TKO Group Holdings Inc (TKO) 2005 Q4 法說會逐字稿

[OPERATOR INSTRUCTIONS] I would now like to turn the call over to the Vice President of Investor Relations for WWE, Michael Weitz. Please go ahead, sir.

Thank you, welcome to World Wrestling Entertainment's fourth quarter conference call. My name is Michael Weitz, Vice President of Investor Relations and Financial Planning at World Wrestling Entertainment. Here with me today are Linda McMahon, our CEO and Michael Sileck, our CFO. We issued our earnings release earlier this morning and will be referencing a presentation as part of our discussion. These 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 may differ due to numerous factors. As called out on page one of the presentation and in our earnings release. Today we will review our operating highlights and fourth quarter results followed by a Q&A session. At this time I would like to turn it over to Linda.

Thank you, Mike. Good morning, everyone. I'm pleased that we completed the year with outstanding performance coming from across our businesses. Our strong financial performance and the growth in our key drivers underscores the fundamental operating strength of our business. In short, our company is strong and getting stronger.

During the year, we made significant progress on our key strategic initiatives. We strengthened our television platform both domestically and internationally. We successfully transitioned RAW to the USA Network, positioned SmackDown on the CW Network's fall prime time programming lineup, and extended our international television distribution to new markets such as Argentina, Brazil, and other Latin-America countries. The CW has confirmed SmackDown's position in the fall prime time programming schedule based on the CW's upfront presentation, SmackDown will remain on Friday nights at 8:00 p.m. We expect the combination of UPN and the WB Network will result in increased SmackDown viewers, reflecting the expanding reach and better channel position of the new network, which in turn should drive other long-term benefits to our business.

During the year, we also delivered profitably across our businesses. While we achieved impressive growth in our key drivers, event attendance, home video sales, licensing revenue, and Internet traffic, we also continued to focus on bottom line performance. Our home video performance, for example, more than doubled its revenue from last year while increasing its profit margin by several percentage points. The business achieved nearly a 50% increase in gross units shipped demonstrating our successful efforts to monetize our video library and to expand our distribution. Two retrospective titles, The Tombstone and Bret Hart DVDs shipped more than 400,000 units combined over the year, and 3 others each exceeded the 120,000 mark. In addition, the creative packaging of multi-disk titles increased the average price of our DVDs by about $4 to almost $16. In the future we plan to continue building on these initiatives which contribute to the revenue growth and improved margins of this business.

Similarly, our licensing business achieved more than 50% growth in revenue and improved its profit margin 4 percentage points. We are pleased with the continuing strong sales of our video games and toys and their growing popularity in international territory. Our live event business also provides another example of our focus on both revenue growth and profitability. Average attendance to our live events increased for the fifth consecutive quarter resulting in a 19% increase in average attendance to our North American events for the full year. At the same time we managed to improve the profit margin of our North American live events by 4 percentage points. Similarly, we increased the number of international events to 52, versus 49 in the prior year and extended their reach to various new territories such as the Philippines and New Zealand. Our fourth quarter included our largest and most profitable European tour to date. Over 125,000 fans attended the tour coming to events in 5 countries.

We also positioned the Company for continued success by further developing our long-term growth opportunities. We increased our investment in our emerging dot com and wireless platforms and further expanded our 24/7 subscription video on demand offering. We believe our website and wireless initiatives have strong growth potential. While we are in the early stages of developing a wireless platform, we are accelerating our efforts in this area. We expect to announce several content deals for this platform in the near future.

We are very pleased that our 24/7 offering has recently secured distribution with Comcast. The country's leading provider of cable service. Comcast will launch WWE's 24/7 On Demand service this summer to over 10 million potential subscribers throughout their systems. This will extend the reach of our 24/7 service to over 50% of the country's VoD enabled homes.

We're also very excited about the launch of ECW as a complementary brand to our RAW and SmackDown franchises. After three successful DVD releases and a very profitable pay-per-view event last year, which has generated over 335,000 buys, we believe there is strong consumer demand for this unique form of entertainment. The development of a new franchise provides a vehicle to further develop our superstar talent and increases our international touring capabilities. Additionally, our portfolio brand approach allows us to efficiently exploit a full line of products, which will include live events, television programming, pay-per-view events, license and consumer goods, and further distribution on our digital media platforms. The ECW launch was initiated this past Sunday with a highly entertaining pay-per-view event and one hour live events will begin airing on the SCI FI channel on Tuesday nights with their debut tonight at 10:00 p.m. Just to repeat, that's SCI FI network 10:00 tonight. We expect that the venture will achieve at least break-even results this calendar year and should build value over the long-term.

