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 Marci L. Ryvicker - Wells Fargo Securities LLC Alexia S. Quadrani - JPMorgan Securities LLC Vasily Karasyov - Cannonball Research LLC Steven Cahall - RBC Capital Markets LLC Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC.

Good morning. My name is Andreas, and I will be your conference operator today. At this time, I would like to welcome everyone to the AMC Networks First Quarter 2018 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. Thank you.

I would now like to turn the conference over to, Seth Zaslow, Senior Vice President of Investor Relations. Please go ahead..

Thank you. Good morning and welcome to the AMC Networks first quarter 2018 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 first quarter 2018 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. With that, I would now like to turn the call over to Josh..

Good morning and thank you for joining us. We were off to a solid start for the year including record revenue and earnings per share, as well as double-digit growth in distribution revenue at our National Networks, highlighting the growing demand for our content and our brands.

Our performance in the quarter both financially and creatively is a reflection of our continued focus on a few key areas; creating some of the most popular and critically acclaimed content in all of entertainment; increasing our distribution by offering great programming at a low wholesale rate; and diversifying our business in multiple ways that are positioning us to achieve meaningful long-term growth.

This essential strategy has been behind our steady transition over the last 10 years from being what was a U.S. focused cable channel company to what is today a diversified global content company.

This transition has enabled us to find multiple new paths to monetization that now increasingly include content sales, as well as revenue from emerging distribution platforms and overall content franchises.

In a cluttered environment we have grown total distribution of our networks, a reflection we think of our key attributes, they are the strength of our very well priced, well defined brands, the quality of our programming and our uniquely high viewer engagement and the ultimate value that we create for both traditional and virtual MVPDs.

AMC Networks now has the lowest priced offering for a group of channels from any independent programmer in the U.S. and it is the most widely distributed independent programmer among virtual MVPDs.

We believe those things are an indication of our very strong position in the landscape, particularly as virtual MVPD platforms grow and as other new entrants and packages emerge and compete for subscribers looking for alternative, lower priced pay TV offerings.

We are also taking advantage of increasing consumer interest in ad-free subscription services, particularly for scripted dramas, by growing the investments we're making in direct-to-consumer services.

Sundance Now, our subscription service that has a growing offering of original series, films and documentaries and Shudder, which has an expanding array of suspense, mystery and horror themed content are both gaining traction with consumers.

Much like the evolution of our linear networks as these services grow, they are increasingly fueled by exclusive original content. As a consequence, we are continuing to invest in them in a disciplined manner, as we think this investment will provide us with a very good return over the mid-to-long term.

Our other investments in the ad-free subscription world continue to perform quite well, including the subscription services, Acorn TV from RLJ Entertainment and BritBox which we operate in partnership with the BBC and ITV.

Worthy of note, I think AMC Networks led the industry by creating the first in-ecosystem ad free upgrade subscription option called AMC Premiere, which offers ad free viewing of AMC shows along with extra benefits. Last year as many of you know, we partnered with Comcast to launch AMC Premiere to Comcast Xfinity TV subscribers.

In the first quarter this year we made the full seasons of two of our new series, McMafia and The Terror available on AMC Premiere the same night those series premiered on our linear network, driving customer gains for AMC Premiere and delivering value to Comcast Xfinity subscribers.

AMC Premiere is now being adopted by other platforms including most recently fuboTV and next month it will become part of YouTube's TV package. We think this expansion is a meaningful indication of the growing appeal of this unique AMC branded service from both traditional and emerging MVPDs.

All this activity is increasingly supported by shows from our own AMC Studios and the franchises supported by those shows. As we mentioned on prior calls, owning our intellectual property and expanding our AMC Studios operation has been an important area of focus for us.

We now have a dozen or so shows coming from AMC Studios, and this activity is directly contributing to our financial results, in particular to our significantly growing content licensing revenue, something that Sean will discuss in greater financial detail later on in the call.

AMC Studios produced content also affords us the opportunity to exploit these shows beyond both our linear TV channels and our subscription video-on-demand services and in success to create universes and global franchises that can live for a very, very long time.

