As ‘The Walking Dead’ Stumbles, AMC Looks to the Future

  • Ratings for zombie drama have fallen 11 percent in key demo
  • AMC CEO focuses on owning shows to profit from after market

The Walking Dead

Photographer: Frank Ockenfels 3/AMC

Josh Sapan keeps a stack of TV scripts in a black backpack that he carries around Manhattan. The 66-year-old media executive with thick-rimmed glasses reads them on the subway or at coffee shops between meetings. He’s looking for another hit to placate investors who worry that his wildly popular zombie show is showing signs of age.

Sapan is chief executive officer of AMC Networks Inc., home of “The Walking Dead,” which resumes its seventh season Sunday after a two-month break. The show is still the most watched on television among young viewers, but ratings in that group are down 11 percent to their lowest in four seasons, and in December AMC cut its forecast for 2016 advertising.

Josh Sapan

Photographer: Daniel Acker/Bloomberg

In an interview, Sapan said that Wall Street fails to appreciate all the ways that AMC makes money from “The Walking Dead.” Its popularity has fueled a spinoff, “Fear the Walking Dead,” and a talk show, “Talking Dead,” that draw ad revenue. AMC sold past seasons of “The Walking Dead” to Netflix Inc.

As a brand and source of inspiration, Sapan said, “The Walking Dead” could have the same longevity as “Star Trek,” which is still producing new shows after 50 years. “It still has a long, long creative life and a long, long commercial life,” he said.

But Sapan acknowledged that AMC must rely less on the U.S. cable business, where audiences are eroding as more people shut off their pay-TV service with so much video available online. That means AMC has to reduce its dependence not only on its biggest hit but also on its very business model. Sapan’s plan includes global expansion, more internal production of programming, and a move to online streaming.

AMC, controlled by the Dolan family, is fighting to stand out in the “Golden Age of Television” it helped create. A decade ago, Sapan transformed a sleepy cable channel known for showing old black-and-white movies into a home for critically acclaimed dramas like “Mad Men” and “Breaking Bad.” Today, almost everyone produces high-quality original shows. The industry made a record 455 scripted series in 2016.

“They were early innovators in making great compelling dramas, but now there’s just too much of it,” said Michael Nathanson, an analyst at MoffettNathanson who recently downgraded the company’s stock to sell.

Viewership Declines

Many cable channels have lost viewership as audiences migrate to online platforms like Netflix or watch shows online and aren’t counted in the ratings. But AMC stands out because it relies heavily on one show. “The Walking Dead” accounts for about 15 percent of AMC Networks’ ad revenue, said Benjamin Mogil, an analyst with Stifel Nicolaus & Co.

AMC is a small player in a business where big companies are getting bigger through consolidation. Pay-TV providers like Charter Communications Inc. and AT&T Inc. have swallowed rivals, making it harder for AMC to continue demanding higher rates from them. Sapan dismissed the idea that he should seek a merger with another cable channel owner to maintain leverage with distributors.

“If consolidation was going to damage us, it would have shown some signs of doing so already, and just the opposite has happened,” Sapan said.

So far, all of AMC’s channels, which include IFC, Sundance and WE tv, are carried on new online TV services like AT&T’s DirecTV Now and Dish Network Corp.’s Sling TV. That’s largely because “The Walking Dead” has made AMC’s networks a must-carry.

AMC’s channels are attractive because they’re relatively cheap for their audience size, Sapan said. The flagship network costs 48 cents per subscriber per month, compared with $1.82 for TNT and more than $7 for ESPN, according to SNL Kagan.

“Each of our channels is vital,” Sapan said. “They have real fans. That’s not entirely true of the entire spectrum of cable offerings.”

Shares of AMC Networks fell less than 1 percent to $55.84 at 3:04 p.m. in New York. The stock was down 18 percent in the past year as of Monday, compared with a 24 percent gain for the S&P 500 Media Index.

Sapan declined to comment on whether AMC’s channels would be carried on upcoming TV services from Hulu and YouTube, saying only that “we’re speaking to them all.” Those new services are more focused on sports and broadcast programming than on networks that rely heavily on scripted entertainment, which may make AMC a less likely partner.

Streaming Investments

AMC has created two of its own streaming services, the documentary-focused Sundance Now and Shudder, for horror devotees. Last year, it invested $65 million in RLJ Entertainment Inc., which owns streaming services for African-Americans and fans of British programming, and acquired a minority stake in humor site Funny or Die. AMC also expanded to about 140 countries in 2013 by buying Liberty Global Plc’s Chellomedia for about $1 billion.

Sapan, AMC CEO since 1995, in some ways seems like a character on one of the company’s quirkier shows. His office, which sits across from Manhattan’s Penn Station, is decorated with two boxy Emerson television sets from the 1950s that look like they belong on the set of “Mad Men.” He recently wrote a poem about New York City’s subways that was printed on postcards and sold at the New York City Transit Museum. He claims to be the world’s largest collector of antique lightning rods, with more than 100.

This year, Sapan has especially high hopes for two new shows, “The Son,” the saga of a family of Texas oil barons, starring Pierce Brosnan, and “The Terror,” about a Royal Navy expedition crew attacked by a mysterious predator. They’re part of a push to increase AMC’s hours of original programming by 25 percent.

AMC now owns a studio that makes many of its shows, like “The Walking Dead” and “Halt and Catch Fire,” so it owns the rights and profits from selling old seasons. That’s a risk, since the company will absorb the blow if a program flops. “But if you own the shows and you find a degree of success, you have greater rewards,” Sapan said.

— With assistance by Lucas Shaw

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