AMC Networks Inc.
Q2 2016 Earnings Call Transcript

Published: 5 Aug 2016

[Operator:]

Good morning. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to the AMC Networks' Second Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I will now turn the call over to Seth Zaslow, Senior Vice President, Investor Relations. Please go ahead, sir.

[Seth Zaslow:]

Thank you. Good morning, and welcome to the AMC Networks' second quarter 2016 earnings conference call. Joining us this morning are members of our executive team

[Joshua W. Sapan:]

Thank you, all, for joining us this morning. AMC Networks' strong start to the year continued in the second quarter with double-digit growth in net revenues, ad revenue, and AOCF. Our financial results were driven by our continued focus on a few long-held strategic priorities

[Sean S. Sullivan:]

Thanks and good morning. As Josh highlighted, our results in the second quarter were strong. The company delivered double-digit revenue in AOCF growth and generated healthy free cash flow. For the six months ended June 30, total company revenue grew 10% and AOCF increased 11%. We're optimistic about the outlook for the full year 2016 and I'll touch on that after reviewing the second quarter results. In the second quarter, total company revenue grew 14% and AOCF grew 10%. Our financial results in the quarter were essentially in line with the expectations we communicated on our last earnings call in early May. So moving to our operating segment performance. At the National Networks in the second quarter, revenues increased 17% or $84 million. National Networks AOCF increased 13% or $24 million versus the prior year period to a total of $206 million. Advertising revenues increased 29% to a total of $239 million. As expected, results in the quarter were quite strong and benefited from the timing of our originals, most notably at AMC versus the prior-year period. AMC, the channel, had a particularly active quarter, airing the season finales of both The Walking Dead and Better Call Saul, as well as new episodes of Fear the Walking Dead, Preacher, and Night Manager to name just a few. This programming lineup more than made up for the absence of Mad Men, which aired its final episodes in the prior year period. Advertising across the rest of our portfolio of domestic networks, BBC America, IFC, Sundance, and WE tv was, in aggregate, quite strong as we took advantage of a healthy scatter market. Distribution revenues at the National Networks increased 10% or $30 million to a total of $333 million versus the second quarter of 2015. Affiliate fee growth for the quarter was in the mid-single-digit range, consistent with the expectations we highlighted on our last call. Distribution revenue growth for the second quarter also reflected a strong double-digit year-over-year increase in non-affiliate revenues due principally to revenues related to the licensing of our scripted original programs, most notably Fear the Walking Dead on various ancillary platforms. The timing and recognition of these items was in line with the expectations we discussed. Moving to expenses, total expenses increased 20% or $60 million versus the prior-year period. As expected, expenses in the quarter reflected the timing of originals. Technical and operating expenses increased 25% or $48 million compared to the prior year period, to $240 million. The increase in tech ops reflected the continued investment in programming as well as the various rights that we have in our shows. As for programming write-offs, we recorded $1 million in charges in the current quarter as compared to $4 million in the prior-year period. SG&A expenses increased 12% or $14 million compared to the prior-year period to $135 million. The increase was principally related to marketing costs, which reflected the timing of originals most notably, at AMC. Moving to our International and Other segment. Revenues for the second quarter increased $5 million to $118 million. AOCF for the second quarter decreased $1 million to a total of $8 million. The timing and amount of some of the various revenue expense items in the quarter at our International Networks business resulted in modest upside of approximately $3 million to $5 million relative to the expectations we outlined in our last earnings call in early May. At our International Networks, reported revenue increased $8 million over the prior-year period due to a healthy increase in both distribution and advertising revenues, which more than offset a $3 million negative impact from foreign exchange. On a constant currency basis, our International Networks delivered double-digit revenue growth over the second quarter of 2015. AOCF at our International Networks was essentially flat