TKO Group Holdings Inc (TKO) 2005 Q2 法說會逐字稿

Good day. All sites are now online in listen-only mode. At this time it is my pleasure to hand off your conference to your moderator, Wayne Rappaport (ph). Go ahead, please sir.

Thank you. Welcome to World Wrestling Entertainment's second-quarter conference call. My name is Wayne Rappaport, Director of Planning and Analysis at WWE. Here with me today is Linda McMahon, our CEO, and Michael Sileck, our CFO. We issued our earnings release earlier this morning, and we will be referencing a presentation as part of our discussion. Both are available on our corporate website at corporate.wwe.com.

We will be making several forward-looking statements today as part of our discussion. These statements are based on management's estimates. Actual results will differ due to numerous factors as called out on page 1 in the presentation and in our earnings release. Today we will review our operating highlights and second-quarter results, followed by a Q&A session. At this time, I would like to turn it over to Linda McMahon.

Thank you, Wayne, and good morning, everyone. I am pleased to say that we had a very good quarter. Our financial performance was outstanding; and working in conjunction with our programming partners we successfully launched RAW on USA Network and moved SmackDown to Friday nights on UPN. Monday Night RAW's premier Homecoming show on USA Network achieved a 4.7 rating, making that show the top-rated regularly-scheduled basic cable entertainment telecast for the month of October. Our research also shows that our move and the marketing and promotion surrounding it has brought new fans to the show. RAW's average rating has been up since our move to USA Network and we look forward to continuing that trend.

We also successfully transitioned SmackDown to Friday nights. Despite 15 to 20% lower HUT levels -- that is, households using television -- on Friday nights versus Thursday night and several baseball preemptions in significant markets during the transition, we have effectively been able to move nearly 90% of our audience from Thursday to Friday nights and have also firmly established Friday Night SmackDown as the number one program in all of television among teens and males 18 to 34 on its new night.

Our pay-per-view business had another terrific quarter with buys continuing to trend upward. Even though we aired one less pay-per-view in the quarter, total buys were up 14% over last year.

Revenue was down in live events for the quarter due to the timing of international events. In November we completed a successful 15-event European tour, our largest international tour to date. Over 110,000 fans attended events in the UK, Italy, Germany, Ireland, and Finland.

Our domestic events performed well in the second quarter. The positive trend in attendance that began in the fourth quarter of fiscal '05 has continued through the second quarter of fiscal '06 with average domestic attendance up 13% from the prior-year quarter and up 16% for the first six months of the fiscal year. I am also happy to report that tickets for WrestleMania 22, which will be held in Chicago on April 22 of '06, sold out in less than two minutes. More than 15,000 fans from 16 different countries will be attending our premier event.

Branded Merchandise had its highest grossing quarter in the last five fiscal years, with revenues increasing almost 70% from the prior-year quarter. Home Video revenue was up over 150% from the prior-year quarter due to strong performance from a great lineup of new releases in the quarter including Tombstone: The History of the Undertaker. Released in the second quarter, this DVD sold over 150,000 units and has been our second-highest selling non-pay-per-view DVD title of all time. Only the Rise and Fall of ECW at 190,000 units have sold more.

The popularity of high-margin DVD titles featuring our talents and their stories continues to grow. Two more eagerly anticipated titles have recently been released -- WrestleMania, the Complete Anthology box set, a 21-disk volume covering all 213 WrestleMania matches, which shipped at the end of the second quarter, and The Bret Hart Story: The Best There Is, the Best There Was, and the Best There Ever Will Be, which was released in the middle of November. We are optimistic about the potential of these titles and are certainly encouraged by their early sales figures.

We are also very excited about the recent release of the SmackDown vs. RAW 2006 videogame for Sony PlayStation 2. Its release was welcomed by great reviews from various Internet gaming sites, and it topped the charts in sales its first week out in the UK.

Orders from our WWE Shop website have more than doubled for the first six months of the year. Additionally, other digital media revenue was up 28% for the quarter, primarily from Web advertising. As a result of our new deal with USA Network, we have just completed our last quarter of selling advertising time on our domestic television shows. We now look forward to concentrating our efforts and driving advertising on our website, which we believe has tremendous growth potential. I expect that we will not only recoup lost television advertising dollars, but over the next three years we will far exceed those dollars in Web advertising.