The most notable example for us is the Walking Dead franchise that has created an appetite among consumers globally for live events, for games, companion shows including what we call the Talking franchise, Fear the Walking Dead and more. A very recent example was something that we called Survival Sunday.

It was a screening event held in 750 movie theaters across the U.S. tied to The Walking Dead Season 8 finale and the Season 4 premiere of Fear the Walking Dead. Mobile and gaming represent another area of growth.

Our first game called No Man's Land garnered over 1 billion game sessions and this summer we'll debut our first augmented reality game with our partner Next Games that's titled Our World.

Building on our strategy to own more IP and expand our fan focused opportunities, we recently took a majority interest in a company called Levity, which operates a network of premium comedy venues across the country along with talent management activities and TV production capabilities.

This investment gives us the ability to extend the reach of our IFC comedy brand to encompass live events and digital extensions and builds on our recent partnership with the comedy brand Funny or Die, which has yielded a very successful collaboration right out of the gate in the form of IFC's original series Brockmire, starring Hank Azaria.

Overseas, we continue to take full advantage of leveraging our intellectual property. The AMC series titled The Terror was a spectacular performer, particularly in Europe vying for being the number one show in a number of countries when it premiered.

As for advertising, as we head into the upfront, we are expecting a healthy market and we'll be using new data-driven products to help advertisers target audiences more efficiently and with more granularity.

It is worth noting we think that as one looks at the explosion of high quality scripted content available today, the growth in that is predominantly happening on, no surprise, non-ad supported subscription in premium platforms.

As a result, our ad supported networks represent an increasingly rare opportunity for agencies and their clients to advertise in a scripted environment and reach a very particular type of highly engaged fan that gravitates to high-quality scripted programming found on the likes of Netflix, HBO, Showtime and others, obviously none of which are ad supported.

I'd like to close my remarks if I may with just a few highlights from the performance of our recent content, which, of course, is at the very core of what we do.

We had a strong showing in the first quarter, BBC AMERICA's Blue Planet II, the latest installation in the Planet Earth franchise, debuted on all five of our National Networks and became the highest rated natural history show on American television in nearly a decade.

WE tv's new reality series called Love After Lockup, became the fastest growing new cable reality show for 2018, with viewership steadily increasing over the course of the first season.

An IFC Films release of a film called THE DEATH OF STALIN, directed and co-written by Armando Iannucci of Veep and starring Steve Buscemi, was very well received by critics and movie goers alike, which led to strong box office including having the year's best opening weekend among specialty indie release films this year.

In recent weeks two of our shows BBC AMERICA's Killing Eve, starring Sandra Oh from Grey's Anatomy, IFC's Brockmire, that I mentioned with Hank Azaria and produced by Funny or Die experienced rating trends that are rather exceptional in today's environment.

Killing Eve has grown its ratings every week since its premiere last month and Season 2 premiere of Brockmire also experienced strong ratings surpassing both the Season 1 premiere and the finale in key demo delivery. We recently renewed both shows for additional seasons.

AMC kicked off the year with the return of The Walking Dead and two new series, a co-production with the BBC called McMafia and the anthology series I mentioned earlier called The Terror from AMC Studios, which was very well received and is the number one new cable premiere in the U.S. so far this year in dramas.

The Walking Dead which recently ended its eighth season remains the number one drama on all of TV. Overall AMC has had four of the top five biggest cable program launches of the current TV season and remains a top five cable network in prime time out of the 131 measured channels.

Fear the Walking Dead recently debuted its fourth season with strong ratings and we think is creatively better than ever. AMC's upcoming slate we think is very strong. It includes a new series called Dietland, an adaptation from the talented former Mad Men writer Marti Noxon starring Julianna Margulies.

It's a very timely take on gender stereotypes against the backdrop of the fashion and beauty industries. And Better Call Saul returns for a fourth season this summer, a show that continues to be just superb in every way and was recently recognized with a prestigious Peabody Award.

Finally, AMC's development slate includes a show called Nosferatu, a supernatural thriller based on the best-selling novel of the same name by Joe Hill, whom some of you may know as the son of Stephen King. As I hope is evident, we started off the year with strength and with momentum.