year-over-year, reflecting the increase in revenue offset by an increase in expenses as we execute on the strategy Josh articulated. Foreign exchange did not have a meaningful impact at AOCF at our International Networks. At our IFC Films business, revenues decreased as compared to the second quarter 2015 due primarily to the absence of ancillary revenue from the theatrical film, Boyhood. AOCF for the quarter increased modestly year-over-year due to a decline in expenses principally related to prior-year marketing. Lastly, within the International segment, second quarter results included a modest year-over-year increase in investment in connection with our various digital initiatives. Moving to net income, total company net income for the second quarter was $77 million or $1.05 per diluted share. As detailed in our earnings release, included in this amount was $24 million of charges related to foreign currency transaction losses on an intercompany loan. Excluding these charges, diluted EPS would have been $1.28. Excluding the impact of amortization of acquisition-related intangibles, adjusted EPS for the second quarter was $1.14 per diluted share on a GAAP basis and $1.37 per diluted share excluding the charges related to foreign currency. In terms of free cash flow, the company generated $196 million in free cash flow for the six months ended June 2016. Through six months, cash interest was $69 million, tax payments were $75 million, distribution to non-controlling interests, primarily related to BBCA, were $9 million, and capital expenditures were $24 million. Program rights amortization for the six-month period was $373 million and program rights payments were $466 million, resulting in a use of cash of $93 million. This compares to the use of cash for programming of $69 million for the prior-year period. Turning to the balance sheet. As of June 30, AMC Networks had a net debt position of $2.4 billion. Our leverage ratio based on LTM AOCF of $885 million was 2.7 times, unchanged from the first quarter of the year. As disclosed in our press release, the company repurchased $48 million worth of stock during the quarter and an additional $27 million subsequent to the end of the quarter. This represents approximately 1.3 million shares at an average price of $58.49. As of last Friday, the company had $425 million available under its existing authorization program. The company also made a mandatory payment of $37 million on its credit facility in the second quarter. We are required to make similar quarterly payments throughout 2016 as per our credit agreement. In terms of capital allocation, our primary focus remains investment in our core business as we believe this will allow us to continue to grow AOCF on a sustainable basis. We'll continue to be disciplined and opportunistic in our use of capital for repurchases and/or non-organic investments. Looking ahead, we remain optimistic about the outlook for the company's performance and our full year expectations are pacing to be on track with the targets we set coming into the year. At our National Networks, we expect to deliver healthy revenue in AOCF growth for the full year. And we continue to anticipate managing the National Networks business to a margin that is largely consistent with the 2015 level. With respect to our quarterly performance, our results were expected to be impacted by the timing of our programming lineup. We anticipate tougher comparisons in the third quarter and more favorable results in the fourth quarter, putting the year in aggregate in good shape. At the National Networks, we expect our advertising performance in the third quarter to be relatively flat year-over-year before accelerating in the fourth quarter as price increases are anticipated to mitigate headwinds from ratings. With respect to distribution, we expect non-affiliate revenue to continue to deliver strong double-digit growth due to the amount and timing of our content. One the cost side, we expect our results to be impacted by the timing and mix of our originals. In the third quarter, we anticipate the rate of expense growth on a year-over-year basis at the National Networks to remain generally consistent with the rate of growth we experienced in the first half of the year. At our International and Other segment, assuming a constant currency, we expect revenue in AOCF to be relatively flat year-over-year on an absolute basis as growth at our International Networks is offset by timing at IFC Films and continued investment in our OTT digital initiatives. So, overall, we feel good about how the business is positioned as we look ahead. So, with that, I'd like to move to the question-and-answer portion of the call. Operator, if you could please open the call to questions.