Our 24/7 service continues to expand, securing deals with numerous midsize and smaller distributors. Although it is taking longer than anticipated to close deals with the large distributors, we are confident that we will close these deals shortly.

Before I brief you on the outcome of our strategic review, I wanted to provide you with an update on films. We are continuing to work with the studios to lock in release dates for our films and are currently targeting May 19 for the release by Lions Gate of See No Evil, and late summer, probably the end of September, for The Marine by 20th Century Fox. We're also in the process of evaluating and refining scripts for any future film projects, but have not yet started production on any new films.

We anticipate beginning production on a project entitled The Condemned in the spring of '06, but do not anticipate starting any other productions in calendar '06 until we see first how See No Evil and The Marine perform at the box office. We are currently in discussions with different parties on various projects, which include made-for-TV movies and will provide further information if we choose to move forward on any of them.

A strategic review of the Company was completed by management in the second quarter, and I would like to point out some of the highlights of the review. The Company will continue to focus on its core business and not invest in the short term in any new lines of business. Because the content distribution environment is changing and developing, new opportunities are being created for us to invest in and expand our digital media business, specifically in the Internet and wireless arenas. As this landscape changes, we will change with it.

The Branded Merchandise segment was identified as a primary growth area for the Company. As the strong results in the quarter demonstrate, significant opportunities exist for us to increase the performance of this segment, especially internationally.

On another note on our film, our film development provides an opportunity for us, and as we have stated in the past we will continue to take a careful, measured approach with respect to our investments in this area.

Finally, after reviewing our capital structure, the Company will double its current quarterly dividend from $0.12 to $0.24, taking the total annual dividend from $0.48 to $0.96. At this point, let me turn things over to Mike Sileck, our CFO, and he will give you some more comments.

Thank you, Linda. As Linda has mentioned, our results for the second quarter were ahead of plan, with most of our key drivers improving over the prior-year quarter. Our revenues for the quarter were $89 million as compared to 84 million in the prior year, an increase of approximately 6%, while operating income was 19 million versus 4 million last year.

This quarter's results really demonstrate the incredible leverage within the business model. The increase in operating income is due to increased revenues in the high margin Home Video and Licensing businesses, and an increase in the pay-per-view profit margin which generated the same revenue in the quarter versus last year, despite producing one less event. Also included in operating income is approximately $3 million from positive legal settlements.

Page 5 of our presentation lists revenues by business unit as compared to the prior year. Revenues from live events decreased 7 million due primarily to the timing of our international tours. The year-ago quarter included 15 international events as compared to only two in the current quarter. Our full-year plan currently anticipates approximately 53 to 56 international events, or four to six more than last year.

Our North American events continue to outperform the prior year, with an average attendance of 4,300 in the quarter as compared to 3,800 last year, a 13% increase. We intend to finish the year with between 245 and 255 North American events.

Pay-per-view revenues for the quarter were essentially flat to last year. However, we generated 1.3 million buys with three events this quarter, compared to 1.1 million buys with four events last year. Taboo Tuesday, which aired in the second quarter last year, fell into the third quarter this year. Buys for the three pay-per-view events that aired in both quarters were up 19% over the year-ago quarter.

Of the eight pay-per-view events held in the first six months of fiscal 2006, five have exceeded the buys recorded in fiscal 2005. In particular, SummerSlam and Vengeance have each achieved their highest level of buy since fiscal 2002.

I want to point out that our average revenue per buy is lower this year, as a greater percentage of our buys are coming from international sources, which command lower prices per event. International buys currently comprise 34% of total buys, as compared to 23% in the prior year. Specifically, the growth is driven by the UK, Italian, and Australian markets.

Television rights fees increased 2 million over last year, due primarily to increased fees from India, Japan, South Korea, and Italy. The increase in TV advertising reflects the fact that under our new deal with USA Network, which became effective in early October, we no longer sell advertising time in our RAW show. This is now similar to our UPN contract; and as a result, we no longer sell advertising time in any of our domestic TV shows. We will, however, continue to sell a variety of sponsorship products, including sponsorships of our pay-per-view events.

