Here are highlights from today’s WWE conference call, hosted by Vince McMahon and George Barrios:
– WWE CEO Vince McMahon, who called in on his cellphone from London, opened the call by stating they hope to “give a great deal of clarity” regarding their business going forward. McMahon said he’s not sure if they gave too much or not enough information regarding the WWE Network and the company’s overall business outlook.
– McMahon said they were “disappointed” by the terms of their new TV deal with NBCUniversal. He said they did better with their international TV deals, saying the NBCU deal was a “good deal” but “not what we wanted” and “not what our research showed us” they could achieve.
– McMahon said WWE’s core business is “rock solid” and they are confident in their business model. They plans to “more clearly communicate” their outlook and plan to offer a better degree of transparency on the impact of changes to their new business model.
– WWE financial executive George Barrios spoke about WWE’s revised business model, which was detailed in last Friday’s press conference. He admitted that WWE mis-evaluated the value of their TV content in the United States. He added that WWE foresees a $10 million increase in TV Production costs going forward.
– Barrios said one of the keys to making the WWE Network a success is the expansion into foreign markets. “Ultimately, we believe the Network represents a sizable economic opportunity.” They need to make up for the loss in PPV revenue.
– Barrios laid out a 5-point plan to attract new WWE Network subscribers: Create new content, open up Network globally, expand distribution platforms, develop new features and execute a “high-impact” marketing campaigns.
Highlights from the Q&A session
– When asked about the WWE Network’s business structure, Barrios noted they are making a lot of estimates with revenue, expenses, operating profit, allocating costs, etc. Making up for PPV cannibalization is a big issue. WWE has $60-70 million of fixed WWE Network costs and $40 million of regular PPV production costs.
– Barrios said WWE is “still confident” in their ability to execute the Network business plan.
– Vince McMahon was asked if the WWE Network launch had a negative affect on their TV negotiations. He said that’s a “very fair question” McMahon and admitted that he believes that launching the WWE Network before the TV deal was finalized did in fact have a negative impact on the disappointing TV deal. However, they wanted to launch before WrestleMania XXX and they would have had to wait another full year before launching the Network to get the best start possible.
– Regarding the length of the TV deal, Barrios gave a very vague answer, saying their TV deals are “generally five years or fewer.”
– Barrios said WWE expects to maintain their current dividend rate as long as the WWE Network is successful.
– A question was asked about AT&T purchasing DirecTV. McMahon said they are “wide open” and “flexible” in talking to potential partners and WWE did not have an “our way or the highway” mentality.
– In response to financial analysts advising that WWE eliminate their management team or sell the company, Barrios said they feel “very comfortable” with the management team currently in place.
– When asked about the current number of WWE Network subscribers, Barrios said they will report that data quarterly and the next announcement will be made at WWE’s next earnings call.
– WWE was asked how they will adjust costs if the Network subscribers to not meet their projections. Barrios said they WWE’s expenses in 2013 were approximately $480 million, with 20-25% of that being variable costs tied to revenue generated. Overall, if the Network is not as successful as they hope, the company’s core business is still very strong and they can “re-engineer” their strategy.
– When asked if WWE’s demographics had a negative impact on the NBCU TV deal, Barrios said “they didn’t seem to have an impact.”
– They were then asked about the WWE Network’s “steady-state” is in terms of subscriber range and regular costs, once the ramp-up period is over. Barrios said it’s a complex business model and that if WWE can reach their steady-state of subscribers, they might ramp up to 4-10 new series per years.
– Barrios said “steady-state” is the key to everything. “We’re still getting our sea legs in understanding” the new business model. “We’re learning a lot,” Barrios said. “Every day, we have new learnings. I know people want certainty, but we can’t.”
– How will WWE drive subscriber growth in the second half of 2014? Barrios said the core of the company is promotion and marketing. They have a “large marketing team hard at work putting together ideas.” he said. Beyond that, he didn’t want to give too much information about what is being planned. “We’re at the beginning of the beginning,” Barrios said.
– When asked about WWE’s backup plan in the event that the Network does not reach their subscriber goals, Barrios said they will have to evaluate everything if it comes to that.
– Barrios gave another vague answer about how WWE plans to convert their younger audience into Network subscribes. He said they need a year or two of data to analyze that and “at this point, it would just be conjecture and I don’t want to do that,” Barrios said.
– Barrios said that WWE’s revised break-even point for the WWE Network (to offset cost and PPV cannibalization) is approximately 1.3.-1.4 million subscribers.
– That was the end of the Q&A session. Barrios reiterated that WWE is trying to be more transparent and bring as much clarity as possible regarding the state of their business.
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