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'WE DO MORE THAN DISNEY' - VINCE MCMAHON SAYS THE COMPANY WENT TOO FAR INTO THE "G" REALM, IS TRYING TO BE MORE 'SOPHISTICATED' WITH ITS PRODUCT AND MORE: WWE CONFERENCE CALL COVERAGE

By Mike Johnson on 2012-08-02 11:56:00

WWE held their conference call to discuss their quarterly earnings release.

Vince McMahon welcomed everyone and said that they were essentially flat, which was "nothing to write home about."  He said they had a 17% increase in PPV performance and they've reduced losses from the movie business.  Their licensing profits dropped as a video game that "was to be produced" (WWE All-Stars 2) was not released.  McMahon said their social media is exploding.  Live events remained flat. 

Vince touted their excellent rating for the 1000 episode of Raw and said that they have incredible staying power as no show has held as many episodes of as they have.  He said the three hour show will bring them an additional audience to tap into their interactivity.  He also pushed the debut of the new series on Ion, saying it will give them an audience on Wednesdays and said that they are happy with their Youtube series, noting some of them can be repurposed into larger series.

Vince laughed as he mentioned the re-release of "No Holds Barred" but said it's done very well since they've remastered it for DVD release.

Vince said that their explosive growth on social media can change the overall impact of their business.  He said that in a year's time, they should be much better positioned on a global front.

He said that internationally, they held sold out shows in Russia and had an "OK" debut in Brazil,

Vince said everyone has been patient in waiting for the WWE Network details.  He said they are not ready to make an announcement but was confident they will make one the next quarter.  They have produced content for it, have built an infrastructure and began discussions with potential carriers.

CFO George Barrios said that they have increased their domestic TV to six hours a week (with the Ion series and Raw expansion) and will have over 80 hours of original content with Youtube compared to 52 this quarter.

They discussed the investment in social media platform Tout.  They invested $5 million into the platform and after they promoted Tout on Raw, it jumped to #6 in the itunes app store for photo/video. 

They noted that the incredible live performance of Wrestlemania was pulled down by a 7% decrease in international ticket prices and a 6% decline in live international ticket sales, mostly for Mexico and Brazil. 

PPV business was up $6.4 million dollars.  Wrestlemania counted for 60% of that growth.  The other events were up 28% on their own, partially due to larger price tags for HD broadcasts.  They credited their increased brand awareness, creative and character development.

While the loss of WWE All Stars pulled down their licensing money, videogame sales were down 34% while toy sales were down 8%, partially because the action figures are down 10% overall in sales.

Video revenues were about the same. 

The magazine publishing cost structure has been re-engineered so they can make it profitable despite lower sales.

The Youtube video material led to a huge increase in revenue for the WWE.com.  WWE's channel is the fourth most popular channel on the website.

WWE.com Shop orders were up 7%, partially due to less "deep discount" sales.

WWE Studios made revenues of $6 million.  There were no new releases (thus no losses) and their revenues were from older titles being sold via DVD as well as the first DVD release of Hulk Hogan's No Holds Barred.  It cost them less than $100,000 to remaster and release the DVD and expect it to make them upwards of $300,000.

They discussed their new relationships with different movie studios and pushed the future releases of "Marine: Homefront" with 20th Century Fox, "Dead Man Down" with IM Global featuring Colin Farrel and Wade Barrett. "The Hive" with Halle Berry and David Otunga (which will be released theatrically) and "No One Lives" with Luke Evans and Brodus Clay, which is going into the Toronto International Film Festival.  Their equity investment is only 40% of their investment in previous self made and distributed films, so they have much less of a gamble on each individual film.  Their final self-financed film, the thriller "Barricade" will be released in September.

They are pleased with the process of the WWE Network, but they don't feel its in the best interest of their shareholders to discuss details at this time.

They pushed their huge surge in social media and said it will only increase with the integration of Tout.

They went into the Q&A Session:

A caller said that stockholders were waiting for more details on the WWE Network.  They were asked about their range for the network.  The models they have looked at are broad distribution, a pay TV format and one "over the top".  That's all they can say at this point.