We believe that our size, our focus and our portfolio of assets are unique strengths in an evolving environment and we remain committed to identifying opportunities to invest while continuing to manage costs with discipline as we create value for shareholders. Now I'll turn the call over to Sean for more detail on our financial results..

Thanks and good morning. As Josh highlighted 2018 is off to a solid start. In the first quarter, the company delivered record revenues and earnings per share. Total revenues were $741 million, AOI was $269 million and adjusted EPS was $2.65. Company also continued to generate very healthy levels of free cash flow over $100 million in the quarter.

Our performance for the first quarter which came in ahead of our expectations mainly due to better than expected results in content licensing revenue, slightly better than anticipated advertising revenue and the timing of expenses places us firmly on track to meet our targets for the full year.

I'll touch on the outlook in more detail later on in my remarks. Moving to the performance of our operating segments; at the National Networks, revenues increased 3% to $633 million; AOI was $271 million, an increase of 1% as compared to the prior year period.

Our top line growth continues to be driven by our distribution revenue which increased 11% in the quarter to $407 million. For the quarter, distribution revenue represented approximately two-thirds of total National Networks revenue as we continue to focus on diversification and reducing our reliance on advertising.

Content licensing revenue continues to be a significant contributor of top line growth with year-over-year growth in excess of 25%. The increase was principally due to the licensing of our scripted original programs in various windows. Most notably, the availability of Fear the Walking Dead, The Son and Into the Badlands from AMC Studios.

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

Looking ahead, we continue to expect subscription revenue growth for the full year to be in the mid-single digits. Moving to advertising, for the first quarter advertising revenues decreased 9% to a total of $226 million.

As expected results in the quarter were in part influenced by fewer episodes of The Walking Dead and its related programming Talking Dead at AMC coupled with some delivery pressures. We did however benefit from increased pricing, continued strong growth in our digital platforms as well as the performance of our other shows and networks.

As Josh mentioned, the premiere of The Terror performed quite well as did the non-AMC Networks, in particular WE tv, and SundanceTV. Moving to expenses, total expenses increased 4%, or $15 million versus the prior year period. Technical and operating expenses increased 7% to $250 million.

The variance principally related to our continued investment in original programming across all of our networks. In the quarter, we recorded $5 million in charges related to the write-off of various programming assets. This compares to write-offs of less than $1 million in the first quarter of 2017.

SG&A expenses were $125 million in the first quarter, an increase of 1% versus the prior year period. The variance primarily related to a decrease in marketing costs due to the timing of originals offset by an increase in G&A costs. Moving to our International and Other segment.

In the first quarter International and Other revenues increased 4% to $111 million. Adjusted operating loss was $2 million, a decrease of $3 million versus the prior year.

The increase in revenue primarily reflected an increase in our international networks due to the favorable impact of foreign currency translation and growth in our subscription streaming services; partially offset by the absence of DMC, which was sold in July of 2017.

Adjusted operating loss reflected the increase in revenue more than offset by an increase in expenses, and particularly the absence of DMC was more than offset by a decline in IFC Films related to the timing of its release schedule. Moving to EPS for the first quarter, EPS on a GAAP basis was $2.54 compared to $1.98 in the prior year period.

On an adjusted basis EPS was $2.65 compared to $2.10 in the prior year, an increase of 26%. The year-over-year increase principally reflects a decrease in income tax expense. As expected, tax reform lowered the company's book tax rate to the mid-20% range from the mid-30% range.

EPS also reflects a reduction in outstanding shares as a result of our stock repurchase program. In terms of free cash flow, the company had a strong quarter. We generated $104 million of free cash flow for the three months ended March 2018.

For the quarter, tax payments were $5 million, cash interest was $26 million, capital expenditures were $12 million and distributions to non-controlling interests were $1 million. Program rights amortization for the three-month period was $219 million and program rights payments were $249 million resulting in a use of cash of $30 million.

This compares to a use of cash for programming of $12 million for the prior year period. Turning to the balance sheet, as of March 31 AMC Networks had net debt and capital leases of $2.65 billion. Our leverage ratio based on LTM AOI of $904 million was 2.9 times, flat with year-end 2017.

