AMC's First Earnings Show Income up 23%

Advertising revenues rise 21.2%
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UPDATED: 12:15 p.m.ET

AMC Networks, announcing its first financial results as a stand-alone company, reported higher earnings for the second quarter, compared to a year ago when it was part of Cablevision Systems.

Net income was $27.2 million, or 39 cents a share, up 23% from $22.1 million, or 32 cents a share a year ago.

Net revenues increase 12.3% to $292 million. Advertising revenues were up 21.2%

"For the second quarter of 2011, AMC Networks delivered solid increases in net revenues and AOCF [adjusted operating cash flow], driven primarily by the ongoing strength of our National Networks," Josh Sapan, president and CEO, said in a statement.

On the company's first conference call with analysts, Sapan spelled out the company's strategy. "Overall our focus is on investing in original shows to differentiate our brands, to drive ratings, and to provide value to distributors and advertisers," he said. Though only in the original programming business for a short time, the company's networks have come up with such award winning series as Mad MenBreaking Bad and The Walking Dead.

Sapan added that AMC was looking to own more of its programming in order to cash in on digital and other rights.

"Our goal would be ideally to maintain the sort of risk profile we have from an investment point of view, and to increasingly have control over ancillary rights that come with great ownership," he said. "So that sounds like having your cake and eating it too. We think there may be ways by degree to accomplish that. so where we can we'll own more rights, if we think it's prudent."

AMC, which completed its spin-off June 30, said its national networks, which include AMC, WE-TV, IFC and Sundance Channel, had adjusted operating cash flow of $117 million, up 7.4%.

Revenues were up 10.5% to $266.7 million.

The company said the revenue growth was led by ad revenue gains at AMC and WE-tv.

Next quarter, the company will have only one original show on the air, Breaking Bad, compared to the previous year, when it aired Mad Men and Rubicon. Analysts thought that might affect third-quarter ad revenues.

AMC Networks said it had a good upfront in what was generally regarded as a strong market.

"We saw double-digit increases for WE-tv. As I understand where the market was, probably at the top end of the market," Sapan said. "On AMC, we had strong double-digit increases and very, very, good response to our original shows. It was a good upfront both in terms of price, volume and diversity of advertisers."

The company sold about 40% of its inventory by volume in the upfront, consistent with past upfronts.

Affiliate fee revenue increased 3.8%.

Some of AMC Networks' affiliate deals are up at the end of 2012, and one analyst asked if the company planned to sacrifice margins by increasing programming and marketing spending in order to get ratings up in hopes of earning higher affiliate fees.

"I don't think it really operates on a month-by-month, or three-month basis or six-month basis. I think the importance of AMC is established on a multi-year basis," Sapan said. "And these expirations generally occur a couple every year, so it's part of the fabric of our business."

Negotiations over one of AMC's award winning shows, Breaking Bad (produced with Sony), has reportedly grown contentious, with Sony contacting other networks about their interest in the series. When asked about Breaking Bad, Sapan said "we very much like the show . . . we're actively working on a new arrangement with them. We're hard at work on it as we speak . . . we're hopeful to have resolution very soon."

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