Wednesday, June 24, 2015

Barrios at the Bernstein Future of Media Conference [transcript of remarks]

(I decided to just wrote down what George Barrios said at today's Bernstein Global Future of Media & Telecom Summit.
You can listen to the discussion youself at: http://cc.talkpoint.com/bern001/062315a_ae/?entity=9_MENHBJ4
I will try and follow-up with my own comments at a later time. I skipped the ten minutes he just ran through his slide deck and concentrated on the less rehearsed and non-presentation portion of the conversation. I am not a trained transcriber so this is just an imperfect record of what was discussed.)

MODERATOR: Here we go again. Sitting next to me is George Barrios from WWE. Many of you are surely familiar with the company and the story. So happy to have them participate in this conference.

The future of media and try and identify companies that have been pioneers doing stuff in the field  that other people have been theorizing about, I'm not sure you can find a better example anywhere than WWE. What a great resource to talk about, learn from and consider investing.
BARRIOS: I thought we'd do some slides to set the context.
1. Talk about the Company Broadly
2. How we see the future and growth opportunity
I think it's important to look back and see where the company has been and where it thinks it's going. Over the last several years, we've been in investment mode. We're not theorizers. We've got a bias for action.It's a powerful global brand.

  • Pay-TV = Raw/SmackDown
  • Free VOD = Short-Form Content
  • Facebook Video = Exploding
  • WWE Network = Best content (most ardent fans)
We're not cord-cutters.  
(10:00)

MODERATOR: We're here talking about the future of Media. One of the big things that every investor is trying to calculate for themselves - this bundle Pay-TV system - is it sticky and going to be here forever, is it going to break apart next week? If you have an opinion on this, we'd love to hear it. Either way, how is WWE?
BARRIOS: First our view in the bundle. We think there is economic value to the consumer in the bundle. I'm not sure everyone has thought through the economic implications to the consumer.
I think the bundle in some shape or form stays. I think you're going to see more and more players providing the bundles.
I think you're going to a proliferation of bundle types (the proverbial "skinny bundle"). WE think it'll continue for awhile
We want to make sure our content is available and we are winning. Not just available but we are winning on all platforms we're playing.
We want to make sure we're connecting, energizing and entertaining our consumers. And if we do that, we don't have the visibility the eco-system looks like in five years, but if we do that, we'll be fine.

MODERATOR: As investors we have to think about winners and losers, placing your capital.

BARRIOS: I think we will be okay either way (whether the bundle stays or not). The most poignant example is the Network. For the first time ever, if you're a content owner of any scale, you can get into the home. You'll see a  Proliferation of direct-to-consumer offerings over the next five years. I think the Network has always been 99.9% offensive but There's a defensive element as well - if I'm wrong, and the bundle does crumble, I'm less as a hamstrung because I'm less hamstrung by that - I can bring the product to the consumer. And I have a global fan-base. The fundamental element we have is a global brand that loves our content. We have a great global brand, global audience, and now we can reach all of them.

(13:30)

MODERATOR: Of all of the things you're involved with, the WWE Network itself, is one that sticks out so obviously you've done and everyone is trying. You've had 15 months of experience of that. What can you share with us about that experience? I've got a long list. Here's things I've jotted down:

  • What can you tell us about subscriber acquisition, the pace of which subscribers ramp? 
  • The role of free trials in all of that? 
  • The cost to you to serve all of that and the content? 
  • The usage patterns - how much, what people are using? 
  • The cannibalization question? Is it happening or not? 
  • How you think about advertising on the service? 