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 AOI in 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 first quarter, the company repurchased $84 million of stock. This represents approximately 1.6 million shares. Subsequent to the end of the quarter, the company has repurchased an additional $125 million, or approximately 2.4 million shares.

As of last Friday, the company had $134 million available under its existing authorization program. So program to-date, we repurchased approximately 22% of our outstanding shares.

We 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.

So looking ahead, there are no changes to the full year 2018 comments we made on our last earnings call. We continue to expect to grow both total company full year revenue and adjusted operating income in the low single-digits.

As for the cadence of our performance during the year, we anticipate continued quarterly variability as a consequence of the specific timing of our investments in content and the airing of our shows. In the second quarter at the National Networks, we anticipate continued healthy growth in distribution revenue.

Within distribution revenue, we expect content licensing revenue to grow at a slightly faster rate than subscription revenue. With respect to National Networks advertising revenue, we anticipate a meaningful sequential improvement as a result of market conditions and more favorable comps related to the timing of the airing of our originals.

As for expenses at the National Networks, we anticipate a year-over-year increase mainly related to programming costs given the mix of owned versus licensed originals scheduled to air in the quarter.

In terms of AOI at the National Networks, we continue to expect growth to be weighted towards the back half of the year as second quarter results will reflect the trends in revenue and expenses that I just described.

At our International and Other segment, we expect revenue growth that is generally in line with the rate of growth we experienced in the first quarter of the year and we expect a modest year-over-year increase in terms of absolute dollars in AOI.

So overall, we feel very good about the start to the year and how the business is positioned for the remainder of 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 please open the call to questions..

Our first question is from Michael Morris with Guggenheim Securities..

Thank you. Good morning, guys. One strategic question and one operating question if I can. Josh, it appears that you are running a couple of parallel strategies right now, that's not a criticism, just an observation, on the one hand, obviously licensing your content is very important to your financial results and your growth. On the other hand.

you're making investments in your direct-to-consumer services, some of your ad free services with partners.

As you look out over time, how do you view the potential or the need for those investments to start to merge together into one, kind of wholly-owned product and how could something like that happen? And then on the operating side, can you reconcile the subscriber growth that you talked about, so the 2% growth with your affiliate fee growth, which I think is in the mid single-digits.

I believe there are probably lower priced networks that are getting more carriage, but can you help confirm that and also talk about where those networks are getting picked up more broadly and how that benefits you over time? Thanks..

Sure, Michael. So on the question which is a big question of the day for us and as you know for all media companies, the path of our content is of profound importance. The way we evaluate it I wouldn't quite say is parallel, I would say that it is evolutionary. And we design it to track and balance opportunities and degrees of risk and cost.

And so our pattern over the past, call it decade, has been to sell rights and exploit those rights worldwide, multiplatform as aggressively as possible.

When we purchased the assets overseas, the cable channels it gave us a footprint of hundreds of millions of homes, we ourselves became in those channels a bidder, for some but not all of the international rights and that changed the evolution. When we launched subscription services that are ad-free in the U.S.

and took investments in companies that operate those, it changes by degree the point of view that we have about the optimal use of that content and the optimal return for us and shareholders over the near, mid and long term. So I really wouldn't call it parallel, I would call it evolutionary.

And it is the case indeed that by degree, we are keeping more of those rights and paying for those rights on those platforms with our participant partners more than we had in the past. And we'll continue to balance that as we go forward.

And it really becomes in a certain sense a strategic question, an evolutionary question and of course, a money question. Where is the most value, where do we get the most momentum, where is the greatest return and we want to be ideally right at the point in the curve that gives us the greatest return. We don't want to be behind it.

We also don't want to be ahead of it. I think it's served us well and we'll continue to have that active monitor on the trend.

And I do think that, just I'll add one more comment, there's no question that direct-to-consumer represents an increasing opportunity as you see in our prepared remarks when we talk about those outlets being fueled by our own content. So that will certainly likely be a greater use of material.

On the specific operations of subscriber rate of growth and subs, there's an imperfect answer to it. There's some vagaries in our affiliate agreements that provide in some cases near-term incentives for increased distribution of a number of different platforms.

