World Wrestling Entertainment (WWE) held a conference call on Thursday (Feb. 28, 2012) to discuss its fourth quarter and year end 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.
I should state at the beginning, that all comparisons will be year-to-year (2012 to 2011) and quarter to the previous year's quarter (Oct. 1 to Dec. 31 of 2012 and 2011). The reason for this is...
Well, that's just how businesses do it. Something about comparing like time-frames and such. Don't ask me, I have a Liberal Arts degree.
To the numbers!
WWE pulled in $115.1 million in the fourth quarter, as compared to $112.9 million at this point last year, with a net income of $0.6 million, as compared to $8.6 million net loss last year. The company made $484.0 million for all of 2012, as compared to $483.9 for all of 2011. Its net income was $31.4 million in 2012, as compared to $24.8 million in all of 2011.
The biggest reason for the increase of net income?
WWE Studios has finally stopped hemorrhaging money.
WWE Studios lost $27.6 million dollars in all of 2011, with fully half of that ($13.8 million) coming in 2011's fourth quarter. For comparison, the subsidiary lost a measly $3.6 million in all of 2012, with only $0.6 million of that coming in 2012's fourth quarter. Those numbers are a bit misleading, though, because WWE Studios didn't actually release a film in that time frame.
And those numbers are going to get a lot weirder moving forward.
Because, WWE Studios is moving into a partner distributed model, the accounting is going to be insanely complex. The company will have to account for revenue and profit -- not when the films are released, but when it receives a participation statement. Which means no matter how well -- or how poorly -- the flicks do at the box office, it's going to be awhile before investors can actually see their contributions to WWE's bottom line.
That's not necessarily a huge problem for the average fan. But for someone like me, whose job it is to write about this stuff, it's going to be a pain in the ass to figure out.
The best part of the conference call?
When an investor asked about the next two films coming out (Dead Man Down and The Call), WWE CFO George Barrios was quick to point out that WWE was putting out Marine 3, a direct-to-DVD film.
You could practically hear the wanking motion in the investor's voice. Even during an earnings report, WWE always finds a way to entertain.
WWE has historically focused on "Brand Awareness" during these calls, and this one was no different. The company touted -- see what I did there? -- it's Facebook fans -- 89 million, a growth of 89% throughout 2012 -- it's Twitter follows -- 40 million, an increase of 158% -- and the product's overall "social media impact".
As one very smart Cagesider previously wrote, a show's Twitter presence will soon start to play a role in the overall ratings. More than that, though, WWE is pushing a "360 degree Monetization" strategy. If you think that is just some silly corporate buzzword, you're probably right!
But what would a buzzword be without a wicked awesome info graphic?
WWE is pushing social media hard, for the simple fact that it seems to actually be working. You get people talking about the show, they tune in and ratings go up. Or, they decide to order the next Pay-Per-View (PPV). Or, they go and pick up the latest WWE DVD/Blu-ray. Et cetera, et cetera, et cetera.
Also, investors like big numbers; they are very simple creatures.
And don't think for a second that it was not a coincidence that tonight (March 1), the day after the earnings report, WWE is holding a "Social Media SmackDown."
It's also interesting that Vince McMahon stated WWE "virtually [has] a network now" with the assortment of content over a vast array of mediums: Television, PPV's, DVD's, social media, YouTube, etcetera. It's possible to spend almost twenty-four hours a day, seven days a week watching something produced by WWE. I'm not sure why you actually would, but the possibility is there.
Moving to WWE's core metrics:
Live Events, PPV, and Television -- The company continues to hold steady.
Live event revenue declined from $26.9 million in 2011's fourth quarter to $23.3 million in 2012's fourth quarter, and fell from $104.7 million in all of 2011 to $103.7 million in all of 2012. The reason for the drop, is that WWE held three less events in 2012's fourth quarter, losing eight overseas events and only picking up five domestically.
WWE also had a very strong eight-event tour in Mexico -- remember those two weeks when Alberto Del Rio was WWE Champion? -- which was a huge boost. The nature of the beast, is that traveling across the globe is always a challenge, and it's going to be hard to keep up the number of live events every quarter.
It is always a good thing to see the revenue ticking upwards, but holding steady is not a bad thing.
PPV revenue declined from $14.6 million in 2011's fourth quarter, as compared to $13.0 million in 2012's fourth quarter. We could shrug this off and assume a million plus decline isn't the worst thing in the world, except you would be forgetting that WWE only put on three shows to end 2012, instead of four in 2011.
Yeah. I know. And, 2012 wasn't even carried on any real increase in buyrates.
Buyrates In Order (all in thousands):
- Hell in a Cell (199 in 2012 vs. 182 in 2011)
- Vengeance (0 in 2012 vs. 121 in 2011)
- Survivor Series (208 in 2012 vs. 281 in 2011)
- WWE TLC (175 in 2012 vs. 179 in 2011)
- "Prior Events" (70 in 2012 vs. 33 in 2011)
- Total buyrates (652 in 2012 vs. 796 in 2011)
If there are over a hundred-thousand less buys, how is it even possible to be within spitting distance of the prior year's revenue? Because all of you suckers who are ponying-up for high definition, and that is going right into WWE's pocket.
