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AMC Networks Inc (AMCX -1.48%)
Q2 2019 Earnings Call
Jul 31, 2019, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning. My name is Jacob, and I’ll be your conference facilitator today. At this time, I would like to welcome everyone to the AMC Networks Second Quarter '19 Earnings Release Conference Call. [Operator Instructions] Thank you. I will now turn the call over to our host, Seth Zaslow, Senior Vice President of Investor Relations. Sir, the floor is yours.
Seth Zaslow -- Senior Vice President of Investor Relations
Thank you. Good morning and welcome to the AMC Networks’ Second Quarter 2019 earnings conference call. Joining us this morning are members of our Executive Team, Josh Sapan President and Chief Executive officer; Ed Carroll, Chief Operating Officer; and Sean Sullivan, Chief Financial Officer. Following a discussion of the company's second quarter 2019 results, we’ll open the call for questions. If you don't have a copy of today's earnings release, it is available on our website at www.amcnetwork.com. This call can also be accessed via our Website. Please take note of the following.
Today's discussion may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of the future performance or result and involve risks and uncertainties that could cause actual results to differ. Please refer to the company's filings with the Securities and Exchange Commission for a discussion of risks and uncertainties. The company disclaims any obligation to update the forward looking statements that may be discussed during this call. Further, we will discuss non-GAAP financial information. We believe the presentation of non-GAAP results provides you with useful supplemental information concerning the company's ongoing operations and is appropriate in your evaluation of the company's performance.
For further details, please refer to the press release and related footnotes for GAAP information and a reconciliation of GAAP to non-GAAP information, which we will refer to on this call. With that, I would now like to turn the call over to Josh.
Josh Sapan -- President & Chief Executive Officer
Good morning and thank you for joining us. We delivered solid results in the second quarter and I'm pleased to say we remain on track to meet our financial targets for the full year. We continue to deliver on our key financial objectives, including growing adjusted operating income, generating strong free cash flow and using our capital to position the business for the long term.
As we've discussed on prior calls, AMC Networks’ strategic priorities have been and continue to be creating great content, maximizing the long term value of our traditional linear business, and diversifying our revenue by developing new avenues of content monetization, through our expanding studio as well as our growing direct-to-consumer interests.
Later on in the call, I'll take the opportunity to provide more dimension on our direct-to-consumer reference, including details around both our evolution and overall strategy in this area. I'm pleased to say we continue to make significant progress on these goals in 2019. Our content highlights include our recently announced landmark partnership with Universal Studios for the first-ever theatrical movie set in The Walking Dead Universe.
And our very strong showing when Emmy nominations were announced earlier this month, including having two out of the eight outstanding drama nominations for Killing Eve and Better Call Saul in a year that had the largest group of submissions ever. We've managed advertising in a difficult comp environment and have a strong upfront driven by high demand for our shows with very strong increases in pricing. And we continued to grow our direct-to-consumer services, adding the most D2C subs over a 6-month period that we ever have.
I'd like to begin by expanding on our content highlights, if I may. At our core, AMC Networks is a premium content company with a reputation for excellence and a long track record of creating culture defining hits and this year has been no exception.
Our celebrated programming runs the gamut from the phenomenally successful Killing Eve, which doubled its audience for its second season, to WE tv’s unscripted original series called Love After Lockup. It's become a cultural phenomenon which is driving that network's year-over-year double digit ratings increases in its key demo.
The Emmy-nominations I just mentioned brought us wide recognition with nominations for four of our five networks as well as our streaming service Acorn TV. Our first foray into high quality, short form content, a series called State of the Union, broke through to receive three nominations for best short form series, as well as for actors Rosamund Pike and Chris O'Dowd. This recognition affirms AMC Networks as a company whose shows in all different formats ignite all of our constituents, most importantly, consumers, at a time that is more crowded and competitive than ever. We're extremely proud that in an era of billion dollar content budgets, that's been informed by what some call the streaming wars, we’re able to continue to stand out by incubating and developing shows that land extremely well in the broader culture. Killing Eve, for example, is a show we commissioned internally, and is a great example of the importance of strong content development and vision in a world that is sometimes preoccupied with scale, abundance and very rapid green lighting.
And it represents a clear example of what makes AMC Networks distinct in this blurring media landscape. I mentioned earlier the landmark Walking Dead theatrical movie deal, we announced at Comic-Con with Universal Studios a couple of weeks ago. This partnership expands The Walking Dead universe to the big screen for the first time, underscoring the high level of interest that the universe commands and the undeniable strength and vitality of this growing franchise. Comic-Con also marked the kickoff of our promotional campaign for the highly anticipated tenth season of The Walking Dead core series, which debuts in October. Fear The Walking Dead is continuing a vibrant run in its fifth season and is the fifth highest rated drama on ad-supported cable. And just this week we begin production on the third series in The Walking Dead Universe, which centers on two young female protagonists, the first generation to come-of-age in the zombie apocalypse era. With multiple shows, video games, merchandising and other ancillary businesses that we've created around this franchise and now a theatrical movie, The Walking Dead Universe is, we believe, in its early stages of life and has many opportunities for future growth.
