in key demos, making it the most watched program on TV for the fifth consecutive season.

The Talking Dead after show broke records as well attracting 9 million total viewers and 5 million in key demos. To deliver at this level in the show's seventh season in terms of audience size, cultural relevance, and what we think is creative excellence, we believe speaks to the enduring quality of the franchise.

Since we own the IP, we're able to monetize this asset in various windows. While linear advertising represent one revenue stream, we also derive a significant amount of revenue from other platforms such as international, subscription video-on-demand, home video and various forms of licensing and merchandizing.

The stability and predictability of these revenue streams gives us confidence in our ability to effectively manage the overall profitability of the show now, and we believe quite well into the foreseeable future. Looking at the broader performance of AMC, the channel.

The quarter ended with the network having five of the top-10 shows on ad supported cable for the most recent TV season.

These include Fear the Walking Dead, which has found what we believe is the core audience of consistent live or near live viewers at a level that made it the number two cable original, among adults 18 to 49, and we're looking forward to the series return next year.

During the quarter, we were pleased with the performance of our new original series called Preacher from executive producers Seth Rogen and Evan Goldberg. This show quickly established itself as a top-10 cable drama, and ranks as the number two new drama launch of the year. Second season will return in 2017 with 13 episodes.

We also have an active original slate at the channel, including two new series from AMC Studios, both are which are being adapted from bestselling novels.

The first is called The Son, it's a multigenerational American epic starring Pierce Brosnan, and the second is called The Terror, we think it's a really gripping and suspenseful story set in the 1800s, it's the story of the Royal Navy Expedition Crew that is ice locked and stalked by a mysterious predator.

In addition, we've recently ordered a new series called Lodge 49, what we believe is a very strong character drama from Paul Giamatti, and we're looking forward to our latest international co-production called Loaded, which we'll produce with Channel 4 and Keshet.

Our last AMC International co-production The Night Manager was quite well received by both audiences and critics, and notably winning 2 Emmy Awards. At AMC, as well as across our portfolio, we have content and brands that are very much a part of the broader pop culture conversation. And they tend to draw quiet a – bit of attention in social media.

This social relevancy, we think often translates into content value, and is actually a bit of a barometer in identifying what really matters to viewers in a world, in which they have increasing and increasing video options.

At BBC America, the channel enjoyed strong total day growth in the quarter, and it was up notably 11% in total viewers year-over-year.

The BBC America hit show Orphan Black was recognized at the Emmy's, where Tatiana Maslany received the Emmy for best actress for a drama series, we think, well deserved for her standout performance portraying multiple characters on that show.

This series ranks among basic cables top 10 most social prime time programs and returns next year for its fifth and final season. During the quarter, BBC America's natural history series called The Hunt exceeded the network's prime time average by double-digits, and garnered wide critical claim.

And in January, the channel will present the second installment of the ground breaking Planet Earth series. A recently released trailer for the series gave an early look at the show, and it's so far garnered more than some 45 million online views. So there seems to be a very high level of anticipation for it.

And we think, it's going to be quite special TV event. Across WE tv, IFC and SundanceTV, we continue to create content that we think has really outsized impact, when it comes to media attention, critical acclaim and awards recognition.

It's perhaps worth noting that BBC America and SundanceTV both rank as the most critically acclaimed drama networks of the broadcast season. For shows, including what I just mentioned BBC America's Orphan Black, but also Luther and SundanceTV's new series Hap and Leonard, The A Word and Gomorrah.

IFC's Portlandia received two Emmys this year and will premier its seventh season in January. The channel's newest show called Documentary Now! continues to be a critical and fan favorite, further reinforcing IFC brand as a leading comedy destination.

And SundanceTV had a very strong quarter, ranking among the top three fastest growing general entertainment networks on cable among adults 25 to 54, up some 30% year-over-year. This growth was driven in the quarter by the new series Gomorrah and Cleverman, which also attracted a highly upscale audience.

And the Sundance series Rectify is currently in its fourth and last season. That is a show that helps solidify SundanceTV as a prime destination to uniquely high quality drama.

