Welcome to the AMC Networks’ First Quarter 2022 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Nick Seibert, Vice President, Corporate Development and Investor Relations. Please go ahead.

Thank you. Good morning and welcome to the AMC Networks first quarter 2022 earnings conference call. Joining us this morning are Matt Blank, Interim Chief Executive Officer; and Chris Spade, Chief Operating Officer and Chief Financial Officer. Today’s press release is available on our website at amcnetworks.com. We will begin with prepared remarks and then we will open the call for questions. I would like to remind everyone that today’s call may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ. Please refer to AMC Networks SEC filings for a discussion of risks and uncertainties. The company disclaims any obligation to update any forward-looking statements made on this call. Today, we will discuss certain non-GAAP financial measures. The required definitions and reconciliations can be found at the end of today’s press release. With that, I would like to turn the call over to Matt. Matt?

Thanks, Nick, and good morning, everyone. Thanks for joining us. AMC Networks’ first quarter marked a solid start to 2022, highlighted by total company revenue growth, strong gains in streaming revenue and subscribers and continued momentum for our strong content slate across our portfolio of super-fan brands. And the last few weeks and months have shown anything, it’s that anyone trying to build a streaming business can’t forget about the business part. These practical considerations have always been our focus, as we have moved into this space, and we continue to make significant headway on our differentiated strategy of offering streaming services that appeal to targeted audiences with specific affinities and passions. Our approach is considered, curated and cost efficient and is a distinctly different strategy than others aiming to offer something for everyone. In contrast, our goal is to offer, as we have said before, everything to someone. And the strategy is working. I’m pleased to report that we’ve achieved a Q1 streaming subscriber target we laid out on our last call, adding more than 430,000 new subscribers in the first quarter in aggregate across our portfolio, and ending the quarter with 9.5 million total paying subscribers. Coming off our strong first quarter, we are reaffirming our full year 2022 financial outlook. And with our content cost advantages, our continued ability to super serve audiences and fans with deep content offerings and our clear focus on profitability by virtue of our unique strategy, we feel better than ever about reiterating our previously communicated target of achieving between 20 million and 25 million streaming subscribers in 2025. And as we discussed on our last call, we expect we’ll be halfway towards that target by the end of 2022. We continue to excel at what we do best, creating excellent premium…

Thank you, Matt and good morning everyone. Our year is off to a strong start with the continued growth of our streaming subscribers across all services and with growing monthly streaming subscribers and revenue, with our strongest programming slate still to come in the remainder of the year. We are focused on the growth of high-quality revenue-generating subscribers that have favorable lifetime profitability across all our services. Our first quarter performance is tracking strongly against our 2022 and long-term outlook. As such, today, we are reiterating our 2022 and long-term financial outlook. We continue to execute against our strategy of owning more IP, engaging our global audiences with strong content curation, growing profitable global streaming and digital businesses and optimizing our highly cash-generative linear business supported by our strong MVPD partnerships and leading advanced advertising initiatives. The targeted nature of our streaming offerings require a lower level of content spend across our services and the requirements of a general entertainment service. In our experience, our continued success depends on the right balance and mix of content and marketing investments, along with an efficient and high-quality technology stack to support stellar customer service for all of our super fans. We believe our communities are desirable, sustainable and offer tremendous value to subscribers, which is resonating and breaking through in our current crowded streaming market. Across our portfolio of streaming services, our cost per subscriber acquisition is significantly less than the expected lifetime revenue of the subscriber and is improving in efficiency over time. Combined with the lower cost of programming of our services, this ultimately results in a very profitable business. With subscriber engagement that is driven by our content depth, curation and sense of community we believe our subscribers are less price sensitive than others. We see this in our…

[Operator Instructions] Our first question comes from the line of Thomas Yeh from Morgan Stanley. Your line is now open.