So there's no simple clear answer to sort of true up, if you will, the mid single-digit and the increase. But what I would say from a vital sign point of view is that we have a steady rate of mid single-digit distribution growth, that strong and fairly constant and we're growing subscribers.

That means our footprint is bigger and our opportunity is bigger and our eyeballs is bigger and our stability is bigger in the U.S. when the overall U.S. is moving the other way, that's a bit of an achievement.

So we'll continue to look for those opportunities that are sort of surgical and specific in nature, while the rest of the world is going backward, we're going forward and we like going forward and increasing the number..

Great. Thank you, Josh..

And our next question is from Marci Ryvicker with Wells Fargo..

Thanks. So I have a question for you on the second quarter advertising revenue. I know you said a meaningful improvement but are you talking about flat, are you talking about declines, they are just declines not looking as steep as the negative 9% for Q1.

And then secondly for Josh, you're doing an ad-free model with AMC Premiere, CBS is now moving to sort of an ad-free model as part of their CBS All Access and I guess the question is, if this does become significant, how do you think about the advertising model in totality? Do you worry about it at all down the line? Thanks..

Hey, Marci. It's Ed. I'll speak to your advertising question. As we mentioned, we expect sequential improvement in the second quarter. So right now we are roughly at mid-season on Fear the Walking Dead and Into the Badlands on AMC, also Killing Eve on BBC AMERICA and the Braxtons on WE and they're all performing quite well.

The scatter market continues to be very solid. We see strong increases in terms of pricing. So the variables in the current quarter will be the continued performance, strong performance of our shows in terms of audience and the continued scatter demand for originals. We expect meaningful improvement.

I don't think I'll be more specific than that today other than to say I think as a network group we're uniquely well positioned going into this upfront because the slates on each of our nets are performing quite well.

And we have only five networks, so we don't have an overabundance of inventory as we go into the upfront and we know we have the type of content that advertisers are seeking.

And I do think in this upfront, you might see that advertisers feel they're under some pressure to get their money down alongside the kind of shows that they want to be associated with. So that's sort of our overall outlook..

Okay..

Marci, on the second question, I hope this is a helpful explanation. We had characterized ourselves promotionally over the past several years as premium on basic.

We used it as a sort of moniker to describe what we thought was a bit of a distinguished offering on the basic cable lineup, in that we had a collection of shows that were more commonly configured and praised like a premium subscription service. And that sort of promotional moniker was pretty well received, the world nodded and acknowledged.

We developed AMC Premiere in partnership with Comcast, in partnership with our MVPD universe and it allows us of course to continue to sell advertising on an increasingly unique environment and I would underscore that if you don't mind, because brands that want to sell products like media mixes that are varied, they do want sort of engagement or attention right before there's a click to buy.

They also want brand development and brand development occurs, you see it on TV, when somebody's really paying attention to what they're watching on television.

So the answer to your question is that we are doing two things and they're both we think highly appropriate, and we can live in both those worlds meaning the ad support, when someone takes an ad in Fear the Walking Dead or The Terror, it works uniquely for them that that viewer is highly, highly engaged and will increasingly have the data to both show that, prove it and allow them to buy it with more specificity.

Secondarily, a number of those people are very happy to pay us and Comcast and soon YouTube extra money to buy that material in an ad-free environment.

Apart, if I may, from complementing the content to say that it's valuable enough even though it is available in some form to pay extra to get it in a different form, which is a complement to the content that we think is good, important and very meaningful for AMC Networks, over the future it economically allows us to live in two different manners of economic exploitation and we think that's very good for our health and we will lean into not one, but both.

I should probably add just along the way that I think it was in our prepared remarks, it has altered by degree the revenue mix of our overall company. Today, about two-thirds of our company's revenue comes from distribution fees, from content sales, from streaming and other activities and about a third comes from advertising.

So we will probably see that mix slightly accelerate to the non-ad supported pieces of it over time..

Thank you..

And our next question is from Alexia Quadrani with JPMorgan..

Hi, thank you. Just two questions if I may. First on the advertising side, you mentioned how the hit shows with big audiences are increasingly rare and therefore great value to advertisers which make sense.