The universal plays – praise that the show, the cast, and the series creator, Ray McKinnon, have received is we think quite a rare accomplishment and a real benefit for the channel.

At our international business, we are seeing healthy revenue growth as we continue to execute on our strategy to populate our channels with an increasing amount of our original programming. A significant portion coming of it from AMC Studios. This quarter, we debut the second half of Fear the Walking Dead, simultaneously with the U.S.

and the show has grown a very strong following around the world. We remain focused on expanding distribution in pre-existing markets and launching in new markets including the Middle East, where we recently launched in 21 different countries.

So, in closing, I'd say, we're pleased with the performance of our business and believe we're well positioned to capitalize on the ample opportunities for great content that are available on platforms, both in linear and increasingly in non-linear around the world.

With that overview, I'd like to turn the call over to our CFO, Sean Sullivan for more detailed financial information..

Thanks and good morning. As expected, our results in the third quarter were impacted by challenging comparisons to the prior-year period. However, we're confident in how the business is positioned and we're optimistic about the outlook. I'll touch on Q4 in more detail after reviewing the third quarter results.

For the quarter, total company revenue was essentially flat and adjusted operating income declined 12% or $22 million. We continue to generate a very healthy amount of free cash flow, a $177 million in the third quarter alone. For the nine months ended September 30, total company revenue grew 7% and adjusted operating income increased 4%.

Year-to-date, we've generated $373 million in free cash flow. And moving to the performance at our operating segments, at the National Networks in the third quarter, revenues increased 1% or $4 million. National Networks' adjusted operating income decreased 13% or $24 million versus the prior-year period to a total of $163 million.

Distribution revenues continue to be a steady source of growth, increasing 8% or $25 million to a total of $336 million versus the third quarter of 2015. As Josh highlighted, we continue to see strong growth in our non-affiliate revenue streams, as we own and control more of our content.

Non-affiliate revenues grew in excess of 20% year-over-year as revenues related to the licensing of our scripted original programs, most notably Fear the Walking Dead and The Walking Dead, on various ancillary platforms more than offset the negative SVOD comp, primarily related to the timing and availability of one of our shows, Hell on Wheels.

Going forward, as Josh highlighted, we intend to expand our ownership and control of the content. And as a result, we expect this non-affiliate revenue stream to be a significant growth driver for us, well into the future.

As for the affiliate fee component of distribution revenues, this line item over the long-term continues to provide us with a reliable and quite stable source of growth. However, in a particular quarter, results can move somewhat based on the timing of various renewals and adjustments.

In the third quarter, we experienced a modest slowdown in our rate of growth from what had been pacing in the mid-single-digits in the first half of the year to low single-digits in the quarter. Looking ahead to the fourth quarter, we expect a modest acceleration in our year-over-year affiliate fee growth rate.

Moving to advertising, revenues decreased 10% in the quarter to a total of $189 million. Results were impacted by lower ratings as compared to the prior year period, most notably at AMC and WE tv.

Advertising across the rest of the portfolio of domestic networks, BBC America, IFC and Sundance was quite strong as we took advantage of a healthy scatter market. We continue to view advertising as an area of growth for our company. Year-to-date, it's up 6%, and we expect the fourth quarter to be a good quarter for us.

Moving to expenses, total expenses increased 8% or $28 million versus the prior-year period. This was favorable to our expectations, so we've continued focus on controlling our cost base. Technical and operating expenses increased 20% or $44 million compared to the prior year period to $268 million.

This increase in tech ops reflected the continued investment in programming. As for programming write-offs, we recorded $19 million in charges in the current quarter, primarily related to our decision not to move forward with one show Feed the Beast at AMC, as compared to $12 million in the prior year period.

SG&A expenses decreased 13% or $15 million compared to the prior year period to $103 million. This decrease was principally related to marketing costs, which reflected the timing of originals, as well as a decline in compensation cost, primarily related to the company's long-term incentive plans.