As many of you know, The Walking Dead is just one of many shows created by AMC Studios that allows us to own the content we make and deploy. We began our studio initiative more than a decade ago when we foresaw a world where fragmentation would force changes in the existing cable model and owning content would be critical. While we often discuss our ownership of The Walking Dead, it’s important to note that we also have ownership of many other shows. In the current year, eight of the 10 scripted series on AMC Networks are made and owned by AMC Studios. We’ll likely increase that number of original Series over time, as we program not only for our linear channels, but also for AMC Premiere and our targeted SVOD services as they continue to gain critical mass. Something I'll talk more about in a moment. The company continues to build an expanding library of owned content. By year end, among our studio assets will be nearly 500 episodes from series, including The Walking Dead, Fear the Walking Dead, Halt and Catch Fire!, Turn, The Terror. NOS4A2 and Lodge 49 and the number getting close to 1000 independent films.
, As those series come off their exhibition windows on Mainstream SVOD services, they will come back to us for the first time for future global licensing, as well as utilization within our own ecosystem of SVOD services, as well, of course, on our linear and global channels.
Turning to advertising, our upfront resulted in strong year-over-year pricing increases driven by robust demand for our original content. Our upfront resulted -- sorry the AMC channel, which is home to three of the top six basic cable dramas, led the portfolio with double digit price increases.
We saw strong growth for our other networks as well, in some cases the highest rates of growth we've seen in a decade. There is particular advertiser interest in Killing Eve, not surprisingly, as well as our third series from The Walking Dead Universe, which debuts next year.
In addition, we're benefiting from the increasing popularity of the BBC’s natural history programming, since we're the only way for advertisers to reach viewers of these shows in the US. BBC America's next nature series is called Seven Worlds, One Planet, and it's in very high demand from marketers who value the opportunity to place their brands in and adjacent to this groundbreaking content.
Despite macro headwinds in Live+3 ratings that's putting pressure industry wide on all linear ad-supported networks, AMC Networks continues to appeal to highly desirable demos that advertisers find attractive. We control approximately one-third of all total drama impressions on basic cable. For marketers looking to advertising high quality dramas, AMC Networks and FX, now part of Disney, are the only two options on basic cable.
So we have true category leadership and we continue to invest widely and -- wisely and prudently to protect it and to value it. Over the past several years, we've actively diversified our base of advertisers, which has helped us hedge against key advertiser and category dependencies, which, of course, shift with changes in the marketplace. And the television ad market continues to evolve. In what has become an era of enhanced monetization through new data and planning tools and more targeted advertising, we’ve made significant investments in advanced advertising technologies such as our proprietary targeting tool called Aurora. In what has been a multi-year effort for us, we've been building tools and staffing up, as we develop data and analytics for our proprietary tools.
We've seen the number of advertisers utilizing these tools increase and we're now beginning to see results. Year-to-date, we've tripled our target body, our targeted audience, ad sales. In addition to our own initiatives, we're also participating in broader industry efforts such as project or a consortium focused on bringing addressable advertising to smart TVs.
Overall, on a trend basis, our advanced advertising business is growing meaningfully. Our products enhance our value to advertisers through better targeting data and measurement. And we believe they will improve our overall business in the mid and long term. As to our affiliate strategy, our approach has been supported by multi-year agreements and we have renewed several so far this year. As we've discussed in the past, we believe that AMC Networks is very, very well positioned due to our price and due to the strength of our content across our entire portfolio. And this attractive position will be particularly advantageous to us as this ecosystem continues to evolve.
Moving on to international, as a reminder, the cornerstone of our portfolio internationally is the AMC branded channel, which is carried globally and is complemented with strong local brands in more than 130 countries. The portfolio is led by strong performance, particularly in Iberia and Eastern Europe. We continue to build audiences for our original AMC series, including most recently For Fear The Walking Dead and NOS4A2, as well as original content that we air on our regional portfolio of channels. In addition, we continue to expand our library of original owned content, including more than 500 hours of content that we produce annually in southern Europe and Latin America for our lifestyle and cooking channels, in just those regions.
Following on our acquisition of RLJ Entertainment last year and a recent reorganization of our overall targeted SVOD businesses, we thought it made sense to provide detail around our SVOD strategy, including some of our economics, which are fundamentally different than those of gentle --general entertainment SVOD services. As a reminder, for the past several years we've been focused on creating and growing targeted special interest SVOD services. While the mega caps compete in the general interest arena, we believe there's a very significant opportunity for us with specialty SVOD services, that offer a new way to serve fans and we believe that the market for these types of services will continue to grow.
