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It should be noted that the stock is up 47 cents, to $11.74.
Michael Weitz opened the call saying George Barrios and Vince McMahon will host the call. Vince is on the call from the UK, via a cell. He said that he isn't sure that they either didn't give enough information last week, or they gave too much. So today he is here to clear things up.
As for the TV deal, he said they were a little disappointed in the NBCU deal. He said all told, with international deals, they are at $200 million, almost doubled. They did $160 million last year. I don't get how that is doubled.
He then talked about the Network. They have invested significantly and their core business is rock solid. They feel very bullish on their business model and how it will do in the future. So again, they are hoping to clear up any issues people have and answer their questions. He turned it over to George Barrios to go over the numbers.
George talked about how starting in late 2011 they have invested $75M into the development of the Network and about $40M into the manpower side.
He talked about how they got good TV deals overseas and they are working on India. He said that their research showed that WWE programming was undervalued, in comparison to other programming. In three of four markets, they were correct (and again, the difference here is that advertisers don't put a high value on the average wrestling fan, due to their own research, and that is why they couldn't double like they thought they would).
The international expansion of the Network internationally will help. They feel that by the time they get to a stable level, in 2 to 3 years, they will have 2.5 to 3.8 million (if I heard correctly, it's in that area). He noted that if they get to 1.3M subscribers, they will make up for the PPV revenue that they expect to lose. He said that previously they thought the number to get there was 1.25M so it's not a big jump, and he added that is if it cannibalizes all PPV revenue.
If they get to the 2.5M subscribers, they will generate an extra 100M in OIBDA. That would be a great thing.
He talked about their potential scenarios, which were in Thursday's release. He then talked about how prospective scenarios could work financially.
When he finished with that, he went into subscriber growth. After starting out with about 670,000 in April, they now need to add more by creating a five point strategy, new content, international expansion, marketing it, etc.
QUESTION TIME!
The first one asked what the operating expense for the Network was at 1.5M subscribers. About $49M. He estimated that 10 to 20 percent of the revenue would be expenses. That would include credit card fees, affiliate costs, etc. This caller wants to know about expenses on a potential number of subscribers. Come on man, ask better questions.
George was asked if the Network hurt TV negotiations and should they have delayed it. Vince said that was a fair question and he would answer it. He said it did have a negative affect. He said if they didn't didn't do it this year, they would have had to wait until next year since they wanted to debut before Mania. Vince said he said it's fair to say it affected their negotiating rights in the US for their new deal. I agree.
They were asked to talk about the new US TV deal. George said that they will all be less than five years. He said that they were still being worked out. But none would be more than five years. So it's either less than or actually five years, take your pick. He also made it sound like the deals weren't done as one, as they had hoped, but rather on a show by show basis.
George reiterated that earlier the assumption that they are making is that they will get no PPV revenue going forward, $60M in the US and $20M outside of the US. It costs $40M to produce the PPVs. Those numbers will now be reported under the Network. The caller was a little confused.
The next guy asked about the future of the dividend. Is it at risk going forward? George said that if they are successful implementing their Network strategy, they will continue it. But if it doesn't take off, the dividend could be in trouble.
They were asked about DirecTV's sale and investing in over the top providers. Vince said that he thinks everyone realizes that OTT (over the top) is the future and they willing to work with people, it's not their way or the highway.
The next callers cell was in and out, he asked what gives them confidence that subscriber numbers will grow. George couldn't hear the call. Vince was there dangling. I think he even dropped an S bomb where he realized he was dangling. The host put us on hold while they tried to get George and Michael Weitz back on the line.
OK, we are back! Oh wait, we aren't. They said we were. What the hell? OK, we are back after all. I think. This is like a 3 Stooges episode.
The next one asked about turnover in the personnel. Why did we see turnover. George said they are happy with the management team they have and they won't get into specifics about things like execs getting fired.
What is the current subscriber count? George said you will get it on the next earnings call. That tells me it's not great because if it was, they would definitely tell us today. They need all the good news they can give.
George talked about costs and it was hard to hear him because the phone was feeding back. He was asked if they expect to grow subscribers before Mania and then will they stay static until the next year. George said don't make assumptions. He talked about the research that they did overseas (and I hope it delivers more than it did in the US). He said there are a lot of variables and don't read in to anything right now. He has to see what the patterns are.
They were asked about the lower affluence profile of the wrestling fan audience. He was also asked if them making less money will hurt them with the Network. He said it didn't have an impact in three of the four markets they did new deals in (sadly, the one they did was here, they would have given up the growth in all three to get growth here, IMO). As for churn, they will learn over time.
Brad Safalow, who was cut off before, came back, and had problems with his phone again. He asked about costs. For the record, this is the guy Vince said could put him in a Hammerlock if they didn't double their TV rights. Brad took the high road and didn't mention it.
The next caller asked for a clarification from earlier. It was covered and I got it the first time. LOL.
It should be noted I just checked the stock and it's down 57 cents since the call started. They haven't quelled any fears yet.
They talked more about the current business model being hard to project exactly so they have to consider many scenarios. They will have to look at costs when they get to steady state and know what they have to work with.
They were asked if they are spending more money on marketing the Network than they thought they would. George said that is has changed more than they thought, but nothing major.
They were asked about their confidence in the costs that they have in the Network. Steady state came up again. They have to get there first before they know, in a nutshell. They are learning every day how things will go in the new WWE. They should know more in 12-18 months.
What else do they have, other than WrestleMania, to drive subscriptions? George said they have a large marketing team working on it. He said he doesn't want to announce any. Uh, maybe you should since the stock got hammered George! The investors are looking for reasons to get behind the stock.
Is there a threshold that they need to see, to know that the Network is successful. George said it depends on ramp rate, etc. There is no number right now. They need to see consistent growth and get to steady state. If they don't they would have to re-evaluate. In other words, no number now!
He was asked that since a lot of their audience has to ask their parents to buy (ouch) would the Holidays be a great time for subber growth. George said every day is a good day. He reiterated that until they go throw a year, it's conjecture and he doesn't want to do that.
They were asked about what the numbers would have been if they didn't do the Network, which was answered earlier. Pay attention already.
George thanks us for coming and said he hoped that answered things.
Honestly, for me it didn't. In my opinion they didn't tell me anything that made things better. They didn't do very well on their US TV deal, and certainly did well under what they had stated they would get. They didn't give us updated subscriber numbers, which tells me that they didn't have that card to play as if they did, they would have. They made a point of saying, repeatedly, that they just don't know what to expect for the next year or so with the Network. When you say you are learning as you go and every day, it doesn't breed confidence. It breeds uncertainty.
In essence, they reiterated what was said late Thursday and I don't see it changing many minds about the situation that the company is in. I am not saying that they are in a bad place, but I can't say big growth is coming either because nothing that they stated would make me think that.
And it looks like Wall Street feels the same way. When the call started, the stock was at $11.74. As of this writing it is $11.22, down 52 cents since the call started. That is not what they were going for.
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