Moving to our International and Other segment, revenues for the third quarter were essentially flat or $114 million. Adjusted operating income for the third quarter increased $4 million to a total of $11 million. At our International Networks, we delivered healthy organic growth as we continued to execute on our strategic priorities.

Reported revenues increased $2 million over the prior year period due to a solid increase in both distribution and advertising revenues, which more than offset a $5 million negative impact from foreign exchange. On a constant currency basis, our International Networks delivered high single-digit revenue growth over the third quarter of 2015.

Adjusted operating income at our International Networks increased $5 million year-over-year on a reported basis, reflecting the increase in revenues, as well as a decrease in reported expenses. Foreign exchange did not have a meaningful impact on adjusted operating income at the International Networks.

At our IFC Films business, revenues decreased as compared to the third quarter of 2015, due primarily to the absence of ancillary revenue from the theatrical film, Boyhood. Adjusted operating income for the quarter increased $1 million year-over-year, as the decrease in revenues was more than offset by a decline in expenses.

Lastly, within the International and Other segment, third quarter results included a modest year-over-year increase in investment in connection with our various digital initiatives.

Moving to net income, total net income for the third quarter was $65 million or $0.91 per diluted share, as detailed in our earnings release; included in this amount was $19 million of restructuring expense related to our ongoing focus on rightsizing our expense base. Excluding the restructuring expense diluted EPS would have been $1.11.

Excluding the impact of amortization of acquisition-related intangibles, adjusted EPS for the third quarter was $1.01 per diluted share on a GAAP basis and $1.21 per diluted share excluding the restructuring charges. In terms of free cash flow, the company had a particularly strong quarter. We generated $177 million in free cash flow.

For the nine months ended September 2016, we've generated $373 million. Program rights amortization for the nine month period was $613 million. Program right payments were $688 million resulting in a use of cash of $75 million. This compares to a use of cash for programming of $90 million for the prior year period.

Turning to the balance sheet as of September 30, AMC Networks had net debt and capital leases of $2.3 billion. Our leverage ratio based on LTM adjusted operating income of $863 million is 2.6 times, down from 2.7 times at the end of the second quarter.

In terms of capital allocation, our primary focus remains investment in our core business, as we believe this will allow us to continue to grow adjusted operating income on a sustainable basis. We will continue to be disciplined and opportunistic in our use of capital for repurchases and/or non-organic investments.

The company repurchased $62 million worth of stock during the quarter, and an additional $15 million subsequent to the end of the quarter. This represents approximately 1.4 million shares. As of last Friday, the company had $375 million available under its existing authorization program.

Based on current trading levels, we view our equity as an attractive investment opportunity and expect to utilize our share repurchase program to take advantage of this. Looking forward, we remain optimistic about the outlook for the company's performance.

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.

The National Networks, in terms of advertising, despite the absence of some notable programming, mainly Into the Badlands on AMC and Doctor Who on BBC America, we expect our results to improve and anticipate growth in the fourth quarter on a year-over-year basis.

Our performance is projected to be driven by the strength of our programming lineup and increased pricing for our marquee content. With respect to distribution, in the fourth quarter, we expect to deliver double-digit year-over-year growth.

We expect non-affiliate revenue stream to be a more significant driver of this growth, both on a percentage and absolute basis. In terms of affiliate revenue, we anticipate a modest acceleration and year-over-year growth from what we saw in the third quarter.

On the cost side, we expect the year-over-year growth rate and expenses of the National Networks to remain generally consistent with the rate of growth, we've experienced in the first nine months of the year, due to the timing and mix of our originals.

These factors in aggregate are expected to result in healthy adjusted operating income growth of the National Networks for the fourth quarter, subject to the current advertising market, including scatter, as well as the performance of some of our original shows.

For the full year 2016, we expect to manage to a largely consistent adjusted operating income margin at the National Networks.

At our International and Other segment, assuming a constant currency, fourth quarter revenue and adjusted operating income are expected to be relatively flat with the prior-year period on an absolute basis as growth at our International Networks is offset by timing at IFC Films and continued investment in our OTT digital initiatives.