Our Branded Merchandise segment continues to deliver impressive results with revenue increasing 69% compared to the year-ago quarter. These results are driven in large part by our Home Video business, which experienced a 162% increase in revenues. This reflects an increase of approximately 169,000 units sold over last year, due to the strong performance of titles such as Tombstone: The History of the Undertaker, which sold 155 units, and the The Self Destruction of the Ultimate Warrior, which sold 118,000 units.

Additionally, at the end of the quarter we leased our WrestleMania: The Complete Anthology box set. Also, an increase in the number of multidisc titles released in the quarter, included the Anthology box set, resulted in an increase in our average sales price of $5.00 per unit as compared to the prior year.

Revenues from the sale of our merchandise increased by 1 million or 28% to 5 million. The bulk of this increase relates to WWE Shop, our merchandise website, where orders processed increased by 145% in the current quarter.

Our profit contribution margin for the quarter was 47% compared to 37% in the prior year. This improvement reflects increases in our pay-per-view, Home Video, and Licensing businesses. It is noteworthy that a 6% increase in revenue converts to a 35% increase in profit contribution, further demonstrating the inherent leverage in the business model.

SG&A expenses were 19 million in the current quarter, a decrease of 4 million from last year. The decrease is due primarily to a $3 million in favorable legal settlements and reductions in building maintenance costs. These reductions were somewhat offset by an increase in accrued incentive compensation, which is tied to the Company's performance.

EBITDA for the quarter was 22 million, versus 7 million in the prior year, an increase of over 200%. Page 11 of our presentation provides the details of this increase. As is our practice, page 12 shows a normalized EBITDA adjusting for those items we consider to be unusual. There is only one such item in this quarter, that being the favorable legal settlement.

Page 14 of the presentation contains our balance sheet. On October 28, we held 278 million in cash and short-term investments, up from 258 million at fiscal year-end. The Company continues to have virtually no debt.

We have recorded 33 million in feature film production assets for the two films currently in postproduction. These assets will be amortized on a pro rata basis as revenues are recognized, in accordance with Generally Accepted Accounting Principles. As we have stated in past calls, we did not anticipate seeing any revenues from these projects until fiscal 2007.

For the quarter, we generated $15 million of free cash flow as compared to a negative flow of 6 million in the year-ago quarter. During the quarter, we spent 3 million on the production of our two feature films as compared to 7 million in the prior year. Also in the quarter, we acquired a parcel of land adjacent to our TV production facility for $5 million.

The Company's outlook for fiscal 2006 is shown on page 15 of our presentation. Given our year-to-date results, we have increased anticipated total revenues to a range of 370 to $385 million. EBITDA is currently anticipated to be between 60 and 65 million; income from continuing operations between 35 and 40 million; and fully diluted earnings per share from continuing operations of from $0.50 to $0.55.

We have assumed in our full-year forecast that the elimination of ad sales from our RAW TV program will result in approximately 19 million in lower revenues and approximately 12 million in lower profit contribution relative to last year's Q3 and Q4. We are assuming modest growth in our other businesses and intend to invest several million dollars in Internet initiatives.

It should also be noted that the Company has traditionally been conservative in its forecasts, given the hit-driven nature of our business.

We promised the investment community on our last conference call that we are in the midst of a strategic and capital structure review and would report back on the findings on this conference call. Linda has outlined the significant points of our strategic direction. The quarterly dividend increase to $0.24 from $0.12 is the result of our capital structure review.

We want to be clear that after extensive discussion, research, and debate, the Company believes the dividend increase at this time is the best solution for our shareholders. We did give due consideration to alternatives including a special dividend or a stock buyback; however, we concluded that our long-term shareholders were best served by an increase to our ongoing dividend payment.

We anticipate funding the increased dividend from current and future earnings. It is our goal to grow earnings to a level that will fully support the higher dividend payment. In any event, the increased dividend will necessitate the Company to fund new initiatives such as our film projects out of cash reserves at least in the short term.

We do believe that a disciplined resource allocation process is healthy for the Company and will hopefully create more value for our shareholders. That concludes this portion of the call and I will now turn it back to Wayne.

Thanks Mike. I would like to open the call to questions.

(OPERATOR INSTRUCTIONS) Michael Kelman with Susquehanna Financial.