We've spent now half a decade investing in data, platforms and programming and developing our SVOD competencies, understanding elements of sub acquisition and learning how to efficiently attract and maintain those audiences. Today, in addition to our AMC Premiere services, we have four SVOD services targeting distinct audiences, which I'll remind you of Shudder, for horror and suspense fans; Sundance Now, which has critically acclaimed series and films; Acorn TV which has British mysteries and dramas; and Urban Movie Channel or UMC targeted to urban audiences. The latter two services we acquired as part of our stake in RLJ Entertainment.
We recently centralized these four services under the leadership of RLJ Entertainment Executive, Miguel Penella, who's been with that company for more than a decade and launched and built Acorn TV into profitability. I'm very pleased to say that we're seeing very healthy rates of growth, as I mentioned earlier, across these four services. Through midyear 2019, we added approximately 400,000 subscribers in aggregate and we are on target to end the year comfortably ahead of 2 million subscribers.
As these services gain sufficient scale, we've been increasingly populating them with original content, which has been resonating with subscribers and is helping drive our healthy growth rates. Given the genetics of our SVOD services, we have the ability to target and retain subscribers, a very important point with radically more efficiency than mainstream SVOD services that are pursuing broad general interest audiences that often experience, as we all know, people coming in and out for an individual show or series.
While our four services are at different development stages, we've seen that churn and sub acquisition costs, can be managed to industry leading levels. We believe Acorn is one of the leading streaming services when it comes to customer and -- customer engagement and that it has one of the lowest rates of churn in the industry if not the lowest. We anticipate crossing the 3.5 million to 4 million QM [Phonetic] sub threshold by 2022. And by 2024, we anticipate between 5 million to 7 million targeted SVOD subscribers and an excess of $0.5 billion in revenue from these four services. As part of this overall D2C architecture, we developed our own integrated tech stack that allows us to understand the needs of the consumer and bring them back month after month. That’s been in the work now for five plus years. We've built and marketed our services so that today the majority of AMC Networks D2C subs are buying directly on our own platforms, something that substantially differentiates us from many other specialty SVOD services.
This provides us with important data and a direct consumer relationship and allows us to see what's working and not working in real time. While it does take time and investment to build this relationship with consumers, we believe that our experience and evidence to date shows that we have the expertise and the right set of assets to succeed in this arena. Importantly, we've seen success in creating engaging services with relatively modest content and marketing investment.
We believe we can achieve meaningful size relative to our content, spend significantly earlier and at much lower subscriber levels than general interest services. Additionally, the bulk of our D2C business is currently U.S. based. We're now beginning to launch internationally, particularly with Acorn. And we believe the overseas market opportunity is very significant for us, particularly over time. So in closing, for my part, while there are periodic pressures on specific areas of the business, we believe these macro pressures are manageable because we plan for them for a long time.
Over the past 10 years, we've taken important steps to materially prepare our business and diversify our revenue streams, from creating a studio, to expanding internationally, to acquiring an ownership stake in BBC America, because we believe the channel had untapped potential. In 2011, as a point of reference at traditional U.S. MVPD affiliate and U.S. advertising revenue represented upwards of 90% of the total company revenue.
Today, our diversification efforts put that level now at about 60%, with about 40% of our revenue coming from other areas of our business. As I just detailed, our direct-to-consumer services are enjoying significant momentum. As we continue to remain focused on creating sought after premium content, which propels our entire enterprise, we believe D2C, along with owning more of our intellectual property and expanding our studio, represents significant growth areas for us. Now, if I may, I'll turn the call over to Sean Sullivan, for more specific detail on our results.
Sean Sullivan -- Executive Vice President and Chief Financial Officer
Thanks and good morning. We're pleased with our results in the Second Quarter, as total company revenues were $772 million, AOI was $232 million and adjusted EPS was $2.60. The company continues to generate very healthy levels of free cash flow, $85 million in the quarter and $229 million for the 6-month ended June 2019. And we remain firmly on track to meet our total company targets for the full year.
I'll touch on the outlook in more detail later on in my remarks. So moving to the performance of our operating segments. At the National Networks, Q2 revenues decreased 4% to $605 million. AOI was $236 million, an increase of 1% as compared to the prior year period. Advertising revenue in the quarter decreased 11%. As we highlighted in our last call, results were influenced by the timing of our originals, in particular, fewer episodes of The Walking Dead and Fear The Walking Dead as compared to the prior year period. However, a number of factors helped to offset the unfavorable comparison, including growth at each of our other four networks, BBC America, IFC, Sundance and WE tv, as well as increased pricing across our portfolio of networks.
With respect to distribution, distribution revenue increased 1%. As for the subscription revenue component, revenues were essentially flat with the prior year period. In addition to the quarterly fluctuation based on the timing of various agreements, renewals and adjustments, we continue to see a moderation mainly due to macro factors, as we mentioned on our last call.