As for 2017, we'll have more to say on our next call, but we feel good about how the business is positioned and are confident in our ability to grow top-line revenue, adjusted operating income and EPS, while generating healthy levels of free cash flow.

So overall we're pleased with how the businesses are performing and are excited about how the company is positioned as we look ahead. So, with that we'd like to move to the question-and-answer portion of the call. Operator, if you please open the call to questions..

Certainly. Our first question comes from the line of Michael Morris with Guggenheim Securities..

Thank you. Good morning, guys. Two questions. First on advertising, Sean, you mentioned the outlook for growth in the fourth quarter. Can you help us a little more with how that compares to the – your outlook now compares to the 6% that you've seen year-to-date. And also – and Walking Dead clearly will probably be a big component of that.

The ratings that you've seen into the second week is that sufficient to hit kind of that growth outlook? And then second, Josh, you talked about becoming a more significant content producer.

Could you talk about what regulates the pace of growth when it comes to producing new shows, is it – is it financial constraints, is it network shelf space, is it the ideas that are brought to you, how should we think about the potential for growth to pick up there in the future years? Thanks..

Hey, Michael, it's Ed. I'll address your ad sales question and turn it over to Josh. I guess, as Sean mentioned in his comments, domestic ad sales revenue was up 6% across all our channels year-to-date, and I think for the fourth quarter, we anticipate returning to growth likely in line with the year-to-date advertising growth rate.

And you just mentioned the factors largely contributing to that The Walking Dead. It's off to a strong start, it's actually a bit ahead of our estimates in terms of, its premier rating which was the highest – the highest premier the show has had in about five years, and then we also have results of a very strong upfront.

We've mentioned previously that AMC enjoyed double-digit pricing in the upfront, so we have that in the fourth quarter.

We do have an unfavorable comp, which is Into the Badlands, moves out of fourth quarter into the first half of next year, but again we think for the fourth quarter, we would be in line with the growth rates that we've seen for the company year-to-date..

Hey, Mike. I'll try and answer your second question if I may.

I think perhaps the best way to think about content and pace of growth which you asked about is first and foremost economic, and I think the way to look at that is to look at the pockets of our revenue opportunity, and you know what they are the most stable and the least variable against content is domestic affiliate revenue and now increasingly against content, we have our international channels business and then the more variable ones are SVOD, but it has a reliable quality, but it's somewhat more variable and advertising, which is the most variable.

So, our general point of view has been to do as much as we can as long as that, to use the term, the ROIs there in any one given show against those revenue opportunities.

And so we've spent a lot of time trying to put in place stability for the ones that can be stable and long-term conditions for the ones in a little bit of less stability that allows us with confidence and with an appropriate risk profile to do more. So that's been the general approach that we've taken.

The unstated thing in this speech is that, of course, it matters how much a show costs and so we have to be mindful of what our – what the absolute expense is of the show, but if we can have SVOD revenue and advertising revenue and international revenue and international SVOD revenue to be a contributor, then we can do that much more and it sort of defines the amount.

The only thing I'd then layer on are the sort of vagaries, if you want to call it that, of creative and quality, and we have to do things that are good. So we're not in the business of pumping things through a system if they're not good, it actually doesn't work. One can sort of follow that lead at times.

We have found that there's more danger in it than there is reward and therefore that we should keep our eye on the ball of quality and integrity. And I hope that answers your question. It's a general statement of how we operate and I hope it satisfies what you're looking for..

Yeah, maybe if I could just kind of put a finer point on it, understanding the creative limitations that you want to have good product, structurally as you look at your business, your assets and what the environment holds, is this a type of business where you could have two incremental shows say in the coming year as you've pointed out and maybe that grows to three or four over time or is it that type of thing where two is sort of a way to think about the opportunities just given whether it's competition or your assets either on the network side or on the studio side?.

Sure. So I think we mentioned in the prepared remarks, The Son and The Terror, so that's two new for the AMC channel, which will be studio shows. Then there co-productions, which, of course, cost less money and then there is the material that we do for SundanceTV, BBC America, WE tv, and IFC and that adds to the mix.