Hi, thanks for my questions. First, can you provide some additional color on the incremental kind of advertising environment? What you’re seeing in terms of any broader impact from macro uncertainty or any verticals where you’re seeing strength or weakness that holds your view of stable revenues this year? And then as a follow-up, as you transition from some really high-profile final seasons of major shows to new IP like Anne Rice’s stuff, I was hoping you could dig into how you’ve been approaching your marketing efforts and a credit landscape. Matt, you spoke about efficiencies on content costs. And Chris, I think you talked also about attractive subscriber acquisition costs. How does the marketing approach differ relative to general entertainment? How do you think about the right level of investment there and how that shifts as you approach new shows relative to established ones? Thank you.

Sure. I’ll start on that, and Chris can come in. But just generally on the advertising markets out there, we feel confident about delivering what we plan to deliver this year. As you know, there is certainly uncertainty out there in terms of worldwide politics, supply chain and all of those hangovers. But there is also ways that we’re growing that part of our revenue stream in terms of some of the advanced advertising applications, in terms of the FAST channels and just in terms generally of the types of things we’re trying to do with our advertising partners. So we remain confident there. Good question on the marketing front there. I think if anything, we have tremendous advantages in terms of the targeted nature of our services and what we are learning about our users over time. And our ability to market these shows more efficiently, spend more time building the brand marketing and specifically marketing behind the content along with the performance marketing that we’ve been doing in the streaming space. So I think it’s a work in progress for everybody as consumers become more embedded in streaming services. But again, I think it’s one of the benefits of having targeted services, knowing our consumers well. Marketing to really a curated slate of content is a lot easier than throwing a lot of marketing against the wall for a wide range of genres of content. So we’re feeling really good about our ability to launch these shows and have them drive both user – viewership of our channels, but also streaming connects.

Hey, Thomas, it’s Chris. Just following up some more on the advertising question, I appreciate your questions. On the ad front, we’re really incredibly pleased with our solid ad revenue performance that we’re seeing this year, both domestically and internationally. Early on last year in the upfront that we’re in right now for the year, we did make the strategic decision to take on more upfront sales than usual because we were seeing incredibly strong pricing, and we had a high demand for our offerings. And that decision was incredibly successful in that we have less scatter inventory than we usually would right now. And from that standpoint, we’ve been able to leverage the strength of the advanced advertising marketplace to shift some dollars into digital and advanced advertising relative to categories that we’re seeing strength in its health, technology, financial, retail, entertainment areas. On the advanced advertising front, we’re also very proud of what we’ve been doing in pioneering there. We are a leader in the addressable space, and we’ve been the first to market national addressable ad campaigns across linear VOD and connected TVs. So we’re really excited about what we’re doing there. And with Amazon specifically, the three addressable ad slots that we’re putting out, they will run in the footprint served by Comcast, Charter, Cox and Vizio, and they will reach more than 35 million homes.

Great, thank you. And if I could just squeeze one more on streaming ARPU, revenues grew a little bit slower than subscribers in the quarter. I know ARPU is a mixed bag with a lot under the hood and you just talked about some price increases at Acorn and ALLBLK, but can you share any details on kind of the mix of wholesale retail adoption, any promotional discounting that might be happening there? Thank you so much.

Sure. Yes, it’s a great question. And I think it’s a question that really gets to the heart of the business is streaming in terms of what are we seeing with ARPU trends? What are our key metrics with lifetime value and our cost per acquisition, etcetera? So relative to ARPU, there is still going to be a lag between the revenue and the subs coming on with the sub month effect. But if you think about our cadence last year because in 2021, we had less of a content slate than what we would normally like driven by COVID delays. Now in 2022, we have a cadence that we like for programming, and we really have strong content. So we really don’t feel that we need to discount as much on the ARPU side. So our goal really is to drive future streaming profitability across all our services, lean into wherever we feel we do have pricing resilience. And it’s not necessarily about putting buckets of millions and millions of subs on for us. It’s really about making sure that we are connecting with that high revenue-generating subscriber that is going to be loyal to us and keep our churn rates in check. So we are excited about the modeling that we’re doing and we really feel strongly about the opportunities in front of us for growth to get to our targets.

