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

Bryan Goldberg - Bank of America Merrill Lynch Marci L. Ryvicker - Wells Fargo Securities LLC John Janedis - Jefferies LLC Michael Morris - Guggenheim Securities LLC Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC Bryan Kraft - Deutsche Bank Securities, Inc..

Good morning. My name is Charelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the AMC Networks' Fourth Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

I would now like to turn the call over to your host, Mr. Seth Zaslow, Senior Vice President, Investor Relations. You may begin your conference..

Thank you. Good morning and welcome to the AMC Networks' full year and fourth quarter 2017 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 full year and fourth quarter 2017 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.

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. Before we begin, I want to cover one more item.

The company has renamed the components of distribution revenue, where we formerly referred to affiliate revenue and non-affiliate revenue as components of distribution revenue.

Beginning with the fourth quarter and going forward, we will now refer to subscription revenue and content licensing revenue, as we believe this more appropriately describes these revenue streams. This change has no impact on total distribution revenue and will not result in the restatement of any prior period amounts.

With that, I would now like to turn the call over to Josh..

China Girl, that starred Elizabeth Moss and Nicole Kidman, and Liar with Joanne Froggatt from Downton Abbey, demonstrating the strength and vitality of the network and its ability to attract a wide range of top tier artists. Globally, we have successfully built an international platform with our global AMC and Sundance channels.

Our continued investment enabled us last year to expand our global footprint with new distribution deals with leading platforms across Europe, Latin America, and Africa. And we've also extended a number of our strong regional brands into new territories.

In the year ahead, we look forward to our AMC Global channel launching notable AMC Studios shows, including a brilliant one, as I mentioned, called The Terror and new seasons of Fear the Walking Dead and Into the Badlands. 2017 was a year of important milestones and a lot of firsts for the company, along with excellent financial success.

We believe that our size, our focus, and our portfolio of assets, linear channels that are discrete and very well-defined, a growing studio business of content that we own and aggressively monetize, a global business that expands the reach of our domestic channels, and an increasing set of growing commercial-free streaming services that relate to our core content areas, will provide us with unique strengths in this environment and place us in a very strong position to continue delivering strong financial results, as we, like all content companies, evolve and adapt to a world of changing consumption habits.

Now I'd like to turn the call, if I may, over to Sean for an update on our financial performance..

Thanks and good morning. As Josh highlighted, 2017 was a successful and productive year for the company. For the full year, we delivered record revenue, AOI, and adjusted EPS. Total company revenue grew to $2.8 billion, a 2% increase over the prior year.

AOI was $905 million, an increase of 3%, and adjusted EPS was $7.37, an increase of 29%, or over $1.50 per share versus the prior year. The company continued its trend of generating strong free cash flow. In 2017, free cash flow was $287 million. Over the past three years, we've generated $1 billion in aggregate free cash.

And going forward, our free cash flow profile will significantly benefit from the recent changes in tax laws. I'll touch on that, as well as our outlook for 2018 in more detail later on. For the fourth quarter, total company revenue was $727 million and AOI was $206 million.

With respect to the performance of our operating segments, National Networks revenues for the full year increased 2% to $2.4 billion. National Networks AOI for the full year increased 5% to a total of $895 million. Margins expanded by 80 basis points to 38%. In the fourth quarter, National Networks revenues decreased 1% to $606 million.

AOI was $195 million, a decrease of 5% as compared to the prior year period. Distribution revenues were the main driver of revenue growth in both the fourth quarter and the full year, increasing 7% in each period.

As expected, content licensing revenues contributed significantly to this increase, with double-digit growth in both the quarter and for the full year. This performance is a reflection of the ongoing expansion of our studio operations and increased ownership and control that we have of our content.

As we look into 2018 and beyond, we expect this revenue stream to continue to be a leading area of growth. Subscription revenue, or, as Seth mentioned, what we formerly referred to as affiliate revenue, represents the majority of our distribution revenue stream and continues to provide us with a steady and attractive growth.

