Friday, May 27, 2016

Is WWE Studios profitable?

SpitTake on the F4W board asks, "Is WWE Studios profitable?"

It's a good question. Here's my take:

(WWE switched from using Profit Contribution from 2007 to 2010 to adjusted OIBDA from 2011 to current for their primary measure of "profitability", but the story doesn't change much.)

WWE Studios History
2015: $7.1M revenue / ($0.3 million in Q3 2015 and $0.2 million in Q4 2015 impairment charges) / OIBDA: -$1.5M
2014: $10.9M revenue / ($1.5 million in Q4 2014 impairment charge) / OIBDA: +$0.5M
2013: $10.8M revenue / ($7.0 million in Q3 2013 and $4.7 million Q1 2013 impairment charges) / OIBDA: -$12.7M
2012: $7.9M revenue / ($0.5 million in Q4 2012 and $0.8 million in Q1 2012 impairment charges) OIBDA: -$5.5M
2011: $20.9M revenue / ($12.2 million in Q4 2011 + $5.1 million in Q3 2011 + $3.3 million in Q2 2011 and $2.8 million in Q1 2011 impairment charges) / OIBDA: -$29.3M
2010: $19.6M revenue / Profit Contribution: $0.4M
2009: $7.7M revenue / Profit Contribution: $3.7M
2008: $24.5M revenue / Profit Contribution: $8.9M
2007: $16.0M revenue / (WWE Studios profit contribution includes a $1.9 million impairment charge in Q3 2008 related to the feature film, "See No Evil ," and a $15.7 million impairment charge in Q2 2007 related to the feature film, "The Condemned.") / Profit Contribution: -$13.1M

2007-2015: $125.4M revenue / -$48.6M (mix of OIBDA and Profit Contribution)
The Q1 2016 number was negative OIBDA ($6.8M revenue / $0.4M) but it's better to look at full year comparisons because they often take large impairment charges when it's clear something is underperforming. WWE changed their model in the last few years from fully funding big movies to taking on partners and funding part of production and looking at different distribution models. WWE did get a $35M credit line for the WWE studios (they're using about $28M of it right now).

WWE Studios: As we typically participate in a film’s results subsequent to our distributor’s recoupment of costs, there is a lag between a film’s release and its impact on revenue. At March 31, 2016, the Company had $28.2 million (net of accumulated amortization and impairment charges) of Feature Film Production Assets capitalized on its Consolidated Balance Sheet, of which $14.2 million is for films in-release, $4.2 million is for films in production, and the remaining $9.8 million is for films that are completed, pending release, or developmental projects. We review and revise estimates of ultimate revenue and participation costs at the end of each reporting quarter to reflect the most current information available. If estimates for a film’s ultimate revenue and/or costs are revised and indicate a significant decline in a film’s profitability, or if events or circumstances change that would indicate we should assess whether the fair value of a film is less than its unamortized film costs, we calculate the film's estimated fair value using a discounted cash flows model. If fair value is less than unamortized cost, the film asset is written down to fair value. There were no impairment charges recorded in the periods presented.

In the past, WWE would give lots of detail movie-by-movie in the quarterly (Q1-Q3) 10-Q filings. For instance, here is Q3 2015 10-Q filing:



Unfortunately, WWE seems to have moved away from this level of detail in their latest filing. (This is something I complained about regarding the KPIs in my SeekingAlpha article.)

What about The Marine? Wasn't that successful?

As of Q3 2012, WWE had received $37.8M revenue from The Marine and profit was $15.0M. The Condemned ended up being a money-loser at $10.9M in revenue with a $6.5M loss. 12 Rounds was $11.5M revenue with -$2.9M profit.

The success of the Call for WWE has been exaggerated because WWE only funded about $1.0M of the movie. So, they made $3.4M in OIBDA (which is great) but they only had a small stake in the overall film. As noted, they put in $5.8M for Dead Man Down (released March 2013) and recorded a negative -$4.7M OIBDA as of September 30, 2014.

Basically, WWE strategy has shifted to smaller investments in films and smaller rewards (and losses). Made-for-TV movies like Christmas Bounty or Jingle all the Way 2 have been profitable. Kid's movies like Scooby Doo WrestleMania mystery was profitable (+$1.6M OIBDA on +$2.5M Revenue). I would bet that The Flintstones & WWE: Stone Age Smackdown will be profitable. Oculus was another example of throwing in $3M to fund it, and losing $1.6M in OIBDA so far. We'll see what happens but I think they should stick with less horror and more kids.

Why does WWE have a film studio anyways?

The argument that I've used is that it's part of WWE's identity as an "entertainment brand". If they didn't have the WWE Studios then they would be running an OTT service - which shows wrestling. They'd be doing television programming - which is wrestling. They'd be selling merchandise - of wrestlers. It's hard for them to pretend they're anything but a global wrestling company. However, the WWE Studios is part of their entertainment branding and gives them all these partnerships with Hollywood studios so they can pretend they're more than just a wrestling company.

Jackanape: "Why not just be proud of being the biggest wrestling company in history though?"
I don't know. Maybe it's because Vince sees himself as a general promoter and general businessman. He yearns to be recognize as such.

While Vince sees wrestling as a bailiwick he can dominate, he thinks: why not promote Evel Knevel jumps, Boxing matches, movies, casinos, amusement park rides, video games, action figures, reality television shows, exercise lines, vitamins and supplements, singing & dancing bodybuilding pay-per-views, ice cream bars, and so forth?

-Chris Harrington
@mookieghana
chris.harrington@gmail.com

1 comment:

RFE said...

Ego I think, particularly Stephanie McMahon. Why do WWE hire Hollywood actors who dont know who Booker T is? Ego. Its nice to pretend that RAW is classy when its really a trashy soap opera for men.