LB looks at WWE's financials for Q4 & 2012

[Postman Dave]

WARNING: LOTS OF WORDS

Here are the PPV numbers for the quarter…

Pay-Per-View revenues were $13.0 million as compared to $14.6 million in the prior-year quarter reflecting the production of three pay-per-view events in the current quarter as compared to four in the prior-year quarter. In addition, revenue and buys were impacted by the timing of our Pay-Per-View distribution in the U.K. as our television partner in that country selected one fewer event in the current quarter for distribution via pay-per-view. On a comparable basis, for the events produced in the quarter, revenue increased approximately 4% as a 3% decline in buys was more than offset by a 7% increase in the average revenue per buy due in part to an increased proportion of buys to view our events in high definition, which generally attracts higher retail prices.

It should be noted, as it is above, that WWE cut out one PPV in the quarter, as opposed to last year.

The Hell in a Cell PPV did 17,0000 more buys in this quarter.

The Survivor Series was down 73,000 buys from last year. Last year's version of the PPV featured the Rock teaming with John Cena as the main draw.

The WWE TLC PPV was down 4,000 buys.

Overall WWE was down 144,000 buys for the quarter. They did run one less PPV event, but if you take out the 121,000 PPV buys from the Vengeance PPV in 2011, the promotion was still down 23,000 buys.

HIAC doing significantly better and Survivor Series doing the opposite just goes the show the power of effective booking. A well booked main event with huge interest will always outdraw a hastily thrown together one.

On the other hand though, the most pushed face on the roster at the time was Ryback, and whilst his initial flirtation with the main event was highly successfully, the quarter was down overall. This could greatly impact the decision making concerning his booking going forward (the rumoured heel turn looks a bit more likely now).

Here is the breakdown of the top 10 revenue streams for the company…

1. TV Rights Fees - $139.5 million
2. Live Events - $103.7 million
3. PPV Revenue - $83.6 million
4. Licensing - $46.3 million
5. Home Video - $33.0 million
6. WWE.com - $19.7 million
7. Venue Merchandise - $18.8 million
8. WWEShop - $14.8 million
9. WWE Studios - $7.9 million
10. Magazines Revenue - $6.0 million

Say what you will about falling ratings, but this shows WWE have nothing to worry about. The fact that PPV is their third highest revenue source is something I'll come back to.

Here are the details on WWE Studios, Digital Media and more…

Revenues from our Consumer Products businesses were $87.8 million for the current-year period as compared to $94.9 million in the prior-year period, representing a decrease of 7%.

I'd put something witty here but I don't even know what films WWE has released the last year. WWE Studios really not a shining beacon for the company.

"Regarding a potential WWE network, we are evaluating multiple approaches. We believe that a premium subscription model is the best approach in the U.S. to capitalize on our fans' commitment to our brands and their desire for more WWE content. Based on our market research, we estimate that a fully distributed domestic pay network could ultimately attract between 2 million and 4 million subscribers at a "steady state." These subscriber estimates derive from a projected base of approximately 47 million WWE digital TV households in the US (including lapsed fans), and the proportion of which have an affinity for WWE content, although there is no guarantee that this affinity will translate into actual subscribers. 5 These take-rates are based on a value proposition for the network that reflects inclusion of our pay-per-view events, except WrestleMania, as well as compelling original content. Under our preferred subscription model, while our pay-per-view events would still be offered on an á la carte basis as currently available, the research indicates that a WWE network offering would drive significant consumer interest (including households that currently do not purchase pay-per-view events). At a proposed price per month between $12.99 and $14.99, this would represent incremental revenue to WWE of between $125 million and $250 million and incremental EBITDA between $50 million and $150 million. Actual results are contingent on several factors, including the necessity of entering into distribution agreements, 6and such results could vary materially from the expected range based on the rate of subscriber adoption and churn rates, as well as changes in pricing, promotion levels and distribution terms. Until a base of approximately 1 million subscribers is achieved, we estimate the network would represent a net investment for WWE. Ultimately, we believe a network and other distribution and monetization options would represent a sizable economic opportunity in the U.S. and internationally."

Looks like the plan is to make PPV's part of the WWE Network package. Interesting strategy, taking one of the companies biggest money makers and using it to draw subscriptions to it's arguably long term doomed network. If this doesn't work out, WWE doesn't just look stupid, it's sacrificed a lot of revenue to make it work.

Free Cash Flow is also expected to decline in 2013 due to capital expenditures of $50 million to $60 million, of which approximately 65% is an estimated one-time expenditure to replace our aging corporate jet, which is nearly 20 years old. We expect the acquisition of the aircraft will be financed at attractive rates, and that the sale of our current aircraft will offset a significant portion of the down payment. As indicated above, a network launch within the year would further negatively impact 2013 Free Cash Flow. Similar to our EBITDA performance, successful execution of our content strategy could significantly enhance our Free Cash Flow by 2015.

And to add to the WWE Network, the new jet means cash flow will be tighter for the next few years. So don't be surprised if WWE start tightening some purse strings; less pyro here, less recognised theme music there, the small things that won't effect peoples enjoyment of the product.