George Barrios, Chief Financial Officer, of WWE, presented for the company at the UBS 40th Annual Global Media and Communications Conference. www.SeekingAlpha.com has transcribed the entire presentation and you can read the entire thing by going to their website.
He painted WWE's business in the best possible terms, which was to be expected. We won't go into all of those statements.
Here are some interesting notes from Barrios' part of the presentation.
Concerning the loss of NXT and Superstars in the US: We have talked about quite a bit focusing on creating more content and we saw that $75 million to $95 million range in the core business EBITDA, one of the things that’s impacted it negatively is as we were engaging discussions on the network, we took two hours of prime time TV off of domestic distribution. That was our NXT show as well as our Superstars show. Those are significant economic engines. They came off. We didn’t place them again. Over the last four months we have gotten those two hours back in the market different shows but they are back in the market and we are monetizing them.
About the "success" of the third hour of Raw: Also really important is that that content id delivering for our network partners. So the third hour of Raw is up 35% versus what it replaced for USA. So they are very happy with that. ION's main event is up about 15% from the show it replaced. So they are also very happy with that. Our morning show on Saturday mornings with the CW on their Vortex platform is up 50% over the show it replaced. So that’s really, we consider ourselves to be really good partners and like to put ourselves in the shoes of our partners. We know what is important to them and we get really focused operationally in delivering for them and I think in all three cases we have very happy partners for those shows and economically it puts us back to where to were in 2009, 2010 in terms of number of domestic hours that we monetize.
Concerning WWE Films: Talk a little bit of our film business. The film business has morphed in strategy and execution over the last few years. WWE launched its film business in late '05. Early '06 and essentially we produced six film, invested roughly $100 million dollars gross, up $75 million net of tax credits. We produced these films generally in localities where there is 20% to 30% and in tax credits but gross of about $100 million, and right now the projected return on and ultimate basis and now these are fairly long-lived films. So we feel pretty good about the productions. It is essentially just above breakeven in cash-on-cash return. That model was characterized by partnership. Each of those movies were co-produced, co-financed, for the most part and co-distributed with different partners, Fox and Lionsgate, to name a couple. We thought we could do better by going it alone and we invested roughly $50 million in producing, financing and very importantly, distributing. So having all of the distribution execution on us on eight films. There was a series of impairments that we are taken in 2011 on those films and today we think the expected cash-on-cash return which with those impairments, the P&L impact has been felt pretty significantly but on a cash-on-cash basis roughly a 30% loss. So by any measure it was a strategy that was poorly executed. We have gone back essentially wiped that entire operationally the internal operations, wiped that clean, brought somebody else in to run our film business. A gentleman named Michael Luisi, long career at Miramax. It's really the first time we have had anyone running the film business with significant commercial experience. We had creative folks in those roles before. But Mike brings a significant level of commercial experience and he has been retooling the model.
About maximizing sales to their most loyal customers: There is also some structural changes in the home entertainment business. WWE as these change is taking place has actually weathered it pretty well if you looked at over the last four or five years. We certainly have felt some pain in that business, but if you looked at the industry as a whole, we have actually outperformed it. One of the reasons is because our fan base is very collector centric and they like collectibles. They like the physical product which is one of the reasons our home entertainment business, we believe, has weathered that change a little bit better but we all know where it is going. Optical disk drive are going by the wayside over time and we need to manage that transition. Higher margins because of the lower distribution costs but the price point becomes the issue and that’s something that we will have to, like a lot of our collagen content business, we will have to manage through.
On why The Great Khali has a job: So you have traditional outlets, but as well as OTT. We made a lot of investments in emerging markets. Some of them are already eight figure market for us. Markets like India and Mexico. But in a place like India all of those economics come from our TV licensing deal. We hardly make a dollar yet from consumer product. But that will come. The reason we make so much money on our TV licensing deals is because our shows do very well in India. So our partner rewards us for that. We feel really good about that and we feel really good about what could that mean in consumer products in the future.
Their future on USA, CW etc.: We also, over the next few years have some significant commercial agreements. We have delivered significant value to our partners. So we feel very good that those agreements are coming up. Our agreement with the USA on Raw, our agreement with Smackdown on SciFi, our agreement with BSkyB in the U.K., our agreement Taj TV in India and our agreement with Mattel. In all five of those cases, we believe we have performed in exemplary fashion. So we feel good that those agreements are going to come up in the next few years. We look forward to seeing economic growth in that.