In addition, our second quarter results were impacted by the interpretation of a contractual provision with one of our distribution partners. We're in discussions with this partner and are hopeful that will resolve all our differences in the near future. As for the content licensing component of distribution revenue, this line item continues to contribute to our top line growth.
The growth in the quarter was driven primarily by the availability of Fear the Walking Dead, The Terror and Lodge 49, which more than offset the absence of revenues from Dietland and Dirk Gently in the prior year period.
Moving to expenses, total expenses decreased 6% or $25 million [Phonetic] versus the prior year period.
Technical and operating expenses decreased 6% to $269 million. The variance principally related to the timing and mix of originals across our portfolio of networks. In the quarter, we recorded $10 million in charges related to the write off of various programming assets.
This compares to write offs of $4 million in the second quarter of 2018. SG&A expenses were $113 million in the second quarter, a decrease of 9% versus the prior year period. The variance primarily related to a decrease in marketing costs due to the timing of original. Moving to our international and other segment. In the second quarter, international and other revenues grew 22% to $180 million. The increase primary reflected revenue from the acquisitions of RLJE and Levity. AOI was $12 million, an increase of $6 million versus the prior year. The increase was primarily attributable to an increase on our international networks as well as the acquisition of RLJE.
Moving to EPS. In the second quarter, EPS on a GAAP basis was $2.25 compared to a $1.82 in the prior year period.
On an adjusted basis, EPS was $2.60 compared to $1.93 in the prior year. The year over year increase principally reflected a decrease in income tax expense, as well as a favorable variance in miscellaneous net. GAAP EPS also reflected restructuring and other related charges of $17 million taken in the quarter. The decrease in the book tax rate for the quarter reflected a benefit from the release of a valuation allowance relating to foreign NOL carry forwards, the restructuring and other charges related to our direct-to-consumer businesses. In the second quarter in -- in connection with the RLJE acquisition, we announced a reorganization of the management structure for our D2C businesses.
The reorg placed our subscription streaming services, Acorn TV, Shutter, UMC and Sundance Now under a common management team. We also implemented changes to our strategy, resulting in the write off of certain programming assets. We believe that this new structure and strategy will allow us to more effectively and efficiently operate our SVOD services. As Josh mentioned, we're seeing very encouraging performance from this area of our business. Given this recent performance and our outlook for these services, we foresee achieving run rate profitability for all of our services in the aggregate within the next 18 months.
Moving to free cash flow, the company had another strong quarter generating $85 million, resulting in a six month total of $229 million in free cash. Through six months, tax payments were $78 million, cash interest was $77 million, capital expenditures were $49 million and distributions to non-controlling interest were $10 million. Program rights amortization for the six-month period was $469 million and program rights payments were $444 million, resulting in a source of cash of $25 million. This compares to a use of cash for programming of $2 million for the prior year period. Turning to the balance sheet, as of June 30th, AMC Networks had net debt and capital leases of $2.5 billion. Our leverage ratio based on LTM AOI of $955 million, was 2.6 times. In terms of capital allocation, our primary focus remains investment in our core business. We continue to be disciplined and opportunistic in our use of capital for both repurchases and non-organic investments. With respect to share repurchases, during the second quarter, the company repurchased $57 million of stock. This represents approximately 1.1 million shares.
Subsequent to the end of the quarter, the company has repurchased an additional $6 million or approximately 115,000 shares. As of last Friday, the company had $495 million available under its existing authorization program. So program to date, we repurchased approximately 25% of our outstanding shares.
We expect to continue to be opportunistic with our share repurchase activity. Looking ahead, there are no changes to the full year outlook as we remain confident in our ability to achieve the targets that we communicated, at the beginning of the year.
We continue to expect to grow total company full year revenue in the low-to-mid single digits, and total company full year adjusted operating income in the low single digits.
Based on our performance through the first half of the year, and the trends that we're seeing in our various businesses, we remain confident in our ability to achieve our full year revenue target.
However, given what we've seen year-to-date, the expectations for our revenue streams continue to shift a bit. We continue to see an improvement in the outlook for domestic advertising revenue, as well as a moderation of our expectations for domestic subscription revenue growth.
With respect to domestic content licensing revenue, we now anticipate the rate of growth to be relatively consistent with the prior year. So overall the revenue streams have shifted a little bit, but our expectations in the aggregate have not changed.
As for the cadence of our performance, during the year, we anticipate continued quarterly variability as a consequence of the specific timing of our investments and content and the airing of our shows.
In the third quarter at the National Networks, we expect revenue growth versus the prior year period. We anticipate this growth will be led by an increase in content licensing revenue. As for expenses at the National Networks, we anticipate a year over year increase, due mainly to the timing and mix of originals airing on our networks. At our international other segment, our reported results will continue to reflect the impact of RLJE and we expect the impact of that business will be similar in the third quarter to what we saw in the second quarter, both in terms of revenue and AOI.