[Operator:]

Sure. And your first question comes from Michael Morris of Guggenheim Securities.

[Michael Morris:]

Thank you. Good morning, guys. Two questions for you. The first one is on Hulu. Josh, you mentioned that you expect to be part of new opportunities and I'm curious if you'll comment on your expectation for being included in the Hulu virtual MVPD service and whether your relationship on the SVOD side has any impact on a relationship on a linear product with them? And then – well, let's just start with that and then I'll ask my follow up.

[Joshua W. Sapan:]

Oh. Sure, Mike. So just by way of background, as you know, we are part of Sling. We thought that was a good initiative on behalf of DISH and so were participants in it. We are a part of Sony Vue, so we do think in general that being able to access our brand and contents on reconfigured platforms that come from conventional and less conventional aggregators and retailers is a good thing. Hulu, as you know, we do have an SVOD relationship with Hulu, so we enjoy proximity and ongoing commerce with them and I think it's been a fluid and very healthy and happy relationship. As you might imagine, we're in regular conversation with them. I think their business and their plans are being formulated, we read of something just a couple of days ago that included Time Warner. So I wouldn't want to comment specifically, I would just say that we're close to the company. We believe in and support what they're doing and we look forward to a future sort of with them if it all works out.

[Michael Morris:]

Great. Thank you for that. And then my second question is on your mix of owned versus licensed shows, a topic we speak about frequently. It feels that you're moving more toward owned, however the two most recent series on AMC, Preacher and Feed the Beast were licensed. I guess my question is twofold. How are you thinking – how should we think about going into next year what your mix of owned versus licensed programming will look like? And maybe more broadly, are there things that you are doing or need to do behind the scenes that maybe we don't appreciate but that better position you over time to own more of your slate? Thanks.

[Joshua W. Sapan:]

Sure. I think you've pretty much got the picture. What guides us and has guided us over the past several years has been a bias, as we call it, to own. And the bias to own is because in success, the rewards are – they're greater, like, so Walking Dead, Fear the Walking Dead and other shows that we own, we're able to control the rights to exploit and enjoy revenues from a growing series of opportunities both domestically and internationally. What we have said to ourselves very clearly and what we've done is we have, I wouldn't call, it made exceptions, but we have gone with non-owned, licensed or co-produced. There is a spectrum of ownership. It is not binary. It's not like you own it or you rent it. You can, to use real estate parlance be a co-owner and you can sort of do all sorts of variations in which you share in ancillary rights. And what occurs, perhaps very obviously, is that your cash upfront moves with those spectrum of rights. So if there's creative material that we think is very strong and we can make financial arrangement that we think is sane and appropriate, then we will go forward with it. We co-produced The Night Manager with the BBC. We're very pleased with the creative material. We're very pleased with the performance. And we think the financial arrangement was good for them and good for us. So we'll continue to do those deals as they come up, with a bias to own. I don't know what the number of shows that we own today in AMC Studios, it's well upwards of 10 or 12 that we're currently producing. So it's a pretty big factory which creates a whole series of options and it creates a growing library. So we end up having broadly studio qualities, as well as channel qualities in our company, by which I mean we're an IP owner and controller. And that's both good, and it comes with certain, as you know, vagaries – the vagaries of performance. So we, having come from a channel history, probably have a slightly more defined and disciplined financial orientation to our participation in owned production because it can succeed. And as we all know, it cannot succeed. So that's a very long answer to your question. We have two significant series coming up that you may or may not have heard about. One is called The Terror, which is – and the other is called The Son. And I can tell you what the log lines are. The Terror is a mid-19th century trans-Atlantic ship that gets stuck in the ice way up north and then there are supernatural qualities that come into the story. It's based on a great piece of primary material. And we own that. And there's another thing also from a book called The Son, which is a multi-generational, you could call it, western. But it's more than western. It really goes into larger stories about family and multi-generation, international and ethnicity. And we also own that. So we have a big bias to own where we can. But we don't exclude opportunities if the creative is very strong. The behind the scenes it's not mysterious. It is really just deal. What are the economics? How at risk are we? What spectrum of rights do we get? And what's the risk and reward look like? That's pretty much the story. Not terribly complicated.

[Sean S. Sullivan:]

And Mike, this is Sean. Just to punctuate a couple of things that Josh said. Again, ownership is not a binary thing. Every deal is different. So there are shows that we are co-production partners that may appear to be licensing relationships where we actually do control certain ancillary rights. And we have the ability to monetize those. We obviously don't necessarily articulate the nature of every deal but I would just highlight that it's not necessarily black and white and every deal we are negotiating for a set of rights at a certain price.

[Michael Morris:]

That's helpful. Thanks, guys.

[Operator:]

Thank you. Our next question comes from Anthony DiClemente with Nomura.

[Anthony DiClemente:]

Great. Thanks and good morning. First, for Sean or maybe Ed. On the expectation for flat domestic ads in the third quarter, I'm just wondering to what extent is it the tough comps year-over-year as compared to ratings underperformance versus your internal expectations for the new shows? To what extent is strong pricing making up for some of that potential underperformance? And then to what extent is the Olympics a factor in your third quarter expectation? And then a follow-up for – a question for Josh. I think you did something creative with Preacher where AMC made the first five minutes available to watch on Snapchat before it aired on the network. Do you expect to do more of that? You know, how did it go? And then more broadly when you look at some of these technology platforms, like Snapchat, like Apple. Apple is buying content for the first time. Like Amazon. Amazon is doubling its spend on content in the second half of the year. Josh, are you surprised that there haven't been more business partnerships with the big tech platforms or even acquisitions of media companies by those big technology players. Thank you.

