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WWE's third quarter profits held back by flagging film division

For all the talk about how Vince McMahon is no longer the creative genius with a Midas touch for promoting professional wrestling that he once was, he's still got the business smarts to eke out a healthy profit, even at a time when many of WWE's key revenue streams, like house shows, pay-per-views and toys, are declining year on year.  Indeed, just two days ago WWE reported their third quarter results and the news was surprisingly rosy.  Their profits after tax for the quarter were $10.6 million, enough to comfortably cover their dividend payments to stockholders, compared with $14.3 million for the same quarter last year.

Though the decline in net income looks significant, it is actually a misleading sign of the state of WWE's core wrestling business, as it was wholly due to their flagging film division.  WWE Studios was hit by a whopping $5.1 million impairment charge (a term used in accounting for writing off a prior investment that is now unlikely to make the assumed return) in this quarter alone, due to unexpectedly weak sales for their almost straight to DVD movies KnuckleheadThe Chaperone and Inside Out.  Given that John Cena's latest movie The Reunion has been met with the exact same apathy as those titles were received by WWE fans and moviegoers alike, in the short term at least, we can expect WWE to be hit by more of these impairment charges in the future and their overall profits to continue to be dragged down by their struggling film releases.  Thankfully, WWE Studios is currently undergoing a much needed overhaul with a new man, Michael Luisi, in charge, who has fresh ideas like partnering up with outside producers and picking up unacquired titles ready to distribute from film festivals, which sounds like a less riskier strategy than making all their movies in-house.

These largely satisfactory results allowed Vince McMahon to give a cautious note of optimism for the future yet again in his official press release statement summing up his company's performance for the quarter:

"In the third quarter, our results reflected the Company's continued focus on improving business results in a difficult environment.  Despite the challenging economic headwinds, both domestically and abroad, we generated increased profits across a majority of our businesses, with the main exception being our film business which we continue to monitor and refine to improve future performance.  We believe the sluggish economy and our ongoing talent transition were important factors that affected the results of our other businesses.  Based on our history of developing talent and creating content with broad appeal, we are confident we can address our creative challenges.  Further, by taking advantage of our strategic opportunities, including the anticipated 2012 launch of a WWE network, we can achieve meaningful growth."

However, it remains to be seen whether WWE will take full advantage of the growth potential of launching their own network or whether their desire to rush it out for 2012 will lead them to make many costly schoolboy errors that they could have avoided with more planning.  The current shambolic state of WWE Studios doesn't fill me with much confidence that they can get this much bigger undertaking underway without a ton of hitches.  The news that the WWE Network will likely be rolled out on YouTube to begin with was a dismaying one from a financial perspective, as it sounds impossible for WWE to even come close to breaking even on their ambitious venture from online ad revenue alone.  If they're lucky, then they could be on the ground floor of something that will revolutionise TV as we know it, but if YouTube TV fails to take off, then the WWE network could lead the company to make substantial losses the likes of which haven't been seen since they closed down The World, their WWE themed restaurant in Times Square in 2003.  Thus, the 2012 WWE network launch bodes to be one of the most critical turning points in company history, one which we're sure to cover in-depth here at Cageside Seats next year.  Fasten your seats, business is just about to pick up, or that's at least what Vince McMahon is hoping!

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