So, I think it's really AMC is, the focus of your question, I would perhaps suggest you look at it across our entire portfolio of channels, and what the nature of the mix is, because it really does define, Mike, how many we want to and can make, and it really is – if a drama costs $3 million and a reality show costs $500,000, but half our comedy costs $900,000 or $1 million and we have an SVOD deal for it that brings our net effective cost down to $400,000, it informs and defines what we want to do.

So, it really does need to be looked at by content type with those various revenue opportunities..

Great. Thanks, Josh..

Sure..

Our next question comes from Anthony DiClemente with Nomura..

Good morning and thanks for taking my questions. I have a few.

I think first, maybe this is for Ed, but just in terms of the third quarter advertising result, your internal estimates for the ratings in the 3Q weren't conservative enough given the downside in ad revenue versus your previous expectation, so I guess the way it impacts the 4Q and the forward outlook is what should give investors confidence that you've improved the internal forecasting in the organization as it pertains to your fourth quarter expectation now for growth? And, then for Josh, just a couple I mean, one is you talked about being a part of DirecTV Now.

You're not a part of Hulu Live, I don't think, I could be wrong, but they've been a partner of yours – a good partner on the SVOD side.

So, I guess, what are the constraints there, is it about price, are you close with Hulu Live and then finally any high level thoughts you have about AT&T, Time Warner and what that tells you about what's going on in the broader media landscape, I think people would love to hear? Thanks so much..

Hey, Anthony. Yeah. So, estimating obviously, it's a more of an art than a science. I think our estimating has been pretty good by and large. Third quarter was a bit of an unusual quarter in that we saw a higher concentration of audiences to news networks than we've seen in the past or even would have anticipated.

And then, of course you get into the practical reality that, when you have a show and it's season 1 that's coming back for season 2, it has less of a track record. The longer track record the series have, the better you can be on your estimates and on your internal projections. So, I think all those things contribute.

I think we feel good about the start we're offering in the fourth quarter, I mentioned the success of The Walking Dead getting off to a strong start. And I think, we feel good about where our estimates are and the process by which we arrive at them..

Anthony, it's Josh. So, I think just on the alternative package landscape, just to set it. In the U.S., there are three major entrants that offer anywhere between what are referred to as, I guess, skinny and for bundles.

Today, two operating or three, Sony Vue, you're aware of its scale, size and price, Sling from DISH, I'm sure you're aware also that's sort of components, genetics and price, it's been emerging a bit, and DirecTV Now are the three that are operating today. We are participants in all three.

We think that they are good additions to the world, obviously their ownership is different and therefore the meaning of it is different. Sony is owned by Sony and the other two by conventional distributors. I'll make a statement, if I make it, I think it's important.

We really do think that AMC Networks wholesale price and you can read third-party data and judge it for yourself, is relatively extremely low for the value that we put on the screen that people see and that they sort of vote when they appraise or vote with their desire and appreciation.

So, we think that we really have, if I can use an adjectival word, I'll say killer shows and killer brands, and we're priced very well below what alternative packages are that come from our sibling type companies.

We think that makes us an unusually attractive decision for anyone who is setting up a new bundle because they're frankly relatively paying less and they're getting an awful lot more.

And I would say that five of the top 10 shows on cable TV sort of speaks for itself in suggesting that there's a fair amount of desire and awareness, not to mention all the other symptoms like awards and stuff that goes along with that. So, we think we're very well setup and that's why we've been positioned quite well.

There are, as you know, packages being designed or talked about in some stage of formation and there are the likely ones, the maybe ones, the ones that are happening, the ones that have been announced, and nothing get out of the gate. So If I may, I'll just leave it and say that we're in conversations with all of them.

I think we like to think that we have good relationships with all of them, but most importantly we think that we have a value proposition that will actually work for their businesses and drive their businesses as they compete with other retail offerings of aggregated channels and that will put us in a position to win, I don't know how to say it anymore simply..

Thank you..

Oh, and your AT&T question..

Yeah..

Perhaps wiser people have opined on this.