[Joshua W. Sapan:]

Maybe I'll take your second question first if you don't mind. We have a long-held view – have had a long-held view, Anthony, that platforms that one can think of as competitive are often better thought of as companions and opportunities. And so we are really always on the lookout for how we can find an emerging or established platform or exhibition enterprise to partner with. And I can list a whole range of things we've done that at the time were sort of novel. The first company to put movies on cable, VOD, and in theaters the same day and time. We did a movie and a mini-series. And we did the TV mini-series before we release Carlos as a movie and it won a Golden Globe and it was a successful movie. So we're actually intrigued by the manner in which companionship with newer platforms like Snapchat particularly, and others can elevate through sampling and attention and promotion what we're doing which is rather expensive long-form serialized drama for the most part. So they are, I believe, and I think we believed inherently great promotional partners. And just one more element in my long speech and I'll try and turn it over to Ed, it is also the case that younger people, as we know, are not watching one screen only. They're on two screens almost all the time and sometimes three, and so to ignore those screens is silly. We think that there is super-rich opportunity and so we did the Snapchat thing. We liked it. We actually are percolating, as we speak, several new ideas. They're in stages of development about how we can lead the exploitation and the sort of invention of the manner in which people move and find content from mobile platforms to fixed TVs that are attached to walls to screens that are sort of mid-size commonly called tablets that they carry around and how they would like to follow their characters. And so we did something with AMC which actually was fairly notable. We did short form that got picked up from The Walking Dead and we are currently probably running after about six new ideas. So long speech, we love it. We think it adds to what we do when we can be partners with those entities.

[Edward A. Carroll:]

Right. So, Anthony, it's Ed. Right. On the second half of the year – well, at third quarter, we have some unfavorable comps in terms of the number of original scripted hours. We also, as you know, there are macro influences that are making ratings more difficult to achieve across pay TV and broadcast TV. In the fourth quarter, we really see the benefit of this upfront where we're able to drive favorable pricing, double-digit price increases on AMC and we think that will offset some of the headwinds on delivery so that's really the outlook for the second half.

[Anthony DiClemente:]

Okay. And then I guess the other questions were can you concede, I mean, have ratings fallen short of your internal expectations for some of those originals? And then also the question about the Olympics. I mean is that, that's just something that people have called out for the third quarter as a competitive headwind. Is that relevant for AMC?

[Edward A. Carroll:]

Not particularly. I mean the Olympics, we certainly know they're there. We know they're happening and we anticipated them. The scatter market continues to be healthy. Our internal estimate, I think we do a good job estimating. We certainly gauge the performance of our original series. We look at their track records. I think we're realistic and that gives us the best ability to monetize the impressions aggressively. We have – I think the theme with advertisers is AMC has what is increasingly a rare commodity, which is a large audience of 18 to 49 year-olds, particularly with a male concentration which outside of sports you don't see in abundance on pay cable. That gives us the ability to be very aggressive with advertisers on pricing because the market demands. In this upfront, the demand for our original content was as high as we've ever seen it. So we feel good about the overall.

[Anthony DiClemente:]

Good. Thanks a lot.

[Operator:]

Thank you. Your next question is coming from Michael Nathanson of MoffettNathanson.

[Michael B. Nathanson:]

Thanks. I have one for Josh and one for Sean. Josh, I'm going to start with you. Many of your competitors, like, Fox, Turner, Viacom, have said they're going to cut commercial loads this year. And given that your commercial loads are lower at AMC than any of its peers, could you talk a bit about your view on commercial clutter and the willingness to increase commercials if ratings falter in the next couple quarters.

