TKO Group Holdings Inc (TKO) 2009 Q1 法說會逐字稿

Good day, and welcome to today's WWE first quarter 2009 earning release teleconference.

All participants are currently in a listen-only mode.

There will be a chance to ask any questions at the end of the presentation.

It is now my pleasure to turn this call over to Mr.

Michael Weitz, Vice President of Investor Relations for WWE.

Thank you, and good morning, everyone.

Welcome to World Wrestling Entertainment's first quarter 2009 earnings conference call.

Joining me for today's discussion are Vince McMahon, our Chairman; Linda McMahon, our CEO; Donna Goldsmith, our COO; and George Barrios, our CFO.

We issued our earnings release earlier this morning and we 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, which are referenced on page one of the presentation.

These risks and uncertainties are discussed in more detail in our filings with the SEC.

Reconciliations for non-GAAP financial information discussed on this call can be found in our earnings release or on our website.

Today, we will review our financial results for the first quarter and we'll follow this review with a Q&A session.

At this time, it is my privilege to turn the call over to Vince.

Thank you, everyone, and welcome.

I'm here because I'd like to compliment our current staff on the earnings call, and to perhaps lend a vision and a more direct communication to our current and potential stockholders.

Getting right into business, in terms of Q1, I thought that our performance was fair to poor.

I think we can do a heck of a lot better than we have done.

We saw a 10% decline in revenue over last year.

However, it's been offset by somewhat of a flat in terms of last year, as far as profit is concerned.

The reason we were able to maintain that, obviously, is more efficiency in terms of reducing some of our expenses, as we said we were going to, some $20 million over a period of time.

So we were, again, fair to poor on the quarter in general.

Notwithstanding that, do I feel that we are set up for a success in the future.

I think that when we make reference to our efficiencies, not just in cost reduction but those efficiencies, not surprisingly, have led to us utilizing our resources a heck of a lot better than we have in the past -- and not just the production of cost.

We're finding out that fewer people can do a heck of a lot more than we have with more people in the past.

And that's something we should have seen some time ago.

In this really tough economic environment, a lot of companies look at things like that.

A lot of them just cut costs.

Ours is a double benefit.

So, I said before, not just cutting costs but fewer people are doing more things in setting up, no doubt, continued in even greater success than we have had in the past.

Our product, of course, is extremely important to us, as it is in any entertainment company.

You first and foremost must have an extraordinary product that's both innovative and unique.

I think we fit that category extremely well, although we can be a bit more innovative, as we always strive to be, in terms of making good television, good film, good product in general publication, et cetera, across the line.

We still maintain number one status on USA Network as well as Sci-Fi.

Actually, every network that we're on we are number one over the entire year.

My network TV continue to be number one there as well.

Of course, we just signed a new deal; we're, like, three or four weeks into our new distribution at WGN America as a complementary show of all three brands combined.

That is doing very well for all of us.

Again, it's important that we create our own product.

We're somewhat unique in that respect, because we create our own product, distribute our own product and own our own product -- extremely important -- and market that product.

Again, I think we can do better on all counts.

Nonetheless, this does allow us, as far as international is concerned as well as domestic, it does allow to derive at the ancillary benefits to our product unlike any other.

As far as expansion is concerned, I know that's on the mind of a lot of people.

There a lot of ways in which we are expanding.

Not just in scope in terms of international -- which is very important to us -- but again, the more valuable you become, even to your more domestic distributors, the more to benefit you can derive in terms of [house] the ancillaries as well as perhaps higher fees from the networks.

Again, it's important for us to maintain and continue to be unique, which we are, and innovative.

I guess there's also something going on that is very important for us, and that's an educational process, be more a part of mainstream America, and even somewhat of an island in terms of the entertainment aspect that we bring, because we are unique.

But nonetheless, I think there's an educational process is going to benefit us greatly in terms of working with business-to-business opportunities, as well as the media in general -- for them to explain what it is that we are, as well as that explanation to our current and, hopefully, future stockholders as well.

We're opening new doors.

We have a PG environment, which we're enjoying.

It is our intention to remain in this PG environment.

It gives a safehaven for those who would entertain being associated with us, as far as sponsorship and advertisement.