For the entire year, PPV revenue grew from $78.3 million in 2011 to $83.6 million in 2012. That's a far more comparable result, with twelve PPV's occurring during each calendar year. If you ever encounter a smark who yells and screams that WWE is diluting the product and the PPV business is dying, just point to those numbers and tell them to shut up.
Now we get to the fun part -- television rights!
Revenue from television rights has remained virtually stagnant since 2010, slightly rising from $29.4 million in 2010's first quarter to $34.0 to 2012's fourth quarter -- with an odd spike to $35.7 million in 2010's fourth quarter. I feel like I should know why that is there, but I'm at a loss.
WWE brought in $40.6 million in 2012's fourth quarter from the third hour from Monday Night Raw, Main Event, and Saturday Morning Slam. In addition, the four major rights deals -- Raw and SmackDown in the United States, the United Kingdom content deal, and the licensing deal in India -- are open to being renegotiated.
It's unknown how much more WWE will be able to squeeze out of its distributors, but I'm sure Vince McMahon will do his best to find every last dollar. And if you wonder why Nielsen ratings are so important, this is the reason why.
And now for the less fun part; the WWE Network...
As our CSS General brought up yesterday (Feb. 28), WWE is looking to pull anywhere from two to four million subscribers once the Network gets off the ground. Which sounds insane at first glance.
But -- and this could just be the mark in me -- the company may actually have a shot at hitting those numbers.
The research shows that 31% of digital multi-channel TV households have "an affinity for WWE content," which ends up being around 31 million households. A quarter of which -- 8 million households -- are described as "passionate" fans.
It's tough to say that Raw's entire audience needs to end up buying the Network for it to be a success, but depending on what is offered, it just may be possible...
B-Show PPV's. Possibly Royal Rumble, Summer Slam, and Survivor Series. New, original content. The entire WWE tape library. And the possibility for unedited Attitude Era footage in all it's PG-13 glory.
The damn thing has a chance; if it ever gets off the ground, of course.
What's fascinating to me is the potential "cannibalization" WWE has written into the Network. If it gains one million subscribers, WWE pegs the loss at $5 to $10 million. Two million, $10 to $15 million. Three and four million, $20 to $25 million.
The theory is that domestically, PPV's only bring in $45 to $50 million a year. With WrestleMania accounting for fully half of that, the company can lose the buyrates as long as it is bringing income in another manner. On top of that, if people aren't purchasing the PPV's because they cannot afford it -- or streaming it, you naughty, naughty Cagesiders -- the Network's revenue will be new money.
My fears have always been that sacrificing the strongest leg of the company's table for an educated guess was insane. Looking at the math, though, it does make a lot of sense. That being said, it is based on an awful lot of assumptions.
How it ends up playing out is entirely unknown right now.
For all the miscellaneous stuff:
WWE is set to lose $4 to $5 million due to THQ's bankruptcy. It's actually losing more, but some fun accounting was able to pull $8 million out of someone's ass and put it on the books. It's actually an unrecognized portion of the advancement WWE received when it first entered into the deal with THQ in 2009, but that is far less fun to say.
On the other side of the coin, Vince and Co. sounded very excited to be involved with Take-Two Interactive. Not only will it be able to put out a console game on a consistent basis -- fingers crossed -- but now it's going to take WWE into interactive gaming!
What does that mean you may ask?
Think of Farmville, but hopefully not as stupid. Or just as stupid, but shut up and accept my invitation to a King of the Ring Tournament I posted on your facebook wall.
WWE.com saw a very nice increase from $2.7 million in 2011's fourth quarter, to $6.2 million in 2012's fourth quarter, and an increase from $12.5 million in all of 2011, to $19.7 million in all of 2012. That was primarily on the back of WWE's deals with YouTube and HuluPlus. It's always nice to see a company try to form a greater online presence with its content and be rewarded.
But, for anyone claiming that YouTube, Hulu, or even Netflix is the wave of the future, it's clear that the numbers are just not there yet to sustain the company.
WWE's Free Cash Flow is expected to decline in 2013 due to a capital expenditure of $50 to $60 million, of which approximately 65% is for a one-time expenditure of -- and I [explicit] you not -- the company's 20-year old corporate jet.
If I owned a company, I would be buying a jet every three, four years tops. Kudos to Vinny Mac for stretching that rubber till the very end.
Overall, 'twas a solid quarter and year for WWE in an economic sense. Revenue held steady, while it was able to cut some losses and keep the bottom line strong.
The big question moving forward is,
"How can the company continue to grow?"
The promotion has all but maxed out the content it produces. There's only so much WWE will be able to receive from its distributors for Raw, SmackDown, and the rest of the televised lineup.
The deals with YouTube and HuluPlus are bringing in money, but no where near enough to provide relief if any of the core groups fail. PPV buyrates are up, which is good. It's unknown, though, if the content will continue to attract viewers.
The key to WWE's future lies within the Network. The thing needs to launch, and it needs to launch sooner than later. That is where the promotion is placing all its eggs.
It remains to be seen if those birds will hatch.
Acknowledgement: To "Seeking Alpha" [for the full transcript to WWE's conference call]
For reference to the Third Quarter Earnings, feel free to check here.
For reference to the Second Quarter Earnings, feel free to check here.
For additional reference feel free to browse our Cageside Seats Archives here.