[Joshua W. Sapan:]

Yeah. I think you probably said it, Michael. We are substantially lower than some of the entities that indicated that they were going to decrease their loads. So we think we've been mindful, I hope, from the start about what commercials do and don't do to the type of content that we put forward. And I think we have and we do study it as well as we can, I think we've hit at right levels. And we monitor it pretty carefully for the consumer experience and, of course, to maximize revenue and, of course, to have promos as well because it's a good platform for our own promotion of shows. So we think we're at the right level. Anything that we adjust or move, we move with extraordinary care because we think that the consumer experience is primary to what we do, we are asking for the allegiance of consumers to come back to us and have a good experience, and we're also, frankly, mindful of commercial-free competitive alternatives today. When people go home they can flip much more easily than they used to streaming SVOD services that are commercial-free or commercial-light. So we think we got it right. We move it around only teeny bits and with great care and we think we, sort of at least today for the foreseeable future, are at the right load.

[Michael B. Nathanson:]

Okay. And then for Sean. There was a press report of buyouts offered for about 200 of your employees. Could you talk a bit about whether or not that was true and what the cost savings would be if that actually happened.

[Joshua W. Sapan:]

Sure, Michael. This is Josh. Yeah. So we are, that is occurring in the company, and we're in the midst of it. And we think it's an opportunity to reward people who may be at a point in their careers with us when it's time for them to – when it's a good time with a reward to depart. And we're actually in the middle of it, as we speak. We think it's a good undertaking. We hope that it would be, and is being, well received by the people who are here. And we think that we – we hope we accomplish a few objectives. One is that we are able to be more efficient and be financially better structured. Along with it, we'll undertake some – we'll look at some modest structural changes that set us up for the fact that our world is today more digital than it was in the past. And we'll have a better organized company. We haven't done that, but we've done cost examinations. And we've had some changes in each of the past, you may note, couple of years. And we've reported some restructuring charges. So I think it's part of the evolution of a media company in today's world.

[Michael B. Nathanson:]

Okay. Thanks.

[Operator:]

Thank you. Your next question comes from Todd Juenger of Sanford Bernstein.

[Todd Juenger:]

Oh, hi. Thanks. I've got one for Sean and one, I suspect, for Ed. Sean, a couple of your peer companies have made changes to their program amortization recently. Actually going in different directions. So at least one company we know has accelerated their program amortization saying that program has a shorter useful life than it used to. And then we learned yesterday somebody else is going the other way and saying program's longer life. So I just wondered. You have your own very specific way of amortizing owned and acquired programming. Are you exploring that? Do you think there's any changes to the useful life generally for your programming? Anything we should think upon that? And then, Ed, probably for you. You've talked about a rare commodity that you have the liberty of taking to the marketplace which is sizable audiences of people inside original programming. One thing that's less rare is original programming generally. So if you think about, I'm just curious the discussions with advertisers and the pricing you agree upon for your inventory. Part of that I think you used to get a pretty good premium just because of the premium environment that originals provide for advertisers. And part of it is the size of the audience. Is it fair to say that with all of the investment across the industry in originals, it's not so rare anymore? Is the discussion changing? Is it harder to get premiums associated with originals because that's a less rare thing and is it turning more and more to just to the size of the audience or anything you'd share on that would be very helpful. Thank you, both.

[Sean S. Sullivan:]

So, Todd, on your first question, just as a blanket statement, we evaluate the vitality, utility, useful life of our programming on a quarterly basis so that's something that we have done and will continue to do. As it relates to play patterns, that certainly factors into repeatability and audience factors into our evaluation. As you know, we use an ultimate method of accounting in terms of revenue attribution for our owned originals. So, as some of these ancillary revenue streams have emerged, evolved, and increased, and whether that's SVOD or international distribution of the show, we're attributing the expense against those in the play pattern of the shows. So I don't think that you're going to see a dramatic change in it. I can't comment specifically. I'm familiar with the two references you've made about our peer companies but we think what we're doing is very appropriate. And at the same time, we'll continue to evaluate it on a quarterly basis.

