Industry Insider: A Look Into AMC Networks' Q1 2023 Earnings Call
On May 9th, 2023, AMC Networks (NASDAQ:AMCX) held its First Quarter Earnings Call, and after their promising 2022’s Fourth Quarter Earnings Report, the investors’ attention shifted from the restructuring plan to the decline in both revenues from ads and subscribers' count. But do these metrics hold the same power they used to at the very dawn of the streaming service industry? Led by CEO Kristin Dolan, the call was also joined by Patrick O’Connell, CFO, and Kim Kelleher, CCO.
Kristin Dolan was appointed to the role of CEO only last quarter, but she is certainly not a newcomer to AMC Networks, as she served as a member of the Board of Directors for more than ten years, giving her a deep insight into the way the company works from a non-executive point of view. Moreover, she spent more than six years at 605, one of the most respected TV viewership reporting companies in the industry. Thanks to the first-hand exposure both from AMC in a non-executive role and from companies specialized in viewership data and analytics, her experience gives her, in her own words, “a clear and actionable perspective on the opportunity we have here.” While answering a question from Tim Nollen (who participated in the call with Macquire) about how AMC Networks plans on using 605’s reports, Dolan stated that the data analytics company will offer them two services: one of internal measurement, and one of attribution (which determines which campaigns successfully convert customers after exposure). This additional attention to the effectiveness of advertisement is more than necessary, as ads revenues declined by 20% with respect to the previous year, both due to a weakening of the ad market, lower linear ratings, and this quarter’s output of less popular content when compared to last year’s The Walking Dead and Killing Eve.
The decline in ad revenues was largely offset by revenue from content licensing, which grew 69% to $103 million, subscription revenue, which grew by 1%, and streaming revenue, with a 29% year-over-year growth. Moreover, later in the year an ad-supported subscription to AMC+ will be launched, thus introducing yet another income stream. The increase in content licensing revenue is one of the reasons behind the choice of adopting a distribution strategy that is focused on a sort of shift from television syndication to a larger streaming platform distribution both by licensing content on its own and by bundling AMC+ with other platforms. In fact, Dolab proceeds to outline a strategy that is certainly different from other streaming services’:
“Our overarching goal is to distribute the shows we make as broadly as possible, to ensure that they are visible and available to viewers wherever and whenever they might want to watch, while ensuring we preserve and drive our strong brand identities across all platforms.”
Even though the number of subscribers decreased from 11.8 million to 11.5 million between 4Q22 and 1Q23, it still went up 22% from last year’s count. The fact that, when the markets opened on May 9th, AMC Networks’ stock price jumped by 7.3% proves that investors’ attention is shifting from subscribers to revenues - a shift in perspective that was highly incentivized by the streamers, but that took time to grow organically. Moreover, this event was explained as a strategic shift from an attention to merely the volume of subscribers to quality - meaning that AMC Networks is switching its focus on customer retention rather than acquisition. Although the drop in absolute number may be alarming at first, the overall strategy must be evaluated on its own, as when accompanied by the broad-reach distribution, it can result in a long-term win.
The main theme that pervaded the CEO’s statement - although it was never quite tackled head first - was that of a restructuring strategy that is the reason for temporary instability and hike in costs while the company reassesses its direction. The speech hinted at redirecting the company towards a more “retail” approach rather than a “wholesale” one, one of the manifestations of which is the focus on customer retention rather than acquisition. In the 1Q23’s Form 10-K, there is a more explicit and detailed explanation of a restructuring plan (the “Plan”) that has officially begun on November 28, 2022, and that consists in cutting costs in anticipation of the “cord-cutting” phenomenon. Dolan highlights four areas of focus: content, broad distribution, a customer-first mindset, and efficiency (which realization is a more linear communication between the AMC’s segments). Even though this plan is coherent with a loss in subscribers, there is still the question on whether leaning on customer retention is a free, or rather obligated choice. On this point, Dolan ends the statement by saying that:
“In so many ways and across so many shows, AMC Networks has proven its ability to punch above its weight and achieve levels of cultural impact and fan engagement that much larger content companies aspire to.”