Before concluding, I would like to provide you with a brief update regarding our feature film strategy. See No Evil, our first feature film starring WWE's superstar, Kane, was released May 19, and has achieved over 14 million in gross domestic box office receipts to date. This performance is squarely in line with management's expectations. We're very proud of our film divisions debut offering, which has proven WWE's ability to open a solid theatrical release. Going forward we expect to maintain our conservative approach to the film business, producing only a few films per year with moderate budgets and always with a distribution partner. Consistent with that strategy, The Marine, starring John Cena and distributed by FOX is targeted for release in October and as previously announced we have just started production on The Condemned, a film starring Stone Cold Steve Austin with a budget of approximately $20 million.

Looking forward, we're very excited about the opportunities represented by our strategic initiatives. The creation of a new ECW franchise and the development of a broadband and mobile platforms have the potential for growth. This potential is strengthened by our marketing savvy, including our creativity in producing feature films. We believe pursuing these initiatives while sustaining our dividends will build enduring value for our shareholders over the long-term. At this point I'll turn it over to Mike Sileck, our CFO.

Thank you, Linda. Before I discuss our results for the fourth quarter, I would like to briefly review two changes to our financial reporting. First, as indicated in our Q4 earnings release, our Board of Director has elected to change the Company's fiscal year-end to a calendar basis beginning with calendar year 2007. The change is intended to simplify our communication and will enable us to report our financial reports in a time frame consistent with the majority of our media and entertainment industry peers. Accordingly we will establish an eight-month transition period from May 1, to December 31, 2006 and have provided guidance for this period. During the transition, we will continue to file quarterly Form 10Q reports under our current fiscal reporting schedule. Namely for our July and October quarter ends. These will be followed by the filing of a 10-K for the May through December period. We view the change in fiscal year end as a positive change for the Company and for our shareholders.

Secondly, we are changing our segment reporting structure to reflect the creation of two new segments. Namely digital media and feature films. This change serves to underscore management's focus on the growth of our digital media businesses, including online advertising, eCommerce via our WWE Shop website, and wireless initiatives, as well as to highlight our feature film activities. Concurrent with the addition of these segments, we are also moving the sale of merchandise at our live events to the live and televised entertainment segment and are renaming the branded merchandise segment as consumer products to reflect the new set of businesses comprised by this segment, principally licensing, home video, and publishing. For comparison purposes, prior periods as shown in our press release and website presentation have been recast using the revised format. Overall, these changes should provide greater understanding of our businesses and should be perceived as part of our broader continuing effort to improve the communication with our shareholders.

As Linda mentioned, our results for the fourth quarter capped off a very strong year. Our revenues for the quarter were 114 million as compared to 118 million in the prior year quarter. And operating income was 15 million compared to 23 million in the prior year quarter. The decline's primarily reflect the absence of approximately 10 million in domestic cable advertising revenue and 6 million in related profit as a result of our TV deal with the USA Network. Excluding the impact of the USA deal, revenue increased 5%. Led by revenue growth from our licensing and home video businesses. Operating income also reflected increased marketing to promote our pay-per-view events and our brands worldwide as well as increased investment in our digital media initiatives. Page 5 of our presentation lists revenues and profit contribution by business unit as compared to the prior year.

Revenues from live events including merchandise sales at these events declined by $2 million due to the impact of tours and emerging international territories, such as Thailand, the Philippines, and New Zealand. Events in these territories had lower revenues compared to other international markets. Each of these tours was structured as a buyout where the local promoter took all of the risk related to ticket sales and guaranteed WWE a fixed amount. As we've discussed in previous calls, strategic buyout deals like these allow us to enter new untested international markets virtually risk free. As we continue to expand internationally and venture into new markets, we expect to structure more of these types of deals. This quarter's results reflected 24 international events as compared to 23 in last year's fourth quarter. As Linda mentioned, the 16 event European tour was the most profitable international tour to date.

Our North American events continued to outperform the prior year. Average attendance increased for the fifth consecutive quarter to 6200 driving a 5% increase for the quarter and a 19% increase to 5,000 for the full year. There were 56 North American events in the quarter verses 53 in the prior year quarter. Pay-per-view revenues increased slightly reflecting 2 million in incremental revenue from Backlash, which did not air in the same quarter last year. Excluding the impact of this event, revenues were down slightly. Our premier pay-per-view event, WrestleMania achieved approximately 925,000 buys by fiscal year end and is on track to deliver nearly 1 million buys. Royal Rumble and No Way Out, which aired in both this quarter and the year ago quarter were essentially flat. For the full year, buys for the 14 events which aired in both fiscal 2006 and 2005 were up 11%.

As pointed out in previous earnings calls, our average revenue per buy is lower this year as a greater percentage of our buys are coming from international sources, which command a lower price per buy. International buys currently comprise 39% of total buys as compared to 34% in the prior year. International growth continues to be driven by the United Kingdom, Italian, and Australian markets. Our consumer products businesses previously referred to as our brand and merchandise segment continued to deliver strong results with revenue increasing 28% compared to the year ago quarter. These results were driven by our licensing and home video businesses. Licensing revenues increased more than 60%, reflecting continued strong sales of our SmackDown vs. RAW video game as well as higher revenues from the toy category. SmackDown vs. RAW 2006, which was released in November has sold nearly 2.9 million units to date.

