[WWE] Notes from Conference Call on Q4 2006 Results

World Wrestling Entertainment Inc. had a conference call at 11:00am this morning to discuss the results of the fourth quarter of fiscal 2006. You can see the announcement here, and the presentation document here. (Both are PDF format, and will require Adobe Acrobat to view). I sat in on the call, and below are the highlights:

We were first greeted by the VP of Investor Relations for WWE, Michael Weitz. We welcomed everyone, announced the general format, and then passed the floor to Mrs. Linda McMahon.

Linda was very happy about “the outstanding performance” in the 4th Quarter, and noted that there was “significant progress on key platforms.” Some of the major points she covered included:

  • International growth, including Argentina, Brazil, and other Latin American countries
  • The new network CW will continue to show Smackdown on Friday nights. They expect increase in viewers with the combination of two separate networks.
  • Video sales have been excellent, with the “Tombstone” and Bret Hart DVDs selling over 400,000 units, and 3 other DVDs selling more than 120,000.
  • The quarter saw the largest and most profitable European tour to date.
  • They are in the early stages of a wireless platform, but are aggressively pursuing this new initiative.
  • A new partnership with Comcast to launch a WWE 24/7 channel on their cable system this summer, with a potential audience of over 10 million subscribers.
  • The launch of ECW, a “complimentary brand to Raw and SmackDown.” Last year’s One Night Stand PPV had over 335,000 buys last year. They hope to use ECW to “further develop our superstar talent.” The new brand also brings new products – live events, TV shows, PPVs, licenses, and consumer goods. They expect “at least break-even results this year” for ECW, and then to “build value over the long term.”
  • The release of the movie See no Evil on May 19, with over 14M in gross domestic box office, which is “squarely in line with management expectations.” With the film division, they expect to continue to follow a “conservative approach,” releasing only a few films each year, with moderate budgets, and working with a distribution partner. “The Marine” with John Cena will be released in October, and a new movie called “The Condemned” will come out next year, starring ‘Stone Cold’ Steve Austin, with a budget of about $20M.

Michael Weitz then took back over, and walked through the presentation document. For the most part, this was very dry financial numbers talk. If you’re truly interested, you can find everything here.

The Q&A section then started, which had a few interesting parts.

Q: Internationally, especially with the introduction of ECW, in what territories and in what products do they see the most growth potential?
Linda: In general, there is a combination of all of the various initiative, in general chronological order: TV distribution first, then live events, then the development of licenses, then the distribution of home video. Currently, they see the largest pot entail in Latin American markets.

Q: How many PPVs will there be in the next 3 quarters?
A: 4 in the July Q (there were 5 last year), 3 in the October quarter, and 4 in the January Quarter (NOTE: WWE is changing their fiscal year to match the calendar year as of January 2007.)

Q: In the area of video games, is there an update on the lawsuit involving Jaxx?
Linda: The process is continuing, with no real news to deliver. “The wheels of justice turn slowly.”

Q: Do they foresee a continued growth in home video?
Mike: Yes, they expect the momentum to continue. WrestleMania 22 was released on May 23 (part of this Quarter). The initial shipments “have been very encouraging.”
Q: Do they expect WM 22 to do better than the 255,000 units for WM 21?
Mike: “We hope so.”

Q: Can you talk about the deal ECW received from Sci-Fi?
Linda: There is a front-loaded agreement with USA, but she didn’t want to discuss specifics in this meeting. But, there is a 12 week trial run through the summer, which they expect to be extended if rating are good. They will know about that after the next few weeks. Otherwise, they are already moving on merchandise, live events, and an added PPV in December under ECW. She mentioned the “cult following” of ECW, which required them to have a slightly different presentation for the brand.
Q: Will the current character movement from Raw and SD to ECW be permanent?
Linda: We can’t say definitively in all cases: some will be permanent, and some will move brand-to-brand for a little while. For the launch, they decided to move around some big stars that they felt would have more impact in ECW than they were having on their current show.

Q: What’s the status of The Rock – is he ever coming back?
Linda: “He’s pretty busy.” They expect him to pop back in and out occasionally, but not as a regular performer.

Q: With “See No Evil” – will there be any progress going forward?
Linda: The film is “meeting expectations.” Lions Gate is very happy with their distribution and international results. The movie is “right on target with where we expected it to be.” They are also looking to produce some direct-to-video film, as well as a potential series or TV movie with USA.
Q: Is See No Evil expected to make a profit?
Linda: Between DVDs and the international gross, yes it is.

Q: If ECW is ultimately successful, what size do they see it becoming? Could become an equal to SD or Raw, or would it be more “niche-ey?”
Linda: Eventually, it could be as big as Raw and Smackdown. With it being an already established name, they will be able to push it along faster than if they were starting from the ground up. They will be starting with the “cult following,” but they want to grow outside of that eventually. The “WWE vs. ECW” show delivered about double the normal ratings for a show in that timeslot on USA.

Q: What are the incremental costs for the 3rd brand?
Mike: They have had to add some overhead, in terms of people. During this “transition period,” there will be about a $7-8MM incremental cost, and over the length of the first year it will be about $12-15MM.

Q: When will the film “The Marine” be released, and how do they feel about John Cena, popularity-wise now vs. one year ago, and how might that affect the movie?
Linda: They are planning on an October 13 release with Fox. John Cena’s popularity today as compared with a year ago has “doubled.” He’s a top merchandise seller, and “a break out star in rap music,” with CD sales of 250,000 units.

Q: Would they agree that the ECW demographic seems to be “slightly older and slightly more male” than Raw or SD?
Linda: It’s “definitely heavily male,” but they believe it might actually be skewing a bit younger. They hope to grow the base significantly over the next year.

Q: Where do they see growth online?
Mike: Currently, less than 20% of their ad inventory is available for sale on the Internet, so they are looking to expand that greatly.

Q: Can they give any details on the 24/7 channel with Comcast?
Linda: Getting Comcast was “a feather in our cap,” Comcast plans on having some sort of special event or promotion to launch the new service.

Well, that about sums it up. Besides the statement that they expect ECW to grow to the same size as the big two, and conjecture on Cena’s popularity, I think the most amazing part was the fact that Linda McMahon seemed totally at ease and actually had a personality during the call, and while talking about the business. If only she could act the same way when she’s on TV.