Rubicon | Principles & Practices

by Griffin Morrow

AMC Networks and their cable family. [31]

Profile

AMC Networks Inc., operating under the title of Rainbow Media Holdings for decades, is a former subsidiary of Cablevison that was spun off in the Summer of 2011 as a publicly traded company [1]. The New York based organization owns and operates cable channels AMC, IFC, WE tv, and SundanceTV and recently acquired a stake in BBC America [2]. AMC, the obvious bell-cow of the cable bundle, has birthed dramas such as Mad Men and Breaking Bad that helped catalyze the so called “golden age” in cable television from 2007 onwards. This stretch of critical acclaim has scored AMC 207 Emmy nominations along with 33 wins [3], including five of the last six Emmys for Outstanding Drama Series [4].

Key Executives

Joshua Sapan – President and Chief Executive Officer (photos curtesy of AMC Networks [37])

Charles F. Dolan – Executive Chairman

Edward A. Carroll – Chief Operating Officer

Sean S. Sullivan – Executive Vice President and Chief Financial Officer

Programming Reach

Ranking as the 14th most watched network among the coveted 18-49 demo [5], AMC reaches 97 million American households. AMC Networks, however, finds itself in a unfortunate predicament. Other cable entities WE tv, IFC, and Sundance have failed to match the margins AMC has managed. Among the 18-49 demographic, WE tv ranks 39th, IFC stumbles into 58th, and Sundance checks in at a disappointing 88th [6].

Economics

Three year economic landscape since going public [33].

To the blind eye, AMC Networks would seemingly be reveling in their cult-like headlining dramas they’ve found in Madison Avenue and meth making high school chemistry teachers. Since going public on June 21st of 2011 AMC Networks shares are up nearly $29 in price, an increase of almost 82% over three years [7]. Affiliate fees augmented from a 2007 margin of 22 cents per customer per month to 33 cents in 2013 [8]. The recent 3Q report stated a stout 31% increase in net revenue from levels a year ago to $514.2 million [9]. So what’s not to like for AMC Networks? Ad revenues have slipped by 6% in this recent quarter with a 19% drop in audiences [10]. Operating income this quarter was $12 million short of last years. Shares hit a 52-week low on October 13th when prices fell to $52.75. Moreover, AMCX stock has tumbled by approximately 18% in the last year.

Life After Mad and Bad

Dramatic successes that once stoked the AMC flame have begun to fade. Viewers said goodbye to Breaking Bad last fall and will prepare to jettison Mad Men after it’s end next spring. Questions as to how the organization will survive such gigantic losses in programming have dominated industry conversations for some time. One common theme reigns supreme: if AMC plans on continuing on, they need something to replace their prior hits. And fast. The majority of the industry, AMC Networks investors in particular, are wondering if this is possible.

Zombies Devouring American Audiences

Iconic Walking Dead season 1 poster art where protagonist Rick Grimes investigates a desolate Atlanta.

Protagonist Rick Grimes investigates a desolate Atlanta in the iconic season 1 poster. [32]

The most life in AMC Networks ironically resides within the cold clammy hands of the undead. A television adaption of Robert Kirkman’s zombie apocalypse graphic novel “The Walking Dead” has has wowed audiences suspenseful storytelling and heaps of zombie carnage. The Walking Dead premiered on Halloween night in 2010 with 5.35 million viewers, an AMC first [11]. The show has produced end over end increase since. The Walking Dead ended it’s 4th season with an average of 13.3 million viewers [12], a growth margin that prompted AMC to renew the show for a sixth season before the fifth season even aired [13].

A “Walker” enjoying a mid-afternoon snack. [34]

The infectious love for zombies has proved so strong that the first episode of season five shattered television viewing history. An audience of 17.3 million viewers for the season five premiere crowded The Walking Dead as the highest rated show in cable television history [14]. The October 12th premiere, with help from the 7% increase in viewership, managed to out muscle typical ratings power house Sunday Night Football [15]. Playing off of a dedicated following from the graphic novel has allowed the show to become the most popular program among the 18-49 demographic for two consecutive years [16].

