Biggest Takeaways from WWE's May 19 Business Outlook Investor Call

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Biggest Takeaways from WWE's May 19 Business Outlook Investor Call
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New Jersey Gov. Chris Christie (left) and Vince McMahon

WWE executives Vince McMahon and George Barrios held a conference call on Monday morning to address concerns following the announcement of their new TV rights deals, the WWE Network and the company's massive plunge in the stock market on Friday.

According to Forbes, WWE's share price closed at around $20 on Thursday and opened at just under $11 on Friday, costing Vince McMahon roughly $350 million and the title of billionaire.

Needless to say, this kind of drop in price caused a bit of a scare among shareholders, especially Lemelson Capital, who recently called for change in the WWE executive management team:

Marlborough, MA, May 16, 2014 -- Lemelson Capital, LLC, a private investment management firm, today announced that they had taken a stake in shares of World Wrestling Entertainment (WWE) and called on the Board of Directors to replace the executive management team of the company following a period of consistent losses, execution issues and material misstatements.

Vince McMahon opened the call from London, England, where he is preparing a taping of Monday Night Raw, so the bulk of the call was led by George Barrios.

McMahon noted early on that while WWE will see an increase of about $90 million in its overall TV deals domestically and internationally, it was unhappy that the new NBCU deal did not meet its original expectations.

The $90 million increase will bring the company's overall TV deals to around $200 million annually, with built in elevators to ensure future growth.

Barrios made sure to mention that a big part of WWE's growth initiative is international markets and that new offices would be opening up in Dubai, Mexico and Germany.

While the TV deals and international growth were big topics, the main focus was on the WWE Network and what it is going to take to make everything work.

According to Barrios, current subscriber numbers are between 600,000 and 700,000. Barrios noted that the break-even point with the network is approximately 1.25 million subscribers, but WWE foresees somewhere between 2.5-3 million within two to three years.

A question was asked at one point about the recent DirecTV-AT&T merger and branching out into other over-the-top boxes, and McMahon said WWE knows OTT is the future and it is open to all avenues of getting its content to the fans. McMahon stated, "It will not be WWE's way or the highway."

When asked if the next time the network will see an opportunity to gain new subscribers will be WrestleMania XXXI, Barrios said that WWE sees every hour of every day as an opportunity to gain new subscribers, and in the long run, it will be about producing new content and not selling one big event.

He jokingly said he did not go into specifics about new content due to the fact that he did not want to repeat his mistake from the last investor call about spoiling the return of Tough Enough.

A big point of discussion was how WWE is cannibalizing pay-per-views and combining any profits into the profits gained from the WWE Network.

Barrios reported that traditionally WWE would bring in about $40 million from PPV business and that it expects the network to replace that with $40-60 million.

The main points here are that WWE is continuing to increase its international presence, focus on development of the WWE Network, bring in new subscribers consistently and explore new avenues for growth.

Most of the questions asked by those listening in on the call focused on specific numbers, which is no surprise on an investors conference call, but very little was mentioned about how some segments of WWE's business have seen a decrease in the first quarter from 2013 to 2014.

WWE's report from its corporate website on its key performance indicators showed home entertainment sales and overall PPV buys (excluding WrestleMania) have both decreased in Q1 2014, while live-event attendance has remained the same.

The two noted increases in the report were from sales on WWEShop.com and social media followers/Internet traffic, but those numbers are not enough to offset the other decreases.

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The biggest takeaway from the call was that WWE is putting a lot behind the WWE Network, and in turn it is banking on the network offsetting the increase in expected production costs and eventually bringing in a profit.

With the break-even point being 1.25 million subscribers on the WWE Network and its current subscriber base sitting at around 600,000-700,000, it means WWE is already about halfway to its goal, but its new TV deal will keep it moving forward.

While a little bit of anxiety among the investors in a situation like this is understandable, it does not mean they will be jumping ship. In fact, some might see that right now might be the best time to get a foot in the door.

With a current selling price (at the time this article was posted) of $10.99, WWE is at nearly one-third of the high it just recently reached of $31.98.

McMahon and Barrios were very open and honest during the call about expected increases in production costs, the WWE Network being a learning process for them and the company's goals for the near and distant future.

While WWE may have overshot its predictions on where it would be by now, it's not hard to see that WWE is making strides.

In the three months since the WWE Network launched, it has introduced pre- and post-shows for Raw and SmackDown, six wrestling-based shows, original programs Legends House and Slam City, and an entire week of Ultimate Warrior tribute content.

This is on top of the already massive PPV library from WWE, ECW and WCW; all the episodes of ECW Hardcore TV and WCCW; WWE old-school events; and WCW Clash of the Champions.

WWE's app and YouTube page have millions of subscribers and have won multiple awards, its new TV deal saw it nearly double its earnings, and the WWE Network is continuing to gain new subscribers.

The WWE Performance Center was also brought up as a way that WWE is ensuring that its future remains bright.

While there was not a lot of new information given on the call, Barrios made sure he answered every question that was asked with straight-forward numbers and statistics.

The information is all public record, so you can decide for yourself. Do you see WWE being able to get to 1.25 million subscribers? Or more importantly, more than what is required to break even?

Can WWE bounce back from its recent tumble in the stock market? And lastly, will it be able to use the WWE Network to replace revenue from PPV buys?

 

Thanks for reading, and follow me on Twitter: @BR_Doctor.

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