Will AMC Profits Come Back Up After Its Spat With Dish?

Newly resolved dispute dings cable network's margins

After more or less telling investors to batten down the hatches last quarter, AMC Networks has come back with the news it expected: Earnings were down last quarter due to the company's protracted carriage dispute with Dish Network. The smackdown appeared to hinge on the settlement size of an unrelated lawsuit. After unceremoniously dropping all AMC offerings as soon as its contract expired earlier this year, Dish refused to negotiate with AMC at all. Then, when the end of the suit neared, Dish appeared to leverage its 14 million subscribers against the mammoth settlement it ultimately agreed to pay AMC in the suit over Voom HD.  AMC's networks are now back on Dish, and the lawsuit is over.

A jury verdict in the Dish case was widely regarded as a losing proposition for the satellite operator after a judge reprimanded the company several times for offenses as serious as destroying evidence; but the expected billion-dollar settlement ended up costing Dish only $700 million. The settlement (between Dish and AMC subsidiary Voom HD) and the new carriage agreement (between Dish and AMC) were announced simultaneously.

Perhaps surprisingly, second-quarter earnings were just fine for AMC, but that didn't stop CEO Josh Sapan from correctly predicting a leaner Q3. True, AMC's year-over-year comparisons get a lot tougher with 14 million potential Walking Dead viewers missing the blockbuster show, but the victim wasn't advertising. It was license fees.

"While the litigation and associated carriage dispute impacted our third-quarter financials, that issue is behind us, and we are fully focused on continuing our strategy of investing in quality original programming," Sapan told investors yesterday.

Better carriage agreements should be much easier to come by now that Dish has returned to the fold and The Walking Dead has landed huge numbers—an even more impressive feat considering that Dish was AWOL during Dead's record-breaking premiere. Ad revenue increased 9.1 percent to $107 million primarily because of demand at AMC. If you think that had to do with AMC's ratings record, you'd be dead right.