Growth in both the quarter and the full-year was in the mid-single digits. As Josh discussed, we continue to benefit from the strong price/value relationship that we offer to our distribution partners, both traditional MVPDs, as well as the newer virtual MVPDs.

With respect to advertising, as anticipated, the trajectory of The Walking Dead delivery predictably moderated in the quarter, as did the trajectory of the related programming, Talking Dead. This affected our rate of growth slightly more than we anticipated. As a result, advertising revenues decreased 10%.

Moving to expenses, in the fourth quarter, total expenses increased 1% versus the prior year. Technical and operating expenses increased 6% to $315 million. The variance principally related to our continued investment in original programming across all of our networks.

In the quarter, we recorded $38 million in charges related to our decision to write-off various programming assets across our portfolio of networks, most notably Hell on Wheels on AMC. This amount compares to write-offs of $5 million in the fourth quarter of 2016.

SG&A expenses were $106 million in the fourth quarter, a decrease of 10% versus the prior year period. The variance primarily related to a decrease in marketing cost due to the timing of originals, most notably at BBC America and SundanceTV.

Moving to our International and Other segment, for the full-year revenues decreased 1%, or $3 million, to $457 million. The main driver of the decrease was the absence of DMC, the technical operations facility that we sold in the middle of the year. Excluding DMC, International and Other revenues were up mid-single digits in 2017.

Full year AOI was $16 million, a decrease from $29 million in the prior year. This decrease was principally related to DMC, as well as the continued investment in our owned subscription streaming services, Sundance Now and Shudder. In the fourth quarter, International and Other revenues grew 7% to $127 million.

The growth primarily reflected an increase of our international networks, which more than offset the absence of DMC. AOI was $6 million, an increase of $1 million versus the prior year. The increase in AOI reflected the increase in revenue, partially offset by an increase in expenses, primarily at our international networks.

Before I cover EPS and capital allocation, let me spend a minute on tax reform and its impact. In terms of our GAAP tax rate, we expect our book tax rate in 2018 to be in the mid-20% range, down from the mid-30% range prior to tax reform.

In the fourth quarter, we recorded a onetime net benefit of $57 million in our tax provision related to the enactment of the new tax laws.

This benefit consisted of a $68 million favorable adjustment related to the re-measurement of our deferred tax liabilities, partially offsetting this amount was an $11 million charge associated with the deemed repatriation of foreign earnings.

As for cash taxes, we expect a significant benefit, mainly as a result of the reduction in the corporate tax rate. Based on our latest projections, we estimate the benefit to be in the range of $50 million to $60 million annually. In 2008, we expect the savings to be even higher due to a timing benefit of the treatment of certain production costs.

We anticipate this will add an incremental $20 million to $30 million to our cash tax savings in 2018. Moving to EPS, for the full year EPS on a GAAP basis was $7.18 compared to $3.74 in the prior year. On an adjusted basis, EPS was $7.37 compared to $5.73 in 2016.

The year-over-year change in both reported and adjusted EPS reflected the increase in AOI, a favorable variance of miscellaneous income and expense, primarily related to FX, and our investment in RLJ Entertainment, as well as a reduction in the outstanding shares as a result of our stock repurchase program.

Reported EPS also benefited from the favorable impact related to tax reform that I just discussed, as well as a reduction in impairment and related charges. For the fourth quarter, EPS on a GAAP basis was $2.33 compared to $0.20 in the prior year period. On an adjusted basis, EPS was $1.68 compared to $1.30 in the prior year.

The year-over-year change in both the reported and adjusted EPS reflected a favorable variance of miscellaneous expense, primarily related to FX, as well as a reduction in outstanding shares.

GAAP EPS also included a benefit of $0.91 per share related to the change in the tax laws, as well as the absence of a $68 million charge, or $0.90 per share, that we recorded in the prior year related to DMC. In terms of free cash flow, the company continues to deliver healthy amounts of cash.

We generated $287 million in free cash flow for the full year. For the 12 months, tax payments were $219 million, cash interest was $111 million, capital expenditures were $80 million, and distributions to non-controlling interests were $19 million.