They were asked about their Internet traffic being up and whether it can be maintained.  They've done some operational improvements on the site and have improved the content and integration of social media to it.  Social is growing faster and they hope to use that to grow the site as well.

They were asked about the one-time loss they expect from cable network costs and additional projects.  They will down the line describe them but for this year, they are going to spend $5-$10 million on programming and they have spent money already on the "Legends House" reality series.  $10-$15 million will be spent on marketing but that will depend on their launch timing.  They've spent $4 million on the Network already this year.   It all depends on how much they spend on marketing but they have a good handle on staffing, etc. for the year.

They were asked about the PPV rise this quarter and what drew the growth.  Wrestlemania buys were up 15%.  The other buys were up 20%.  The growth were driven by homes buying the HD purchases for $10 more per buy.  They went from 20% of their buys being in HD to 34% of the PPV orders being in HD.  Their creative was "great" and Wrestlemania was "amazing."  Their marketing expenditures were the same as the year prior.

Regarding the loss of attendance in North America, Barrios noted that they are in different places quarter to quarter so it's tough.  The Smackdown brand is a little behind where they want it to be and that it pulling down the numbers.  They have invested in new production to help increase the interest in the live events.

They were asked how they can really monetize the online video and whether it was just cannibalizing the traditional viewership.  Vince said that there is an insatiable appetite for the genre and "we are the genre."  He said that YT allows them to do more humor and they can do more dramatic variety on their broadcasts.  He noted the Raw expansion brings them an additional viewership.  Raw and Ion allows them for additional material to sell internationally when current broadcast deals come up for re-negotiations.  He said that if they do their jobs right, there is a huge appetite for where "we want to go."

They were asked their ownership percentage in Tout.  They aren't going to disclose that at this time.  They will be accounting for it using the cost method, which implies a level of ownership.  They thought they could grow the global potential and that technology could held them.

They were asked about ratings.  Domestically, they have a structured format for finding ratings but internationally, they get different numbers.  They can measure the amount of fan engagement via social media.

They were asked about NXT and Superstars.  NXT has a change in how it's been produced but has been moved to Orlando (actually Winter Park, FL guys) with Full Sail University.  It's been going well and the show is doing great.  They feel Full Sail is getting benefits from working on the show.  They had no updates on distribution domestically for either show.

They were asked about the programming slate for the network.  Barrios said that for the network to be at the transformative level they hope it will be, they need to have strong content.  They have developed a Monday Night Wars series that will be compelling content looking at the WWE vs. WCW war.  A shareholder told them that they need to share more about the Network because holding back is hurting the stock and you need to comfort the shareholders as to why this is a good thing for the company.  Vince said he was confident the next quarter they would be able to discuss the Network.

They were asked about the library.  Barrios said that they have about 100,000 hours total and 30,000 hours have been digitized.  They were asked how many more original hours would launch with the Network.  Barrios said that whatever makes sense economically, they will do.  When there is more content, the audience wants it.  New content doesn't hurt existing content.

They were asked about their plans to diversify into other opportunities but they haven't done any of that beyond the Studios and how they can be more than just a wrestling company.  Vince said that film was a project and they felt they had the right plan for that now.  He said from a media standpoint, they do more than even Disney since Disney doesn't produce PPV.  He said they can shape the company and take it in any direction.  He said they have the overall brand and the individual brands, like John Cena, that you can capitalize on domestically and internationally.  They are a variety show and there's nothing else in the world like it.  They have wrestling but they have drama, comedy, music-  they do it all.

They were asked how the investment community should value WWE.  They said the stock price today has reflected last year's earnings, which were brought down by their film impairments, which was "jarring for all of us."  He said that the film issues and the lack of knowledge for the network leaves questions so they have created the new film model yet still need to deliver.  Once they roll out the full business model for the network and roll it out, that will help.  Barrios said that they should feel good about where the company is going.

Vince was asked about the creative front and being a little more on the edge front.  He was asked if that was an intentional move.  Vince said it's an evolvement and the writing of the shows are "considerably better."  There are no subject matter they can't touch upon but have to do it in a more sophisticated PG environmnent.  They can stretch segments without pushing it into PG-14.  When asked if they took it too far into the "G" rating in the past, Vince responded "that was pretty fair."