I guess any color on how much of a gap you retain with The Walking Dead for example number one drama on TV versus other network shows that keeps AMC in this coveted spot, can use some leverage with advertisers? And then my second question just following up on a topic you've already discussed a bit, which is the different vehicles, whether it's the virtual MVPDS or AMC Premiere or the linear model.

If you were just to say, to be very simple, you had one consumer and you could class them in any one of those.

I guess which one is the most economically attractive to you?.

Hey, Alexia, it's Seth. On your ad sales questions, I think it's been a multiyear strategy for AMC to make the argument that our shows are worthy of broadcast-sized CPMs, and we've done that methodically over the years, and we've made tremendous progress and we're essentially there with many of our shows.

So The Walking Dead is a unique animal in its delivery of 18 to 49 and particularly male skewing 18 to 49, there just aren't other shows that have a comp. So it does enjoy a CPM commensurate with that.

But I would say the rest of AMC's original programming slate and now increasingly BBC America's programming slate are enjoying CPMs that are in the same neighborhood if that gets at your question?.

Yeah, it does. Thank you..

On your second question, I hope this is responsive to it. The manner in which we're organizing, windowing our content, and the configuration or channel, if you want to call it that, in which the content sits is one in which we are enjoying actual multiple expressions of the content and actually multiple economic rewards.

They're not binary and they're not exclusive, meaning just to take a very simple example, a person who subscribes to AMC Premiere is also paying a cable bill to Xfinity. And so we are having revenue rewards from both those experiences. If we make a show that goes on to another streaming service, we're having a revenue reward from that.

So it is not a exclusive consideration this or that. In fact, I think what is developing in our model is something that's somewhat uniquely attractive, which is we're actually setting up and designing a sympathetic way for our shows to have economic reward in multiple incarnations and we're doing that.

We're in alliance with our MVPDs and virtual MVPD partners. We're doing that enjoying and taking advantage of advertising revenue, and we're also doing it where the subscriber is getting it in a formulation that they're happy to pay extra for.

So that is a fairly, we think, optimal way to go structurally that will have different degrees of reward at a point in time as the so-called media landscape undergoes its evolution.

And what we aim to do is to track with it and frankly to lead it in some instances so we can have maximum reward and keep frankly all of our constituents and our partners also in a position of reward. And last thing to say, of course, is the consumer loving our stuff. So that's the plan..

All right. Thank you very much..

And our next question is from Vasily Karasyov with Cannonball Research..

Thank you. Good morning. Josh, I wanted to ask you about all the recent years conversations about peak content and how competitive it is and how much money goes into scripted programming. And those conversations almost have implied that it's like a commodity auction.

If you don't have unlimited resources of Amazon, you lose out in this game of scripted programming. And you have been, of course, in it for a long time. So I wonder if you have any thoughts. Is that argument missing some dimensions that best projects don't go just where the highest bid is.

How do you navigate this? Can you please share your thoughts on this?.

Sure, Vasily. So it is the case that the common wisdom is that every show goes to a commodity auction and gets bid up, and therefore, the winners will be those that spend $8 billion a year. That's incorrect. It's incorrect.

There are a certain number of shows that often have a signature cast or signature creative people associated with them, and they are packaged by talent agencies and admittedly a couple of those come to market. And on behalf of their clients, the agencies attempt to create bidding.

And in some cases, I would argue there are precipitous purchases from hungry outlets who may not necessarily operate with as much discretion as we like to think that we do. We cultivate relationships with creative people. We curate over long periods of time creative material often from its inception when it's written.

We have a long and deliberate and careful process. And it infrequently results in us being in a bidding process. I'll give you a few examples.

The show Brockmire, which we mentioned, which is extraordinarily successful and great, Hank Azaria had – the actor Hank Azaria had done this character, this wayward sports dude from the time he was 15 years old in high school and wanted to be – have a movie or a TV series done. So he'd been sort of effectively shopping it for 40 years.

It was with Funny or Die and with IFC that we brought it to life.

There was no bid, there was no market, there was no commodity bidding, and it's terrifically successful The Terror, which stars Jared Harris who was in Mad Men and Tobias Menzies, is not a superstar marquee names on the screen, and it's a show about a ship that becomes landlocked and frozen finding the Northwest Passage in the mid-19th century.

