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Welcome to PWInsider.com's ongoing coverage of the WWE 2016 Third Quarter Earnings Conference Call! Vince McMahon and George Barrios will review today's earnings release and field questions from members of the financial media.
WWE SVP Michael Weiss welcomed everyone to the call and introduced Vince McMahon and George Barrios.
Vince McMahon said their revenue this quarter was "on par" with their earnings this time last year and was in the area of what they forecast, although on the lower end. Vince said the brand extension has worked really well and said they have done about twice the ratings with Smackdown going live. He said the increased value of their broadcasts and their product all over the different platforms. He said NBCU signed deals with 52 new blue chip advertisers. He put over the new deal in Germany for TV and praised their 71% increase in social media views from this time last year. He said ESPN and other sites are seeing their popularity and "taking advantage of it" with their own verticals.
Barrios reviewed the financials that were released. WWE Network hit 1.46 million subs. Digital engagement metrics continued to grow with over 11 million video views across social media platforms.
The TV revenue was down a bit because this time last year, they had Total Divas and Tough Enough airing, but those series did not have episodes airing during that period in 2016. TE didn't exist at all obviously, while Divas was shifted to a Fall premiere.
They noted the WWE Network growth was offset by increased spending on production and new content, so it was a wash. Production costs were shared between the Network and TV segments of the company. They now have 4 times the amount of content on the Network that they had when they launched in February 2014.
Licensing was down a bit due to a lower royalty rate for the new WWE videogame and a slower sale of toys. They noted they are not getting a flat rate for the game now, but are paid at a different rate, so that obviously will have a ripple effect on the licensing royalties.
Barrios said that they will continue to execute their business model in 2017. He said that every day, they become more digital, more global and more direct to consumer. They are also expecting increases in WWE Network subscribers and for their TV deals to increase and bring more money to the company in the years to come. They believe they will hit a target record for financial growth in 2017.
It's time for questions!
Barrios was asked about them potentially mentioning a softening of Network subs in the fourth quarter. He said it's a subscription model and while they are always happy with what they do, some spectacles and attractions mean more than others.
Barrios was asked about the survey released about different tiers for the Network. Barrios said they are always talking to their audience to see what type of content they are interested in and what different content they can provide. He said that no one should read too much into it, because it's just about communicating with the audience and seeing what they want.
They were asked if the WWE Network subs come in softer in 2017, are they going to cut spending. Barrios said they are not going to go into additional guidance. He said that the revenue growth is based on their levels of investment and they want to meet or exceed their commitment. He said they take it seriously when they put their numbers out.
Barrios was asked if there are areas they aren't happy with and whether that means they will be dialed back. Barrios said they have been adding more people "on the ground" in local markets and that has been working great. He said that they have the new TV deal in Germany and that is an example of investing locally in the market. Barrios said the real values of investments they are making now will be seen in the long term. Their content always depends on which platforms. He said that social media, they see the value immediately. On the Network, the direct piece of value for each piece is hard to value but they are working based on how they view the next 5-10 years, on both short and long term investments.
It was noted that the company's ratings are holding up, but when do they start talking about revewing TV deals. Barrios said that their domestic deal expires in September 2019 and the UK deal expires in December 31,2019. India expires the same time at UK. In regard to cord-cutting, Barrios said that someone he respects says that, "their crystal ball is a little cloudy" on that subject and put over the popularity that WWE generates for their original programming on every platform. They will make decisions on the best place on where their content will be when they have to make those decisions. TV is the best driver for their top monetization.
Vince was asked about the recent AT&T-Time Warner merger and the recent UFC sale and why he hasn't considered a sale to get the most value for shareholders. Vince said they would always consider anything but there is something to be said about controlling your own destiny. He said there is always a question about how much control and influence you would lose in a move like that but if there was a deal they couldn't refuse, they would consider it. He was asked if there was a merger deal that allowed him to continue to control WWE's business, would it be something he is interested in. Vince said, "We are open for business."
They were asked if there was any international original programming they could bring back to the U.S. Barrios said they do localization in some markets and are working on that for the WWE Network. He said they are going to talk about that today but in two years, you might be able to look back and say, look what WWE did with this. Barrios pointed out a big part of their social media numbers are international.
They are continuing to work on the China market, the last country they have yet to launch the WWE Network. There is nothing to announce yet but it is something they are still trying to figure out and said that he hopes it is something they can make an announcement about in future months.
They were asked for thoughts about content producers being acquired given how unique and valuable the WWE content is. Barrios said those are big questions with no real clear answers. Barrios said that what is important to WWE is that there is a vibrant, competitive appetite for content. He said that their numbers are public and out there. When they license content to a partner, they bring those partners. As owners and creators of their own content, they are in a great position. He said whether they go direct to consumer (Network) or license (TV deals), they are in a great position.
They were asked about the NBCU relationship and how the last deal was billed as more of a partnership and whether there are any other realms they could partner in, such as theme park attractions, etc. Barrios said they have never felt like they license their content and then step away. They license the content then work with partners to make the content as important and popular as possible. They and NBCU are both happy with what the last two years have built. They teased they would be in Orlando for Wrestlemania next yearm and would be there all week and that additional announements could come there - was that a tease of a Universal Studios attraction?
They were asked whether they would attempt to bundle deals for the WWE Network where someone who signs up for a year gets a free ticket or merchandise in exchange for their commitment. Barrios said that if he didn't know any better, he would think the person was applying for a job in the subscription marketing group. Barrios said the Network is their second biggest business and their fastest growing business in 2016 and a big part of that is how they can connect with their fans. They are thinking of bundles such as that. He said in the next few months, you might see something like that rolled out but they don't want to confuse the audience. There will be some experimentation.
They were asked what they think is driving the decline in Network subs for the third and fourth quarter. Barrios said there are variabilities and that's why they put a range on where they think they will be. They declined to comment on specific factors but said there was a trend they were looking at. They have data and are looking at it.
They were asked about their future with MLB.BAM given that a big piece of them was purchased. Barrios said they have been a great partner and they are a big part of why WWE is the fifth largest VOD service in the U.S. They will judge how things go forward as they see how the Disney influence changes how they operate, if at all. They were asked about potentially bundling with other VOD services. Barrios said that they have to look at different economics, whether they get customer informaton, and what sort of metrics they get from that. He said with the Network, they get more insight into the engagement of the audience then they get with anything else. Bundles are a possibility though.
That was it.
No questions about the company potentially acquiring TNA, although yesterday, court documents in the Billy Corgan vs. TNA lawsuit showed TNA and WWE had potential sale discussions at least twice in 2016. No questions about WWE potentially acquiring independent wrestling content for the Network either.
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