WWE CFO Talks About The “Success” Of 3-Hour RAWs, WWE Network, WWE Studios & More
WWE Chief Financial Officer George Barrios made a presentation at the recent UBS 40th Annual Global Media and Communications Conference and spoke at length about why WWE is continuing with 3-hour RAWs each week, WWE’s movie division, WWE’s relationship with NBC Universal and more. Here are some highlights from the presentation, transcribed by SeekingAlpha.com:
The Success Of Adding A Third Hour To RAW: Also really important is that that content id delivering for our network partners. So the third hour of Raw is up 35% versus what it replaced for USA. So they are very happy with that. ION’s main event is up about 15% from the show it replaced. So they are also very happy with that. Our morning show on Saturday mornings with the CW on their Vortex platform is up 50% over the show it replaced. So that’s really, we consider ourselves to be really good partners and like to put ourselves in the shoes of our partners. We know what is important to them and we get really focused operationally in delivering for them and I think in all three cases we have very happy partners for those shows and economically it puts us back to where to were in 2009, 2010 in terms of number of domestic hours that we monetize.
WWE Network: We just believe there is too much there potentially not to keep pushing at it. The drag on earnings is painful. It’s painful to investors. It’s painful to us but we just believe payoff could be too large so we are going to continue to push on that
Wherever the video is being monetized, we see that the real opportunity. We see growth there. Very high operating margins because we create our content once and then monetize it in a variety of those different platforms and also we have the ability to mine a significant library
There will be powerful, compelling exclusive original content that will be the core because otherwise people aren’t going to either watch it in the numbers you want or pay for it if you go that model,” he said. “But we can wrap around some very fresh, compelling content that’s created from our 100,000 hour library. So for example, one of the shows that’s in production right now and it’s tested really, really well in our focus group is the Monday Night Wars. It will be an episodic series, number of episodes be determined but somewhere between 10 to 15 episodes that looks at the year 2000 and 2001 battle between Ted Turner and Vince McMahon when they were on competing networks fighting for audience.
WWE Studios: The film business has morphed in strategy and execution over the last few years. WWE launched its film business in late ’05. Early ’06 and essentially we produced six film, invested roughly $100 million dollars gross, up $75 million net of tax credits. We produced these films generally in localities where there is 20% to 30% and in tax credits but gross of about $100 million, and right now the projected return on and ultimate basis and now these are fairly long-lived films. So we feel pretty good about the productions. It is essentially just above breakeven in cash-on-cash return. That model was characterized by partnership. Each of those movies were co-produced, co-financed, for the most part and co-distributed with different partners, Fox and Lionsgate, to name a couple. We thought we could do better by going it alone and we invested roughly $50 million in producing, financing and very importantly, distributing. So having all of the distribution execution on us on eight films. There was a series of impairments that we are taken in 2011 on those films and today we think the expected cash-on-cash return which with those impairments, the P&L impact has been felt pretty significantly but on a cash-on-cash basis roughly a 30% loss. So by any measure it was a strategy that was poorly executed. We have gone back essentially wiped that entire operationally the internal operations, wiped that clean, brought somebody else in to run our film business. A gentleman named Michael Luisi, long career at Miramax. It’s really the first time we have had anyone running the film business with significant commercial experience. We had creative folks in those roles before. But Mike brings a significant level of commercial experience and he has been retooling the model.
Maximizing Sales To Their Most Loyal Customers” About maximizing sales to their most loyal customers: There is also some structural changes in the home entertainment business. WWE as these change is taking place has actually weathered it pretty well if you looked at over the last four or five years. We certainly have felt some pain in that business, but if you looked at the industry as a whole, we have actually outperformed it. One of the reasons is because our fan base is very collector centric and they like collectibles. They like the physical product which is one of the reasons our home entertainment business, we believe, has weathered that change a little bit better but we all know where it is going. Optical disk drive are going by the wayside over time and we need to manage that transition. Higher margins because of the lower distribution costs but the price point becomes the issue and that’s something that we will have to, like a lot of our collagen content business, we will have to manage through.
WWE’s Future on USA & CW: We also, over the next few years have some significant commercial agreements. We have delivered significant value to our partners. So we feel very good that those agreements are coming up. Our agreement with the USA on Raw, our agreement with Smackdown on SciFi, our agreement with BSkyB in the U.K., our agreement Taj TV in India and our agreement with Mattel. In all five of those cases, we believe we have performed in exemplary fashion. So we feel good that those agreements are going to come up in the next few years. We look forward to seeing economic growth in that.