It's a particular type of material. It premiered to over 2 million people on the AMC channel in the U.S. and it was a smash hit overseas. There was no competition for The Terror. We cultivated that activity and that show. We did McMafia recently with our partners at the BBC. There was no competitive bidding. There was no commodity market.

That's the case going – winding the clock back, believe it or not, for The Walking Dead because The Walking Dead had been shopped around and there was no bid and nobody wanted it. We wanted it and it's true for many other shows.

So, yes, there is a commodity-like market where money matters and there is some precipitous buys, and then there is the approach that we like to think we take, which is much more deliberate, much more creatively, if I may, intensive, and we think it's yielded and continues to yield very good results for us..

Thank you..

At lower costs. I'm sorry, I should have added that, Vasily. Forgive me. I left out the punch line..

And our next question is from Steven Cahall with Royal Bank of Canada..

Thank you. Maybe first just a follow-up on Vasily's question. I think it's pilot season right now about to kick-off in Hollywood. You kind of touched on what the competitive landscape looks like.

But I was wondering what the pilot pipeline for AMC Studios looks like and are you only pitching pilots to the family of owned networks, or is there an opportunity to expand AMC Studios into a seller of content into third-party channels? And then secondly, you talked a lot about vMVPDs.

I was wondering if you could just size either the millions of numbers of vMVPD subs you have right now or the percentage of the base? And do you think we're going to see a major non-sports vMVPD bundle launched in the coming months? Thank you..

Hey, Steven, it's Ed. On the pilot season, I would say a few things. First of all, the studio for the present, we are developing with our own networks in mind. That's our co- (43:59) mandate at this point that keeps us very, very busy. We have a robust slate of material in development.

And one of the things that we have increasingly morphed into is opening writers' rooms. Historically, you would have one script and you could have a show runner who had worked on that script for a year or two years and made that pilot script as perfect as they could.

And then you shoot the pilot and if you'd like it, you would then say, okay, now you have three months to write nine more scripts and open a writers' room and work in a collaborative fashion, which can present different challenges.

So we like in many cases, not all cases, but many cases, we like opening a writers' room, and now we can make a decision about a show with five scripts, eight scripts, or even a full season of scripts ahead of us.

It also has certain economic benefits, but we like it creatively, and we think that writers are enjoying it as well because they get the opportunity to flesh out their characters, and we see clearly evolution of storyline and plot. And I think I'll turn to Josh again..

So on the subject of virtual MVPDs, I don't have all the data in front of me for the exact data for the pattern of MVPD video growth or lack of it and virtual MVPD growth over the past few years.

But I think it's fair to say that in aggregate in the universe of the U.S., vMVPDs have offset half or a little more than half of the net video decline that's been experienced by MVPDs. And we're substantially inhabiting, as we mentioned, those virtual MVPDs who are among independent programmers carried more widely than anyone else.

So they are growing, if you look at the absolute numbers, not those percentages because they're all against the 90 million households or so number. The virtual MVPDs are growing in the millions every few months. So it's not a meaningless number.

I guess, I'll stop short of predicting where that all goes and leave that to people who do it for a living, but that's been the trend to-date. It seems likely to continue and perhaps to accelerate.

And that is I would say a good thing for AMC Networks, not that MVPDs may decline, but that we're chosen to be carried in all the new offering, some of which have lower prices and it's not accidental. It's not because we have a broadcast network that is creating friction in their consideration.

It's because they're independently evaluating at the price for the five AMC channels and the amount of viewer engagement that they create is probably the best buy you can make to sell subscriptions to something that costs $35, $31, $25 and in some cases $19. It's very simple.

Now there may be a fully Darwinian quality to it, which you touched on, related to perhaps sports or broadcast networks. And we are seeing some interesting trends, which is we're seeing not only virtual MVPDs but MVPDs offer options to get video for $19. If you go check out those packages, some of them don't look like other packages.

Now there are maybe contractual constraints on those MVPDs or virtual MVPDs that perhaps allow them only to have X% of their base look like that today, and I can't comment on necessarily what it will look like tomorrow.

