WWE held their second quarter results conference call earlier today, which was opened up by Vince McMahon welcoming everyone telling them that they were flat, which was nothign to write home about and that they had a 17% increase in pay-per-view business, reduced losses from the movie business, dropped licensing profits as a video game that was to be produced wasn’t released (either WWE Brawl or WWE All-Stars 2) and that live events remained flat. Vince then noted that social media is exploding and the company pulled in an excellent rating for the recent 1,000th episode of WWE RAW and that the company has incredible staying power as no show has been on the air as long as they have. Vince noted that the 3 hour RAW will bring the company an additional audience to help tap into their interactivity and talked about WWE Main Event on ION stating that the new show will give them an audience on Wednesday’s. Vince then put over the shows on YouTube and stated that some of them could be repurposed into larger series. He then went on to comment on the re-release of the No Holds Barred pay-per-view and laughed but said that the DVD has done well since the remastered version has come out. Vince then talked again about social media and said that it can change the overall impact of their business as in a year’s time the WWE should be much better positioned on a global front and that internationally the company held sold out shows in Russia and had an okay debut in Brazil. Vince then said that everyone has been patient in waiting on details in regards to the WWE Network and said that as of now, they are not ready to make an announcement, but are confident that one will be made in Q3 noting that the company have produced content for it, built an infrastructure and have began discussions with potential carriers.
WWE’s Chief Financial Officer George Barrios then took the floor and noted that the WWE have increased their domestic television hours to 6 hours a week with the new ION show and the 3-hour expansion for WWE RAW and will have over 80 hours of original content on YouTube this quarter compared to 52 hours the previous quarter. The company were then asked about their investment in the TOUT social media platform and noted that they invested $5m into it and after their promotion on WWE RAW, the app jumped to #6 in the iTunes app store. It was then noted that the live performance of WrestleMania was pulled down by a 7% decrease in international ticket prices and 6% in live international ticket sales, mostly in Mexico and Brazil. It was then noted that pay-per-view business was up $6.4m to which WrestleMania accounted for 60% of and that the other events were up 28% individually, due to the larger price tags for high-definition broadcasts. The loss of WWE All-Stars pulled down their licensing money, video game sales were down 34%, toy sales down 8% and the company was down 10% overall in sales, however video revenues remained the same as previous. It was then noted that the WWE Magazine publishing cost structure has been re-engineered so that they can make it profitable despite lower sales and that the YouTube video material has led to a huge increase in revenue for WWE.com with WWE’s channel the 4th most popular on the video-sharing website. They then stated that WWE Shop orders were up 7% from the last time, due to less deep discount sales and that WWE Studios made revenues of $6m, however there were no new releases and their revenues were from older titles sold via DVD and that it cost them $100,000 to remaster and release the WWE No Holds Barred DVD, which they expect to make them upwards of $300,000. The company then discussed their relationships with movie studios such as 20th Century Fox, IM Global and that their equity investment is only 40% of their investment in previous self made and distributed films, meaning that they can take much less of a gamble on each newly released film and that their final self-financed film titled “Barricade” will be released in September. It then returned to talk in regards to the WWE Network and while they are pleased with the process of the network, they don’t feel that it is in the best interest of their shareholders to discuss details at this time and then moved into the question and answer session.
The first caller stated that stockholders were waiting for more details on the WWE Network including their range and said that the models they have looked at are broad distribution, a pay TV format and one that is over the top, which is all they can say about at this point. The next question was related to the company’s internet traffic being up and whether it can be maintained and noted that they’ve done some operational improvements on the site and have improved the content and integration of social media and that social media is growing faster which they hope to use to grow the site. The next question was in relation to a one-time loss they expect from cable network costs and additional projects and noted that down the line they will describe them, but for this year, they will be spending between $5-10m on programming and that they have spent a good chunk of money on the WWE Legends House reality series and expect between $10-15m to be spent on marketing which will depend on their launch. The company then noted that $4m has already been spent on the WWE Network this year and it all depends on hos much they spend on marketing, but they have a good handle on staff and everything else for the rest of the year. The next question was in relation to PPV growth and noted that WrestleMania buys were up 15%, with the rest of the PPV’s up 20%, which was the success of the High-Definition purchases and that they’ve went from 20% of their buys in HD to 34% and expect that to rise again. They then noted that creative was great and that WrestleMania was amazing with their marketing around the same as 2011.
In regards to the loss of attendance in North American events, George Barrios noted that they are in different places quarter to quarter so it’s tough to analyze and that the SmackDown brand is behind where they want it to be and it’s pulling down the numbers, however they have invested in new production to help them increase the interest in live events. The next question was about monetizing the online videos, to which Vince said that there is an insatiable appetite for the genre and that WWE are that genre. Vince then said that YouTube allows the company and its stars to be more humorous and that they can do more dramatic variety on their broadcasts. He then stated once again that the expansion of RAW to 3 hours brings an additional viewership and that RAW and the new show on ION allows the company to have more opportunities for additional material to sell internationally when current broadcast deals come up for renegotiating and that if the company do it right, there’s a huge appetite for where the company wants to go. The company were then asked about their ownership percentage in TOUT and noted that they’re not disclosing that at this time, but they’ve invested $5m as they noted and that they will be accounting for it for using the cost method and think that they can grow the global potential and that technology can help them. They were then asked about weekly ratings and noted that domestically they have a structured format for finding ratings, however internationally they get different numbers, but they can measure the amount of fan engagement via social media to tell how many people are tuning in to watch their shows. In regards to WWE NXT and WWE Superstars, they then noted that NXT has a change in production and has been moved to a new location in cooperation with Full Sail University and that the show has been going well and feel that FSU are getting benefits from working on the show but have no updates on domestic distribution for each show.
The next question moved on to programming for the WWE Network to which Barrios stated that for the network to be at a transformative level that they hope it will be, it needs to have strong content and that they’ve developed a Monday Night Wars series looking at the WWE vs. WCW war. A shareholder then told them that they really need to share more details in regards to the WWE Network as holding back details is hurting stock and they need to tell shareholders why the WWE Network is good business for the company. Vince said that next quarter they will be able to discuss the WWE Network. They were then asked about the library and Barrios noted that they have about 100,000 hours in total of which 30,000 have been digitized and were then asked about how many more original hours would launch with the WWE Network to which Barrios said that whatever makes sense economically, they will do and when there is more content, the audience wants it and new content doesn’t hurt existing content. They were then asked about their plans to diversify into other opportunities but they have not done any of that beyond the WWE Studios. Vince then said that the film was a project and they feel that they have the right plan for that now, however from a media standpoint, they do more than even Disney since Disney doesn’t produce pay-per-view and that they can shape the company and take it in any direction and said that they have the overall brand and the individual brands like John Cena that you can capitalize on domestically and internationally and that they’re a variety show and there’s nothing else in the world like it. They have wrestling, but they have drama, comedy and music, they do it all.
The next question was in relation to how the investment community should value WWE to which they responded by saying that the stock price today has reflected last year’s earnings which were brought down by their film impairments and that the film issues and lack of knowledge for the WWE Network leaves questions so they decided to create a new film model, which they still need to deliver on and once they roll out the full business model for the WWE Network and have it launched, that will help. Vince was then asked about the creative team and programming having more of an edge and whether this was an intentional move, to which Vince responded that it’s an evolvement and the writing of the shows have been considerably better and that there is no subject matter that they can’t touch upon but need to remember that they have to do it in a more sophisticated PG environment meaning that they can stretch segment without pushing the TV-14 boundaries. They then wrapped up the conference call thanking people for their time and questions.