Home video revenue increased by nearly 40% over the prior year quarter. This growth reflected the release of several multi-disk titles led by the WrestleMania anthology. These titles increased the average price of our DVDs by 4.20 to approximately $16. Additionally, gross units shipped increased by 35% or 150,000 units. Our new digital media segment comprising online advertising, eCommerce, and wireless businesses delivered impressive results with revenue growth of 71% compared to the year ago quarter. Revenues from the sale of merchandise on our Internet-based store front WWEshop.com more than doubled compared to the prior year. With orders processed increasing by approximately 100% to 56,000 orders. Along with the large volume increase, the average sales per order also increased by approximately $5, up to now $51 average order size.

As we have discussed previously, we are in the process of implementing a strategy to leverage and monetize our high level of Internet traffic. For the quarter, we average 14.5 million unique visitors and over 55 million video streams per month. Compared to approximately 13.5 million unique visitors and 47 million video streams per month last quarter. Our profit contribution margin for the quarter was 38% compared to 43% in the prior year. The 5 percentage point decrease versus last year quarter primarily reflects the absence of high margin cable add sales as well as the impact of increased investment in our strategic initiatives. Also impacting our margin were expenditures for certain marketing initiatives to support our pay-per-view events and various product lines and brands. These programs helped sustain and expand our customer base, which is the foundation of our existing and emerging businesses.

Our SG&A expenses were $24 million in the current quarter, down slightly compared to last year. EBITDA for the quarter was $18 million versus $25 million in the prior year. A decrease of about 30%. Page 14 of our presentation provides the details of this decrease.

As is our practice, page 15 shows a normalized EBITDA adjusting for those items we consider to be unusual. The current quarter includes the impact of legal settlements, which reduced EBITDA and operating income by 1.3 million and decreased earnings per share by about $0.01. It should also be noted that our effective tax rate increased from last year's quarterly and full year rates. The prior year included tax benefits related to state taxes that resulted in a lower 33% tax rate for both the quarter and the full year. The higher current year rate reflects additional provisions for state and local taxes, as well as for losses on investments. These additional provisions resulted in an effective tax rate of 40% for the full year. Without these additional provisions, in fiscal 2006, our full year tax rate would have been approximately 37%. Looking ahead to the future, we expect our effective tax rate will be -- will approximate 37%.

Page 17 of the presentation contains our balance sheet which has improved since April of last year. On April 30, we held $281 million in cash and short-term investments, up from 258 million at the end of fiscal 2005 with virtually no debt. It is also noteworthy that the current year's cash balance has not changed since last quarter demonstrating that in the quarter the Company was able to fund its dividend without impacting its cash reserve. We have recorded 36 million in feature film production assets for our latest movie See No Evil, The Marine, and The Condemned. These assets will be amortized on a pro rata basis as revenues are recognized in accordance with GAAP, or generally accepted accounting principals. As we have stated in past calls, we do not anticipate seeing any revenues from these movies until at least the end of calendar year 2006.

For the quarter we generated $12 million of free cash flow, more than double the amount generated in the year ago quarter. The increase reflects strong cash flow from our operations and reduced working capital requirements, including changes in the timing of some cash receipts. In addition, we spent $2 million in the production of our feature films compared to $6 million spent in the prior year.

Transition period outlook. As mentioned earlier in this call, we are changing the Company's fiscal year to a calendar basis beginning with the 2007 calendar year. Consistent with this decision, we are providing guidance on the 8-month transition period from May 1, through December 31, 2006. The Company's outlook for the May to December transition is shown on page 18 of our presentation. And for your reference, WWE's financial results for the 2004 and 2005 calendar years as well as for the year to date 2006 period are all shown on page 19 of the presentation.

As you review and analyze our transition period guidance you should keep in mind the growth we experienced in the May through December 2005 period. Revenue increased 17% and earnings per share increased 115% on a year-over-year basis. The outlook for the transition period anticipates modest revenue growth from the $248 million in the comparable 2005 period. Growth from consumer products and digital media is expected to more than offset the elimination of approximately $15 million in domestic cable advertising sales. As a result of anticipated investments, net income and earnings per share are expected to be essentially even with the comparable 8-month-period last year which were $30 million and $0.43 per share respectively. These results reflect investment to support our digital media businesses, the launch of ECW and other strategic initiatives. We believe flat bottom line performance against a relatively high base period given the absence of $9 million in profits from the domestic cable ad sales and our increased investments, all of this represents a very appropriate target. The Company is very proud of its financial and operational performance this year, and it looks forward to even better performance in the years to come.

Finally, but importantly, we would like to thank all of the WWE employees for the good hard work over the past year. That concludes the portion of our call. And I'll now turn it back to Michael Weitz.

