AMC Is Thriving by Breaking the Rules of Legacy TV

It took great writing and deal-making to turn AMC into the most critically acclaimed network on television. But now, the channel is challenging the very business model it mastered.

800 amc breaking bad1.jpg

Reuters

It's good to be AMC Networks right now.

The season premiere of AMC's Breaking Bad drew 5.9 million viewers in the United States on Sunday night, double the figure for its premiere a year ago. That kind of audience growth is rare, and it's even less common for such a dark drama, chronicling the transformation of a chemistry teacher into a ruthless methamphetamine kingpin.

But while ratings are worth celebrating, they aren't the best measure of success by the weird economics of the television industry. In fact, AMC had prevailed well before Sunday night's Breaking Bad premiere, and it did so while violating many of the outdated assumptions that tend to govern cable TV.

AMC makes most of its money not from advertising but distribution -- what it charges cable companies for the right to carry its content. These affiliate fees, sometimes called retransmission fees, are a strong indicator of a network's worth: The more valued it is by cable customers, the more money it can extract from cable companies. And by that measure, AMC is doing very well, indeed.

The backstory to that chart goes something like this: AMC had been a movie channel -- it stood for American Movie Classics -- but toward the beginning of last decade, executives worried the network was becoming expendable. Cable companies could provide their own movies more conveniently and for less money.

But Time Warner's HBO, another network with its legacy as a movie channel embedded in its name, had successfully invested in original programming that made it hard to get rid of. In 2007, The Sopranos aired its final episode on HBO, having changed a lot of assumptions about television in the process. "We need a Sopranos," was the mantra within AMC.

That year, AMC debuted Mad Men, a drama about an advertising agency in the 1960s. The original script, by Sopranos writer, had languished for nearly a decade without finding anyone willing to produce it, but risky shows suddenly seemed like better bets. "My boss has told me that ratings, in that moment, don't matter," recalled Rob Sorcher, an executive who was brought in to turn around the network.

What AMC got from Mad Men was a different kind of hit, the type that tends to be called "critically acclaimed," a show that some people would be passionate about--and complain loudly if their cable company ever dared to pull it off the air.

Mad Men was followed a year later by Breaking Bad. Its lead, Bryan Cranston, won the Emmy for best actor after the first season. "Now we're a network," Charlie Collier, the president of AMC Networks, remembered saying when Cranston won. "We have two shows." Popular shows that followed included The Walking Dead and The Killing, which attracted better ratings and additional cult followings.

That provided enough leverage for AMC to demand that cable companies pay higher affiliate fees, which rose from 22 cents per customer per month in 2007 to 33 cents in 2013--a 50% jump in five years, according to estimates by SNL Kagan. (That's just for AMC itself; AMC Networks also includes IFC, WE tv, and the Sundance Channel, which command lower rates.) When Dish Network balked at paying higher fees last year, AMC ultimately won the dispute.

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Zachary M. Seward is a senior editor at Quartz. He previously worked at The Wall Street Journal and Harvard's Nieman Journalism Lab. He teaches digital journalism at NYU.

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