As is the case with nearly all of the media companies in the MoffettNathanson coverage universe, AMC Networks is in the midst of what Senior Analyst Michael Nathanson and analyst Robert Fishman call “a pivot from legacy linear networks businesses to direct-to-consumer platforms.”
Yet, as the respected financial research house has emphasized in the past, “the economics of this pivot are vastly different for each company.”
What does this mean for AMC? “All-in-one mass streaming services” aren’t in AMC’s best interests.
In an investor report distributed Monday, Fishman and Nathanson note that AMC Networks’ strategy of “playing in niches by focusing on targeted SVOD services is a truly differentiated strategy.”
As an example, they pointed to a comment made by AMC Networks COO Ed Carroll during the company’s first quarter 2021 earnings call in which he said, of the top 5 most streamed series on each of the company’s four targeted SVOD platforms, 19 of them were produced or co-produced for less than $1 million per episode.
That’s why MoffettNathanson continues to believe that rather than operating all-in-one
mass streaming services like many other companies, “AMC Networks’ strategy creates a much more manageable shift into the over-the-top ecosystem.”
Moreover, they say, “for a company of AMC Networks’ size, even relatively small amounts of incremental streaming revenues can create a meaningful inflection in the path of future total company revenue growth.”
AMC management reiterated guidance of 9 million aggregate subscribers across the company’s portfolio of streaming services by the end of 2021 and 20 million-25 million
by 2025. It’s a range that AMC Networks CEO Josh Sapan said would make streaming the largest source of the company’s revenues.
“The vast majority of those subs are in the U.S., with the targeted services (namely Acorn and Shudder) only recently beginning to expand internationally,” Fishman and Nathanson note. “At the same time, trends at the company’s core businesses are also improving.”
Really?
For AMC, the domestic networks posting are facing low-single digit affiliate fee declines in Q1, and that marks the second consecutive quarter of diminished losses. After declining by more than 10% in Q2 and Q3 2020, it could be a momentary reprieve in the cord-cutting wave, or demonstrate that MVPD bundling has hit its comfort zone.
Given AMC Networks’ “historical under-monetization in the linear bundle,” Fishman and Nathanson say it has been able to secure beneficial rate increases that help offset continued high-single digit declines in Pay TV subscribers.
“With the company now entering affiliate negotiations with streaming services to
offer on top of its linear portfolio, it has reached a new level of harmony with MVPDs that
should allow AMC Networks to both secure strong pricing for its linear networks and drive
adoption of its SVOD platforms,” the analysts note.
But, the ultimate question they – “and everyone else” – seeks to answer is whether AMC Networks will be able to return to earnings growth in the long run.
“Without any disclosure on current streaming margins or long-term guidance, at this point it may be too early to tell,” Fishman and Nathanson conclude.