[Edward A. Carroll:]

So, Todd, this is Ed. On your question about getting premiums, a couple of things to think about. One, in this upfront, we saw our money flowing into the upfront and we saw many marketers who had allocated large portions of their budget to digital in prior upfronts moving back to television because they felt that they could track the success of those advertising dollars. So we just saw a robust demand generally in the marketplace. Then I would say specifically keep in mind with hit shows or shows that are perceived as hits, those that appear on some of the SVOD platforms are outside the advertising ecosystem. So there are no impressions there to be sold. So then you go to television and that's where a show like The Walking Dead really stands out because it's the number one show on TV among 18 to 49 and it has about – its nearest competitor has about 40% less viewers in the demo. So a hit like that stands out. And then Josh talked about in his remarks AMC enjoying roughly a third of the 18 to 49 impressions against dramatic series. We have five of the 10 top dramatic series. So that's a long windup to the short answer, which is, broadcast replacement premiums and the ability to raise pricing certainly present in this upfront and AMC and the other networks were able to enjoy it. Also demand for originals like Orphan Black and Doctor Who as well saw very healthy increases.

[Todd Juenger:]

Okay. Thank you.

[Operator:]

Thank you. Your next question comes from Vasily Karasyov of CLSA.

[Vasily Karasyov:]

Thank you. I have a two-part question. I think it's for Ed and Sean. So if we look at your first quarter results in National Networks and do the math on apples-to-apples terms, I think your advertising revenue growth was much better than the reported 1%, right? And that's because of the inventory management, and that was despite the average decline for The Walking Dead ratings of 15%. So if we take into account what we know now about the upfront and about expected ratings, is your ability to grow advertising revenue on apples-to-apples terms enhanced since Q1 given the advertising market conditions now? And then I have a quick follow-up.

[Edward A. Carroll:]

I think we're just going to say what we've already said. I'll restate what we said about the outlook. We feel good about the second half of the year. We feel good about the upfront. We feel good about our pricing. I think we have good estimates that really take into account the recent performances of all our shows, the new ones that are among the top shows in cable as long as the ones that have been around for a number of years. I don't think we'll go much beyond that.

[Vasily Karasyov:]

Okay. And then a quick along the same lines. The pricing between The Walking Dead and Fear the Walking Dead, Hulu and Netflix. Is that predicated on ratings at all? And could you give us an idea of how comparable per unit prices are for the two shows?

[Joshua W. Sapan:]

This is Josh, Vasily. We're not really at liberty to get into the details of our SVOD arrangements. So if you don't mind, I'm sorry. We can't sort of tell you how they're all priced. They're private commercial contracts. So I don't have – I can't answer your question directly. I can, I guess, say that they're probably, in general, broader and less specific. And the companies have long-term relationships, meaning we do with Hulu, and multi-show, multi-year relationships. So just want to give you a flavor for how we engage with our SVOD partner and past partner.

[Vasily Karasyov:]

That helps. Thank you.

[Operator:]

Thank you. Your next question comes from Ben Mogil with Stifel.

[Benjamin Mogil:]

Hi. Good morning. Thanks for taking the question. So two questions. First one. In terms of the TV environment, clearly there is a lot more competition than there was just a few years ago in terms of number of original scripted and that's been well discussed. Maybe talk a little bit about when you're sort of launching programming more on the marketing and promotion of it, how your approach of this change, say, since you launched Mad Men or Breaking Bad which were kind of the dawn of this new era, if you will?

[Joshua W. Sapan:]

Sure. I think maybe I can answer and Ed might want to chime in. I think it is a more, as people would like to say, cluttered environment. There are more options. And there are particularly more scripted drama options. So the world has changed since Mad Men. What I think is interesting is that an issue that has undergoing evolution, I'll just start with this, is the importance of brands, which is not a specific question about whether one is spending $3 million, $5 million, $8 million or $10 million to launch a show. It really has to do with something that we're beginning to see more of, and that is that consumers who have new interfaces in their homes, and we know what the interfaces look like on SVOD, but the interfaces from the MVPDs are becoming better and better by the day. So if you're on X1 or if you're on Spectrum, you really have something that looks, now, enhanced. And it has great facility. It didn't used to have that sort of facility. And what we've been seeing with our MVPD partners, this sounds like not an answer to your question but it really is important, is that people are going in the front door of those MVPD stores, if you will, and they're going in through brand tabs. And so, I don't know how long that will continue, right? Whether it is a trend that it's emerging and is a consequence of the rapid improvement of those interfaces from MVPDs, but it sort of makes sense right? If there's so many gazillion options out there, where do you go and how do you filter? And intuition would say, well, you sort of filter with the brands or channels that have reliably delivered things to you in the past. And so if that's true, then a couple of things matter a lot. One is that you have momentum from your existing programs and you have reputation and legacy so that you have reliability, and I hope I don't brag when I say in the last 18 months, while having The Walking Dead, which is a killer platform to promote, the AMC Channel has introduced the following TV shows