That's 19 questions. I'm having to go through one by one.
We're thirsty for whatever you can share with us about running a direct-to-consumer over-the-top network.
BARRIOS: I think the most powerful and exciting thing for us is the amount of information that we're able to collect on how our users are interacting with our content are interacting with our long-form content. There have been a lot of ah-has. The 55 hours - that 53.5 hours - we had 10 hours of PPVs in the first quarter. That's our live premium content of PPV content - that's 10 of the 55 hours. That means 85% of the consumption on the Network, on average, was long-tail content. That's distributed - some did a lot more than 50 hours, some did less. Wow. 85% was not the "premium content". What's also interesting is because it's long-tail manifesting itself. All of that VOD content, it's not everybody watching everything, it's every person picking what they want to watch and experiencing it how they want to.  
We'll accelerate the amount of content we move from our library into the Network because we've been surprised how much VOD has been consumed. So that's one.
There's a lot of small things you learn about. When you look at all of the legends WWE has among their superstars, we've been surprised in some cases about who people have been trying to find on the Network. And I will tell you, without giving away too many of the secrets, that it's informed some of the programming we're doing today because we see the interest level. We're in the very early days of being able to mine that value. The real value will not just be Network data and Network consumption but when we're able to connect Network data with Ticket Data with Consumer Data and absolutely with Social Media data. And that's a tough thing to do so you won't see that overnight. But you can already see by the richness that we're able to extract today, as we're able to build that out it'll be powerful. 
This is more on the strategic side,  When you talk about the ramp-rate of subscriber acquisition, it's too early for us to really have too grand a perspective on what looks like. A couple of things I'll leave you with. When Netflix did announce their transformation, they were a 17M home business - that was their red-envelope business. When they launched the streaming business, they said they think it could be a 60-90M home business in the US. So After 18 quarters or so, they're about 65% of the way to the 60M. They have about 35M to 40M homes. They've gone from their 17 to 35 to 40.
If you look at WWE, and it's a strained analog, but I think something is there. We were about a million home pay-per-view business. And We said boy, and this is just our analysis, we think we could get to 3 to 4 million homes. Similar scale, in terms of the opportunity, 3 to 4x, our PPV business - Netflix was about 3 to 4x, their old DVD business. We were about 1.3M after five quarters - so that's about 40% of the way to three million. That actually looks like Netflix was at after about five quarters. I don't know what the ramp rate is going to be into the future. But if you look at some data and put some a little context around it with Netflix. 
The other thing we've said from ramp rate and we are a little different, you could argue a lot different from Netflix. We have a seasonality to our business. We have a year-long story arc and competitive elements to it that culminate around WrestleMania. So there's a possibility around us that instead of always seeing sequential growth, we'll have more of a seasonal year-over-year growth where the peaks & troughs are up year-over-year but you might have sequential declines because of that Super Bowl element. I think five years from now we'll be able to look back and see what the best fit curve would be.  I think those two elements are the Seasonality and We always say if you really want to understand the WWE Network, we would say to look at Netflix. I know we do but from a tactical standpoint and a strategic standpoint. 
And some of the other things you mentioned- We do currently have some advertising in the Network. Never in the linear stream, never in the live show. Only when you're watching VOD. It's a fairly light touch. We also have some good clients signed up.

(19:30)


MODERATOR: For those of you who were here listening to John from Starz, he was talking about the future media company being defined in a whole new way. Using data and consumer products, segmenting markets and designing products, and then taking the feedback and designing services. Sounds like that's what you're doing.

BARRIOS: It is what we are doing. People are sometimes chuckling but over the last 18 months we're brought up a data science ability internally. Something everyone knows about the power of data but as we were getting ready, we knew for the first time. If you look at it, 90% of the WWE's business had always gone through an aggregator of some sort whether it was a pay-TV aggregator, the ticket aggregator. The only direct business we had was our shop business where we'd sell product direct to consumer. Nice little business. Now WWE's our second largest business. The WWE Network has gone from zero to the second largest business in 15 months, it's all about data collection. It's a capability that we're starting to build out. We're still in early days. Operationally, we're still running a direct to consumer business. If Netflix is a 9 or 10, we're probably a 2 or 3 fifteen months in. But we've shown we're able to punch above our weight and show muscle. Not just this kind of muscle. Two or three years, we'll be an 8 or a 9.