Thank you. [Operator Instructions] Our next question comes from the line of Michael Morris from Guggenheim. Your line is now open.

Thank you. Good morning guys. I have two questions about streaming again. The first one is on the contributors, if you will, I guess the streaming subscriber growth trajectory. At the sort of steady 400,000 to 500,000 net ad pace you are on, you are on track for the year. But certainly beyond the year, I don’t think it puts you on pace to reach your goals. And so my question is, there is – kind of when do you expect a little bit more tailwind? And is that – do you see that driven by the content cycle? Do you see it driven by the geographic expansion? I am curious the inputs there. And my second question on the topic of advertising is about the potential for an ad-supported tier for your streaming services. I think all of your services are ad-free at this point. What is your current thought on possibly also layering in an ad-supported tier at a different price point? Thanks.

I will start out, Mike. Thank you. First, we have no current plans for an ad supported tier. But obviously, this is something we continue to monitor, continue to look at. We are very happy with the current offerings that we are making. If the business changes, we also think we have the ability to be very nimble and to adapt quickly. It’s funny when you hear one other large player have some problems in their sub growth all of a sudden, an ad tier is going to solve all problems. We don’t necessarily think that’s true, but we will monitor the market and we will see what happens. In terms of where we are in achieving our goals and the goals we put out there for 2025, we think we are absolutely still on schedule. There is still tremendous opportunity where we haven’t ramped up on the international front. We have new additions to our offerings like Sentai, where we are just beginning to roll out services. We have loads of new content coming this year and next year. We are in the process of refining how we market and what we are learning about marketing. And again, I think we see tremendous advantages in these targeted services. So, from our standpoint, we are right on schedule to make the subscriber streaming guidance of 2025.

Mike, it’s Chris. Your question on the pacing, I think is right on. In fact, in our preparation, we are looking at all this. I said if I was an analyst, the number one question I would have is, how does the organic pacing reconcile with the long-term target, so I appreciate your diligence and looking at everything. But from the standpoint of the pacing, it’s really – the 400 million to 500 million is our organic pacing right now and it’s what we have visibility to and what we feel good about for the quarter. Going forward, we will have international expansion relative to new markets that we will be in that aren’t in our base right now. We also have HIDIVE, which we recently just purchased that we have significant opportunities for more growth there that’s really not in the pacing yet. And then we also have churn improvements and metric improvements that we are seeing. So, as we more and more have annual subscriptions do more bundling, we are going to see natural metrics improvement, and we are seeing it over time. The other thing I will say about AMC+ is that it really hasn’t been in the market that long, call it, 20 months or so. So, it’s a newer service relative to some of the other services that are out there. We have strong, strong content this year. We are really excited about Better Call Saul. I don’t know if you all are watching Better Call Saul, but it’s really a great show. And the way it’s coming together now is amazing to me. So, we have got the end of The Walking Dead coming up later this year. And then it all dovetails, as Matt said, into the Anne Rice franchise power and the early episodes of that IP looks stellar. So, the other piece that I will point out is we will have exclusivity with the Anne Rice content. So, more and more over the long term, our strategy is that we will get away from licensing. We have to honor our legacy deals, but we are going to get away from the licensing for IP that we own. And so the only place you will be able to see a lot of this IP on the longer term side will be on AMC+.

Very helpful. Thank you both.

Thank you. Our next question comes from the line of Robert Fishman from MoffettNathanson. Your line is now open.

Thank you. So, as you are acutely aware and already alluded to, investors are now pretty focused on streaming margins. So, can you just help us frame the longer term margin target for your streaming platforms? And maybe if you are not willing to share any specific numbers, should we think about the streaming pivot for your company profitability by 25% given that streaming is going to be – you are expecting the largest revenue driver. Will it be incremental to profitability, or will streaming just help to offset the declines in linear?