At this point, I would like to open the call to questions.

Yes, sir. [OPERATOR INSTRUCTIONS] We'll go first to the site of Michael Kelman of Susquehanna Financial Group. Please go ahead.

Thanks very much. I've got two questions. First one's for Mike Sileck. Mike, on slide 13 it talks about a $2.3 million impact on revenue from the other pay-per-view events, but on the slide regarding EBITDA talks about a $5.6 million impact on EBITDA. Can you reconcile the difference and specifically address what the incremental $3.3 million was for costs?

Yes, Michael. Specifically, what that referenced is the additional marketing dollars that we spent both domestically and internationally to specifically support our pay-per-view activities and WrestleMania. So that is why those marketing costs were charged specifically against the pay-per-view line, and therefore, impacted profits.

We expect, traditionally, pay-per-view has been about a 60% gross margin business. And obviously in the current quarter is more like in the low 40% range. What's a good margin to assume going forward? Do we expect continued stepped up marketing at pay-per-view?

You know what, we'll look at that on an ongoing basis. Branding is -- spending of marketing for branding is important to us, but I think if you were to think about it, this would be a bit of an anomaly in that quarter. And that going forward, I don't think we would have that level of an investment on an ongoing basis. So if it's not 40 it's probably more in the 50% range or so looking forward. That's our kind of view at this moment.

Great. And I have one question for Linda. With regards to the international growth strategy. Particularly in light of adding ECW as a third brand. What territories specifically do you expect to see the most growth out of in the near to medium term? And maybe you can also talk about what revenue opportunities you see as the most compelling in some of the newer merger territories that you recently entered. Meaning, is your greatest opportunity in live events revenue or branded merchandise, home video, the Internet, or some combination of all of those?

Let me take the second part of that question, first. I think the opportunity for revenue in those areas is a combination, just as it's been not only in our domestic marketplace, but in those international territories which we've already developed. It really flow through that, television distribution comes first, followed typically by live events, which brings your product to the grass roots level. People can touch and feel who you are and what you're about. Followed really then by the development of the licensed products and the distribution then of our home video, et cetera into those marketplaces. So that's traditionally the formula that we follow.

The new territory, for instance, Italy while it's not brand new at this point and we had really great success there last year, it's still an incredibly strong marketplace for us and is continuing to grow. The new markets like Thailand, the Philippines, New Zealand, they'll be a little bit of a slower growth, but as pay-per-view technology also develops in this country, and it is in New Zealand already, then we will have the opportunity not only for live events to tour there, when it makes sense on a geographical basis, but also the roll-out of our licensing products. I'm not sure how strong those markets would be. I think the Latin American markets that we've recently cleared television in offers good opportunities for that blend of all of those products across the board as you mentioned before.

Great, thanks so much.

Thank you. Our next question comes from the site of James Clement of Sidoti. Please go ahead.

Good morning.

Hi, James.

I was wondering, could you give us the break down of pay-per-view events by quarter over the next couple of quarters just so we have that clear?

Well, let us just take a look here at one of our charts. If you could just hold on for one second. Yes, Mike, you go ahead.

You've got -- sorry Vengeance coming up in June, you have The Great American Bash--.

Oh, okay. I was actually just curious about sort of by quarter. How many in the July quarter, how many October, how many January?

Okay, we'll get right back to you.

Okay. And if I could just -- maybe I could ask another question and you get that Mike. In looking at your guidance, I think you acknowledge in your press release and the presentation in the prepared remarks that you're very happy with the growth that you saw this past year. Is it fair to assume that the growth you guys are looking for primarily coming from consumer and from digital. And that, from a pay-per-view and live event standpoint for the next eight months that you're not really assuming much growth there, and if you saw some it would be a pleasant surprise?

The biggest factor in that is the absence of the cable advertising.

Right.

That we have to make up. So that puts the entire kind of live and televised segment -- it challenges that entire segment.

Okay.

But generally, yes. If you look at where the growth has come, certainly from the past year or so, the consumer products division and digital have been -- the growth rates have been higher than what we've seen from some of the other segments. And we would anticipate that continuing.

Okay. Very good, thanks very much.

And then just to get back to your question, the July quarter, this upcoming quarter will have four pay-per-view events. October will have 3.

Okay.

And then actually the next quarter will have four in it.

Four. Okay. So I guess, I think you had five in July last year, so one less this coming quarter right? I think that's right.

That is correct. With the Backlash and the timing of that event.

Great. Thank you very much.

Okay.

Thank you. Our next question comes from the site of Alan Gould of Bleichroeder. Please go ahead.

Hi, thank you. I've got a few questions. First, I see video games was where you had your biggest upside. Can you give us any update on the lawsuit against Jack specific, what might be in the 10-K?