Again, we derive rights fees generally from our distributors.

So, we're not in the business of selling our own time.

Nonetheless, advertising is very important because, again, the more value we bring to our product, the higher rights fees, et cetera.

So, we're opening up some of these new doors, including Army National Guard.

We have done a small deal with Pepsi, which we are confident will be a larger deal going forward.

Again, success begets success.

I think that during these tough economic times, there are a number of products that, much like us, have to look to a more efficient way of reaching an audience.

So therefore, again, individuals I think are companies that, in the past, have overlooked us, are now taking a look at us and finding out just how efficient we are with helping sell their respective products.

I've think that our reach-out to media, explaining who we are, as well as to other businesses is going to pay off.

Reaching out to other environments that we otherwise have not reached to because they're not our core product, is very important to expanding the product.

Those of you who watch attentively and those of you -- I'm sure everyone on the call watches a television program called The View, hosted, of course, by Barbara Walters.

But nonetheless, that's an idea of the way we're expanding our product, is to reach out, again, as I said before, in avenues that we never have, to grow, to be a part of mainstream, the mainstream -- more of a mainstream than we currently already are.

And, again, the View is an example of -- that's not going to put any money in our pocket at the moment, but it does open us up to some of the gatekeepers, some of the women of America to say, you know what?

That's an okay product.

And otherwise, again, they would not be exposed.

So, that's important for us as well.

As we continue on in this endeavor, one of these days we're going to be considered an overnight sensation.

It may take a little while, but that's what's going to happen.

Our product remains extremely popular, especially from a live event standpoint, and we had over 70,000 people at WrestleMania; approximately 1 million pay-per-view buys.

Again, I think that is the true test of where we are in terms of valuation of the public is live events.

And you would say, okay, the key areas are pay-per-view, growth, et cetera, et cetera, and you could look to those barometers.

But the true barometer of how we're doing is live events, because that's the most expensive way in which a consumer can reach out and touch our product.

Well, what many of you know when you go to events, when you buy the ticket, that's the only -- that's only the beginning.

You have to pay for parking, and food and beverage, and merchandise, and on and on.

So, I mean, actually our live event business remains very, very strong.

Again, I believe that's the barometer as to whether or not we're going to grow all these other ancillaries.

As far as these ancillaries are concerned, there's no form of entertainment in the world, quite frankly, that fits every form of distribution and entertainment in the world -- from pay-per-view to videogames, to you name it, we're in it; the music business; we're in the publication business, et cetera.

So I don't believe there's any entertainment in the world that's in as many businesses as we are, in terms of all of the ancillaries.

We need to grow those ancillaries, again, through better marketing, better management, and better distribution.

I'm confident we can do that going forward.

I'm very proud of our organization.

We have the best talent as far as not just in-ring talent but as far as management is concerned here -- the best management team we've ever had in the Company.

And that is growing and continuing to be more efficient and be smarter.

So, those are, again, some of the aspects I see of the business.

I'm sure many of you are going to have questions, which I look forward to answering.

Again, it is my intention to continue to be on these calls for the foreseeable future, to lend whatever I can to everyone that wants to know more about our business, in an educational effort as to where we are and where we want to go.

So those are the generalities.

And with that, we'll go over to George.

Thanks, Vince.

I'd like to start by providing you with some additional perspective on our first quarter results.

For the quarter, we reported a 34% decline in revenue.

However, several factors, including the timing of WrestleMania, the timing of our film projects, and changes in foreign exchange rates, made it more difficult to discern the underlying strength of our business.

Adjusting for these factors, revenue declined approximately 10%, roughly in line with other entertainment companies and perhaps better than expected given our macroeconomic environment.

Current operating conditions clearly had a continuing impact on both our live events and pay-per-view performance.

Perhaps most importantly, our first quarter results demonstrate how we have fulfilled our commitment to run our business in a smarter, more efficient way.

Specifically, we manage a 6% decline in SG&A expenses from the first quarter last year and improve the operating margins for our businesses, to 18% compared to 15% in the prior year, excluding WrestleMania.

As a reminder, WrestleMania occurred in the second quarter of this year compared to the first quarter last year.

