AMCX Says Its Own VOD Strategy Is ‘Heretical,’ but That’s Cool

Execs defend Chellomedia purchase after downgrade

AMC Networks delivered lower-than-expected earnings on Thursday, announcing that it wouldn't be discussing the Chellomedia purchase in much detail on the call (the company agreed to buy the international TV distribution company from Liberty Global last week). But advertising for the quarter was up by more than a third (36.3 percent) to some $146 million, and distribution revenue saw an 11.4 percent bump to $221 million.

Ed Carroll, the company's COO, said the networks could look forward to increased revenues along both lines because of high-visibility contracts negotiated for the networks other than AMC proper: "As a consequence of recent MVPD deals, we've enjoyed universe growth, particularly on Sundance, WE and IFC," Carroll said. "That's another way that we're able to use the leverage of the hit series, not only for increased rates, but for increased exposure for all of our networks."

Carroll and others fielded plenty of questions on the topic of AMC's unorthodox VOD strategy, which Josh Sapan happily admitted was "heretical" by most industry standards. Sundance's well-regarded drama Rectify, for example, premiered on VOD before it ever made it to cable boxes. "When you have propriety, you don't give something away before it occurs, that's anathema," Sapan said. "[But] we gave it away before it occurred because we felt that the word-of-mouth stimulated by the consumption of it and, frankly, the time and attention required would benefit the actually linear exhibition. And we think we were redeemed."

The purchase of Chellomedia was a hot topic among questioners, despite Sapan's warning at the top of the call, notably Rich Greenfield, the BTIG analyst who downgraded the company's stock rating on the news of the acquisition. "We were very, very attracted and have been to all the things that brought us to the Chellomedia acquisition, and they include the fact that the business is a good business today," Sapan told Greenfield. Sapan cited "strong cash flow characteristics," and "reasonable margins" as justification for the pricey acquisition. "The balance of the allocation of capital is something that we consider with great care," he said.

The company also cited a $3 million programming-related write-off, which wasn't elaborated on. Interestingly, another company that had been in the running for the Chellomedia acquisition—Scripps Networks Interactive—had its earnings call today as well, and chairman, president and CEO of Scripps Ken Lowe dealt with more than one analyst who wanted to know why the company had passed up the opportunity to expand internationally. Chello, he said, was composed of "a large collection of things, some of which are more attractive than others," but the value for Scripps wasn't there. "When you put it all together, we could not get to the value they were looking for," he said.