Thursday morning, WWE announced record-setting quarterly revenue of $176.2 million for the first quarter of 2015. This is a huge increase over last year's first-quarter revenue of only $125.6 million.
A significant portion of this revenue growth is attributable to the timing of WrestleMania 31. When WWE's juggernaut event is held in March instead of April, the revenue is recorded in the first quarter instead of the second quarter.
Powered by escalations in television rights fees, the WrestleMania live event, Wrestlemania venue merchandise revenue, video game licensing and growing WWE Network revenue, WWE posted a profitable quarter with $9.8 million in net income. It's noteworthy that this is the first time since before the WWE launched the WWE Network where the company has recorded a positive net income.
Both the revenue and earnings announced exceeded analyst expectations. A market-opening jump to above $15 in the stock price quickly reversed. By the end of Thursday, the stock was hovering around $13.50, a six percent drop from Wednesday's closing price.
During the conference call, WWE CFO and Chief Strategy Officer, George Barrios, referred to WrestleMania 31 as the "highest-grossing live event in WWE history."
WWE estimates that WrestleMania 31 contributed about $24.9 million in revenue to the first-quarter results. This includes $15.7 million from live events and a record-setting $3.3 million in venue merchandise (breaking the previous record of $2.7 million set by WrestleMania 29.)
While WrestleMania 31 was available on the WWE Network for $9.99, there was still 259,000 traditional pay-per-view purchases.
Along with the Royal Rumble (145,000 PPV buys) and Fast Lane (46,000 buys), traditional pay-per-view still generated $9.0 million in revenue during this quarter. As noted on the conference call, an increasingly large percentage of these buys come from overseas fans who may lack reliable access to streaming services or might not have market access to the WWE Network.
While WWE has claimed WrestleMania 31 attendance at 76,976 fans, it's worth noting that according to WWE's own "Key Performance Indicators" document, the implied paid attendance for WrestleMania was only 57,800. Interestingly, in a recent lawsuit filed by WWE, the company included an updated touring calendar listing building capacities. Levi's Stadium, home to WrestleMania 31, was listed at merely 66,060.
As of the end of March, WWE announced they have 1,327,000 paying WWE Network subscribers. During the first quarter of 2015, the WWE Network generated a total of $28.6 million in revenue. Yet things become muddled when you look at WWE Network profits.
WWE's preferred profit metric is OIBDA (operating income before depreciation and amortization). On the "Network segment" (which included both traditional pay-per-view and the WWE Network), first-quarter OIBDA was a loss of $1.5 million.
Compare that to the second quarter of 2012, when WrestleMania 29 was held. That quarter, WWE generated $18.9 million OIBDA from their "Network segment" (which was traditional pay-per-view buys and their video-on-demand offering).
It is remarkable that even though WWE averaged 927,000 paying subscribers in the first quarter of 2015, the company still could not turn a profit on the WWE Network. This was due, in part, to high "WrestleMania production and talent costs." That's a worrisome trend.
The split on WWE Network subscribers was 196,000 international and 1,131,000 domestic subscribers. Less than 15 percent of WWE Network paid subscribers are registered as international users. Historically, about 38 percent of the pay-per-view buys came from outside of North America. While there remains some markets where the WWE Network is still not available (China, Germany, Italy, Japan, Malaysia and Thailand), it seems most likely that this discrepancy is due to a large number of international users accessing the WWE Network and registered as domestic accounts.
WWE's strategy for the WWE Network is built on four pillars: "Programming," "Promotions," "Features/Distribution" and "Geographies." Some of the future plans are clear (launching new shows such as the Diva Search and adding "1,000 hours to robust video-on-demand library") while others remain vague ("improving user experience and content discovery across devices"). On the conference call, Barrios spoke about possibly developing improved WWE Network for Android TV and Chromecast devices.
Notably, WWE announced that it is again running a free month for new subscribers in May.
