WWE News WWE CONFERENCE CALL: Complete "virtual-time" coverage of Vince McMahon addressing investors
May 19, 2014 - 11:00:17 AM
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WWE Conference Call Report
May 19, 2014
Hosts: Vince McMahon, George Barrios
Report by James Caldwell, PWTorch assistant editor
- WWE CEO Vince McMahon opened the conference call saying they hope to "give a great deal of clarity" to their business going forward. McMahon noted he's on a cell phone from London for Raw TV.
McMahon said he's not sure if they gave too much or not enough information about the Network and overall business picture.
McMahon moved to the WWE TV renewal. McMahon said they were "disappointed" by the renewal with NBC Universal, and they did better with their international renewals. "Not what we wanted and not what our research showed us (domestically)," McMahon said. "A good deal; not what we wanted," he added.
McMahon called the "core business" as "rock solid." He said they are confident in their business model and try to "more clearly communicate" and have a degree of transparency on the impact of changes from a new business model.
- WWE financial executive George Barrios spoke next. Barrios read scripted comments about WWE's revised business model released last Friday.
Barrios said WWE mis-evaluated the value of their content in the U.S. market. Barrios added that WWE foresees a $10 million increase in TV Production costs going forward.
Barrios said the company views global expansion of WWE Network as a key future earnings source. "Ultimately, we believe the Network represents a sizable economic opportunity," Barrios said. The key is making up for the complete loss of PPV revenue and growing the Network to surpass the previous PPV level.
Barrios moved on to addressing domestic Network subscribers. Barrios said they "need to execute" a five-point plan to attract new subscribers - create new content, opening up Network globally, expanding distribution platforms, developing new features, and executing "high-impact" marketing campaigns.
- The first question was about the Network business structure. Barrios noted they are making a lot of estimates on how the Network business model will work out - revenue, expenses, operating profit, allocating costs, etc. Barrios added they also have to consider how to figure PPV cannibalization. The result is $60-70 million of fixed Network costs and $40 million of regular PPV production costs in the same business segment.
Barrios said WWE is "still confident" in their ability to execute the Network business plan.
Asked if the Network launch hurt NBCU TV negotiations, McMahon said that's a "very fair question." McMahon said he thinks it had a negative impact launching Network before negotiating their TV rights. But, if they did not come out with the Network this year, they would have had to have waited another year for their strongest point during WrestleMania Season. McMahon said he thinks it was part of a "lighter number" in TV rights.
- The next question was on the length of the TV deal with USA Network. Barrios said their TV deals are generally five years or fewer.
- The third question was on the WWE dividend, and whether it is at risk to keep more cash in the company. Barrios said if WWE is successful executing the Network strategy, the dividend will stay the same.
A follow-up was on DirecTV and AT&T merging and talking about investing in over-the-top programming. McMahon said they are "wide open" and "flexible" in talking to potential partners for "many opportunities." McMahon said their mentality will not be "our way or the highway."
- The next question was inaudible due to a bad signal, then George Barrios was dropped from the call. McMahon was left on the line. "S---," McMahon muttered under his breath. The conference call went on standby as they tried to reconnect everyone.
- Back to the Q&A. The next question was about WWE's management team. Barrios said they feel "very comfortable" with the management team in WWE and working relationship with MLB Advanced Media.
A follow-up was on where the Network subscriber count is today. Barrios said they concluded they will provide Network guidance quarterly, which will be at the next earnings call.
The next follow-up was on how to adjust costs if the Network does not stick to expectations. Barrios said they did about $480 million in expenses in 2013, and 20-25 percent were variable costs tied to revenue generated. Overall, if WWE is wrong on the Network, the core business is strong and they can "re-engineer" some things to re-stress the core.
Asked if WWE's demographics impacted the TV renewals, Barrios said "they didn't seem to have an impact in three of the four markets" where WWE renewed TV contracts. The implication was the NBCU renewal was affected by demographics of U.S. wrestling viewers.
- Next was a discussion of what WWE Network's "steady-state" is in terms of subscriber range and regular costs once they finish the ramp-up period.
The discussion stayed on "steady-state" with the next caller. Barrios said it's a complex business model that reflects a change to WWE's business. Barrios summed it up that if WWE can reach their steady-state of subscribers, they might ramp up to 4-10 new series per years. But, if they decide not to do that, they do not have the added Network costs.
- Next was a return caller on WWE's confidence in the costs related to the Network. Barrios went back to "steady-state" being the key to everything. "We're still getting our sea legs in understanding" the model, Barrios said. Notably, they have to sort through customer service, distribution, etc. "We're learning a lot," Barrios said. "Every day, we have new learnings. I know people want certainty, but we can't."
Asked what else WWE has in mind for driving subscriber growth in second-half 2014, Barrios said the core of the company is promotion and marketing. So, they have a "large marketing team hard at work putting together ideas," he said. Barrios said he let the cat out of the bag with Tough Enough on the last conference call, so he doesn't want to say anything else about what their marketing strategies are. "We're at the beginning of the beginning," Barrios said of the Network.
The follow-up was on WWE's back-up plan in the event the Network does not reach WWE's growth goals. Barrios said there isn't a model they can go by. But, if they do not see the consistent growth they're looking for to find consistent growth to get to steady-state, that's when you begin to re-evaluate. Barrios said they don't have an exact number to track that, as they need to "see it and live it to get a perspective."
- The next question was how WWE handles reaching a younger audience and turning them into subscribers. Barrios said they need a year or two years to look back to this period to analyze the information. "At this point, it would just be conjecture and I don't want to do that," Barrios said.
- Another follow-up question was trying to benchmark WWE's success in 2015 at the break-even point. Barrios said if WWE reaches 1.3-1.4 million Network subscribers, it would offset loss of PPV.
- No further questions. Barrios offered final remarks on trying to bring as much clarity as they could on this conference call. He said hopefully it helps everyone understand their position at this point. Of note, McMahon did not return to the call after the communication malfunction mid-way through that included McMahon dropping an s-bomb.
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