Wednesday, March 11, 2015

WWE CFO George Barrios at the Deutsche Bank 23rd Annual Media, Internet and Telecom Conference


This morning, WWE CFO and Chief Strategy Officer George Barrios spoke at the Deutsche Bank 23rd Annual Media, Internet and Telecom Conference in Palm Beach Florida.

A replay of the audio webcast is available here.

In terms of ground-breaking announcements, there really wasn't any.

As usual, the program began with Barrios walking through the latest version of the Investor Presentation. As always, he highlights that WWE is a "powerful global brand" with "multiple growth drivers". In particular, here are their important achievements:

(Barrios sounded exhausted on the call. Perhaps this was because the conference was in Florida and not in the greater NYC area. Either way, he seemed off his game as evidenced by things such as when he flubbed a line about WWE mobile gaming and talked about "WWE Scorecard" instead of "WWE Supercard".)

Barrios' message is almost always the same. He sells the "big five" for WWE. Those are:

  1. Powerful Global Brand
  2. Strong Competitive Position
  3. Content Rich Company
  4. Large Addressable Market
  5. Attractive Financial Profile


Regarding the TV agreements, Barrios did note that the top seven deals (US/UK/India/Canada/Mexico/Thailand/UAE) represented about 130 million dollars in existing TV Rights while the remaining 30 deals represented the final 47 million in existing TV Rights. His point was that "no single remaining deal has major value". When someone asked about whether they expected to stay with the same partners or engage in competitive bidding, Barrios noted that they stayed with their same partners for largest three deals (US/U.K./India) while in the case of Mexico, they did move to a new partner with Fox Sports Latin America.

Someone asked whether launching the WWE Network had any effect on the TV negotiations. At first Barrios tried to ignore the question just saying that "deals are behind us". When pressed for further comment, he just said that he "couldn't put words in their mouths. There wasn't a lot of discussion about it."

That's an interesting perspective and one that runs counter to what CEO Vince McMahon has publicly stated. In May 2014, right after the new NBCU deal was signed, Vince said on a conference call that he was "little disappointed" and that launching the WWE Network in February before they completed the domestic TV deal "definitely had a negative impact".


Of course, WWE is very proud of their over-the-top service. It's pretty much how and why they've started attending all of these conferences.

This was a graph they showed in the presentation, but it's a bit misleading. The 2014 numbers represent the number of paid subscribers at the end of the quarters (along with the post-WrestleMania number of 667,287). However, the 2015 number is a million subscribers (technically 1,000,648) but does not necessarily represent a "paid subscriber" number.

It's almost inevitable that Q1 2015 will average more than a million subscribers. But between a free month in February for new subscribers, the UK launch in early January (with extended-cancellation protections for "cooling-off period" and online forms), #cancelwwenetwork movements and anticipated WrestleMania swell, it's tough to know what the real number of WWE Network subscribers is.

Barrios did announce that WWE is expecting to launch WWE Network on "some new Smart TVs" this year.

WWE continues to push the narrative that the long-term goal for the WWE Network is 3-4 millions subscribers. What's their short-term goal? As usual, Barrios refused to give specifics. "We're not making any calls."

While WWE insists that they're going to announce WWE Network plans for "Italy, Germany, Japan, India, China, Thailand and Malaysia" this list of countries underlines two important points:

a) There's not many new geographies left for WWE to expand into. They already did the Domestic (February 2014), and International Launches (August 2014) and the U.K. Launch (January 2015).

b) It's highly questionable if WWE is really going to launch the WWE Netweork in a country such as China (strict censorship) or India (TV rights were quite valuable and may not want to upset their partner Ten Sports).

WWE continues to push the idea that there are hundreds of millions of households with "affinity for WWE" across the globe. This "tremendous appetite for WWE content" remains a popular talking point for the company, but a completely unproven strategy.  For instance, while WWE estimates there are 10 million WWE broadband homes in France and United Kingdom. However, France ranked #10 behind Chile, New Zealand, Ukraine, Mexico and Brazil for actual WWE Network subscribers according to an infogram that WWE produced. UK was #2. It seems that we're not really looking at apples-to-apples.


Barrios new favorite pitch is what I've termed his "India is the Future" speech.

The new TV deal in India for WWE is the third largest for individual television rights. Barrios noted that right now the monetization from the Indian market is "nearly 100% television rights" but he believes there is a big opportunity for WWE merchandising in that country.

While India boasts a large population and robust economy, broadband penetration is relatively low. However, Barrios notes that there's increasing mobile usage which often includes unique "download to go" features for Indian YouTube where a user can essentially go to an internet cafe, download videos and watch them later on their device while they are offline. Whether that sort of solution would work for WWE Network launch is completely unknown but that seems to be part of Barrios' India pitch.

How does WWE play overseas? Barrios said that "universal themes travel pretty well. Good. Bad."