I think perhaps if you listen to the executives who made the decision, I think what they've said is perhaps what we or I think about it, which is that it seems to be an acknowledgment that brands and content that are important, that are, if I can use the word sort of a preeminent or even gold standard, matter a lot in the world.

And that if you want to succeed as a distributor, and you have an electronic signal that is going out on to a big screen, a little screen, a mobile screen, a fixed screen, or whatever new screens emerge, it is really nice to have and important to have the shows and the brands that people care about the most, and that there's probably a lot of endurance, stability and potential competitive advantage in that.

And so, at the risk of patting ourselves on the back, I think that we have some of that material, we think it is basically a confirmation that what we've been in pursuit of, I hope not wildly, with some discipline is the right thing to pursue, and that's what I would take away from at least the Time Warner part, which is who and what we are like in terms of nature of that transaction or proposed transaction..

Okay. Thanks..

Our next question comes from Michael Nathanson with MoffettNathanson..

Thanks. I've a couple for Sean and one for Josh. Sean, you talked about restructuring charges, I was kind of surprised to see that international restructuring was bigger than U.S.

So what you're doing internationally in terms of taking out costs, and then could you somehow size for us what the benefits would be from these actions that you've taken, and do you expect more into next quarter?.

Sure, Michael. So just a point of clarification. So any corporate employees that were impacted through this restructuring and the organizational change that occurred would have flown through the International and Other segments.

So I think we look at efficiencies and opportunity across the entire business, both domestic and abroad, but the significant component of that is really related to the domestic business. Again, as it relates to sizing the opportunity, you understand that what our posture is relative to forward-looking information and guidance.

All I could say is that again, we're focused on it, I think continuous improvement, finding continuous efficiencies is something that we'll continue to do and it's likely you'll see as part of that program, restructuring charges that we'll continue certainly in the fourth quarter..

Okay. And then taking that answer to Josh, longer term though, as a rule of thumb, do you have a philosophy about managing to a larger consistent margin, and then you'll manage that or at some point maybe that definition will fluctuate and maybe you manage to a top-line goal.

So could you give a sense of what's driving your spending and your target decisions?.

I think we manage the business for the reward of those who own the shares. And we do what we think is really going to deliver value to them in the sort of near, mid and long-term, if I may just say the most broad statement, which I think is true.

So we try and make decisions and take actions that actually really work, and it's a, as you know, imperfect science to do that. Costs are a big part of that and you just asked Sean about activities we've undertaken to make sure that our costs are as efficient and aligned continually as they can be.

And we do look forward to a broadly stable margin, as we manage this business, that is in our mind's eye and we think that we've set ourselves up to be able to do that through a few important principles and they include, diversification of top line, which we've undertaken, and achieved by degree and we think we'll see more of through predictability in the revenue streams and through some real discipline on cost as well.

And the discipline on cost comes in the form, not just in sort of super-efficiency or the best we can arrive at in operating expenses, but also on the content side, which is where our most significant costs are, that if you look at us in the areas we operate in, I think I would say that we're probably more careful ultimately and that we have net effect of lower cost because of co-productions than some of our peers, certainly on the subscription side of the people who trade in drama.

So I think we can say with pride that our costs on an individual show basis, even before you do sort of net effective exposure after taking in fixed revenue that's coming in on the absolute cost side, I'd like to say on the very efficient, if not lower side..

Okay. Thanks, Josh. Thanks, Sean..

Our next question comes from Vasily Karasyov with CLSA..

Thank you. Good morning. I have a couple of questions about your comments on advertising revenue growth and I think since all of you spoke about it, I'm not sure who will get it. So Ed, I think you said that the advertising revenue growth in Q4 will be in line with the growth for nine months so far this year.

So that would imply that for the full year, you will have lower growth rate than for the first nine months, do I understand this correctly, is that what you're trying to tell us?.

No, that's not the way I would do the math. What we've said is that, year-to-date, our advertising growth rate, it's about 6%. And we would point you to that as an indicator of how we see the fourth quarter..