Really the update is that the process is continuing. We don't have a trial date set at this point. Clearly the wheels of justice turn slowly. And in this particular case, they seem to be grinding more slowly than clearly we would like to see, but it is proceeding, I mean there are still briefs and motions that are being filed back and forth. I think it's going to come -- those motions or whatever are going to come, I think to a close. We have oral arguments scheduled in the fall, I think in September. So hopefully we will be moving this along, but the status of the case is -- it is what it is, and the court system we don't have any control over that.

Okay.

But in the meantime because you do see good numbers. As I've mentioned on other calls, we are obligated, both sides to continue to perform under the contract. And I think both sides are making a real effort to do that in spite of the issues which have driven this lawsuit. And so their business is good, which makes our business good. We're still working with them on a marketing basis. And they will move to distribute in territories that we clear. So there hasn't been any let up, if you will, into the product development or pushing forward with product. And that's pretty much the agreement that everybody realizes that we must have going forward. So that neither side is in breech, pending the outcome of the legal proceedings.

Okay, and second, on the home video side, where you've had nice growth this year, should we anticipate the growth to continue or even continue rolling out more releases, I know this year you had the Anthology edition which was a pretty expensive title.

Yes. We anticipate that momentum we have in that business to continue. Something that is quite encouraging is WrestleMania 22 was released on May 23. So that's in this first quarter here. And the initial shipments have been very encouraging. We think this could be really just a terrific performance. So it's a good start to the year, and I think the momentum that you noted will continue. And then also as you kind of work our way through the year, we have some pretty interesting compilation disks so be released. One including a Mr. McMahon themed release and we think that will be a hot seller, as well. So including -- and we also have one coming out from the Hulk. So as you look at our series of releases over the next year, we feel very good about it.

Do you think 22 does better than the 255,000 for 21?

We'll have to wait and see, but it's very encouraging at this point.

Okay. And the last question. For calendar, '05, you reported $0.78 on these reclassified numbers. Your guidance for '06 looks like it's $0.67. I recognize that you do have to make up for the advertising for those 10 months of the year for USA. But are you just being consecutive given the trends we just discussed, given the trends in North American attendance. Just a little surprised at the -- for a down year, even with the loss of the advertising.

Yes. The reality is when you do the math because we are down in this fourth quarter as that gets wrapped into the calendar 2006, that sort of brings down the entire year's numbers. We put out guidance there that we feel confident in that we'll stand behind. And as we've said repeatedly, this is a hit-driven business. We agree with you that we have the momentum on our side and we hope that that momentum will continue. And then you look at the things we're doing from a strategic initiative standpoint. I think it's very encouraging. So not the least of which is all of our digital media push that is growing very nicely. Plus ECW, which is a new initiative. You kind of roll all of that up, we felt comfortable putting out what we put out. And we hope it turns out to be conservative at this point. But we'll have to see what happens.

Okay. Thank you very much.

Thank you. Our next question comes from the side of Dennis McAlpine of McAlpine Asset -- Associates, I'm sorry. Please go ahead.

That's close enough. Good morning. A couple questions. Can you talk about the ECW, what it's receiving from SCI FI and what the revenue sources for ECW will be going forward? Two, the status of The Rock, can we assume that he's basically gone at this point? And then, given the release now of See No Evil, can you tell us what your conclusion is at this point as far as going forward? Should we take it to mean that from the sound of the third film that you are going to continue more movies that you were satisfied with the results of See No Evil? And then on a minutia basis, did the -- can you talk about how much of the money from advertising and marketing, or what has typically been in there has now been moved up to the basically cost of goods sold line?

Mike, why don't you take the last one first, and I can -- the advertising and marketing moved up to the consumer line.

Yes, I wouldn't really characterize it as a move up. It was spent specifically -- we spent more in the fourth quarter for marketing against the WrestleMania event than we had previously. So I wouldn't really characterize it as a move up, I would view it as an incremental spend.

We shouldn't expect to see advertising and marketing going down as a result? There's no -- what you're saying is there's no philosophical change?

That is correct.

Okay.

Relative to ECW, Dennis. We are -- we do have a verbal agreement with USA Network. I would prefer not to discuss the specifics except to say, at this particular time, except to say that we do have a modest rights fee for this 12-week trial run period this summer on SCI FI network. And they've committed to the 12 weeks through the summer. I think if we provide good ratings for them that there will be a pick up in the fall, and I think we'll know that after the next few weeks. So it's a good position for us to be able to launch a new brand to have it distributed to a wide group of viewers, USA is behind this and working very closely to promote it on RAW as well as across all of the cable platforms for NBC view. So we think we're going to have a good strong showing with ECW.

The other revenue sources would be exactly like they are for RAW and SmackDown. It would be merchandise, live events, pay-per-view events. We just had our pay-per-view this past Sunday which was already a scheduled pay-per-view. However, we've added one in December under the ECW brand. So that will be an additional pay-per-view for us on the ECW side. So all of the potential revenue streams including, we do have a website launched for ECW as well as having the library, which we acquired, I think a couple of years ago so the continuing monetization of that library all we think are significant for ECW. It's a good strong brand, it is a cult following that we look to increase and grow with a different, a slightly different presentation of the brand to grow it's popularity. We feel very good about the ECW launch.