Hi Robert, it’s Chris. I think it’s a great question. A lot of the focus now in our business is really looking at the models and the profitability and how we grow from here and what does it look like. But for us, when we make a content investment, we are really looking at the holistic monetization cycle. So, we are making an investment in content, and then we are able to monetize and distribute it across all our platforms, which includes streaming window, linear international distribution licensing and wherever there is markets that we are not in a streaming position. So, we are in a place that as we build our revenue for streaming, that will continue to build and help go against the headwinds that we are seeing on the linear side, which we are going to continue to see basic declines. We are going to continue to see lower delivery on the ad revenue side, because I think, as Matt has spoken a lot about the acceleration of what COVID did to streaming. And so we are seeing that. But we feel very bullish on the future. And we feel that as the streaming momentum continues and the linear settles out that we have a good monetization engine that will deliver 20 – in the mid to high 20% margin for the long-term and that we will get back to a level of pre-pandemic cash flow. And the last piece of it really is the pricing power. I think what we are seeing in our streaming communities is that we have loyal fans and the more that we can super serve with the cadence of content that we have right now, they are loyal to us. They like the content, and that will be meaningful over time.

Okay. And if I could just add one quick follow-up. On the profitability and streaming, can you just discuss how you measure the ROI for specifically around the IFC Films decision, moving the Pay 1 window to AMC+? Like is that something that will help overall company profitability, or will that just help accelerate the AMC+ subscriber growth?

Yes, sure. It’s a great question. So, relative to IFC Films, we have a gem there with IFC Films in my view. And what we are seeing on the streaming research side is that the fans are enjoying both the original series and the original movies. So, our research proved that original movies and original series along with other content that we have is driving the viewership and the engagement. So, when we looked at our window that needed to either be renewed or redistributed for IFC Films, we felt that it was really important that we locked in that first Pay 1 window and so we will be able to benefit from that window for AMC+ and our services and offer one movie a week starting this week, which Clean is the first movie coming out that stars Adrien Brody. So, over time, it doesn’t – relative to our profitability mix, that’s at a size and scale that it really doesn’t have a significant impact to driving or under-serving our ROI, but we do feel that the subscriber growth we will be able to get from offering the movies in our portfolio is powerful enough that it will support future growth for streaming.

And just to reinforce that, one of the number one objectives here is to get compelling proprietary programming in front of our streaming potential audience and our current users. And that’s what we are doing here.

Thank you, Robert.

Thank you.

Thank you. Our next question comes from the line of David Karnovsky from JPMorgan. Your line is now open.

Hi. Thank you. Matt, you walked through some of the ways your domestic linear networks can be leveraged to drive streaming engagement. Just wondering how you think about that dynamic applying internationally? Where do you think your channel footprint is kind of well-established and aligns with your streaming offerings that you can drive kind of awareness of your product as you launch them? Thanks.

Thanks. Good question. Without identifying any potential markets, I think I would just say that – and it’s quite obvious about the international markets that every year go, it’s a different situation. So, we have territories where we already have a footprint. We have territories where it makes sense to partner with some of the larger platforms. And it’s a game time decision as we look at the market. There is tremendous opportunity out there for us. This is not a part of our business, that has been heavily developed historically. So, there is tremendous opportunity to scale there, and it requires a really custom approach on a market-by-market basis. And I think we are seeing that already, and we will see it more going forward. It is a real priority for us this year and going forward, there is a lot of opportunity for us out there, and we are going to take advantage of it.

It’s a good question, David. The other thing I will say is that our international presence, we do have international presence, as you know, in much of Europe and Latin America. So, from that standpoint, having the boots on the ground is really helpful to have – already have partner relationships, etcetera, local content relationships. So, from that standpoint, it helps support and underpin our international expansion in those markets.