Okay. And then, if you look at out to 2017, you said that, I think Sean said that he expects growth in revenue and adjusted operating income, I guess we call it now.

So given that, we probably don't expect the minus 10% year, would we be too optimistic to expect an acceleration in advertising revenue next year?.

I don't think we'll get specific. I would just point you to some of the factors that exist. We've said, as a result of the upfront that we saw high single-digit upfront pricing growth on most of our networks, and in fact low double-digit growth on AMC.

And you know as well as our schedule, we haven't announced the formal schedule for 2017 yet, but Josh mentioned some new shows that come on the schedule that are projected to be fairly large in scale The Terror for one, The Son for another. And then we have Humans and Into the Badlands which return in 2017, which were off the schedule in 2016.

Obviously, Feed the Beast won't be back, but most of our other shows will. So at this point, those are the data points I think that we would point you towards..

All right. Thank you very much..

Our next question comes from the line of Todd Juenger with Sanford Bernstein..

Hi, Todd Juenger here. I'll keep it to one, maybe rather more philosophical and I hope strategically important question, probably I guess for Josh.

Would love to hear your thinking on how you see the interplay now between linear viewing and delayed viewing, and what I want to set up is, it wasn't that long ago when I think you held a view and I think evidence suggested that they could be very complementary in a sense that you especially had a very good product that was serialized in nature where people might not discover it until they found it on the SVOD window, let's say, and then maybe that would drive them back to watch it more for new episodes that came in the linear window.

I've often heard this described sometimes as the Breaking Bad effect. I think you believe in that dynamic and I think it's actually informed some decisions you've made to stick with shows that you believed in over time. My question is I don't believe we've seen evidence of that phenomenon for quite some time.

I guess if the evidence would be finding examples of shows that have built audience sequentially as they progressed through seasons. So correct me if I'm wrong, I can't think of any good examples of that.

So what does that mean? Do you still believe that that dynamic can happen or have we moved to a world where viewers are either choosing stuff linearly or just watching them delayed and that's probably the increasing part of it and what does that mean for how you think about your business? Thanks for indulging that one question..

No, please Todd.

It's a really good one, and I'll give you my best attempt at an answer which is I do think that it was truer five years ago when they were fewer dramas on that there was a higher likelihood that an SVOD opportunity between linear seasons would expose a show beyond its first linear exposure, expand the opportunity, expand sampling so to speak, get people interested, and have them come back for a subsequent season on linear.

I think that that was much truer five years ago. And I think the reason it has decreased as a likelihood, although I'm going to, if I may, answer and say it's not impossible and I'll point to a couple of examples why I think it's true. It's because of the proliferation of dramas. There are many more dramas around. We all know that.

In some cases, it's hard to even keep up with what's out there, if you were a student of it. So I think it was truer in 2011 or 2012 than it is in 2016 and 2017.

With that said, I do think that that phenomenon can occur my best attempt at answering it would be to say it probably requires a higher level of fandom or interest or attachment in order to have an interim SVOD exposure increase linear.

And I'll point to the recent premiere of the Walking Dead, which may be an anomaly a bit, because the episode was so unique in its editorial construction, cliffhanger and stuff, but I would say there we saw a big bump, right, and that's season seven. So, that's quite a phenomenon, right.

And I would ask you the question, because I think it's hard to put the science into a place where you end up with a definitive answer. Did SVOD interim or anything like that helped. My answer would probably be on that show, yes. It probably kept it alive and dynamic. And it became in a certain sense a 12-month experience for people.

I think we'll see more when we deal with Doctor Who, which has extraordinary social media activity – extraordinary social media activity. So we'll see what that means for a show, by the way, parenthetically that's sort of in, if look at the long horizon, its 50th season.

So I do think that the phenomena of the social media and the degree of interest – if you don't mind, you asked for philosophy and, man, you got it – is that it can happen, it's less likely and it's more difficult, but we'll see what happens with other shows when and if they return. It was curious to see The Night Manager we mentioned it.

