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WWE held their quarterly earnings conference call with stockholders this morning. They started late. I wonder if it was because Vince was reading Dave Scherer's column? Just kidding.
Vince thanked everyone for joining them. He said they they grew 5% in profits attributed to home video and PPV, offset by an impairment from WWE Studios, domestic television sales being off about two hours (NXT and Superstars) and licensing being down. He said their attendance is 4100 per event on average. He said that ratings remained flat, which is good news (because they didn't crash) but that PPV numbers are slightly down.
Vince said they continue to formulate plans and discussions with partners with the WWE Network and they are in a good place right now. They expect expenditures of $4-6 million due to construction, staffing and expenditures. he said they have turned the corner with the Network and to expect a very big announcement shortly. He said they will achieve meaningful growth.
They noted that they had a $5.1 million impairment from WWE Films this quarter.
Their operating income increased 3%.
They recited all the numbers from the quarter. I'm not going to repeat what's in their release, but here are some notes.
They had lower sales of licensed products, which declined across all platforms except video games. It was down 17%. The biggest declines were toys, collectibles and apparel. They were down 24% for toys alone and noted that this time last year, they had a massive toy launch which was successful. They praised the sales of the WWE All-Stars game sales, noting that it offset the Smackdown vs. Raw 2011 game. They plugged the launch of WWE '12, pushing that it was an overhaul of the software.
They noted they were down in TV revenue due to their choice not to place NXT and Superstars with partners domestically. They said it was a strategic decision for the long term good of the brand. That sounds to me like they are WWE Network bound.
Magazine sales continued to drop. E-Commerce revenue was up with 68,000 orders in the quarter
They said the film profits declined $5.5 million from this time last year due to lower video sales and theatrical grosses. That's where the impairment came from. They noted they have three films left for the self-distribution model, which means they are looking into going back towards working with partners again when that is completed.
They have a war chest of $181 million in cash and assets.
They said they have made important strides towards the WWE Network and they are in discussions with partners and creating plans for programming. They feel the Network will accelerate their earnings growth in terms of TV exposure and international awareness. They noted it would launch in 2012. They are developing new property and a revised website for the network. They pretty much made it clear Superstars and NXT will be moving there.
They remain optimistic for the long-term.
They then went into the Q&A segment for Vince McMahon and the others.
They were asked about the Network and asked if they are where they expected to be with the launch, announcing a partner, etc. Vince said they are on their projected schedule. He said that they've hit the optimum time to launch a Network of this kind. The varying success of some launched networks was brought up and Vince was asked if it gives them pause. Vince brought up the Oprah Network and said it was a failure because Oprah isn't doing what she does best on the Network. They are just using the name as branding and that doesn't work from a common sense standpoint. He said that they know what WWE provides and this will give them a chance to give the audience what they want and to appeal to a younger audience with content specifically for them.
The declining toy revenue was brought up. It was noted that there was a lot of enthusiasm for the Mattel deal a year ago. Vince was asked if he thought it was just a decline of the retail sales alone that caused it. Weiss jumped in and noted that the data they've seen notes that action figures have been hit hard overall in the last year. He said they aren't happy with the results and they are going to work with Mattel to make sure they are branding correctly and working to create new product. They claimed nothing "particularly alarming" caused the drops beyond the environment.
They were asked if it still makes sense to have WWE Studios and if their current strategy makes sense with the Network launches, even with the changes in their strategy over the course of the Studios' growth. Vince said there is an ongoing adjustment and evaluation into the Studio. He wouldn't specify whether they were backing off from the Studios or not, but hinted they could be. I'll have a lot more on that in my Elite Hotline today.
They were asked about start-up costs for the Network and whether they expected some of the current expected costs to remain on a regular basis. The broad answer was that they will give a fuller explanation down the line of how they expect the Network to affect the WWE cost structure and revenue. Some of the $4-$6 million costs mentioned will be part of ongoing Network costs but not everything is in place now, so they aren't sure how much will be ongoing costs vs. a one time expenditure. The costs will bleed into the fourth quarter, though.
They were asked about the existing production facility since they had talked of upgrading in the past and never have. They will launch the Network in a way that fits the company's infrastructure, but over the long term, they believe the new Media Center they want to build will be part of their future infrastructure. So, down the line, they expect to invest money into a new production studio expansion.
They were asked which International regions are doing the best right now. They noted Mexico did well for them attendance-wise. The quarter to quarter comparisons are difficult because they tour in different territories and venues from quarter to quarter.
The Rock's return to Survivor Series was brought up. They were asked how that helped the attendance and Vince said the show sold out in 90 minutes.
They were asked about WWE's Network and if would have any partnerships. Vince said it would be solely owned by WWE. He didn't respond to whether they had any partners involved.
It was noted they were signs of a creative uptick heading into Money In the Bank and then things settled back down. They were asked if the reality based creative would continue or if there was another reason the buzz stalled. Vince said that he didn't understand the question. He said they feel they still have a buzz around the brand and they will continue to build the buzz. They were asked how long it will take to "shift the boat" and get the creative direction to lead to increased revenue. Vince said he's been doing this for "50 years" and he remains as optimistic today as he ever does. It came off to me as if they were being asked why their buzz died following the CM Punk title win and return but they either didn't get it or ducked it.
It was mentioned that THQ was launching a Facebook-based WWE game. They noted that WWE does well on those platforms and they would expect the game to do well.
They noted the Youtube Content partnership. They said that there continues to be a land grab for content and they are very happy as Intellectual Property owners. Vince said that they feel there is more of a demand for the content than ever before.
They were asked about a timeline for the Network, noting that stockholders know they are spending money with no clear idea on a return in the investment. They said that putting a date on it would be guessing but said around 6 months. The WWE reps seemed to be laughing.
They were asked about the WWE library. They noted they have about 100,000 hours with 30,000 hours digitized. They are using those 30,000 hours as the first programming for the Network. They continue to digitize. They said its their most underutilized and unappreciated asset. They own 100% of the rights, although they do license it to partners.
They were asked how many stars they currently have in their talent pool. There was silence and Vince finally said that it depends on what you call their talent pool. They noted that they have about 100 talents under contract, some in their FCW pool and some on their main roster. They were asked if there was a new Rock on the horizon. Vince said they feel 99-100% of their FCW roster could be the next Rock. They noted they were very optimistic as they laughed.
They were asked to follow up on TV rights that won't be licensed again going further and what they are thinking for existing shows on other networks. They said that NXT and Superstars not being on the air had impacted them about $9 million and will impact the TV revenue going forward. He said that the revenue there is still up even without them. He said escalating fees and new clearances drive that line. He said that there is a lot of demand for those two hours (REALLY?) but they held them off for the long-term perspective.
They were asked if the existing shows would remain in place or be moved to the Network. Vince said it was important to keep them in place to promote the Network and maintain their broad-based exposure. It said it would be short-sighted to pull everything in house when you can have cross-promotion. He said what's good for them is good for their partners, as they have proven in the past and the NFL has shown as well.
They were asked how long the current Raw distribution lasts. The current deal runs through October 2014. They were asked if they are able to use the Raw content on the Network. They are still having discussions on the window involved but theVince jumped in and said the short answer is "Yes."
They thanked everyone for supporting the company and for their interest.
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