On Thursday, the WWE released its earnings report for the end of the year for 2012. While Q4 turned a profit, the bigger news was that it anticipates that the company could double or triple its 2012 earnings by 2015 with the aid of the WWE Network.
One big asterisk with the earnings bonanza. The WWE projects that it must have at least 1 million subscribers to break even with the investment of the WWE Network. As we wrote last week, plans were revealed for the network which includes a premium subscription model with a price point between $12-99 and $14.99.
While the company has not shown significant earnings since 2007, its a solid dividend stock and as a digital content provider, could experience growth with content providers such as Apple, Hulu and Netflix looking for inventory to appeal to a young demographic.
The earnings report showed an increase in overall revenue while some sectors remained flat. Revenue was up 2% for the fourth quarter ($115.1M vs. $112.9M). However, it was relatively flat over the 12 year period from 2011 to 2012 ($483.9 vs. $484.0).
Fourth Quarter Revenue highlights via WWE Investor Relations:
– Hulu and YouTube agreements helped with the digital media growth.
– WWE acknowledged the THQ bankruptcy while announcing that Take Two obtained the license to make the WWE video games.
– Television was up 56.7 percent primarily due to production and licensing of new programs which include the additional hour of Raw, WWE Main Event on ION and WWE Saturday Morning Slam.
– WWE.com was up 3.5 percent due to rights fees associated with licensing of original short-form content to YouTube and next-day access of current TV programs to Hulu Plus.
– Home Entertainment was up 3.1 percent
– Live events declined 3.7 percent driven by 8 fewer live events and a decline in average attendance declined 11% at international events to 5,600 and fell 5% at North American events to 5,700.
– WWE Studios was down 3.7 percent which reflected the timing of releases. It will be interesting to see how the release of “Dead Man Down” will do this quarter as it stars Colin Farrell and Terrence Howard.
– Pay Per View was down 1.6 percent due to one fewer event during the quarter and a 3% decline in buys for events.
– Licensing was down 1.1 percent
Tuesday, the WWE stock closed up $.12 at $8.72.
Payout Perspective:
Some key takeaways from the Q4 earnings:
– Content is King. The WWE has done well with the addition of its content (i.e., RAW going 3 hours, WWE Main Event and Saturday Morning Slam)
– Attendance is down. The number reflect that less people are attending house shows.
– The financial future of the WWE stock hinges on the success of the Network.
More on the Network
The WWE’s Powerpoint Presentation goes into great detail of how the company believes that there is a need for WWE content. It also provided analysis that the value of content is expected to rise overall. This is premised upon network advertising and consumer paid subscription revenue. Obviously, with the announcement of Fox Sports 1 launching late summer, this research can’t be all wrong.
Page 17 of the WWE’s Powerpoint Presentation offers the most interesting view of the company’s outlook on the impact a potential Network would have for the company. It lists 4 scenarios of “economic potential” of a domestic pay channel in a “steady state” after ramping up subscribers. The scenarios estimate revenues for the company assuming a steady subscriber base. The WWE states that “[u]ntil a base of approximately 1 million subscribers is achieved, the network would represent a net investment for WWE.” What this means is that the WWE would be losing money if it does not have a steady base of 1M subscribers.
Is it possible that the WWE could attain this goal or will this network investment turn into the XFL? The network would be offering its PPVs (except Wrestlemania) which would offer some appeal (although it would cannibalize the PPV revenue). The WWE has been successful in licensing its content with Hulu and YouTube so there is some demand but will it be enough to sustain a full network.
I don’t think this is a good idea for wrestling fans. If they put out a horrible PPV no one buys it. So they have to be on their toes and put out a decent product each time out. If people subscribe to a network that gets these same Event. They are not going to cancel over a single event or even a series of events. The WWE can really water down it’s product and do just enough to make people not cancel. But I doubt you will get the same product as you would as a PPV. They will save the big names and story lines for Wrestlemania. They will pull from all the would be PPV events to strength the one PPV they have left. Think about it. How long do you have to go without finding anything good on Showtime before you decide to cancel the subscription? Hell I ain’t seen anything on showtime since the last SF event and it might be a year or so before I get around to cancel it. This will be like a gym membership. Once they get you signed they have you for life a d you won’t use it or like it lol.