But I would say that the simplest and I mean it, the best buy if you're the human who's got to sell that stuff at the company is to put AMC Networks on because the price is the lowest truly and the value is the best and the engagement is the best.

So from a sort of overall ecosystem evolutionary point of view, when I say we're well-designed, you do hear other companies say, we have more channels but we want to focus on five. We have five channels. That's what we have.

We don't have 10 or 15 or 20, and we have hit shows for the top five launches of the year, shows that you know and shows that people pay extra for. They're willing to fork out additional money. That is the best doctor visit in terms of getting a health check you can possibly receive for the mid-term and for the long term we think.

Whether or not satellite companies and MVPDs persist further in their occasional efforts to offer a broadcast antenna for free, which you've seen them occasionally do to provide relief from the 12 – roughly, approximately, I guess $12 billion flowing through this ecosystem in retransmission consent dollars.

If that starts to occur, if it does, it suggests to me that AMC Networks will become even more valuable, because there will be relief in the wholesale cost and those companies, of course, will want to sell people subscriptions. So long answer to your question. I hope it is responsive..

Thank you..

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

And our next question is from Ben Swinburne with Morgan Stanley..

Thank you. Good morning. Thanks for squeezing me in. Josh, just keeping on this theme of content licensing actually for you and Sean, and I think this year this will be the fastest-growing revenue stream for the company.

When you look out over the longer-term, I'm wondering if you could talk about whether you think that will continue to be the case, and I ask because you've been ramping your studio production for a number of years and your third-party licensing business obviously has become substantial.

It's kind of in contrast to some of your peers who maybe rolling back their third-party licensing. I'm not saying that's the right or wrong strategy, but we are seeing that from time-to-time across the space as they put more product on their own platform.

So I'm just wondering if you could maybe tell us a little bit how you're thinking longer-term about third-party licensing, and if that will continue to be either the primary or the largest driver of growth for the company.

And, Josh, a nuanced question because I know you like nuance, if you have a particular preference for sort of these kind of output deals that you've done in the past versus selling things on more of an ad-hoc or à la carte basis. And then lastly, Sean, just on the quarter you mentioned content licensing came in better than expected.

Can you just talk a little about how that happened? Is that just a timing phenomenon or was pricing better than you guys were budgeting? Thank you, all..

Sure, Ben. So I think we touched on this earlier in the dialog that we were having. We do view this as evolutionary.

We think that doing great shows is truly at the core of what we do and feeds our base enterprise and provides the momentum for our growth in the future, and we've been, as you said, continuing to increase that, and it does serve those multiple objectives. And it has been a great source of growth.

We will evaluate as we go forward whether the optimal decision to make at any point in time and 'occasionally' with different shows, but as you know, some of the deals differ, whether that show is best, sold, or best sold to ourselves if you want to call it that..

All right..

And the decision – so there will be an evolution on decisions, maybe not simple. It may not be black and white.

It truly maybe nuanced because we might sell a show to a platform in a foreign country that we don't have a channel on a first-window basis, and we may sell it to ourselves on the AMC channel that's now in, whatever it is, to 200 countries around the globe ex-U.S. And so that's an answer of we've done both. And we'll track the evolution.

We now have these ad-free services that we both operate and have interest in that come in. And so our equity interests are different, the configuration of those services is different. AMC Premiere is arguably general interest and the other ones are slightly more editorially focused. And so we'll evaluate as we go forward.

And, by the way, to your question about structure of deals, the structure of the deals has degrees of fluidity. And so some have more certainty, some are more individual. And then even within a contract that's fully articulated, if you have a good relationship with that partner, you can choose to make exceptions if both are agreeable.

So the contracts are in place, they describe behavior and activity for a period of time, but they're also not involved (53:57)..

Okay..

And then, Ben, just on your last question, the majority – as I said, the majority of the benefit in the first quarter was timing, both the delivery domestically and internationally. I mentioned the shows in my remarks. So we do continue to see strong pricing and some upside.

But at least as it relates to the first quarter, the majority was timing related..

Thank you, Sean..

Thanks..

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..

And this concludes today's conference call. You may now disconnect..