The characters that you're moving from RAW and SmackDown will stay over there permanently?

Can't say that for sure. Some of them will move back and forth as had been in between RAW and SmackDown. You develop different rivalries and after a while it makes more sense to move them from brand the brand. But I think we're really establishing the ECW brand by locating a couple of our big stars at this particular point who will probably have a stronger impact right now on ECW than they were where they were at the moment because it gives us an opportunity to use those talents to continue to grow and develop new and up and coming talent for the brand.

Relative to The Rock, he's pretty busy in Hollywood at the moment. We certainly maintain our contact with him and he'll pop in and our occasionally, but he will not be a regular performer for us. I think he still enjoys his association with WWE, and when it makes sense he'll pop in and out for some appearances.

As relative to See No Evil, as I mentioned earlier in the call, it is right in line with management's, with our projections for the box office revenue. We feel it's going to come in just about where we thought it was. Lion's Gate has been very pleased with the distribution results and the reception that they're getting in the international marketplace for its distribution. We had long phone calls yesterday about DVD releases et cetera, so I think it's right on target with where we expected it to be. And we will move forward with The Condemned as it's being produced now in Australia as we did our other two films. We do have a couple of other projects in development that we'll be taking a look at to see if they make sense to go forward, but we are in producing -- as we said we would do with our movie business, we are looking to produce a movie that we will go direct to home video with. And also we are looking in conjunction, as I've mentioned before with a back door series potential with USA Network and we have that script and are working with them now. So the movie business as we laid it out to start with, which was low budget, having a distribution partner, looking at theatrical releases, direct to home videos, partnerships for made for TV movies. All as part of our continuing strategic initiative.

Do you expect See No Evil will make a profit? And if so, is that all going to come from a DVD sale?

We do expect it to make a profit, DVD will certainly contribute a good measure of that. But it's the international distribution, DVD, the other television platforms, pay TV platforms that are both here in the United States and outside of the United States. All of those combinations, but certainly DVD would contribute a good portion of that revenue.

Thank you.

Thank you, Dennis.

Thank you. Our next question comes from the site of John Horner of Goldman Sachs. Please go ahead.

Yes, hi, good morning. Two questions. First just on the ECW. What kind of -- if it's a successful new brand and it starts to grow, how would you envision the ultimate size of this brand becoming? Is it something that could one day become a SmackDown or RAW sized, or is it something that is more as you mentioned has a cult following and will probably be nichey? What are sort of the incremental operating expenses you need to put into place? The infrastructure you need to launch a third brand? Just trying to get a sense of incremental margins. And then secondly, on The Marine, can you just remind us the timing of that? And -- or at least the ballpark of the timing. And then secondly, with regards to The Marine, how do you feel that John Cena's position popularity wise today versus maybe where he was a year ago as you think about the breath of the audience for that movie? Thank you.

Relative to ECW, we definitely believe it can be, clearly as big a brand as RAW or SmackDown. We're going to take -- it's a brand that's already established. We have the opportunity, I think, to push it faster than something that you would be rolling from the ground up, which is what we did with SmackDown. So ECW clearly has the potential over time to become as strong a brand as RAW or SmackDown. That is our goal in developing that brand. As I mentioned, I think, in Dennis's question, we do look at the cult following and why we will have elements of ECW that will appeal to that cult following clearly the growth potential is to expand it outside of the cult and grow that following. And I think we've already shown that we can do that. Last week we had a special on USA Network, which, granted, was WWE versus ECW with some combination of stars and we delivered for USA about double rating and they have been showing in that time slot. I think that shows good household and interest for both brands and continues to give us the rub off effect to grow the brand. So we feel very confident about ECW. Relative to incremental costs we are -- I'll do it generally, Mike, we are certainly adding some overhead in terms of people to do the live events, et cetera. Mike, you might could be a little bit more specific.

Just overall in this sort of transition eight-month-period, we're looking at overall incremental cost, relatively modestly, 7 to $8 million, and then as you look at kind of the first year of operations in the sort of 12 to 15 million range for a 12-month period. As Linda points out, we're -- the important part of this is our ability to launch a third brand relatively inexpensively and leverage the fine infrastructure we have throughout the rest of the Company. So that's certainly our direction and our goal.

And, your second part of your question relative to The Marine, the timing is such we are scheduled now in October. I think there is a target date of October 13, for the release with FOX. And relative to John Cena, John's popularity today is probably doubled what it was a year ago. He's one of the leaders in the sales of our merchandise across the board. His popularity has grown both nationally and internationally. He's been a break out star in the rap music world. We've introduced his CD, which has at this point shipped a little less -- about 250,000 units, I think, at this particular point. He has been on music shows, talk shows, et cetera, so his popularity has clearly grown and continues to grow. He is a very solid up and coming young star for us.

