From a content perspective, AMC Networks (NASDAQ:AMCX) has been quite popular in recent months. The company's hit drama series Breaking Bad and The Walking Dead both continued to draw massive amounts of viewers and remain pop culture mainstays. However, with the former show having ended and the latter already well into its fourth season, what will drive the next stage of growth for AMC Networks?
Is AMC the next HBO?
Time Warner's (NYSE:TWX.DL) premium cable network HBO has perhaps the most recognized and admired content lineup in all of television. Blockbuster drama series' like The Sopranos, The Wire and Deadwood helped put the network on the map in terms of original programming, while widely appealing lifestyle shows like Entourage and Sex And The City ensured that the network had legions of fans for years to come.
However, the HBO network is still very strong among viewers despite the absence of all of the aforementioned shows. The creative team at HBO has proven itself extremely capable of creating appealing content on a regular basis. The network's popular series Game Of Thrones and True Blood both continue to draw record amounts of viewers each season, and new mini-series events like the upcoming True Detective appear poised to capture new audiences in 2014.
In an effort to compete with premium cable networks like HBO, AMC Networks has also focused on the blockbuster drama segment. The results have worked out well so far. The company is now best known for its namesake channel, AMC, and the three popular drama shows that air on it: Breaking Bad, Mad Men, and The Walking Dead.
However, AMC Networks has struggled to create new content to replace its trio of aging shows.
In what some might consider a lazy attempt to milk successful franchises, management recently chose to green-light two spinoff shows. The first show, Better Call Saul, is a spinoff to Breaking Bad that will focus on the Saul Goodman character played by Bob Odenkirk. While little has been confirmed about the show's concept, the announcement has created a lot of hype and the series could be initially successful based on its link to Breaking Bad alone.
The second spinoff is a companion series set in the universe of The Walking Dead. Similarly, much is still unknown about the show's concept, except that it will revolve around new characters in new locations, meaning story links to the current zombie series will be minimal.
While both new shows could shape up to be popular hits for AMC Networks, the decision to proceed with the spinoffs highlights the degree of difficulty inherent in generating fresh ideas that can appeal to wide audiences.
Management faces a unique challenge in this regard because the AMC channel is at a distinct disadvantage to premium networks like HBO, which are subscription based and less dependent on viewer numbers. The AMC channel has to consistently capture large audience numbers to justify higher advertisement fees, and that means it can take less risks with regard to creativity.
Growth through acquisition
AMC Networks recently announced its intention to acquire the international content provider Chellomedia from Liberty Global. The move would provide AMC Networks with a large distribution platform spanning over 100 countries, which would allow the company to reach significantly more viewers with its unique content.
The deal, which is reportedly valued at just over $1 billion, is a strong move by AMC Networks, and seems to fit with management's stated goal of becoming a worldwide leader in the creation and distribution of original content.
Short of creating more original blockbuster drama series', management at AMC Networks is handling the loss of Breaking Bad and the maturation of The Walking Dead as well as can be expected. The company has found ample ways to further capitalize on the blockbuster series, including the creation of spinoff shows and the expansion of distribution platforms.
However, the company's recent struggles with the creation of new content and its dependence on three aging series also highlights one of the major pitfalls of the industry -- the constant demand for original content. Unfortunately, AMC Networks' dilemma is one that companies like Time Warner do not face with subscription-based premium channels like HBO.
What is certain is that management at AMC Networks needs to solve the creative problem soon in order to realistically compete on a large scale with industry leaders like HBO in the future.
Philip Saglimbeni has no position in any stocks mentioned. The Motley Fool recommends AMC Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.