As usual, the questions from the audience weren't that tough and Barrios sidestepped many of them. He was asked about social media, and how the company is planning to monetize the segment. Instead, he talked about YouTube and how revenue from YT has grown from "few hundred thousand dollars to few million dollars". That's all well and fine, but it absolutely ignores the real questions - does all of those Twitter followers and Nielsen Trending metrics really relate to any evidence that WWE is becoming more popular?

When he was asked about the fanbase demographics in the United States, Barrios said that they have "multi-generational viewing" and that means they "re-generate their fanbase".

In terms of the expensive investment from launching the WWE Network, Barrios insisted that they "have made the pivot" and that since 2014 was the all-time record for Revenue, the company is past the inflection point.

When someone from the audience noted that, "Particularly good plots have spiked business." He wondered if "Anything may drastically increase the viewership?" Barrios just said that since they produce 52 weeks of content each year, things are going to naturally ebb & flow. Furthermore, "We have a lot talented writers.Vince is a key part of that. Paul Levesque is key part of that. They assure me it's just gonna get better."

In general, the audience didn't know that much about wrestling. Someone said, "I don't know when the Royal Rumble was. Was the one million number announced after that?" There was an odd discussion whether Barrios tried to explain that only the PPVs go directly on the Network, Raw & SmackDown show up after the VOD blackout window (typically 30 days) and the other 230 live events are not televised. Someone else tried to point out that there was only a few marque events - Royal Rumble, SummerSlam, WrestleMania, Survivor Series. (Barrios' favorite word is calling them "tentpoles".) However, Barrios shot back, "We have 12 events a year!" Obviously, this avoids the real conversation about how big of a decline in subscribers should WWE expect after WrestleMania.

In closing, enjoy the Barrios Bingo Card.


Jim said...

Even Barrios Bingo isn't enough to get me to sit through his usual shtick (maybe he sounded exhausted because he repeats the same concepts/buzzwords everywhere he goes- "12 events" is one of my favorites), so thanks for covering this.

1- Did he give any idea of a date for Network expansion to the various countries you listed? Was there even anything as specific as "by the end of this year" or was it just "some point in the future"?

2- Has WWE projected how many Network subs they expect to average for each of the countries you listed within a year of the Network launching there? I doubt they'd save the Network, but even 100-200k steady subs would be rather nice.

3- Just like TV ratings, the Network numbers will "ebb and flow": the issue is how much it ebbs and from how high a mark the ebbing begins. Assuming both scenarios end with the same yearly average (say, 1.2M), do you think Wall Street would react better to (1) a higher 'Mania peak (e.g. 1.5M subs) but a larger drop during the year (e.g. even below 1M at points) OR (2) a lower 'Mania peak (1.25M) but a smaller drop (e.g. stay comfortably above 1M for the who year)?

Mookie said...

1. No. There's been absolutely no clarity as to the timing of expansion. We know that the OSN deal in the Middle East is starting in time for WrestleMania. The Canada expansion continues. Honestly, I think Germany, Italy and Japan may get the WWE Network this year. I wouldn't hold my breathe for India or China. Thailand & Malaysia are hard to say. They shelled out a lot of money for the TV rights so WWE might be willing to stay out there so they don't cause problems. Timing has been completely opaque.

2. If I recall from the original presentation, they originally thought that International subs would be somewhere around 25%-33% of the total number of subs. Barrios said that the 1M was about 15% int'l. The challenge is figuring out whether the difference there (which is related to the historical PPV domestic/int'l split) is just international subscribers masquerading as domestic subscribers or whether it just means that OTT services aren't as popular overseas as the PPV availability. I use UK as my benchmark. They are the largest revenue market outside of the US. Right now, they are the #2 largest customer base for the WWE Network. They were added in January right before the Royal Rumble. WWE grew 85k int'l subscribers between 12/31/14 and 1/27/15. So, let's say UK around 70,000. I have difficulty believing that Germany or Italy or Thailand is going to come close to 100,000 new subs. Perhaps the combination of all of them is 50k.

3. I think WWE is going to do everything in their power to announce as high a number as possible for 3/31/15. They want that number because they can brag about it for a long time. They have been able to wave their hands and confuse investors when it comes to the six-digit churn every quarter (144k/255k/251k for Q2-Q4). They'd rather hit an artifical peak and report record WWE Network OIBDA and Revenue rather than just have flat numbers all year. Why? Because they've already been selling the whole "we're going to be flat" narrative, so I think they'd rather prove that they can get closer to growing to 2M (and gaining all those names and emails and views) than just admit defeat that this service only has a limited appeal and their "affinity to WWE" numbers are pretty much bunk.

Hope that helps! Those are my thoughts.

Chris Harrington @mookieghana

Jim said...

Very much appreciate your answering questions.

100-200k probably was way too high, but I was just trying to get Network subs closer to the traditional domestic/international PPV percentages.

They'll spin whatever happens to be "exactly what we wanted/expected" (well, Vince might let slip his true feelings, but not Barrios) in terms of peak and drop, but your answer makes a fair amount of sense.