This trial period will include the next pay-per-view, WWE Payback, on May 17. Coming on the heels of other recent "free month" campaigns (November 2014, February 2015 and April 2015), it appears that WWE is planning to offer "free months" for a large portion of the year for the time being. It seems likely that the only months which may not have a "free month" campaign would coincide with premiere pay-per-view events such as Royal Rumble (January), WrestleMania 32 (April) and SummerSlam (August). While the frequency of these promotions have rubbed some fans the wrong way, WWE is quick to note that 77 percent of the 201,000 "trial subscribers" from February became paying subscribers in March.
The "churn" (those who dropped their subscription) on the WWE Network remained high during the first quarter. Between December 31, 2014, and March 31, 2015, 284,000 users who were WWE Network subscribers stopped. This compares to about a quarter-million subscribers who left during the each of the previous two quarters. Such a high turnover each quarter may be foreboding.
Next quarter's churn numbers will be the true test. Will WWE see a large post-WrestleMania drop-off in subscriptions, or will its new programming strategy successfully retain and grow subscription numbers going forward?
The true superstar for WWE is its "Television" segment.
This quarter's revenue swelled to $58.2 million. Besides launching the WWE Network, the biggest achievement of 2014 was signing a plethora of new television rights deals with both domestic and international partners. The new NBC Universal contract started during the fourth quarter of 2014, and most of the new international contracts began during the first quarter of 2015. That's why WWE television rights quarterly revenue is already up nearly $16 million compared to just six months ago.
While television ratings for SmackDown and Raw have declined this quarter (down between five and seven percent), WWE maintains a rosy outlook. The reality competition series WWE Tough Enough returns to the USA Network on June 23. WWE also announced that starting in the first quarter of next year, WWE SmackDown will join the USA Network. And Vince McMahon proudly noted that Total Divas was a No. 1 show on the E! Network since the Kardashians have been on "hiatus."
WWE loves to brag about social media. This quarter, the company noted that its YouTube channel had "1.6 billion total views" and that it had achieved 333 million followers on Facebook along with 107 million Twitter followers. WWE recently won two awards (best Over-The-Top Content Service and Overall Social Media Excellence) at the Cynopsis Sports Media Awards.
Meanwhile, the "Digital Media" segment only brought in $4.3 million in revenue. Previously, this segment included revenue from the WWE Magazine division (which was shuttered last year during cost-cutting measures) and webcasts of WWE PPVs (cannibalized by launching the WWE Network).
Clearly, WWE defines success in this space in terms outside of income. On the conference call, McMahon talked about how gaining followers right now is a "land grab" and that engagement is key to reaching the younger generation. In addition, the company views strong social media presence as evidence to show advertisers why WWE is important beyond TV ratings. Considering how much and how often WWE touts its social media stats, it will be intriguing to see whether it can truly translate its impressive social media foothold into the company's coffers.
ODDS AND ENDS
Beyond affirming that WWE would be offering another free month, WWE didn't have any new major announcements. All of the talk about possibly rolling out the WWE Network in a major market (like China) appears to be more aspirational than concrete at this time. As Barrios noted, WWE is "looking at re-evaluating our approach and seeing if there is a way for us to move a little quicker maybe in slightly different way."
There wasn't any mention of the new Tapout partnership. That's likely because that deal won't begin until 2016. Similarly, there was not much talk about the Home Entertainment division or the new partnership with Warner Bros. Home Entertainment. Unit shipments in this quarter were way down (only 620,000 units in Q1 2015 versus 1,087,000 units in Q1 2014). Barrios simply said these results reflected "broader challenges in the DVD industry."
It is interesting that neither WB or Tapout were discussed, since at the Business Partner Summit in March, WWE had nothing but glowing things to say about them.
Similarly, there was no real discussion about the WWE Studios segment. As usual, the division was unprofitable this quarter, losing $400,000.
In the end, this quarter's balance sheet was an assortment of big hits (TV Rights, Live Events, WWE Network, Licensing, Venue Merchandise) and misses (Home Entertainment, Digital Media, WWE Studios). Even without the shift in WrestleMania timing, this would have been a huge quarter for WWE. The good news for WWE is that regardless of WWE Network subscriber fluctuations, the company can depend on guaranteed and escalating television rights fees for the next few years.