It saw an awful lot of interest and attachment. It saw good linear ratings, not explosive linear ratings. If that found its way back in the world, we would see what might happen to it, if it found its way back in the world. But I think it's rarer today and a little less likely today than it was then. How's that that, Todd ,for best I can offer..

It's fair enough, and obviously we can talk about this all day. It has huge implications I think for decisions you make to renew and continue shows and even shows that you pursue. So if you have any final parting thoughts on how that affects things, that would be great.

In other words with that I'll save the rest of the time and yield it to my other analysts. Thanks..

I'll just say one last thing, which is yes we keep it mind completely. Yes, it's very important. If it means anything, it perhaps means a couple of things at least.

To me it means, if one is going to look for that effect, then the material has to have a higher level of attachment and enthusiasm and be among people's heavy favorites, not on their list a little further down their list.

And the second thing is that that has implications on cost, which we talked about, you've seen the co-productions that we're doing. Part of that makes our net effective average cost per episode across our spectrum actually come down.

So we have to be more selective where we have expectations of growth and we have to be mindful of what we spend on each episode across our portfolio and across our total episodes..

Fair enough. Thank you..

Our next question comes from the line of Ben Mogil with Stifel..

Hi. Good morning, and thanks for taking my question.

So, Josh, I think at one of the competitor's conferences you talked a little bit about some changes or some thoughts around changes in terms of programming more anthologies, more kind of limited series where there wasn't necessarily the need to catch-up show year-over-year, and almost following up on Todd's question.

When you're looking now at committing to either produced shows or licensed shows, are you thinking about the world more from the perspective of more limited series or may be not a full 13 or even 10-episode pickup at more like eight.

I think that's what you are doing for Loaded, sort of curious on your thoughts around given the competitive environment, how you're changing, how you think about pickups?.

Sure. I do think that for the reasons that I identified in my last comments to Todd, if I haven't exhausted everybody, there are more shows out there. It can be difficult to find them, because the options are increased. And therefore the expectation of people coming back season after season I think have to change.

Not that they should be eliminated, but they should be more selective in the nature of the material and type of material that's likely to succeed at that. And I do think that that does open up an opportunity.

If it's the case, and I think you can just see it that people are reluctant to make commitments that go on personally for a long time, and they may say, oh gee, I racked that up. I don't think I can go for five seasons on that one.

That if something is urgent and if it's anthology meaning, there is a theme in it that's familiar and the story finishes out and it emerges new next season with something that's familiar, but a new story, that is for this moment quite attractive to us.

And we are in pursuit of a number of those things right now, and in fact, it's in our calendar for 2017. So I do think anthologies make a tremendous amount of sense for today..

That's great. Thank you very much..

Operator, we have time for one last question, please..

Thank you. Our final question today comes from the line of Ryan Fiftal with Morgan Stanley..

Thank you. I have a two relatively quick ones. So first on the affiliate revenue this quarter. Sean, I think you alluded to some quarterly noise, but was any of that driven by consolidation downstream pressuring rates? And then my second one on SG&A declines. I think you guys called out lower marketing expenses.

Is that purely from the timing of premieres or is there any belt-tightening or efficiencies that you guys are achieving there? Thanks..

Sure, Ryan on the affiliates one, that very modest or minor decline anyway point to whatever it was, is we have contracts in place that often go for a quite a long time. As we mentioned the contracts describe the manner in which we engage with MVPDs.

When things happen in the world, people look at the contracts and say, 'how does that affect me?' And there can be some, I would call them in this case minor differences in the interpretation. So, in that circumstance, it was one of those things. We think we're well along the way toward agreeing and ironing it out, but that really was behind that..

And then, Ryan just on your question on SG&A, the marketing is purely timing of originals across the five channels. So, in no way, is it belt-tightening in marketing. I mean there is no question in this evolving world where we're trying to reach audiences differently, but I don't believe we're certainly not spending less money.

So that's really timing of originals across the five channels..

Okay. Thank you..

All right. 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..

Ladies and gentlemen, thank you for joining the AMC Networks third quarter 2016 earnings conference call. We appreciate your participation today. Please enjoy the rest of your day..