Excluding RLJE, we expect the other businesses in the segment to deliver in-- in aggregate healthy growth in both revenue and AOI.
So in conclusion, overall, we feel very good about our performance in the first half of the year, and how the business is positioned for the remainder of 2019. So with that, we'd like to move to the question and answer portion of the call.
Operator, if you could please open the call to questions.
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from Michael Nathanson.
Michael Nathanson -- MoffettNathanson -- Analyst
Thanks. I have one for Sean, one for Josh. Sean, let me start with you for a sec. Could you help us with the more details on the affiliate revenue line? What was the change in subscribers this quarter and then what's the impact of that contract dispute? How – could you just scale that for us? And then I have one for Josh.
Josh Sapan -- President & Chief Executive Officer
Yeah. Hey, Michael, it's Josh, I'll just give you, if I may, some response to your first question. There's just to say we have an MVPD who we have -- are in conversations with about contractual interpretation. This happens periodically in the nature of life and contracts that go over several years as the business changes. We think it's one thing. They think it's another. We are currently actively engaged in conversations with them about it. I can't report how those conversations will conclude.
They are dynamic and active as we speak. The second piece of what was responsible for this, I guess, it’s a few million dollars in a quarter, change in perspective is subscriber growth among the MVPD universe, as you know, perhaps better than I and the quarter trended down a bit. So that, of course, as we’re paid on individual units of subscribers affects us.
So those are the two -- two things you asked about. And those are -- that's the State of the Union on that.
Michael Nathanson -- MoffettNathanson -- Analyst
Okay and Josh, can I ask you about the film partnership. I'm trying to understand the economic interest on your side. So is this – are you guys producing the show, 100%, taking the risks? So could you give me a sense of what’s the actually economic relationship here and how could that film actually then maybe help other parts of the larger AMC franchise? A little bit more on the film details for us.
Josh Sapan -- President & Chief Executive Officer
Sure. So let me just offer, if I may, just provide context, if I may. I just think first, if you don't mind, Michael, I'll say that it's a really excellent, vital sign from our point of view and my point of view that the opportunity to bring the franchise to the big screen is now partnered with a pre-eminent studio that has -- obviously the track record of Universal speaks for itself. And so I just would note that that is an affirmation of those experts at the highest level in the belief that The Walking Dead on a worldwide basis will be something that people will go to pay dollars to in the silver screen. And I just, as it relates to The Walking Dead and which we now have three television series on games merchandising, that is a meaningful piece of activity. And I will say that there is interest fairly widely among studios to do that. It was not unique, singular, and therefore it is a representation and an affirmation of strength of franchise. If you don't mind that comment, I think it's important. You know, I'm not at liberty to go into details on the nature of the deal for us. It's sort of privileged information. So what I would say is it's very nice to have a movie for all the reasons we said, I'm sorry, I'm going to have to stop short of getting into the who owns what and who gets what fees. It is privileged information.
Michael Nathanson -- MoffettNathanson -- Analyst
Okay. We’ll wait for the movie then, Josh.
Josh Sapan -- President & Chief Executive Officer
Okay, good. [Speech Overlap] You can pre-buy ticket somewhere. No, not now, but soon.
Michael Nathanson -- MoffettNathanson -- Analyst
Okay.
Operator
Thank you. Our next question comes from Marci Ryvicker with Wolfe Research.
Marci Ryvicker -- Wolfe Research -- Analyst
Thanks. I have two, when you talk about sub trends trending down. Can you give us what they're down this quarter versus last year relative to last quarter versus last year? That's the first question. And the second question, the subs on your SVOD and OTT services, what percent are domestic versus international today? And for all the targets that you gave, are you including international as well?
Josh Sapan -- President & Chief Executive Officer
Hello, Marci. I'll just, if I may, just on the subscriber counts, you know, I think you receive I mean it, on reports, everyone reports on subscribers as part of their filings. So we're subject to what the world is doing. Every company, I think recently reported all the big ones, AT&T, DirecTV, Charter, Comcast, etc. So that's that -- that little look at the data would reveal exactly what's happening in the universe. And while we don't track precisely with that, I think you'll see that we're significantly affected by that trend. And I think that would give you a pretty clear picture of what that looks like. You know, in terms of these subscription video on demand, the out year look does include international, which we have not yet mind that significantly. As I mentioned, we have much more experience with domestic performance. We have some experience with international just beginning. So it does include both pieces of the business, as we take a forward year look.
Ed Carroll -- Chief Operating Officer
Hey, Marci, this is Ed. I would say on the -- on the subscriber additions that we -- that we mentioned today, the 400,000 subscriber uptick, that's substantially all US. We’ve really just begun operations for Acorn in Mexico and Australia, for example. We have a little bit of Sundance Now and Shudder in the UK and Germany. But by and large, those subs are almost all US eccentric at this point. It's very early days for international expansion.
Marci Ryvicker -- Wolfe Research -- Analyst
Thank you.