As I already mentioned, we expect our tax payments in 2018 to be significantly lower than what we paid in 2017. Program rights amortization for the 12-month period was $954 million and program rights payments were $997 million, resulting in a use of cash of $43 million.

This compares to use of cash for programming of $111 million for the prior year period. Turning to the balance sheet, as of December 31, AMC Networks had net debt and capital leases of $2.6 billion. Our leverage ratio based on LTM AOI of $905 million was 2.9 times.

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

With respect to share repurchases, during the fourth quarter, the company repurchased $88 million worth of stock. This represents approximately 1.6 million shares. For the full year 2017, we repurchased approximately 7.8 million shares for $434 million.

Subsequent to the end of the quarter, the company has repurchased an additional $20 million, or approximately 389,000 shares. As of last Friday, the company had $322 million available under its existing authorization program. Program to-date, we've repurchased approximately 17% of our outstanding shares.

We continue to expect that our level of repurchase activity in any one quarter will continue to depend on several variables, including our view of the stock price and other potential uses of capital. As a result, we expect the pace of our repurchases to continue to vary from quarter-to-quarter.

Looking ahead to 2018, we expect to grow both total company full year revenue and adjusted operating income in the low single digits. This growth will reflect a mix of continued growth from our core businesses, as well as investment in new developing initiatives, such as AMC Premiere and our subscription services.

2018 growth will be led by our National Networks, where we expect distribution revenues to again be the main contributor to growth. With respect to distribution revenues, we expect the content licensing revenue stream to be the more significant driver of growth.

In terms of subscription revenue, we expect the rate of growth in 2018 to remain in the mid-single digits. We're excited about our programming line-up, which includes an expanded mix of new and returning shows across all of our networks.

We will continue to look to take advantage of the strong demand for our content and continued progress with our digital initiatives to maximize advertising revenues. At National Networks, while we continue to invest in content mainly in the form of programming and marketing, we remain focused on limiting growth in the remainder of our expense base.

As for our International and Other segment, despite some modest headwinds in the first half of the year related to the sale of the DMC business, we expect to deliver healthy revenue growth that should be several hundred basis points higher than what we reported in 2017.

As for adjusted operating income at our International and Other segment, we expect to return to growth in terms of absolute dollars in 2018. The increase is anticipated to reflect growth at our international networks in the absence of the DMC business, which was a drag on AOI for the first half of 2017.

As for the cadence of our performance during the year, we anticipate continued variability as a consequence of the specific timing of our investments in content and the airing of our shows.

In the first quarter of 2018, we expect National Networks' advertising revenue to decline at a similar rate to the fourth quarter of 2017 due to the timing of our programming, most notably a two-week shift in the timing of The Walking Dead. However, we're expecting those comps to turn more favorable as we move into the middle of the year.

As for distribution revenue, we expect first quarter growth to be similar to what we reported in the fourth quarter. Within distribution revenue, we expect content licensing revenue to be more significant driver of growth due to the timing availability of our content and ancillary windows.

Due to the timing of expenses, most notably programming and marketing at the National Networks, we expect our most challenging comps in terms of AOI to come in the first quarter of 2018. As the year progresses, we expect AOI growth to improve.

Before moving to Q&A, a quick word on the new revenue recognition standard that went into effect for us on January 1 of this year. The standard will have a modest negative impact on our revenue and AOI in 2018. Based on the method of adoption elected, the standard will not have any impact on our historical results.

So in conclusion, overall, we feel good about our performance in 2017, how the business is positioned heading into 2018, and we're excited about the various opportunities for growth that are ahead of us. So with that, we'd like to move to the question-and-answer portion of the call. Operator, if you could open the call to questions..

And your first question comes from Bryan Goldberg with Bank of America Merrill Lynch..

Got two.