(21:30)

MODERATOR: Flexibility from Direct to consumer business, the ability to utilize the distribution capabilities globally.  You oughta have more options to enter more markets.
It's so global we've got subscribers in countries in places I didn't know. (Tells the Timor-Leste story.) If there's a broadband connection, we know we have access to that market. 
MODERATOR: They can find you and find a way to pay for the service. Or you could push it. How do you handicap that tradeoff between big markets - India, China - your brand is big in India? (India is our third largest market, today.) Do you put capital and marketing muscle? How do you think about those opportunities?
Constant testing. We're adding something to our analytics stack specifically on the advertising side to get more sophisticated on the third-party media. 
If you look at 2014 because the data is public. We had about 1.3M uniques who tried the service. We ended at the year at 815,000 subscribers. We spent about $16M in third-party media. The acquisitions, about $12-13, is pretty low, especially for a new service. The reason is because we have two massive platforms we can use. One is Raw and Smackdown. They're available around the world. If you watch Raw or SmackDown, you hear about the Network. Both as an offering but also a culmination of a storyline. Advertising the culmination - go see Battleground on the WWE Network. The other huge platform is all of that social media. Those 5B YouTube Views, 70% roughly,  is outside the US. So we have these two big global platforms to drive it which is why we don't nhave to spend what others do need to spend on the acquisition side. But time will tell. We're adding sophistication in the coming months to do that testing. We are a little different than a Netflix or HBO or other ala-cart services, in that we have a ubiquitous global platform to reach our consumers.

(25:00)

Three questions from audience member:
1) Who is the best of all time: Verne Gagne, Hulk Hogan, or your personal favorite?
2) Talk a little bit about viewership - 1.3M views. For your main event, what's the CPM for advertising on that versus CPM on TV versus CPM on YouTube?
3) For your OTT product/direct product, it's $9.99 a month. Why was that price point chosen?
BARRIOS: Yes, so I'll take them in reverse order.
The price point - a lot of boring analytic work went into before launch, testing different product descriptions in the marketplace. So, research. A lot of conjoin analysis to understand at the elasticity at different price points - so on and so forth. There was a lot of science to come up with a range and the $9.99 was within the range. And then the art was we thought the sub-$10 price point was a just powerful marketing message - a tremendous amount of value. But, to kind of get the range, it the traditional in-market research and the ability to do conjoin analysis and try to get understanding elasticity. And when I talk about conjoined I was talking about price but also what the offering was - there was different offering tested not just the one in the market now.
The CPMs was a lot trickier. The traditional content is bundled with core programming with pay TV. We don't have direct access to that information. I would be guessing at what CPMs are. I think if you, at least in the US, googled Chris McCumber, who is the president of USA, and Raw is their #1 Show and SmackDown is being moved from SyFy to USA to make USA a juggernaut. I think if you googled his comments about WWE, he'd say very favorable things about what they've been able to achieve with our content. We love driving value for our partners.
 
YouTube, I think what you've seen if you went over the long arc of time, you've seen CPMs get more and more healthy. I think for our business, if you drilled down, as the mix of video views continues to shift and more and more of the views coming from international markets, some with not developed advertising markets, you get a mix.. It's certainly lower than traditional pay-TV on a market-by-market basis, but growing. It's certainly lower, but growing.
And finally on The Network - it's too early to tell. What do you think on a CPM basis? I think because you're going to have a very targeted audience with a lot of rich data. I think over the long arc of time. The ability to micro-target. But that's supposition. We don't have enough experience.
My favorite? Ricky the Steamboat Dragon. So I'm dating myself. Today I like "Shawn .. uh... Rollins". John will kill me now.

MODERATOR: I know some of your talent is listening. That was a very dangerous comment to make. You think investors are tough. I wouldn't want to face your stars and explain why I didn't pick them.