Lightning Doesn’t Strike Twice…

All in all, AMC networks has whiffed when it comes to finding their next trademark show. Recently premiering series that AMC networks hoped would share the same prestigious stage as their predecessors have fallen significantly short. Rubicon, a conspiracy thriller set against the New York skyline, proved anything but thrilling for viewers and was cancelled three months after debuting due to subpar ratings [17].

The Walking Dead stifles the average viewership of the other AMC programming. [35]

The Detroit based crime drama Low Winter Sun adapted from a two-part British mini-series of the same name lasted only ten episodes [18]. Even the more constant series such as Hell on Wheels, Halt and Catch Fire, and TURN have underperformed expectations.

there is importantnt text here that you can’t see

…or Does It?

While millions may have mourned the passing of anti-hero Walter White reign on television, they will not have to wait long to satisfy their Breaking Bad junkie addictions. Former show runner Vince Gilligan and AMC have partnered to produce a prequel to the former Emmy winning series [19]. Better Call Saul, airing this upcoming February, will star Bob Odenkirk and be set six years prior to the events of Breaking Bad. AMC has already renewed the spin off for a 13 episode second season despite a delayed production process [20]. AMC also green lit preliminary production on a companion series for current hit The Walking Dead earlier this year [21]. The show will be standalone from the current series, displaying a new set of characters in an entirely different region of the post-apocolyptic zombie world. Both spin offs are obvious attempts by AMC Networks to brandish new programming through past and present successes.

DirecTV and AMC Clash on Contract

AMC Networks warning message to DirecTV viewers about potential stoppages in content.

AMC Networks warning message earlier this month on website to DirecTV viewers about potential stoppages in content. [36]

DirecTV viewers may been in danger of losing AMC Networks‘ programming after this holiday season. AMC Networks went public with a contract dispute with the satellite provider during a November 2 episode of The Walking Dead [22]. They warned viewers that they were at risk of missing future content stating that DirecTV had not “engaged in meaning negotiations”. AMC Networks has gained a reputation of quarreling with service providers by often publicizing carrier contract disputes and using their viewer as meaningful leverage. Disputes have included Verizon FiOS [23], Suddenlink Communications [24], Rogers Communications [25], and AT&T U-Verse [26] over the past two years. The worst of the carrier disputes came when DISH dropped AMC Networks from their service for nearly four months [27]. The conflict, like the others, stemmed from AMC Networks aggressive price evaluation set in an attempt to profit from newfound success in dramatic programming.

International Distribution Taking Center Stage

AMC Networks rolled out programming in various international markets starting in November, an organizational first for a company that once prided itself on broadcasting classic American movies. AMC International started distribution in Europe with broadcasts in Spain on November 5th [28]. Broadcasts of the new international distribution arm furthered in Latin America a week later [29]. The company plans to continue it’s stretch across the globe with further rollouts. These recent investments into foreign markets can be linked to AMC Netoworks‘ $1.04 billion purchase of Liberty Global’s content division Chellomedia last year [30]. The array of TV networks will be distributed across an estimated 138 countries worldwide with access to more than 390 million foreign households.

Source:

[1] AMC Networks Becomes a Public and Separate Company AMC Networks RT: 11/24/14

[2] AMC close to $200 deal for stake in BBC America New York Times RT: 11/24/14

[3] Budget Squeezing, Producer “Bake-Offs” and Post-‘Breaking Bad’ Challenges The Hollywood Reporter RT: 11/24/14

[4] Emmy Nominee/Winner Database Television Academy RT: 11/24/14

[5] ‘The Walking Dead’ Is A Huge Hit. So Why Is AMC’s Stock Trading So Low? Forbes RT: 11/24/14

[6] ‘Dead’ Breathes Life into AMC Networks Adweek RT: 11/24/14

[7] Financials: AMC Networks Inc (AMCX.OQ) Reuters RT: 12/1/14

[8] AMC is Thriving by Breaking the Rules of Legacy TV The Atlantic RT: 11/24/14

[9] AMC Networks tops 3Q net income and revenue expectations Associated Press RT: 11/24/14

[10] Media Companies miss ad dollars after signing streaming deals NYPost RT: 11/24/14

[11] ‘The Walking Dead’ Snags AMC Highest Premiere Ratings of 2010 Time RT: 11/24/14