First, I guess, given the trend line of The Walking Dead ratings, looking into 2018 as it pertains to your advertising potential at National Networks, I was wondering if you could frame or possibly qualify some of the levers that you have to offset the linear ratings headwinds from the franchise, whether it'd be CPM increases, sponsorship, digital, or the change in the slate in original hours 2018 versus 2017.

And then I have a follow-up..

Hey, Bryan, it's Ed. So, yeah, looking at the ad sales and some of the levers, I would say, generally, we like the strength of our programming lineup. As you know, we have four of the top seven rated dramas on cable TV.

And the demand continues to be very strong for our high concentration of 18 to 49, which is something – frankly, there really are not other basic cable networks that can compete with that kind of concentration of upscale audience. Generally, on scripted content, AMC Networks is the clear leader among places where advertisers can put their ads.

If you think about the other high quality scripted content, they really are on formats that overwhelmingly do not accept advertising, so that's a distinct market for us in the marketplace. We continue to accelerate our digital ad revenue.

We grew at double-digit growth in 2017, and in this upfront that's coming up, we're sort in the pre-upfront selling stages we have a new tool that we're developing for the market that increases our audience capabilities for targeting to help advertisers specifically identify and target market segments, Bryan, and we expect to achieve a premium around that.

So really that's how we're viewing our approach into the ad sales year ahead..

Thanks. And then I had a question on the streaming strategy. As you move to consolidate RLJ and the SVOD services there, along with Sundance Now and Shudder, I was wondering if you could give us more color on your outlook for the overall SVOD strategy.

Is the goal over the long term to have an expanding suite of niche services, a more consolidated offering of services and, I guess, where do you stand right now in terms of driving marketing and distribution and content investment for Sundance Now and Shudder?.

Sure. So, Bryan, it's Josh. It's perhaps helpful to categorize them in three areas. AMC Premiere was a leader, unique, and first in being an in ecosystem commercial-free SVOD product that bears the name that people know. So it's sort of category one. I think category two is streaming services that we own and operate, Sundance Now and Shudder.

And three is streaming services that we have investment in that are not part of our today operation, which are in RLJ, Acorn, UMC, and our partners with BBC and ITV, BritBox. So they are three slightly different animals and they will accomplish three different things over time.

The one thing that will be similar for all of them is they are all content related to what we do at our core. So, in the future, as AMC Studios produces content, they will provide homes, as our domestic channels do, as our international channels do, and as we're now today doing.

I mentioned that wonderful series done by the deaf actors called This Close, so we produced that for ourselves and for our streaming services. So that will be in common. We'll be producing for ourselves and we'll have more outlets that we had either influence over or absolute control over.

I should add that the growth trajectory for those services has been frothy. Now, the numbers are not huge, but the pace of growth has been heady for each of them. So, they're all growing very strongly, which is, of course, a great vital sign.

We will undergo over time an evolution, and that evolution will see us invest in them, grow them, deploy them overseas, which we just did – we launched in Canada and Germany, the streaming services – and we will make decisions about what to do with the in and out of ecosystem AMC Premiere as it develops, and we'll do that in conjunction with our distribution partners.

So, I hope I answered your question. That's the plot..

That's very helpful. Thank you very much..

Your next question comes from Marci Ryvicker with Wells Fargo..

Hey, Sean. I just want to follow-up on a little bit of what you said in terms of what you're doing with Charter and Xfinity.

Are these things that should be showing up on the income statement as accretive? Are they immaterial? I guess, should we think of them as long term growth opportunities? And then the second question, you talked about programming expense, gave guidance on AOI, and talked about tax reform.

Is there any way to simplify how we should think about how much of the cash you'll get from tax reform should flow to the bottom line?.

So, Marci, its Josh. On the first part of your question – I'll leave the second one, if I may, to Sean – I don't think in the immediate term, our partnership with Charter will have profound impact in our financials. It's a piece of active development.

We're very pleased to be doing it with, frankly, a cherished partner and a very progressive so-called cable company that's moving into many other things. But I don't think it's going to have meaningful financial results in the near-term, and I think that AMC Premiere is a few months old, it too is not in the immediate term going to have impact.

