This morning, WWE reported record
revenue of $199.0 million for the
second quarter of 2016 (April-June).
This included the impact of
WrestleMania 32 which generated
more than $21.5 million in live event
revenue, $4.0 million from traditional
pay-per-view sales and $3.9 million of
venue merchandise sales. There were
1,517,000 average paid WWE Network
subscribers during the quarter (firmly
in line with WWE's guidance of
"approximately 1.5 million") and as of
June 30, 2016 there was 1,130,000
domestic subscribers and 381,000
international subscribers.
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Because WrestleMania 31 was in the
first quarter of 2015 and WrestleMania
32 was in the second quarter of 2016,
the best way to compare financial
results is to look at the combined year-
to-date six month data.
For the first half of the year (H1), WWE
net revenue has grown 13% compared
to the prior year. More than half of the
company's growth has been driven by
gains in the Network and Live Events
segments. However, this $43.7 million
increase in revenue only corresponded
to a $900,000 increase in OIBDA
(operating income before depreciation
and amortization excluding feature
film and television production
amortization and related impairments
– essentially how WWE measures
"profit"). Notably, despite $14.4 million
growth in the Network segment net
revenue (WWE Network + PPV), the
Network OIBDA on this segment
actually declined by $5.6 million. The
majority of the rise in Corporate &
Other expenses was due to "global
branding, data analytics, and certain
talent initiatives, as well as increased
legal expenses related to ongoing
litigation" in Q2'16.
While non-WrestleMania live event
attendance in North America has
dropped about 5% this year (6,100/
show for January-June 2015 compared
to 5,800/show for January-June 2016),
WWE has been successful at raising
ticket prices (+6% in Q1'16, +12% in
Q2'16). Despite WWE's press release
that WrestleMania drew 101,763 fans,
the latest Key Performance Indicators
slide suggests that actual paid live
event attendance for WrestleMania
was in the range of 74,000 to 86,000
people. In Q2'16, WWE had a very
successful European tour where they
averaged 8,000 fans over 19 events
(compared to 6,900 fans over 21
events during Q2'15). Overall, WWE's
live event growth continues to come
from increased monetization of the
remaining domestic fans and growing
business internationally.
Paid WWE Network subscribers are
currently at an all-time high of
1,130,000 domestic and 381,000
international accounts as of June 30,
2016. Paid domestic subscribers have
increased by 21,000 households since
WrestleMania 32 while international
paid WWE Network subscribers have
increased by 36,000 households. Last
year, paid domestic subscribers fell by
184,000 between WrestleMania 31 and
June 30, 2015 while paid international
subscribers increased by 25,000. Free
trials on the WWE Network reached
their peak at WrestleMania 32 with
281,000 domestic accounts and 89,000
international accounts. That number
has returned to the usual levels of
36,000 domestic accounts and 13,000
international accounts. Was the #
FreeWrestleMania promotion a
success? WWE was successful at
growing the number of paid
subscribers from WrestleMania (as
opposed to last year when they
registered less subscribers by June 30).
However, the true value of these
subscribers will come with longevity. If
they are still subscribers at the end of
the year, it was probably a worthwhile
investment. At this time, we don't
have enough specific information from
WWE to categorize it as anything
stronger than a gamble that may still
pay off.
WWE Chairman and CEO Vince
McMahon along with Chief Strategy
and Financial Officer George Barrios
shared prepared remarks and
answered questions during the
earnings call. Vince noted that he was
"pleased with the execution of our
strategy to optimize the long-term
value of our content. He called out
progress on "continued year-over-
year growth of WWE Network, the
transition of SmackDown to a live
format every week, and the
completion of our first exclusive
content agreement in China."
Regarding the recent PPTV deal in
China, WWE talked about how this was
their first exclusive deal in China and
specifically their first digital exclusive
deal. Instead of waiting several weeks
for editing, both Raw and SmackDown
are being aired live in the Chinese
market in Mandarin. As Barrios told
analyst Laura Martin, "I think you're
seeing similar to other parts of the
world that live content has a
premium".
On the brand extension, Vince noted
that things were "working thus far
very, very well" and they were pleased
with the high rating for the Draft on
live SmackDown. However, when
analyst Eric Katz asked whether
storyline programming (such as the
brand extension second screen
experience) was having any notably
influence on gaining WWE Network
subscriptions, Barrios noted,
"SmackDown went live one week ago.
The Brand Extension kicked off three
days ago. We don't have trends in
place but our expectation is more
engagement across all platforms."
Analyst Brandon Ross also asked
about the Brand Extension and the
rationale for why WWE moved ahead,
especially considering that there
would be increased costs. Vince
McMahon responded that they had a
"plethora of talent due to Paul
Levesque's influence on the training
center" and that WWE wanted to
"more personalities, more licensing
opportunities" and expected to
generate more income from the added
pay-per-view events. George Barrios
did admit that the guidance that WWE
gave last year about 2016 did not
include this brand extension while the
guidance that the company is
providing now does.
Regarding gift cards for the WWE
Network, Barrios remarked that the
company believes in the non-holiday
season, most of these gift cards are
being purchased by the primary user
as a form of payment option. The
future may also include gift cards with
a longer duration.
There was a question at the end about
the UFC sale. Barrios response to about
the wildly different valuations of WWE
and UFC was that, "with them not
being public, all you have is what's in
the media". The CFO also said that the
UFC transaction "reflects the value
people are putting on branded live
content." When asked when WWE
would ever entertain a similar sale,
WWE gave their stock answer: "We're
always willing to listen. All we care
about is doing what's best for our
audience, our shareholders and our
employees. If someone has a great
idea, we're open to listening to it."
There was no discussion about Brock
Lesnar's failed USADA test nor any
blockbuster announcements of new
WWE Network programming. Currently,
WWE is projecting a rosy financial
picture for the remainder of 2016. As
noted in the earnings call
presentation: "If recent subscriber
acquisition and retention trends
continue over the remainder of 2016,
management believes growth in
subscribers would be at the upper end
of the range and Adjusted 2016 OIBDA
would be $80M-$85M." That would be
an improvement over 2015 OIBDA of $
61.6 million. However, a lot of
questions remain about whether the
brand extension will be successful in
keeping fans engagement and
spending money on WWE products.
WWE told one analyst that they did not
expect any impact from the Olympics.
Still, WWE television ratings in Q2
continued to slide with 11% decline for
Raw and 10% decline for SmackDown
(which had moved Networks and
moved nights). Meanwhile, the decline
for USA Network and Top 25 Cable
Networks was only -7% and -5%
respectively.
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