Great, thank you and congratulations on everything you've done over the last year.

Thank you very much.

Thank you. [OPERATOR INSTRUCTIONS] We'll next go to the follow-up from James Clement of Sidoti. Please go ahead.

Thanks a lot. Mike, just -- as we look out again over the next couple of quarters, in terms of digital media in fiscal '06, it seems like profit contribution pretty much grew commensurate with revenue growth. That did not quite occur in the fourth quarter. Question A is are we to assume that the profitability was impacted in some way by some investment spending? And then second part of that question would simply be, as we look out over the next couple of quarters are similar investment type costs going to be front end loaded?

Relative to the first question. In digital media, we are continually investing around that infrastructure as we've been saying repeatedly. We're now getting to the point -- it always takes longer to hire than you might anticipate. So the hires we've been talking about for the last few quarters are finally getting in the door now, and there's obviously an associated cost with that. That's part of it. And then there's also variable costs around. The good news is that our Internet traffic is terrific, right? Our unique visitors are strong, we're streaming 50 plus million videos a month, that's all very impressive. There's a cost associated with that success. And we're bearing the brunt of that cost now. And we're sort of at this interesting period where we have the eyeballs, we have the traffic, we have yet to fully monetize them. So it's a bit of a drag on earnings at this point. We feel very confident that as we work through and we build the sales infrastructure that we're putting in place that we'll fully be able to monetize and get the margins going in the right direction, but we're at this sort of interesting juncture right now.

Jim, I'd just like to add to that. Mike was speaking a great deal about the Internet, but not to be overlooked and we've not talked about it a great deal yet, except we have issued a couple of press releases, relative to the mobile market, the wireless market. We have right now approximately two dozen deals pending. I think you'll be hearing announcements about over the next couple of months during the summer. We have announced deals with Atlantis and Bango, which are the sort of distributor ends of that that make us able to distribute our product to different carriers, and we're very excited about the potential of the subscription packages that we're going to be offering and announcing a little bit later in the summer. I think we'll have about 7 different subscription packages to offer with exclusive video content.

We're going to have mobile news which is available, plans of the week, diva shorts, and other programming that will be exclusive to mobile. And we are -- these deals that we are looking at are on a global basis. So I don't want to undervalue, or not fail to mention the impact that we think that the mobile marketplace is going to have in driving our revenues. And we'll go a long way as part of our look at making up for this $15 million loss in revenue from cable. This will also be a high-margin business for us. So we're excited about this development. We're sort of underselling it at the moment if you will. But it's very exciting for us to be able to talk about it over the next couple of months.

Okay. And Linda, if I could just ask you one more question. And just, my perception and perhaps I'm wrong here is that ECW's demographic related to the rest of the Company might be slightly older and slightly more male-dominated. Is that a correct assessment or is that incorrect?

I think the old demographic for ECW is exactly that. What we saw, clearly in the live attendance for the ECW event this past Sunday was more of a mix. It is heavily male, there's no question about that, but skewing a little bit younger. And that's part of our goal as we develop ECW, which is to broaden that base a bit.

Okay. Thanks very much for your time.

Thank you.

Thank you, our next question comes from the site of Robert Routh of Jefferies. Please go ahead.

Hi, this is actually Nurse Fischer for Rob. Just two quick questions. First, I was wondering if you could comment on the advertising opportunity that you see on your website. And then secondly, if you could just remind us of when McMahon's need to sell more stock again under the Trust, thanks very much.

First, on the second part, we have no plans and are not obligated as we were before to share shares under the Trust. So that's not an issue. That won't be coming into the marketplace. Relative to the advertising revenue and on the Internet, we've recently hired a new head of sales for the Internet, we are expanding our sales group. And we've just begun, really to sell and monetize the Internet offerings as we create the opportunities for different pages, for how we are sponsoring the new programs that we're going to be launching on the Internet, there will be clearly available opportunity for those advertising sales. And as we combine that, I shouldn't probably say combine it with wireless, because I don't think that's exactly on the plan at this particular point, but the opportunities for sales will be there.

The only thing I would add is that from our available inventory that we have to sell on the Internet, we're selling significantly less than even 20% of our available inventory. So what that, I think, points to is the -- as we ramp up our sales effort and improve our sales effort that there's a lot of opportunity to harvest from even our existing Internet traffic. I think that's an important point.

Okay, thanks very much.

Yes.

Thank you. Our next question comes from the site of Dennis McAlpine of McAlpine Associates. Please go ahead.

Can you talk about the 24/7 how that's going? What you anticipate out of Comcast? And then just on a side basis, for the eight-month interim period, what's your next reporting period? Are you going to be on a April, May, June, July quarter? Are you going to a June quarter? When do you make that -- when do we get the short quarter in there?

