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Why AMC Networks' Streaming Service Could Pay Off in the Long Run

AMC Networks (NASDAQ: AMCX) stock has fallen more than 20% in the last year, but the company's interim CEO isn't worried -- and patient investors shouldn't be, either. Here's why the entertainment company's venture into streaming looks incredibly promising. After years of Netflix monopolizing the market its founders essentially created, several major studios and networks are looking to carve out their space in the $372 billion industry. AMC Networks has done just that with its promising streaming platform AMC+, as well as several others. These lesser-known streaming sites could push their parent company's stock to new levels -- provided investors can wait for that to happen. Quality content is key In the current state of the streaming market, content is the name of the game, and AMC has long been a major player when it comes to prestige TV. AMC+ hosts an attractive library of content with legacy titles such as Mad Men, Breaking Bad, The Walking Dead, and newer series such as Better Call Saul and Killing Eve. The streaming platform also offers a wealth of content from horror streamer Shudder, Sundance Now, BBC America, and IFC Films. With the streaming market currently flooded with more platforms than consumers can keep up with, customer retention has become streamers' biggest challenge. Audiences are adding and dropping streaming subscriptions at a record rate, flocking to whatever platform is home to the current Squid Game or Game of Thrones. But AMC's quality content seems to entice more and more of those subscribers. The company gained more than 430,000 new paid members in the first quarter of 2022, a roughly 4% jump from the previous quarter. AMC Networks attributes its significant influx of new subscribers to its main priorities: unique, tailored services and quality content. In 2019, the company began holding on to the streaming distribution rights to some of its major franchises, such as the third spin-off show to The Walking Dead, "to fuel our own platforms," according to then-CEO Josh Sapan. In addition, AMC Networks' numerous streaming platforms each cater to a particular niche audience. "We continue to advance our differentiated strategy of offering streaming services that appeal to audiences with distinct affinities and passions, which is leading to strong consumer loyalty and low churn," interim CEO Matt Blank said in a conference call with investors at the start of May 2022. Where Acorn TV provides access to primarily British content, Shudder serves horror fanatics, and HIDIVE is aimed at anime fans. Allblk focuses mainly on African American-centered TV/films, and Sundance Now is for lovers of the indie genre. Judging by the company's continued subscriber growth across each of its platforms, its approach is clearly paying off. AMC Networks added more than 3 million subscribers between the ends of 2020 and 2021, and it's on track to meet its next goal of 20 million to 25 million by 2025. Slow and steady wins the race Blank recently revealed that AMC enjoys another competitive edge: It spends an average of $1 million less per hour of original content than its competitors. That means the company doesn't need to justify those costs by growing as quickly as other high-spending competitors. "From a scale standpoint, we do not have to grow 2 million subs a quarter," Blank told the MoffettNathanson Media & Communications Summit during a webcast. "We're very deliberate in growing this business. The whole streaming business is washed with the same cloth. There's so much noise out there." Blank reiterated that the company is not focused on directly competing with other streaming giants, instead opting to embrace its differentiated streaming strategy. Referencing Netflix's loss of 200,000 subscribers in Q1 2022, he said: "This is a superior environment for us to operate. And we do not change our strategy. We cannot change our tactics because of what happens in a given quarter to another company, or how financial markets react to those things." In an industry as new and volatile as streaming, there are certainly no guarantees. Consumers may not continue to embrace AMC's services so avidly in the future. However, its lower cost of original content gives the company plenty of time to grow and maneuver in this rapidly changing environment. And while AMC Networks has no current plans to introduce ad-supported tiers, it could always pull that lucrative lever in the future if it needs to. Where AMC Networks might go next While streaming does not provide all of AMC Networks' revenue, Sapan called it the company's most significant growth area in 2021. Revenue from the company's subscription video services -- at the time, mostly cable networks, with a few early streaming efforts -- fell 1.8% year over year in 2019, and 11.5% in 2020, the year AMC+ launched. The television networks AMC, WEtv, BBC America, IFC, and SundanceTV have all lost subscribers each year since 2019. But since 2020, total subscription revenue has consistently risen for AMC Networks --up 13.2% year over year in 2021, with a further 7.8% increase in Q1 2022. AMC doesn't break out specific streaming and cable revenue, but its financial statements credit that overall growth to gains in streaming subscriptions. It may take a few years, but AMC Networks is worth keeping an eye on as its streaming ventures continue to grow and consumers take increasing notice of its services. Interested streaming service investors would do well to monitor the company's subscriber growth and note any viral success of its content, which could boost subscribers for AMC Networks' services. 10 stocks we like better than AMC Networks When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and AMC Networks wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of April 27, 2022 Fool contributor Dani Cook holds no financial position in any companies mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

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