The Home Video results were very strong this quarter. I am just trying to understand if this level of revenue is sustainable through the back half of the year. So specifically, can you talk about some of the upcoming titles that are coming out? And also if they should also help carry a higher pricing point throughout the year, or should we see that ARPU start to trend back down to historical levels?

I think the pricing is pretty consistent throughout the balance of the year. We are looking to release the same kind of new titles that you have seen now, with The Undertaker. The Bret Hart was the one that I had indicated before. I don't have the list of the upcoming releases in front of me, but they do key on our talent, sometimes on controversial things that happened with our talent. It shows the depth, again, or our library and utilization of that library that we have not heretofore done.

So again, a focus with our pay-per-view releases as well as the top stars. And we do expect to be able to continue the strength of our video sales.

Okay, great. I just had one follow-up question on the live events. Obviously, live events revenue was negatively impacted this quarter by the mix of domestic versus international. Should we actually see that trend reverse in the next quarter? Because I think in last year's third quarter there was only one event held initially, and this year you expect to have more. And also I guess in the fourth order, would that be the same thing?

Yes, for the upcoming -- we have just actually completed our European tour in the month of November. Last year, that tour actually happened in October. So yes, to your point, we will show in the third fiscal quarter an increase in international events. So I think that will sort of smooth out the results from that standpoint. Then we also have a European tour scheduled for the April quarter as well.

Okay, thank you, guys.

Alan Gould with Natexis Bleichroeder.

A couple questions. First, Linda, what has changed so that domestic attendance is up 16% year-to-date? Is it fan interest? Is it the choice of the venues you are using? Is it the USA promotion of the switch of the TV program?

Second, for Mike, you raised your outlook $0.04 to $0.05 on an EPS basis for the year; yet the quarter was up 10% versus consensus. Are you just being conservative? Or is there anything we should be cautious about for the second half of the next year?

Mike, why don't you go first?

Yes, Alan, relative to our forecast, don't forget that we will be -- we will not have the ad sales revenue from the RAW show in the back half of the year. As I had mentioned that is an impact of approximately 19 million in revenue and approximately 12 million in the profit contribution. Also as stated, we are going to make several million dollars of investments in our Internet initiatives, which will certainly pay off, but not immediately. So those are some of the reasons for the forecast.

Wasn't the TV portion already in your old forecast? I am just looking at the delta between today versus last quarter. You have raised it $0.04 to $0.05, yet you beat consensus by a dime.

Yes, I think we hit the ball out of the park this quarter. We may be able to continue to do that; but I think from a planning standpoint, we want to err on the side of being conservative.

Okay.

Alan, relative to your first question with live events, I think it is a combination of all the things that you mentioned. It is sometimes mix of buildings. But it also speaks to, I think, what we were spending the last several months, maybe 18 months. So in that building these Superstars, as we have talked about with John Cena, who is the WWE champion, and David Batista. And we are just very happy that the star power that these guys have, along with many up and coming new stars, and the creativity behind the storylines that is following these stars, I think now you're starting to see pay off.

We have had a couple Supershows, which we have challenged, had interpromotional brands, leading up to pay-per-views. I think all of those things are indicative of just the robustness of the business and reaching back into the fan base.

Do you think you hit a trough a year ago or so?

I think we probably did. I think we probably did. That was kind of low, and we have had consistent trends now showing that those attendances are coming up.

Okay, thank you.

James Clement with Sidoti.

A quick question. I noticed that the prior events pay-per-view line item in the chart was up substantially year-over-year. I also noticed in the weekly performance drivers document that you guys put out weekly, that the Vengeance event of this year was revised upward substantially. I was wondering if the two were connected, and what was going on. Is it just that there are more, perhaps, international buys going on and maybe you guys don't get the data as quickly?

James, that is exactly correct. The profile of events is increasing toward international, as we have mentioned; and as a result the reporting lag of that is a bit greater. So, yes, that is the reason for it.

Okay, and just correct me if my history is a little bit wrong, but it seemed like around last year it seemed like the magnitude of the upward revisions were not as much as they had been prior. It seems as if that trend is now sort of reversing itself back to maybe where it was two years ago or three years ago? Is that probably right?

I can't really speak for a few years ago. But the trend has -- there has been some ebb and flow to it over the course of the last few years. But certainly for the last few quarters it has been trending upward. I think international is a little large reason for that.