However, the constitution of our company, if I can point to it, has already changed rather dramatically. So we were, not too long ago, what you refer to as a cable channel group. Today our revenue composition somewhere – upwards of $400 million comes from our studio operations, from shows that we own.

A significant part comes from international distribution. So we are reconstituting the nature of our company and where our revenue comes from. So I think I would take a slightly longer horizon and say that, over time, we will see more meaningful contributions of revenue from streaming and from expanded new form studio operations.

It might've been hard for us to imagine some six or seven years ago we said we're starting a studio, that we'd be pushing toward $0.5 billion. And it was hard to imagine when we started a little skunkworks of starting a streaming service that, frankly, we'd have an aggregate number through our various activities, that is as big as it is today.

So I think from the long-term view of the company, it will lead us to very meaningful revenue and activity diversification in and out of the ecosystem anchored by content and run in the U.S. and around the globe..

And, Marci, it's Sean. Just to your second question, which, I guess, to a certain degree speaks to capital allocation. To reiterate, we're still in growth mode. As I said in my comments, we still expect to grow revenue/AOI in 2018. As you know, I think we have a very strong balance sheet.

I think we have a very disciplined and flexible capital allocation program. So, as I said, in 2018 alone we'll see the benefit of anywhere from $70 million to $90 million of reduced cash taxes. So as it relates to the significant free cash flow generation of this business, we expect that to significantly improve in 2018 and beyond.

I think with the strong balance sheet we have, it gives us a ton of flexibility and optionality. We will, obviously, continue to invest in content, invest in distribution, invest in our direct-to-consumer initiatives, which are, obviously, vital and important to our long-term growth as a company.

We'll continue to be disciplined and looking at things that we think accelerate our strategic position, think RLJ Entertainment, which was announced earlier this week.

And, obviously, as we feel strongly about the long-term value of the company, we've been significantly investing through the share repurchase program, where we've executed in excess of, I think, 670-some-odd-million dollars in our program to-date since 2016.

So a long answer to say that we're in a very strong position to participate in the market as it evolves, and I think we're making the right investments to position us for long-term growth..

Thank you. I appreciate it..

Your next question comes from John Janedis with Jefferies..

Hi, thanks. Can you give me actually little bit more color on your cost controls? Given how they were contained in the fourth quarter, I was wondering how you're thinking about cost growth this year.

And, I guess, on a related topic, with some of the ratings challenges across the industry, how are you thinking about programming investment this year and is the growth going to be spread fairly evenly across the networks or skewed much more so towards AMC?.

Sure, John. I'll take, I guess, the non-programming question, and ask Josh and Ed to step in on the programming. I think that what we're trying to do and what we did in 2017 and we'll continue to do is look for non-programming and marketing efficiencies and opportunities.

Given the macro trends that are occurring, we think it's, obviously, prudent and smart to look for ways to better leverage the platform, deliberate linear experience more efficiently to free up, obviously, cash to redeploy and reinvest in either programming content or other initiatives that we described today.

So, we'll continue to aggressively manage G&A, but obviously, being a content company at the core of what we do, we're not going to look there for opportunity. I think in the fourth quarter specifically, as it relates to some of the SG&A trends you saw, was really timing of a marketing spend.

So, as you know, there's a lumpiness to the timing and expense. So I would ask you to look more over a 12-month horizon, look at the AOI margin that we've historically delivered to the company. So I'll ask Josh and Ed to just talk a little bit about the programming..

So, yeah, John, I guess, what I would say, and I hope this is relevant for what your inquiry is, is we do an ROI on each piece of content investment that we have. The nature of that ROI at our hand has changed over time. We look for where the money comes from and what the near, mid, and long-term value of the investment is.

As I mentioned, it used to be a simpler equation when our revenue streams were limited and defined some time ago. They've become happily more complicated now. We've made them more complicated and more diverse.

So we keep internally shifting content approach both in dollars out and in type of material that we invest in, because the preference and the monetization of all that keeps changing. So that's a nonspecific answer to your question, but I would say a few things guide it.

