Michael N. Todaro
WWE released its third quarter earnings on Nov. 1, and with it comes information about how the promotion is doing financially. The core business -- live events, Pay-Per-View (PPV) buys, and television distribution rights -- are holding steady or increasing, while the extensions -- social media, WWE Studio, the WWE Network -- are a lot more volatile.
World Wrestling Entertainment (WWE) held a conference call last Thursday (Nov. 1) to discuss its third quarter earnings. For those who only wish to pay attention to what is put on television, it is an utterly useless event. Why should the fans worry about things that are out of our control? It's a fair point of view, of course.
However, there is something interesting in seeing how the sausage gets made.
WWE pulled in $104.2 million in the third quarter as compared to $108.5 million at this point last year, with an operating income of $7.1 million as compared to $21.0 million last year. While that looks like a severe drop, it can be attributed to the "return to a more normalized level of management incentive compensation." What I believe this means -- and if there are any business majors in the Cageside community, feel free to correct me -- is that those in charge are getting the bonuses they lost last year. Business goes up, those at the top get paid.
Such is capitalism in America.
The big point coming out of the report is that WWE's key metrics are holding strong. In fact, there's been a slight rise in attendance and Pay-Per-View (PPV) buys. Total revenue from live events held pretty much steady with $22.8 million this quarter as compared to $23.0 million last year. The average attendance and ticket price for WWE shows increased for both North America and overseas events. This was offset, though, by the decreased number of events in total (77 events compared to 79 in the prior quarter) and specifically overseas (7 events compared to 15).
The nature of a traveling circus makes it hard to analogize different years, as WWE doesn't visit the same places during the same timeframe. The key is not to too look solely at the bottom line, and to focus on how many people are going to the shows and how much people are willing to pay. Both are up, and that is good for WWE.
PPV buys also grew with 789,000 total buys as compared to 758,000 to last year. This was predominately attributed to SummerSlam's huge gain. Buyrates for "The Biggest Event of the Summer" rose from 296,000 to 358,000, an increase of 21%.
Not bad for a show that relied on a couple of aging superstars and a thrown together triple threat match.
The third leg of WWE's key metrics -- television rights -- stayed perfectly flat at $34.0 million from this year to last year's third quarter. With the third hour of Monday Night Raw beginning July 23, Saturday Morning Slam debuting Aug. 25, and Main Event kicking off on Oct. 3, WWE has yet to see the cash start to roll in from its expansion. This will be key moving forward. I know there are many fans who believe that the increase in content is simply too much.
If it turns out the money is there, though, don't be too surprised if WWE continues its expansion efforts.
Things get interesting as we move away from WWE's core business. "The E" continues to push social media as a sign of "brand strength." 81 million Facebook 'likes' and 37 million Twitter followers sure sounds as impressive as hell. I'm still not sold on the power behind those numbers. There's potential there, to be sure. But I've yet to see any company demonstrate a legitimate plan to monetize the users of social media.
On the other hand, WWE is experiencing growth in its core business. So maybe there is something to be said about how it is using social media.
WWE use of "branding" makes sense to expand its reach, but it comes across as dirty when used in a corporate sense. The distribution of the Rolling Stone concert One More Shot on PPV makes plenty of sense as a way to promote to a different audience. Renewing its sponsorship with the Army National Guard is a nice act of goodwill, yet it's odd to see Vince McMahon talk about it in terms of a way to expand branding.
Then we have WWE's partnership with Susan G. Komen. It is true that it donated $1 million dollars to the charity, which is certainly a good thing whether or not it was politically motivated. The promotion should be applauded for such a kind act.
But when the Chairman and CEO of the company states:
[Breast Cancer Awareness Month] gave us a different audience completely. It was promoted on television predominantly, although with the social media as well, and again [it was] a different way to spread the word about WWE in a much different way.
It's hard to feel that the donation came with the purest of intentions.
WWE continues to push its app for iOS and Android. 2.5 million downloads in 90 days is nothing to sneeze at. The app is being called "extraordinary and revolutionary." In the next few weeks, WWE has plans to revolutionize the way fans interact with WWE content in a way that has never been experienced in the history of ever.
So, you know. Be on the lookout for that.
The deal with YouTube to produce short form content has proven to be a great move by WWE. Online revenue increased from $6.9 million to $7.5 million on the back of the increased rights fees from YouTube. WWE Fan Nation is the fourth most watch channel for original content, with plenty of room to grow. Add into this category WWE's recent deal with Hulu Plus, and the online distribution arm of WWE could become a major pillar of revenue.
So next time you are watching Puppet H on Are You Serious, you might be doing as much to support WWE as you would by attending a live event.
Licensing fees suffered one of the biggest declines in revenue, with $7.1 million this quarter as compared to $9.0 million last year. WWE All Stars was not refreshed this year, and WWE '12 had a decline in sales as compared to the previous year's release. If you were wondering why the promotion pulled out all the stops with "Attitude Era Mode" in WWE '13, this is why. Not only does it have to be a marked improvement of last year's installment, it has to help cover the loss of an entirely separate entity.
On the other hand, Brawlin' Buddies are on "Kmart's Fab 15 toys" for the Christmas season, so at least they have that going for them.
WWE Studios continues to lose money to the tune of $1.5 million, but the promotion is hopeful that things are finally starting to turn around. By striking deals with companies to co-produce and co-finance movies, WWE is taking much of the financial burden off of themselves. It is a move that, quite frankly, should have come much earlier. By using its talent to appear in films -- such as a Scooby-Doo flick and ABC Family original movie -- instead of building from the ground up, WWE is able to do what it does best: make entertaining content. There is no need to worry about producing and distributing major motion pictures. It took WWE decades to dominate the pro wrestling industry.
It is insane to think it could just walk into the film industry and have the same effect.
Finally, we have the WWE Network. Yes, the much fabled venture is slowly coming into focus. There is no set launch date, there is still millions being sunk into the infrastructure, and there is still no set plan on how it will be distributed.
But look at this graph! That is a mighty fine graph WWE has right there.
WWE believes that 50% of United States households are in some way or another fans of the promotion. That's 57 million households. 10 million households account for "hardcore" fans, those that watch regularly and would most likely be willing to pony up for the service. 24 million are considered "casual" fans, those that come and go throughout the year. The rest are "lapsed" fans, people who have watched WWE at some point in their lives but have since fallen by the wayside.
When you or I look at the data, we most likely see the effects of the reduction of quality in WWE. We see what WWE used to reach. When WWE looks at the data, they see respondents that have a "tremendous appetite" for more content. The WWE sees who it can reach to make the network successful. While it doesn't have to convert all 57 million households into purchasers, it does have to make a few inroads into the casual and lapsed fans to make money.
The WWE Network will launch. There's too much time, money, and pride for the thing to not get off the ground; the question becomes, "will WWE put itself in a position to succeed?" If it puts "B-Show" PPV's on the network, it will be sacrificing a key source of income. If it shows exclusively archived content, will it be enough to grab enough causal and lapsed fans to turn a profit? Can the hardcore fans alone hold the entire network afloat?
These are questions that are still being asked, and won't be answered for another three months -- at a minimum. We'll just have to wait and see how this plays out.
Overall, WWE looks solid this quarter. The core business is up, the extensions -- with the exception of the WWE Network -- are gaining strength, and reports are optimistic for the future. Even though the content seems to have suffered recently, it looks like WWE is staying strong.
For those that love the promotion, this is good. For those that wish WWE would step up their game, this may not be the best news to hear.
Why change what's working, right?
[Credit to Seeking Alpha for the full transcript to WWE's conference call]