Operator
Thank you. And we have a question from Michael Morris with the Guggenheim Securities.
Michael Morris -- Guggenheim Securities – Analyst
Thank you. Good morning. Two questions or two topics, if I could. First, Josh, you mentioned the series that come back to AMC as they come off mainstream SVOD. Can you talk a little bit more about your decision process, about what to do with those series, how you weigh maybe reselling them externally versus keeping them internally? And what those economics look like? And then second on those, your specialty SVOD services and the targets you just gave us. Is that revenue solely subscription revenue? And can you talk a little bit about the content that you need to build those to where you want to be and what the margins of those businesses could kind of look like over time compared to your existing businesses? Thanks.
Josh Sapan -- President & Chief Executive Officer
Sure. So, Michael, the series that comeback will present us with decisions which I would actually characterize as opportunities, happily. We'll be in the privileged position of being able to make a determination series by series about where and in what manner we can deploy them to optimize value. It's something that's very much in the news in our -- in our industry today. Our opportunities will be, of course, to sell them to third parties and evaluate on a worldwide basis what that economic opportunity is. And as our subscription services grow, we'll also evaluate utilizing them themselves, including on AMC Premiere and on the four services that we mentioned.
Just to complicate the answer, Michael, that they -- those answers may overlap. We could make a decision because it's our decision that -- and this is simply hypothetical, in certain geographies, they’re sold to others for a discrete period of time where we might not develop their own services. And in other areas, we take them for ourselves and the market does work that way. So we will make determinations on a series by series basis, balancing the value that we can drive on our own services versus the money that we can yield from third party services.
And there is also, although it’s not much talked about in the SVOD world, there is a subject of exclusivity and non-exclusivity. And so we will have that to make a determination about as well. The good news is and it really is nice news is a number of these series, as you well know, have significantly established constituencies, reputation, histories and awards.
And we have many humans and frankly generations that have been underexposed. And so I think we're going to see that because we have in our genetics a fair amount of quality and prestige and recognition, I do think that they are going to be of extraordinary value to us as we make a determination about exactly how to deploy them. As to your second question, our services are commercial free. There are no ads in them. Today there are no ads contemplated for them for the future. So everything we talked about really does presume and assume and is commercial free subscription around passionate targeted groups. The whole subject of AVOD is a separate subject, which we are in and we can discuss in a different conversation. But what we're doing is these services are all commercial free. And the plan is for them to be commercial free.
Ed Carroll -- Chief Operating Officer
If I can, Michael, as it relates to your content question, for example, for ACORN, many of its most popular programs are produced or co-produced by Acorn and against reasonable economics. So some of the breakout shows like Manhunt and Queens of Mystery, Acorn is a producer or co-producer. And so we think that will continue because they are targeting using data and analytics to target a very specific audience. And they have immediate, as you would imagine, they have immediate feedback on what shows what streams are most successful. What is interesting though is that we are beginning for appropriate AMC Networks content to also give that a window on our targeted SVOD.
So, for example, NOS4A2 which we just renewed to season two and that's our vampire story on AMC, that will have its premiere SVOD window on Shudder, for example, and you begin to see early seasons of the Braxton's from WE tv on UMC. And then I'll also mention Greg Nicotero who's a producer on The Walking Dead. He is executive producer of a horror series called Creepshow, which will make its premiere on Shudder. So you begin to see us benefiting from a symbiotic relationship between the linear networks and the targeted SVODs as they continue to gain mass on the platforms.
Michael Morris -- Guggenheim Securities -- Analyst
And so just on that, despite the fact that new platforms are single revenue stream versus dual that you have on your existing business, do you still think that the margin profile looks similar because of the sort of content sharing benefit you could get or is it fundamentally different from a profitability perspective?
Josh Sapan -- President & Chief Executive Officer
No, I think everything you just said is close to the way we think about it.
Michael Morris -- Guggenheim Securities -- Analyst
Okay, great. Thank you for that.
Operator
Thank you. Our next question comes from Alexia Quadrani with JP Morgan.
Zilu Pan -- JP Morgan -- Analyst
Hi, this is the Zilu Pan on for Alexia. Thanks for taking our question. And just going back to the SVOD services, how do you think about launching these services directly yourself versus partnering with a aggregation channel like Amazon or Apple, which might serve as a larger funnel to acquire subscribers?
Josh Sapan -- President & Chief Executive Officer
Sure?
Ed Carroll -- Chief Operating Officer
So, yeah. this is Ed. so we think both are good. We are partnered on some of the larger platforms. But as Josh mentioned, at this point the majority of our subscribers are direct-to-consumer of our platform, which, which we have been working to develop for a number of years. That gives us more immediate feedback. That gives us so much more data about who our subscribers are, what shows they're watching, what percentage of episodes they watch to completion, where they go after finishing one series, what series they go to next. You get that with -- with D2C.
