Thursday, December 14, 2006

WWE QTRLY FINANCIALS (report by Zip Whittle)

Highlights of the WWE fiscal quarter lasting 7/29/06 until 10/27/06 (released 12/5/06)

Pay-Per-View REVENUE
2Q 2006 = $18.6m in PPV revenue vs 2Q 2005 = $18.8m in PPV revenue.

“International buys comprised approx. 36% of total buys this quarter vs 40% total buys prior year quarter.”
Remember: PPVs cost $5 more domestically in 2006 vs 2005.

Summerslam 06 – 528k buys (Hogan/Orton, Edge/Cena, DX vs McMahons, Flair/Foley, Batista/Booker)
Summerslam 05 – 534k buys (Hogan/HBK, Batista/JBL, Cena/Jericho, Orton/UT, Rey/Eddy Ladder)
SS06 = $13.5m (338k buys domestic) / SS05 = $11.2m (320k buys domestic) +$2.3m/17.5k buys.

Unforgiven 06 – 290k buys (Cena/Edge TLC, Trish/Lita Retirement, DX/McMahons/BS HIAC)
Unforgiven 05 – 225k buys (Cena/Angle, HBK/Masters, Hardy/Edge Cage, Flair/Carlito)
UF06 = $7.4m (186k buys domestic) / UF05 = $4.7m (135k buys domestic) +$2.7m/50k buys.

No Mercy 06 – 195k buys (Booker/Lashley/Batista/Finlay, Benoit/Regal, Rey/Chavo FallsCountAnywhere, MVP debut, Kennedy/UT, Hardy/Helms)
No Mercy 05 – 219k buys (Batista/Eddy, Ortons/UT Casket, JBL/Rey, Benoit/Christian/OJ/Booker)
NM06 = $5.0m (125k buys domestic) / NM05 = $4.6m (131k buys domestic) +$0.4m/-6.6k buys.

ECW is tanking the attendance average.
NA attendance average: 4000 (w/ ECW), 5200 (w/o ECW). ECW averages 1200 ($25 ticket).
Last year NA attendance: 4300.

ECW TV is generating about $1.4m in TV rights this quarter. The live events generated about $800k.

Venue Merchandise totaled $4.2m (vs last year’s $3m). Per head, that’s $11.20/fan at live event.

Hulk Hogan 3-disc DVD sold about 200k units. VKM, History of WWE Championship #s not quoted.

Magazine revenue is slightly up ($3.4m vs $3.1m) – recognizes the new WWE magazine which replaced RAW/Smackdown magazines.

There was the usual babble about nitpicking this margin or that, some questions about their new Genius distribution deal and clarification of "other income". Here were the short highlights:

• International buys PPV this quarter was about 36% compared to 40% last year over this same time frame. They explained it as "cooling in the international market, particularly Italy where previously the product had been very hot." (Again, they never frame it as domestic buyrates falling, only international segment growing!).
• Did they think NA attendance could continue to grow? In short, yes. It's gone up 7 consecutive quarters and is now averaging 5200/live event (excluding ECW). Linda noted their peak was something like 9500, so they believed they could continue to grow. (If you leave ECW's attendance average in, then there is actually a drop this quarter compared to last year's time. So, this is probably another reason they want to not include the ECW empty venues.)
• They are shipping over a million units of "See No Evil" and expect to sell around a million copies.
• The "sell-through rate" (I presume this is sent-to-store:people-actually-buying it) dropped a bit this quarter compared to last year at the same time. In particular, last year's Undertaker DVD was very successful with a sell-through rate of about 80%.

The two most interesting topics covered were: (1) brand management, (2) thoughts on IFL going public

Bob Jenkins – Schafer Capital Management

QUESTION: Brand Management: Why not have them as three separate & distinct brands, ran by three different people, set up their own budgets and keep them independent; no mingling of wrestlers except in special occasions? Because right now it seems like all three brands seems homogenized into just one entity – no difference between the three and gives the viewer no reason to check out any other brand over one?

Linda McMahon: Clearly, our entire goal was have these three brands to have them as stand-alone brands. However, the decision we made when we first separated the RAW & Smackdown brands was to provide us with opportunity to reach different audiences on Cable and on Broadcast. Also, to give us and different touring teams so we could increase our international live events. All of which we have done.

We've spent the last four to five years in the brand separation. And now We've found that you can still create more rivalaries sometimes by crossing over the brands, no different than if you have a different
league competing with another. So, part of the cross-over effect has been the increasing of that competitive factor.

We also look as ECW is a developmental brand. It also gives us an opportunity to launch newer talent through there. I think we're accomplishing the goals that we set out when we first started:
* Give us the opportunity to create more stars by having the two brands and now adding ECW.
* Providing the opportunity for greater international growth
* More licensing products off the two brands, and now the three brands with ECW. And ECW is growing slowly.

Your question really is "why not make them even more distinct?" I think we have created even more distinct brands and since they are now created distinctly we have the opportunity to cross-promote and have some of the talent migrate back and forth across the different brands. So that we can increase the storylines and continue to grow all the brands in our total business.

Thoughts on IFL going public. (Jefferies & Company, Inc. - Robert Routh)
Linda McMahon: IFL and UFC are "good competitors in the marketplace for sporting programs. Good demo reach for them. And clearly a growing sport. We're taking a look at too and even announced last week that we had the folks from Pride in to meet with us. We having an opportunity to look at the developmental of that particular business as well." (WWE likes to pretend Pride is #1 in the World as a way of slighting UFC. They actually had an offer to buy UFC back in the SEG days with Shane McMahon interested in running it but obviously that wasn’t persued.)

The last interesting thing was in response to a question by James Clement from Sidotti & Company, LLC. He asked about whether the decrease in "prior event buys" in the PPV category meant that they were getting closer estimates from the providers. WWE responded that while "international business means that reporting timeline is slower. On balance going forward, don't expect big adjustments that we've seen in the past. Initial forecasts are better than previously reported."

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