AMC: Everybody’s Watching

AMC: Everybody’s Watching

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Unless you come from one of those antiquated households that ban TV in all its forms, you were probably aware that a lot of people tuned in to watch Breaking Bad last weekend. Actually, more than a lot. Almost six million people. That's three times the average for Breaking Bad's previous season, and almost six times what the show was bringing in when it first aired. That's some pretty noteworthy growth (and some hefty new revenue) for AMC Networks (AMCX), a company that is often confused with, among other things, a movie-theater chain and a bowling supplier

Of course, this comes just as a major blackout between Time Warner (TWX) and The CBS Corporation (CBS) rages on with little sign of abating. Customers in New York, LA, and Dallas (among others) are enduring their third straight week without the most highly-rated prime-time network. The Huffington Post has already published a profile of some viewers going to great lengths to keep up with their favorite programming – such as one Green Bay Packers fan who resorted to watching his team in Spanish on Telemundo, with an English language audio feed, courtesy of AM Radio.

CBS is going to great lengths to provide more options to access their content using mobile apps and the web – unless of course you happen to be using Time Warner as your internet service provider (ISP).

The reason for the infighting is more or less the same reason that many newspapers have sold off for fractions of their value. TV advertising revenue, which once paid for most content, has been on a sharp decline as digital advertising climbs faster and faster. As Quartz explains in an analysis of AMC's business model, more media companies generate revenue from licensing multiple companies to distribute their content. Last year AMC made over $200 million in distribution, almost twice what they made in advertising (despite 13% growth in ad revenue).     

With profit margins relying so heavily on these distribution fees, it makes sense why CBS would hold out for more cash from Time Warner, even if it means cutting into pre-season football – a massive earner for the big networks.

AMC likely had these trends in mind when it began to shift its focus from playing classic movies (with boatloads of commercials) to developing original content and its own brand. Few content channels can boast to such a noticeable, and lucrative transition. The development of shows like Mad Men, Breaking Bad, and The Walking Dead have sent shares in AMC up 93% since it's IPO in 2011.  

And beyond traditional media outlets, providing much of this content for a fee through Netflix (NFLX) seems to have paid off, boosting viewership and creating recognition for AMC abroad. New episodes of Breaking Bad will be available just a few days after their original air-date for Netflix subscribers in the UK, a far cry from the three months Downton Abbey fans must wait for the British export to cross the pond. However, an important question remains as the network's big money-makers draw near their, let's face it, epic conclusions. AMC has little-to-no windfall in the event that it stops producing such popular content. Viewership for its new show, Low Winter Sun, lost half the viewers from the Breaking Bad lead-in, and is being met by mediocre reviews. 

Granted, that's only one show. But if anyone should know the difference that one show can make, it's AMC. 

Click on the image below to see [data] over time. Sourced from Zacks Investment Research.

Do you see investment opportunities among these content creators and distributors? Use this list as a starting point for your own analysis. 

1. AMC Networks Inc. (AMCX, Earnings, Analysts, Financials): Operates various cable televisions' brands delivering content to audiences and a platform to distributors and advertisers in the United States and internationally. Market cap at $4.84B, most recent closing price at $67.67.

 

2. Netflix, Inc. (NFLX, Earnings, Analysts, Financials): Provides subscription based Internet services for TV shows and movies in the United States and internationally. Market cap at $14.93B, most recent closing price at $256.60.

 

3. Discovery Communications, Inc. (DISCA, Earnings, Analysts, Financials): Operates as a non fiction media and entertainment company worldwide. Market cap at $29.74B, most recent closing price at $82.84.

 

 

(List compiled by James Dennin. All financial data sourced from Finviz.)

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