We also have analytics against those subscribers that make it very, very efficient for us to keep subscribers. As Josh and Sean were alluding to, a very, very critical component is managing your churn. And so if you control the platform, you just have a larger window into -- to managing churn rate to subscriber preference and to reaching out with your marketing message at maximum efficiency.
Having said that, Amazon is a good partner. Apple is a good partner. We think we'll continue to be both on our own platform and on some of our partner platforms.
Zilu Pan -- JP Morgan -- Analyst
Thank you. That's great. And as a follow up on, I think it was recently announced, another show will be simulcast on ABC on Sundance, do you see more of that going forward obviously Killing Eve saw a great success being simulcasting on two channels. How do you maintain the distinct brand of each channel at the same time?
Ed Carroll -- Chief Operating Officer
Yeah, the simulcast is not something we do a lot of. We are quite pleased creatively with Killing Eve and we thought it was a unique opportunity to give this show wider exposure which seemed to work and interestingly, the ratings on BBC America held fast, continue to be strong and we think new people on AMC were able to sample the show. And it's nice that the show got Emmy recognition as well. So we'll use it occasionally for big events such as the Planet Earth franchise. We have done a simulcast through a roadblock. And in that way, not only got more attention to what we think is extraordinary programming, but where our advertisers are concerned, we're also able to give them more value in a world where people are looking for big events and special events and that's the thinking behind it.
Zilu Pan -- JP Morgan -- Analyst
Great. Thank you.
Operator
Thank you. We have a question from Todd Juenger of Sanford Bernstein.
Todd Juenger -- Sanford Bernstein -- Analyst
Hi, good morning. Thanks for taking the question. Can I talk a little bit with you guys, if you don't mind, about the content licensing sort of line. And so, Sean, just quickly, I think in the past couple of quarters you had been saying that fiscal year '19 would be higher than 2018 in growth rate. I think this morning you said it'd be similar to 2018. So I know how big that change is, but just wondered what has sort of changed and led to that if you could share that with us. And then broader, maybe Sean or Josh, going forward with these SVOD services and talking about your own content, playing a role on them, how do you reconcile that with your content licensing business revenue opportunities there? It seems like that's a tradeoff you’ll have to contemplate and even specifically, how does that relate to the output deals that are in place?
And do you think about output deals going forward? The question is there is -- how does that come together and does it change your philosophy on content licensing and partners over time and the financial impact? Thanks.
Sean Sullivan -- Executive Vice President and Chief Financial Officer
Thanks, Todd. Yeah, and the first one, you've got it right in terms of our outlook for the year on content licensing. Again, we continue to believe for 2019, it's an area of growth. It's moderated a bit. A lot of that is related to timing, frankly. But as you know, that's not only the exploitation of the show on domestic and International SVOD, there's gaming, there's licensing and merchandising, there's home video, EST, etc. So there's a lot of components that we don't have perfect visibility to. But, you know, so some of those other areas have moderated a bit, but overall it's really a timing effect.
Josh Sapan -- President & Chief Executive Officer
Yeah. Just, Todd, on the subject of what we do with content and I'll add -- I'll ask Ed to chime in if he has anything to add, if I may. The development of our SVOD services, which is now several years into activity, represents an opportunity for us. And I think you'll understand the trade offs instantly. You've been a study, a student of the subject. Our services, as we described, are quite different in their cost composition and then the general entertainment or whole house services that are now competing with one another for share and spending at very heady levels, obviously. So what we'll do is we will take a look at every show that we have. Frankly, what its economics are and what its applicability is? And we'll factor that also increasingly into our development thinking as these services begin to scale.
There are some projects which will be naturally attractive to the services we have because of their nature, their editorial nature, and also because of their cost. There'll be other services, there will be other shows that I'll call them bigger or if I may, very -- much, much bigger that we may find appropriate to simply exploit on a worldwide basis or an international basis with third party services as we make a determination of where the greatest return is.
So for us, there will not be a playbook that's hard and fast. It will be a developing playbook based upon the size, scale and net economics of our SVOD services, the nature of the content where the greatest return is and it will not be binary or the same plot, show after show. I know there's much discussion in the more mainstream SVOD world about all that and rights coming back. We live and play in a different arena and we will follow a pattern that has sensible economics in each instance, that balances strategic opportunity and growth against economics.
Todd Juenger -- Sanford Bernstein -- Analyst
Okay. Thank you very much.
Josh Sapan -- President & Chief Executive Officer
Operator, let's take the next question.
Operator
Thank you. Our next question comes from David Joyce with Evercore ISI.
David Joyce -- Evercore ISI -- Analyst
Thank you. I just had a little bit more questions along the Aurora addressable advertising efforts. I was just wondering, is that starting to enter the discussions in the upfronts and has that impacted the pricing there?
And to date, since you've had some strong growth in that, is it bringing incremental advertisers into the environment? If you could just provide some more color there. Thank you.