Okay, just another quick question. With regard to the TV advertising and the switch to RAW, I think you said that it impacted you from a revenue basis of $2.1 million this quarter. If you annualize that number, it is still substantially less than the 37 million that you talked about when you originally made the announcement. Is the month October, historically, was that seasonally a relatively weak advertising month? Or I was just wondering what the disconnect was.

Remember, you only had -- really it was in the first week of the last month of the quarter. That was the only impact. So I think if you annualize it out, you will come up with what we have called to be approximately 19 million in the back half of the year.

Okay, okay. All right, thanks very much.

(OPERATOR INSTRUCTIONS) Marla Backer with Research Associates.

I have a couple of follow-up questions about the RAW's move to USA. The ratings were up on average, you said, Linda, during post the move; and the ratings for the first week, for the premiere on USA Network were really strong. I think there was a huge spike on your website. You said also that your research shows that you're getting a new fans now. Can you talk a little bit about where you see the ratings -- they have ebbed a little bit -- but where you see them moving going forward. What type of new fan base are you seeing now that RAW has moved? Are you getting a younger fans, which I think is one of your target objectives? Can you talk a little bit about where the fan base is moving?

We are seeing some younger fans come in. But as well as the 18 to 34 male group is growing as well. We are up about 15% in our average rating over the same time frame last year; and I think about 16% over the last month as we were on spike. So I think our rating trends are holding steady right now. I think we have brought in new fans. I expect to them to hold and probably trend upward a bit.

I don't think we're going to see 4 7s on a consistent basis that we saw out of the box with our return to RAW. But good strong, solid base of the high 3s, and low 4s is what I am looking for, I know, for probably the rest of this television season.

Okay, and in terms of your conversations with USA Network, you had talked about having a couple of specials, those Saturday night late specials. Those are all still on track, is that correct?

Yes, they are. Yes, they are.

Okay. Now one other question --.

Excuse me, though; that late-night special will be on NBC, not on USA, but it is part of the whole NBCU group.

Right, but it is still the same package that you had talked about earlier?

Correct.

Okay. In terms of the movies, so now you have some ballpark dates for the two movies. But once those come out, the only other film that you will have in production is Condemned, until you see how the two movies do at the box office. Do you -- what is your objective in terms of a release schedule? Are you thinking that you'll stay with that two movie releases per year, if they do well? Or are you thinking it will move down to one per year or even possibly move up?

I think that really is a wait-and-see. If the two are really strong, out of the box, at the box office, we might think to do three on a yearly basis. But it will depend on production schedules. We're going back to Australia for The Condemned. We are planning probably in March to begin that production. Australia was a very good thing venue for the first two films that we produced, and we're excited about being back there.

We are also looking, as I mentioned in my comments this morning, at some made-for-TV movies. I am not really at liberty to discuss those much, beyond just making a general statement. But those will be the concentration of the focus.

But I think if we are strong out of the box and we have good international reception also for these films, we would bump up probably the production schedule. But again it will be on a very conservative, let's see how they are doing, what is the marketplace ready for? And we will very cautiously, again, not going into production really until we have our distribution deals lined up. Because that is our key in keeping the budgets low. So we think we have got a good formula to move forward.

And the made-for-TV movies, the budgets would presumably be lower than the 20 million you have talked about for the theatrical releases?

Sure, they would run somewhere in the 4 to $5 million range.

Okay. And then my last question --.

Of course there would be some offset with license fees for those.

Okay. Second to last question, if you do go made-for-TV, is that in addition to the one to two for theatrical release?

Yes.

Okay, and my last question is on the Branded Merchandise. Obviously, you have talked in the past about really trying to monetize the library and develop the legacy fan base. Where are you in terms of the library? Are you just hitting the tip of the iceberg? Do you have a lot of titles remaining that would still appeal to that legacy fan base?

We are really just tapping the tip of the iceberg, and we are continuing to acquire other libraries as well just to satisfy -- we want to be the place to come for this particular industry, which would incorporate other organizations that have been part of this industry over the years. So I think as you're seeing, just now we have just released the Undertaker; we're coming out with The Bret Hart Story. Bret Hart, that wan an incredibly controversial time, when Bret Hart lost the championship, for those fans who might be listening.