Okay. Relative to our interim reporting, what we will do is we'll report the next quarter. So we'll go May, June, July, and then so the end of July will be the end of our next quarter, we'll report sometime in August, probably late August for that quarter. And then the next three months will progress. So then the final November and December will be that sort of short period, Dennis that you're thinking about. And we'll wrap up, and that will be the conclusion of that eight-month transition period and then we'll hit it fresh calendar like the rest of the world in 2007. So that short period will be November, December of this year.

Okay.

And relative to 24/7, that absolutely continues to grow. I think we were, we were really out there with our programming really beating the bushes I think before the cable systems were really ready to roll out with their digital boxes. Comcast was clearly big bank, a piece of this puzzle, and a feather in our caps to get Comcast. A little bit later in the summer we'll be rolling out with them. They are very excited. They've been talking to us about a special event, special promotion to roll-out to their potential subscribers, they want to produce it for us, et cetera and have our talent appear so it's all very exciting with the enthusiasm that Comcast had for our 24/7 project. We will be making continuing announcements over the next few weeks of other MSOs that we've cleared and continue to roll-out. It's slower than we anticipated when we first started this business. Again, because we couldn't control the distribution of it, but our content's ready, those systems that we've been providing now some of them for almost a year.

We've seen the -- we've seen churn in subscribers, but the churn rate has continued to hold subscribers or grow subscribers in all of those marketplaces. So that's a very good sign for us that even as we refresh our content and move forward, and the newness of the subscription wears off, the fans on the consumers are strong and staying put for the 24/7 roll-out. And again, that product that we are developing for 24/7 is one platform of being able to take that product and move it across other platforms. So 24/7 is a good roll-out for us. It continues to build our relationships with our cable partners. And it's all very positive for us with the development of 24/7.

Have you seen any indication that any of the other major operators will have 24/7?

Yes.

And maybe you could do a special tag team match between the McMahons and Brian and Ralph Roberts?

I don't like their chances.

Thank you. Our next question comes from the site of Josh Goldberg of Intrepid Capital Please go ahead.

Hi, good morning, everyone.

Morning.

Just two quick things. One is regarding your cash balance. I know that the Company spent quite a bit of time coming up with the dividend increase about a year or year and a half ago as a way of utilizing the big cash balance and I think shareholders in general were very happy with that result. But as the year has now progressed, it doesn't seem like you've actually dipped into your cash balance at all, and actually you've increased your cash balance this year through operating activities, which is a welcome -- a welcome sight. And just wondering if -- has there been any more discussions about increasing the dividend even further here as a way of sort of utilizing the cash balance or other ways of taking steps towards that? And I have a follow-up question, as well.

Yes, Josh, relative to the cash, I know it seems longer, but it's only been six months since we increased the dividend, and we doubled it at that time. So pretty significant and I think an aggressive move at that time. So, yes, six months later we've had a nice six months and we've even built up more of a cash balance. But I think at this point -- I think we're developing a nice sort of rhythm with the Company in terms of as we continue to improve operating performance that we give that back to the shareholder base. And I think that's a nice position to be in, and that's our philosophy going forward. But frankly, six months into doubling of the dividend, I think it's a bit early to talk about doing anything else at this point, but I think philosophically the investor community should understand that at that -- the goal is as we continue to improve the results that hopefully we can continue to affect the dividend going forward.

Okay, great. And then just the second question, I think is sort of what some of the investors today are questioning and I think what's gotten some people worried is just that your EBITDA margin, and obviously there was some one-time effects, but has gone to maybe 16 or 16.5% for the April quarter. And consistently, even in '03, '04, and even in '05 where the results weren't as strong as they are today, your EBITDA margins fluctuate more 18 to 20%, and I realize without the TV business it might be a little bit lower. But I think that the idea that you should be consistently at the 18 to 20% EBITDA margin for next year is sort of the way I've been looking at the Company. Has anything changed in your mind that would make you think that that number or that margin percentage be much different going forward?

The margin, if you look at for the full year, I believe the EBITDA margin is right around 20% up 300 basis points from a year ago. So I think that's pretty good improvement. We singled out the fourth quarter as a time because we've had such a nice run and because we've -- we want to continue to invest in the brand. We specifically identified the fourth quarter as the time to invest. And we've invested in the pay-per-views and our brands and we also are continuing to invest in our new initiatives. So over time as -- if we're right, and the digital strategy takes hold, the margins inside digital are terrific. It scales very nicely, so we feel very good over the long-term about the margins. There's a time to invest and there's a time to harvest, we're trying to invest at this point to build something really great for the future.

Okay. Great, thanks so much.

Okay.

Thank you and at this time I'm showing no further questions.

Thank you very much.

Very good, thank you everyone, we appreciate your support. And we look forward to continued performance. Thank you.

Thank you, ladies and gentlemen, this concludes today's conference, you may disconnect at any time.