Number one, very simply ROI, money out and money in, where does it come from and what's the value? Number two, there are more places that we're looking to get the money from. Said very simply, as we've diversified that business, at the core of it is content, and then the monetization occurs over multiple streams.

And then the third thing I'll say, and it's very important to the genetics of AMC, is the word ownership. When you own, you get to sell, and you get to sell again and you get to sell again, best case circumstance.

And on top of that, if you have success, you have something that regenerates and has franchise-like qualities that you can monetize in other areas. So as we do this ROI evaluation, some of the elements of content are more limited, simple, and near-term, some of them are more near-term, and some of them have greater opportunity and horizon.

I would say with all that, that as the world moves into scripted and we all read the announcements, I think we can fairly say that we pride ourselves on high performance in terms of audience, high performance in critical acclaim, and frankly, high performance in terms of cost management and return. So we do it with a keen eye on discipline.

I think there are others in the industry who have different economic circumstances and are taking a different approach to that. That is not our approach. Our approach is about return with a clear eye on where the money comes from and where longevity comes from in the near, mid, and long-term..

All right. Thank you..

Your next question comes from Michael Morris with Guggenheim Securities..

Good morning. Two questions or two topics for me. First, there's clearly a significant and growing number of high quality ad-free content options for consumers.

So can you just talk about why you still see a place for ad-supported from the consumer perspective? Why it's still a valuable experience? And would you consider changes to ad loads looking forward or maybe any other strategies we're not thinking of that could help enhance that consumer experience? And then second, on SVOD and on your relationship with Hulu, are all of your owned programs in 2018 committed to that relationship and can you help us with when the programs that you own or produce would be up for availability on other SVOD platforms? Thanks..

Hi, Michael. It's Ed. So on your first question, which I'll address, on ad-supported, I think consumers are enjoying having an option of the price/value of getting the stuff at a low cost, who are paying more to get it in a commercial free world. When you look at the cable bundle or the new MVPD bundles, it is a great price value.

It is still the most efficient way for people to experience great content programming. And so when you look at the ratings in this, you can see that millions and millions of people like to experience the content that way. As well, in the non-ad-supported world, that's obviously an area of growth.

It's one of the reasons why we are so heartened by our experiment with Comcast on the Xfinity platform. It is a commercial-free version of AMC that consumers can get for about $5 a month.

And we think it's significant, after AMC and Comcast went on the Xfinity platform, FX sort of followed us in and we view that as a good thing, because between AMC and FX, that represents about two-thirds of the scripted impressions on all of basic cable.

So, I think that helps reinforce the message to consumers that they can choose eventually how they want to experience this great content. They can either have it in the broad package and choose to have it in an ad-supported format or they can opt for a vehicle that's now being offered by AMC and FX and see it commercial-free.

So we like being on both sides of that as the world progresses..

Thanks. And, I guess, just to follow-up on that, there was an announcement that Comcast is considering reducing some ad loads, and I'm just curious how you view that for your platform..

Oh, sure, the NBCU. We're always looking at our ad loads. We right now are leaning into sort of ad tech and providing segmenting for our advertisers in this upfront. That is our priority at this moment. We really are not planning any adjustments to our advertising inventory at this moment..

Thanks.

And then on Hulu and SVOD, could you share any more details on timing of that agreement?.

We won't go into the specifics of the timing of the agreement. Hulu, as you know, is our partner. After the shows play on our networks about 9 or 10 months later, the shows come on to the Hulu platform. We've enjoyed the relationship. I think it's been mutually beneficial, but we won't be specific about the terms of that deal..

All right. Thanks, Ed..

Your next question comes from Ben Swinburne with Morgan Stanley..

Good morning. Two topics, guys; one, marketing strategy and spending levels, and the other on syndicated programming. Josh, you talked about the rise of scripted series and how cluttered and competitive it is out there.