But I think that utilizing those controversial topics will continue to drive the sale of a lot of these videotapes. And we are -- there are multiple disks, and there are new interviews, and there is a lot of packaging going on when we offer them on our website with other merchandise. So I think we are really looking at how we market and package not only off our own website but to the retailers.

It has really proven well. In an industry when trends are showing that the growth for this year is going to be about 9%, ours is looking to be at about 30% in Home Video.

Okay, great. Thanks very much.

Mario Cibelli with Marathon Partners.

A couple of questions. Linda, on the U.S. attendance, were there any -- did you have a number of where you were in the exact same facility and you were up significantly? Sort of very fair comparisons year-over-year or some other point of time, where you could say we were up 15% in the same place, from the same place?

We have not done that kind of a specific analysis, Mario. I think in general, we tour the country on a pretty specific and steady basis on a geographically prudent way. Let me emphasize this; this is North American, it is not just U.S. for the number. But we pretty much are in the same demographic areas year-over-year at about the same time, because we kind of go with the weather as well.

So I don't have a specific answer to your question. But in general I would say that we pretty much are in the same markets and in comparable buildings. So it does show, in my view, I think in the general analysis here, we agree that this is a positive trend. It's growth. It is not really similar to mix or that sort of thing.

Right, some part is mix, but some part is absolutely real. (multiple speakers)

Correct.

Okay. Then on the Home Video business, I am sorry if I missed some of this. The Anthology box, that is the $200 DVD, right?

Correct.

So did you get a sort of a full impact on that in the quarter? A partial? Because I think you sort of said -- I mean, I assume it is also there for the Christmas selling season. Was that a full or partial for the quarter? Anything you could say there to give us a little insight?

Yes, partial at this point. I think you'll see it predominantly come out in the next quarter. Mike, correct (multiple speakers)?

It was released, Mario, late in the second quarter. So we saw really very little impact of it in the second quarter. You will see much more of an impact, we believe, in the third quarter.

So the $5.00 unit wasn't only driven by this one increase. Wasn't only driven by this; it was others as well.

Others as well, including the Undertaker DVD, which is a three-disk set.

That is real good business. Great. How about -- sorry if you just commented on this too. On the Web advertising, just on your Internet site, have you made a comment there if you're up significantly, and are you either sequentially or year-over-year, or anything like that?

We are at about -- I think it is about 28% we're up now. But I will tell you, we are spending -- I don't think we're any different at this particular point than any other media company that is out there. We have really changed our focus to our digital media division and the wireless platforms.

It has come under different management. We have some really strong people who are in there redesigning, adding programs. You'll see us produce original programming for the Web. We are creating more interstitials and opportunity for advertising buys. We will be coming out with additional video players which will enhance the consumers' use of these sites and create additional advertising opportunities.

We are growing our ability for our subscriptions. I was looking at our stats for this year starting with January 1 of '05. It was an amazing number to me on page views, we were at about 2.8 billion; and we were almost 300 million video streams since January 1. That is a phenomenal number of video streams. I believe that puts us far in excess of ESPN or others.

Now we are really focusing on monetizing those streams. We felt we needed to build a strong website to give our fans really something to come to. We have taken a couple of our programs that were in syndication and put them on the Web. We have just started selling interstitial advertising in those programs, creating that opportunity.

So a little bit earlier in my comments I said not only do I expect that over the next three years we would recoup lost advertising from television sales, but I won't say how many times I think we will do better than, but I think we will far exceed the advertising dollars that we were getting from television. And it's very exciting for us.

If I could just -- one thing. We also now are really beginning for the first time to sell ads on our international websites with sponsorship. So that is just a whole new door that is just beginning to open to us.

I assume that your TV advertising partners have no say, no call, nothing to do with this. This would accrue to all, to your shareholders?

Correct. That is correct.

Okay. Lastly, did you comment on the positive legal settlement, where that was from? I am not sure if you did.

It was from a few sources. I don't think we itemized them in our comments today, but they were from a few sources. I think they will be spelled out a little more fully in the Q.

So reversal of an accrual? Or were these settlements where you were seeking cash damages or something?