[Benjamin Mogil:]

That's very helpful. Thank you, Josh. And then one more. I'm not sure for Sean or for Ed. In terms of how you ended the quarter, I'm not sure if you in the past have given the make-good balance. I'm not sure if you want to give it now. Maybe sort of talk about whatever the make-good balance was and maybe put it in some kind of context either against, say, where you ended 1Q or where you ended 2Q of last year?

[Joshua W. Sapan:]

Yeah, Ben, we're not going to publish it here on the call. I think what I will say is we're very comfortable with the balances, we're very comfortable with the team that's doing the inventory planning and pricing and management of that and we feel we're in just a fine shape.

[Benjamin Mogil:]

Okay. Great. Thank you very much.

[Seth Zaslow:]

Operator? Why don't we take one last question please?

[Operator:]

Sure. Your final question is coming from Ryan Fiftal with Morgan Stanley.

[Ryan Fiftal:]

Great. Thank you and good morning. I have one on the affiliate revs side and then one on the cost side. So, first, Sean, maybe clarification on your 3Q guide. I think you mentioned strong double-digit growth. Was that for distribution revenues in its entirety? Or was that just the content licensing piece of that?

[Sean S. Sullivan:]

That was primarily the content licensing.

[Ryan Fiftal:]

Okay. And then can you help us, since affiliate revs are part of that, can you help us think about, again, the impact of the MVPD consolidation in the back half or next year? Are we already seeing some pressure from contract resets now? Or are they still to come? And should we think about those as like 2017, 2018 events? How should we think about that?

[Joshua W. Sapan:]

Yeah. So I think I would say a couple things, if I may. This is Josh. I think consolidation has been part of our lives now for not a year or two, but probably five years or eight years. But it increases. And with it comes what we've seen over our renewals over the past several years, which is there's some increased pressure in the system. And we, I think, over the last several years have had probably a pretty good time operating in an increasingly consolidated world. I think you're well aware of what our rate of increases has been against that backdrop. And I think it's because, if I may, I think while size matters on the supplier side, meaning us, I think price matters and I think we're well-priced and I think potency matters most. And I think we had the material that is important to the consumers of these retailers, and they have ultimately valued it. We're currently not in a period where there's heavy contract renewals upon us; big ones we had a few in the past year, so that's not upon us. So we have some activity occurring from recently consummated deals, and then we'll have renewals that will occur that will get heavier, but they're staged and calendarized, I hope, well in the years as we go forward. So we'll have to take each of those pieces as they come.

[Ryan Fiftal:]

Okay. Thanks. And then on the cost side, Sean, maybe a wonky one on amortization to end the call, but I think it was announced TURN was renewed for a fourth and final season. So do you have capitalized costs still on the balance sheet for the first three seasons? And if so, how would those get amortized for a show that we know has a finite life going forward? Thanks.

[Sean S. Sullivan:]

Sure, Ryan. So that's – TURN, as you point out, is a known show. It will reach its season finale. It is a show that we do ultimate accounting and the revenue attribution model for, so the good news is there is a significant portion of the amortization is usually realized in the first two years of its airing, so there are costs that are on for prior seasons but again guided by the ultimate model.

[Ryan Fiftal:]

And then do those costs then get accelerated if you only have one season left versus if it were, say, indefinite continuation?

[Sean S. Sullivan:]

No. They don't get accelerated. There are dollars still on the balance sheet related to that show. It's because there is a revenue monetization that is occurring in current or future periods and/or we have a play pattern on repeats, et cetera, that justifies the carrying value of the asset.

[Ryan Fiftal:]

Okay. Thank you.

[Joshua W. Sapan:]

Thanks.

[Seth Zaslow:]

All right, well, thank you, everyone, for joining us on today's call and for your interest in AMC Networks. Operator, you can now conclude the call.

[Operator:]

Thank you. This does conclude today's conference call. You may now disconnect.