Is that requiring a greater level or a different strategy around marketing to drive discovery and sampling? Certainly, one of the themes across earnings this quarter has been the move to OTT across the space and acquired increase not just in programming, but also marketing. I wonder if you could comment on that.

And then I believe you guys recently did a deal for Criminal Minds syndicated programming on one of your networks. We don't tend to talk about the role of off-network, but maybe you could just come back and talk about what role those may or may not play for you going forward and why those are efficient, or not, investments for you..

Sure. So if I may, (sic) Ben, maybe I'll answer the first one, and ask Ed to answer the second. The marketing question, it really is an interesting one as options proliferate, meaning consumer options proliferate. And so, everyone says, you need to get above the noise.

And the subject of how to be efficient and command attention is – sorry, I say it's an intriguing one. What we are finding is that there is not one simple answer, but there's a few guiding principles to how we can be the most effective marketers.

The first is, and I'll use the word social, because referral has become perhaps the most profound form of getting people to the screen, and referral occurs via social and I would ask you just anecdotally, perhaps rhetorically, how do you hear about new shows? One might answer, sometimes you see an ad, and people might often say it was recommended to me by a friend or someone told me to watch it, they said it's a great thing.

So what's appealing about that to us is that we're developing fan communities around our shows that we're nurturing and that we relate to, not just when the show is on, but frankly, 24 hours a day, 365 days a year if they really care about it.

Out of those fan communities, come the opportunity to directly converse with them, if you're in touch with them, and that gives you the best and, frankly, the most efficient and elegant opportunity to say, go try this.

Now, the stuff's got to be good, of course, but I would say that referral really is the new sort of paid media that has built-in efficiency in it, so we're amping up that capability.

I think the second thing is sampling and it's worked for us very interestingly, the opportunity to push content out in ways that are unprecedented and unforeseen and show up on your screen, so that you get to taste it. It's something that in TV was generally considered historically anathema, meaning wait for the premiere and deprive everybody of it.

We have done a lot of things where we have found the inverse, which is get people to sample it and if it is good, they will come back and they will spend more time and they will buy. So, the happy news about those two guiding principles is that they create opportunities for efficiency.

It doesn't mean you don't have to spend money on select targeted paid media, and we're continually employing more data and analytics around that to do it with greater efficiency and, frankly, the analytical tools are now abundant.

So you really can be smarter about where your dollars go and you can watch actually in real time, oftentimes, whether they're working or not, create changes in predisposition, like (53:19) and all that stuff. So that's our approach to marketing.

Our, of course, goal, to state the obvious, is to not throw money around the way that we observe some others throwing money around that may suit their business model. It's not a knock on them.

They may be looking to achieve different reputational interests at their current growth cycle that cause them to be sort of not casual, but to be just sort of wildly aggressive about what they're doing in spending. We take a much more targeted approach to what we're trying to achieve with each piece of content..

And on the other question about syndicated programming, we don't have many, but we have a few syndicated series that we're running on WE, for example. Criminal Minds we recently acquired and it complements Law & Order, and they do deliver efficient quantities of audience. We look for durable franchises that have large and loyal audiences and it works.

For WE, specifically WE tv originates several hundred hours of unscripted content a year and in this past year, it was at the top of its competitive set versus other female-skewing networks in terms of audience growth and retention. But we find having these syndicated programs helps provide a stable base.

And we also see some healthy cross-promotion, audiences going back and forth between the originals and the syndicated series. So in cases where we think the franchise is strong, we like them..

Thank you both..

Operator, we'd like to take one last question, please..

Okay. Your last question comes from Bryan Kraft with Deutsche Bank..

Good morning. I had a few questions.

Sean, apologies if I missed this in your prepared remarks, but what do you expect cash content investment to look like in 2018? And directionally maybe if you can comment even beyond 2018, will that accelerate as you invest more in content? And then I wanted to ask you, Viacom has talked about mobile as an emerging source of new affiliate fee growth for them globally, including reaching an agreement with Telefónica in Latin America recently.

