AMC Networks

INC: The walking

dead problem
SARANG PABALKAR – PGP04090
SAMARTH – PGP04087
Company Profile
Full Name American Movie
Classics Networks
Launched Oct 1, 1984

Slogan Something More

Headquarters New York, U.S.

Competitors BBC, Viacom, Corus

Channels AMC, We TV, IFC,

Sundance TV
Shows The Walking Dead,
Halt and Catch Fire,
Dirk Gently etc.
Leadership Joshua W. Sapan
 Timeline
Up to •Monopoly in broadcast television network ABC, NBC and CBC. Networks owned the programs it aired.
1970

•Introduction of Financial Interest and Syndication rules, content creation and content delivery was separated,
1970 networks purchased it from creators

•”Fin-Syn” rules were abolished. Resulting in Vertical integration in industry

1993

•Deficit financing model emerged

•Content distributor paid license fee for each episode, it did not cover entire cost of episode creation
Up to •Content creator bore the deficit and made profits after programs were sold for multiple seasons and was sold for
2011 syndication

•Cablevision systems corporation spun of its channels – formation of AMCN

2011

•Revenue drop from 2015 ($371 mn) to $271mn in 2016. Due to disputes with cable service providers
2016

•AMC channels reached 90.5 million US households, with rise in income to $471 mn
2017
 Industry
Analysis
• Very few • High Entry •# of Suppliers •Many buyers •Few substitutes
Industry Rivalry

Threats of New Entrants

Bargaining Power of Buyers

Bargaining Power of Suppliers

Threats of Substitute Products or Services

competitors; Barrier lower than # of than available
Very Buyers producers; •No ceiling on
• High Initial lower
competitive •Standardized prices
Investment & bargaining
environment R&D cost and less •Quality
differentiated power important
• Diversified • Strict govt. •Difficult to find
products factor; high
Industry in policies alternative
•Backward quality at high
strategic firms price
terms integration easier
than forward producing a •Low producers;
• Growing integration particular similar products
Market product
Vertical Integration

1. Advantages
• Ability to control content creation
• Certainty to maintain quality
• Customizable profit-sharing agreement
• Better control over the revenue streams
• Edge over the competitors
• Price Control

2. Disadvantage
• Increased Rigidity; Reduced flexibility
• Limitations to variety of Suppliers
• Limitations to variety of Buyers
• Increased complexity
• Reduced risk taking capabilities
 What are the main problems that
Sapan and AMCN faced in the lawsuit?
Vertical Integration Model in Television
Problems:

1. Sapan and AMCN faced the lawsuit over the profit sharing from the network’s hit
show – The walking Dead

2. The lawsuit points out that shows like Breaking Bad and Mad Men, which were
made by non-AMC owned studios, ended up negotiating higher fees than The
Walking Dead.
• Walking dead was part of AMC show after vertical integration, the profit share
was given to studio level

3. The lawsuit also alleged that the 68% of reimbursement was fixed for entire duration
of TWD, show produced by outside studios were faced 100% reimbursement starting
from season 5.
What are AMCNs options?

1. Settle the lawsuit outside the court.

2. Adopt Direct Internal Negotiations
 AMC Studios negotiates with their affiliate network and enters into a
license fee agreement at the fair market value.
3. Introduce for online streaming platforms and get Kirkman on-board
for content development.
Option 1: Settle the lawsuit outside the court

Case of David Duchovony (The X-files) - Exhibit 3

Company was alleged to sell re-rerun rights to its
own subsidiaries at below market prices, thereby
depriving the profits od David.
David had sought damages of $25 million and
settled out of court for a sum of $25-30 million.

Feasibility – Low
Kirkman and 4 other parties were seeking more
than $1 billion USD because of show’s success in
past 5 seasons
Option 2: Adopt Direct Internal Negotiations

 AMC Studios negotiates with their affiliate

network and enters into a license fee
agreement at the fair market value.
 Comparable Agreements for License fee
 Breaking Bad: 77%
 Mad Men: 85%
 Better Call Saul: 83%
Recommendation:
Considering the rest of the seasons, license
fee agreement can be updated.
Option 3: Introduce online
streaming platform
1. Broadcast television had high subscription rate high and low
viewership rate in 2017
2. Example: 1996-97 season of ER, one of the NBC’s top shows had
audience of 30.79 mm, while 2016-17 season of NBC’s top 10 shows
had an audience of 14.6mn.
3. Low viewership-> Low Advertisement rate and Low subscriber rate.
4. Several key players are in competition and are cannibalising the
viewership of TV viewers

Recommendation:
Get involved in OTT business to stay in competition and retain the
creative talent.
Thank you