BARRIOS: It's not just what they're big. It's that they're too practiced and tearing you up on the mic so they could be kind of harsh.

MODERATOR: I'm sure I could learn something.

(29:00)

MODERATOR: Back to the Network itself, sorry to keep harping on that, but it's just so interesting. (Us too.) The role of advertising. Just more broadly. You've got 53 hours per user. You've got love when Subscribers are using and get a lot of satisfaction out of your product and the more they use it, the happier they are. Should be low churn. Should be good value. Hooray. But you're never going to get more than $9.99. But they don't pay more when they use more. Well you could raise the price. You could throw some advertising in there and monetize. And get paid for using the service so much more. On the other hand, you don't want to turn them off on the service and fill with clutter.I don't think there's much advertising on there at much right now. There's not much advertising on there now?

BARRIOS: It's pretty light. It's in the VOD. Every 4 or 5 plays of an asset, you'll be served a pre-roll.
MODERATOR: Are you tip-toeing your way in until someone rejects? Is it not a priority? Just trying to get the service launched?

BARRIOS: Two points of context for that specific question. There are different services doing different things. You have Netflix with no advertising and Hulu that does. You see both models working in the marketplace. Hulu is much smaller, but still 9M subscribers is still an incredible number. You have different models in the marketplace. 
I think people who are familiar with Raw and SmackDown would say, you guys are pretty good at advertising within the show, and other ways to engage with the content, you'll definitely hear about our new action figure and you'll hear about WWE Network, and new music offerings we have, you'll hear about it but you'll be entertained. We thought it could work. There is a tension about how much because it's a paid service. That's why it's such a light touch.
I think pover time you're going to see us do things that don't feel like advertising. Integration. Product placement. And we know how to do that so well. As the advertising model matures on the network, we'll be able to do things like that. However, you shouldn't take our eye off the ball. The Network's economic model is subscriptions. Advertising from a financial standpoint would be a nice addition, but at the core it's subscriptions, that's where the economics are going to come from.
(32:10)

MODERATOR: At the risk of answering a question you are most sick of answering, especially a year ago. Let's hit it. I know some people are thinking it. This whole Cannibalization question. Especially when you were renegotiating your licensing fees and launching a network at the same time. Now we're a year into that. We can all go google what USA had to say about the audiences. You've got to be studying it, right? You've got your PPVs and your Television audience. Is there evidence of cannibliazation? Is this really all-additive? There's got to be some -yes, no?

BARRIOS: Great question. I think on the PPV - without a doubt. We went eyes very wide open. And if you look at it today, WrestleMania did 100k domestic. It's not being offered by the Satellites. If you gross that up, on a PPV basis, your It used to be 800 or 900 homes domestically. So you've seen 75% cannibalization already. Personally, I'm shocked that we had 100,000 people paying $60 instead of paying $9.99 but not everyone has broadband. Not everyone made me comfortable to OTT, direct to consumer. To us, very comfortable. Part of our business model and thinking. 
The biggeer question with Raw and Smackdown, we've always said it's hard for us to think about use case from the consumer that results in cannibalization that Raw and Smackdown, which is watched live. Raw is live and SmackDown is taped. But  90% of those shows are watched live. That people are going to say, I'm not going to watch the core content, but I'm going to watch the PPV events and VOD.
The argument didn't make sense. If you're going to make engaged with the brand, you're going to be engaged with the core program with the storyline. That's happening every week. If you looked at the USA's actual experience, and their desire to double-down even more with WWE. We never bought into the argument and it was just fear. 
We definitely don't think there's cannibalization. We'll go to the YouTube as well. We believe different content can live in different places. So Short-form content on free VOD like YouTube. Core Content, Live  on traditional pay TV. The whole WWE experience direct to consumer, amplified by the social connections. We think a rising tide lifts all boats. So far, we've been proven right.

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