Do you expect to benefit from that opportunity as well and are you having some of those conversations? And then the last thing I wanted to ask is, Josh, you talked about the pipeline of shows slated for release this year.

Can you also talk about the pipeline of ideas and talent coming to you for, say, the next batch of shows that aren't fully formed yet? And there's a lot of concern that that pipeline could be slowing down for everyone, given the money that Netflix, Amazon and, I guess, collectively everyone else is putting into content. Thank you..

Thanks, Bryan. I'll take the first one. So, this is Sean. The cash content spend I didn't address it specifically in the prepared remarks. So in 2017, we probably spent about $1 billion. I don't see that number materially changing.

As you've heard Josh talk a little bit about 2018, our approach to investment in program, again, we're going to be disciplined and prudent. And as you look back over the last five years or so, obviously, we have invested significantly certainly the core of what we do.

So we'll continue to do it, but obviously in a disciplined fashion as we look to grow both revenue and AOI and free cash flow..

Sure. So, Bryan, on the question of mobile, we do think it's a very interesting opportunity. It is at least in significant part what motivated our investment in Funny Or Die, who's a leader in short-form content that has huge desirability on mobile. They happen to be doing a TV show for us, Brockmire, which is great.

Also, if you go on their website, they have really among the best, most people would agree, and funniest funny material. So there is a mobile ambition in our investment. And similarly, our very recent investment in Adaptive has a mobile ambition in it.

Adaptive is probably among the leading short-form content makers in the industry, along with Funny Or Die.

So we're setting ourselves up to be in a position where, from a studio functionality point of view, we're not just developing the muscle ourselves, we're investing in buying well-advanced expertise in that area and we do think it could be a meaningful opportunity over time.

On the subject of ideas and their availability, I hope I don't take too long saying this. I think that there is a conclusion that people reach that's erroneous and that is, if someone pays a show runner or two a boatload of money, that that creates a vacancy in the creative community and you can't go get a good TV show.

And I think that it's simply not the case.

It is the case that occasionally there's a wonderful creative person who comes to bat and hits a home run two, three, or four times in a row, and then there are many cases, frankly, where brilliant creative person hits a home run and then, frankly, strikes out when next they bat (58:53), because it's the nature of the beast.

You don't always sit down and write a brilliant novel after your first novel. Sometimes you write a novel that is interesting.

What's true about this, though, is that the next best creative ideas, undoubtedly some of them will come from people who are achieved and we work with people who are achieved and we cherish Vince Gilligan and others who are highly achieved.

We also are terribly intrigued always by new voices that are coming to us with new ideas, and they don't come off the street. They come with an awful lot of practice oftentimes, but they come with brilliance and we don't go to them for reasons of economy. We go to them for reasons of, frankly, the brilliance of their ideas.

So Phoebe Waller-Bridge, who's a young woman, 32 I think is her age, who did Fleabag on Amazon, which was breathtaking, I think, piece of television; developed a show called Killing Eve, about a female assassin and a cat and mouse game between the female assassin and the MI5 cop. The MI5 cop is played by Sandra Oh.

Anyway, it's so good, it's unspeakable. I don't know how the hell to say it. It's just so smart, it's unspeakable, and so she's an emerging voice and she spent 11 years from age 18 on doing theater in London, and that's where she developed whatever she developed that makes her able to make magic television. So there is no paucity of great ideas.

There are people who are achieved and they're legendary and they're wonderful, and they should be admired in every way and there's no knocking them. And then there's also people who are working in writers' rooms or working in theater or who are just brilliant and they present, frankly, just irresistible opportunities.

But there is no shortage of next great creative. In fact, just to prove that case, and I'm sorry to take so long, but I think it's such an interesting subject, if you rewind where the great shows come from over the past five years, you'll find that not occasionally they came from someone who didn't have big rep walking in the door..

That's a really interesting perspective. Thank you..

All right. Well, at this point I think we're ready to conclude the call. Thank you everyone for joining us and for your interest in AMC Networks. Operator, you can conclude the call. Thank you..

This does conclude today's conference call. You may all disconnect..