Josh Sapan -- President & Chief Executive Officer
Hi, David. Yeah, I think very much Aurora is part of our upfront conversations and very much it helps with the pricing or the CPM part of that conversation. And I think really that has been its strength more than bringing new advertisers in. It's bringing bigger commitments at higher pricing. And so particularly in the auto category, in the movie studios category, in the pharmaceuticals category, we’re seeing receptivity to the Aurora tool and its and its ability to create efficiencies for client marketers and to hyper target their prospects.
David Joyce -- Evercore ISI -- Analyst
All right. Thank you.
Josh Sapan -- President & Chief Executive Officer
Operator, at this point, we'd like to take one last question, please.
Operator
Thank you, sir. Our final question comes from Vasily Karasyov with Cannonball Research.
Vasily Karasyov -- Cannonball Research -- Analyst
All right. Good morning. I think my question is for Josh, an Ed. Josh, you touched on AVOD. So my question is, I think it's two parts, maybe a little more. So, first of all, are you surprised by the growth in AVOD usage in the U.S. And I'm not only talking about Hulu, I'm also talking about Pluto TV. I think Viacom has been disclosing a lot of growth metrics after they closed the acquisition, especially given the quality of content that was available on it before Viacom started putting on their content. So -- and what does it tell you about that being a competition for your linear networks?
And also, what would you say to an argument that your D2C offerings internationally maybe there is an argument to be made that and ad supported here at least is a way to get subscribers, given how pay-TV evolved internationally, historically, where people showed more propensity to watch commercials and free to air television and pay-TV. ARPU was lower per capita given, lower per capita GDP and income and so on. So I would appreciate your thoughts on this guys?
Josh Sapan -- President & Chief Executive Officer
Sure. Thanks for that. I think we're not surprised. We are participants in AVOD. We license our content to AVOD services. So we've been tracking them for some time and partnering with them for some time. And so we're active participants in AVOD services and understand what the trends have been. I think that -- that it's an attractive platform, and an attractive medium. So I wouldn't say that we're surprised.
I think on the -- on the question of their relationship to SVOD, we get into some interesting and rich territory because they have been, as you know, at least in the US, discrete entities. Crackle was around for a while. It didn't call itself AVOD but it really was AVOD service run by a movie studio.
There was just a transaction surrounding that, so it has different people running it. And you know, Pluto and Tubi are around and others. And so the one and so there are interesting models to consider, and I don't know that the jury has determined what the final resolution to the optimal model will be, because Hulu is the one that perhaps emulates some music services where you pay for this and then you pay for it without commercials. That's sort of a variation, a variation that is particular to Hulu that's been relatively successful.
As you mentioned, the other AVOD services don't have a premium option in them, in the video world. But we see premium options in some cases in the audio world that work quite well. Just to expand on this, perhaps more than you even want to hear is it's really curious to think about what occurs in the world of video. You know that there are video platforms that were inhabited by with advertising like YouTube that then launched commercial free variants.
And, you know, and it's worth looking at how they performed because I think it's telling. I guess my conclusion about all this is, is the jury has not made a determination in any geography necessarily about whether a commercial-free opportunity to create, as it's called, traffic is the best, best entry point to an upsell for a commercial free variant. We have probably more experience in the video world with AMC and AMC Premiere than almost anybody else in the U.S., except Hulu. And we understand a fair amount of that from our experience with AMC Premiere. The rest of the AVOD services have been dedicated AVOD as destiny, AVOD with no commercial free buy up, if you want to call it that. So that's an incomplete perhaps answer to your question about where the future lies.
But I think you correctly point out that sensitivity about price in different geographies or different demographies in the U.S. may provide a big clue to where to really focus on that, where people are more concerned about this specific dollars coming out of their wallet, in which case AVOD may be, A, a better final destiny or B, a better point of entree to an upsell. But the evidence to date, I would say, is really quite mixed in its flavors and doesn't necessarily say a pattern is the right one.
Vasily Karasyov -- Cannonball Research -- Analyst
Thank you.
Josh Sapan -- President & Chief Executive Officer
All right. Well at this point we'd like to thank everyone for your interest in AMC Networks and for joining us on today's call. Operator, you can now conclude the call.
Operator
[Operator Closing Remarks]
Duration: 56 minutes
Call participants:
Ed Carroll -- Chief Operating Officer
Seth Zaslow -- Senior Vice President of Investor Relations
Josh Sapan -- President & Chief Executive Officer
Sean Sullivan -- Executive Vice President and Chief Financial Officer
David Joyce -- Evercore ISI -- Analyst
Michael Nathanson -- MoffettNathanson -- Analyst
Marci Ryvicker -- Wolfe Research -- Analyst
Michael Morris -- Guggenheim Securities -- Analyst
Zilu Pan -- JP Morgan -- Analyst
Todd Juenger -- Sanford Bernstein -- Analyst
Vasily Karasyov -- Cannonball Research -- Analyst