Thank you.

[Operator Instructions] Our next question comes from the line of Steven Cahall from Wells Fargo. Your line is now open.

Thanks. So, Matt and Chris, it sounds like you feel pretty confident in getting to your long-term guidance without necessarily needing to increase your content spend a lot. That’s definitely an outlier from your peers. And you have talked about some of the affinity that you get for content. I was wondering though if you could just talk a little bit about how you see that ramping up. I think what we see in a lot of the peers is that there is a first cohort of super fans who come in and then it plateaus. So, it seems like this is a domestic outlook, it would be tough to get there without increasing content spend. So, is the right way to think about this, that you are going to have a large percentage of those subs that come in on the international side?

Let me just start there. It’s again, a very good question. I think rather than focus on spend, we like to focus on volume and new content that we are delivering. We know we can be more efficient on the spend side. And it’s a hard measurement at the moment because we have seen that you can spend $18 billion on content, and that doesn’t necessarily make you a better business. And our main focus here is on balancing the spend, balancing the amount of content we are offering. And again, one of the things that Chris mentioned earlier is as we produce a great deal of the most new content we have ever produced over the next year. A lot of that content is going to be more cost efficient to spend because where it is in the series lifestyle. We have a lot of series that are coming to an end where we are spending end of series episodic levels of cost. So, there is real efficiencies out there in terms of a lot of the things we are doing. And again, reinforce, particularly on the targeted networks and the targeted streams, we produce at a level that is far more efficient than anybody else out there. So, this is an area we are very focused on. It’s critical to the performance we deliver in the future, and we like our plan.

I would also add that for each service, we do have deep long-term business plans that for each service, we look at the cadence of the refresh rate, what the level of investments for the content, combined with marketing strategy which needs to be a combination of acquisition and retention in terms of how we invest in our marketing. So, we are focused – highly focused on the user experience, what’s the refresh rate. And so at some point, when you just keep throwing money at content, it becomes a point of diminishing returns. I mean granted everybody would love to have 10 hits, we have a lot of hits, we are fortunate to have. But we constantly and closely look at what is the right refresh rate that we will hit the home run for the subscriber growth, have a high generating ARPU and work within our model of our boutique and targeted streaming services approach that, again, we are not trying to be everything to everybody. We are trying to be everything to someone.

Thanks for that. And then just on – as we think about ARPU, I was kind of getting to around $4 of streaming ARPU in the quarter. As we kind of try to project out revenue for a few years, should we expect just the blended ARPU to have some headwind to it just because your mix is going to be more international? You talked about India, I would think that’s a pretty low ARPU market. So, just mix shift, is that going to probably create some headwind to blended ARPU over time as you track towards the guidance?

It’s a great question in terms of the cadence of the ARPU. From where we sit now, I don’t really want to get into specifics about we think it’s going to be x. But what I would say is that, again, I go back to what I said before, for 2021, we didn’t have the content slate at the right level that we wanted. So, now we have the right content slate. We have a healthy level of investment in marketing. You will see our marketing focus will start to shift more from acquisition to retention, which will be important. And then as we grow in international markets, we are at a place now where it’s important that we continue to grow and lean into the growth. So, when you really look at what’s the number one priority, it’s really about growing where we can in a meaningful way to get the highest ARPU generating subscriber that we can and really have profitability across the board for the long-term. And the playbook that we are working with now, it’s unique for each streaming service, but I really feel like we have momentum with that. And so I don’t really want to tie hands with giving narrow guidance on just one of the metrics. But fair to say that last year with the consistent discounting that we did, we want to try to get away from that and really focus on price resilience.

Thank you.

Thank you. At this time, I am showing no further questions. I would like to turn the call back over to Nick Seibert for closing remarks.

Thank you for your interest in AMC Networks. And have a good day, everyone. This concludes the call.

This concludes today’s conference call. Thank you for participating. You may now disconnect.