You'll see it in the Q that will be released shortly. But it basically revolved around a legal fee settlement with Marvel Enterprises. That was about -- and again you'll see the numbers --that was about 900,000. Then there was also a payment from a former employee in settlement of just state claims regarding -- and this ties back to the initial part of the THQ/JAKKS lawsuit. And again, you'll see it laid out in our 10-Q.

Thank you.

Bobby Melnick with Terrier Partners.

I think Mario just asked the question, but I would be curious about -- the only topic I wanted to discuss was the Web advertising and what you refer to as the digital media revenue. It is hard to tell. It is not disclosed on page 6 of the presentation, but you do say on page 10 that digital media revenue ad sales was up 0.5 million year-over-year. I think you just said that that was up 28%. I am not sure whether those were the same figures. Do you actually just have a figure for what digital media revenue was for the quarter or the six months?

I'm going to defer to Mike for just on second while he checks that.

The number is approximately right around 2.4 million, Bobby.

For the second quarter?

Yes, sir.

What would that be for the first half of the year?

First half it is right at 4 million, so you can see it is trending correctly.

So when you talk about on this call that you say that you expect to more than to replace all TV advertising with Web advertising --.

Eventually.

Eventually; although in response to Mario's question I think you said sometime in the next three years. Are you talking about the figure that was $43.7 million for 2005?

I bullishly would say yes.

Okay. That's helpful. Thank you very much.

James Clement with Sidoti.

I was just wondering if you could provide any sort of update on where the litigation stands with THQ/JAKKS?

It is still resting at a very slow stage as far as we are concerned. It is -- the discovery schedules have not been set as of yet. The judge has recently heard some oral arguments on several different kinds of briefs, and we are waiting for his ruling on that. It is a very slow judicial process.

Okay. Thanks very much.

Thank you. I just want to add that, in the meantime, as you can see by our numbers, we are continuing to do business with both JAKKS and THQ because that was part of the agreement with the lawsuit.

(OPERATOR INSTRUCTIONS) Alan Gould with Natexis.

Just a couple of quick follow-ups. Mike, there was a big change in accrued expenses and other liabilities. I was wondering what that was.

There is also a comment of program initiatives in TV on page 11 of the slides. You didn't get any sort of payment, onetime payment or anything, from USA this quarter?

Also, Linda, can you give us some sense of why you chose to double the dividend, which is obviously very nice, as opposed to a onetime special dividend? Especially given that the strategic review has you focusing on your core business, why do you need to keep such a large cash balance?

Relative to the accrued expenses, there was a turnaround in terms of from a tax, from an income tax standpoint, where it went from a use of working capital into a source of working capital between years. So it was really from a timing standpoint that happened. Then just your other point, I wasn't quite sure what you were referencing, Alan, just to be clear.

On page 11 of the slides, under the television portion, it mentions international TV revenue, timing of international TV, and events, and programming initiatives.

Yes, that was -- we are constantly trying to increase our footprint internationally with our television program. So we have cut some new deals in certain countries, and namely Japan and others. That is -- as a result we are generating more revenue from those sources.

Is that a recurring item?

It should be. The deals run anywhere from one to three years. So from that standpoint, they're ongoing, yes.

Okay.

We really, with our Board and internal discussions, looked at special dividends. We looked at buybacks. And we have heard from a lot of our investors over clearly the last couple of years, when we really did want to pursue our course of returning investments back to our -- I mean, revenue back to our investors, we felt that raising the dividend was the best way to go.

It does -- we do utilize partly cash to do that for this year. We are building our initiatives by using other cash, and we want to preserve some of that cash still going forward. We felt this was a good way to return a good portion of this cash to our investors. Mike, do you want to add anything to that?

I just think we did, we really scrutinized what the best thing to do hear was. I think relative -- an ongoing dividend increase versus a special dividend, A, gives the Company some flexibility going forward, which we think is helpful; and also we really value our long-term shareholders. So kind of the notion of a special dividend sort of rewarded short-term with a short-term reward. We were really looking to encourage long-term holdings of the stock. So that is sort of where we came down on it.

Okay, thank you.

(OPERATOR INSTRUCTIONS) It appears we have no further questions at this time.

Well, thank you everyone, and we look forward to speaking with you next quarter.

(technical difficulty) conference, you may disconnect at this time.