The event contributed $31.3 million of revenues and $7.1 million of profit contribution to our results for the first quarter of 2008.

To clarify the trends in our business, I'll discuss our performance on an adjusted basis, excluding the impact of WrestleMania.

Additionally, our first quarter results, particularly our live events, pay-per-view, and consumer products, were impacted by changes in foreign currency exchange rates.

We estimate that these changes reduce first quarter revenue and operating income by $3 million and $1 million, respectively.

For a more detailed review of our performance in the quarter, let's turn to page 5 of our presentation, which was the revenue and profit contribution by business unit as compared to the prior-year quarter.

Starting with our live events, including merchandise sales at these events, revenue was essentially flat to the prior-year quarter on an adjusted basis.

Changes in our touring schedule, including the addition of 18 domestic events, offset declines in average attendance and ticket prices.

Reflecting weak economic conditions, average paid attendance to our North American events decreased 3% on a year-over-year basis, and average ticket prices to these events declined approximately 12% to $33.54.

Notably, the expansion of domestic events also offset a decline in revenue from outside North America.

The quarter had four fewer international events and was impacted by changes in foreign exchange rates.

Turning to our pay-per-view business, revenue declined 22%, excluding the impact of WrestleMania.

Buys for the two pay-per-view events produced in the quarter, Royal Rumble and No Way Out, decreased 16%.

Although international buys comprised a larger share of total current period purchases, 36% compared to 30% in the prior-year quarter, revenue per buy declined, in part due to the impact of foreign exchange.

We remain focused on managing improved results from our pay-per-view business.

While subsequent to the quarter, we are pleased with the performance of our 25th Anniversary production of WrestleMania, which we believe is on track to garner approximately 1 million pay-per-view buys.

Revenues from the distribution of our television programming increased by 4% or $0.9 million, primarily due to higher domestic and international rights fees.

These higher fees reflect contractual increases in our licensing agreements.

Notably, both our rights fees and the profitability of our television operations will benefit from the distribution of our new program, WWE Superstars, which debuted on WGN America on April 16.

In our consumer product segment, our licensing revenue decreased by 24% or $6.4 million over the prior-year quarter.

The decrease primarily reflected lower sales of video games, as the economy adversely affected consumer demand, increased pressure on retail prices, and brought unfavorable changes in foreign exchange.

During the quarter, sales of our SmackDown versus Raw video game declined 21% to 4.1 million units.

Our home video revenue declined 34% or $4.8 million, reflecting a 23% decline in DVD units shipped during the quarter, and an increase in promotional expenses, which were accounted for as a contra revenue.

DVD shipments fell 23% to approximately 912,000 units, primarily due to the release of fewer titles.

Six new titles were released in the current period, as compared to eight in the prior-year quarter.

In addition, sales of title from our catalog fell by 13%.

In our magazine publishing business, revenue increased 21% to $3.5 million.

The growth primarily reflected the addition of our WWE Kids magazine, which was launched in April last year.

In our digital media segment, revenue declined 15% to $6.9 million from the prior-year, reflecting lower sales of online merchandise and Internet advertising.

Revenue from e-commerce declined 17%, reflecting a decrease in both the number of orders and in the average revenue per order.

The number of online merchandise purchased declined 12% to 60,000 orders.

In addition, the average sales per order fell 3% to about $50.

The current quarter was also characterized by lower sales of online advertising.

While we manage a 12% year-over-year increase in Internet traffic as measured by page views, we did not take full advantage of this increase, in part due to the ongoing transition of our Internet ad sales organization.

It is important to note, however, that we have seen increased activity in our ad sales pipeline, including an increase in commitments for the remainder of the year, as compared to the level of ad sales booked at the same time last year.

The success of our efforts to integrate the sales of our various assets, including digital media, is evident in our renewed partnership with the Army National Guard.

During the quarter, WWE Studios recognized revenue of $3.7 million and profit of $2.2 million associated with our portfolio of films.

Our fourth theatrical film, 12 Rounds, was released on March 27 of this year and generated approximately $11.8 million in domestic box office revenue.

The current quarter also saw the release of a direct-to-DVD film project, Behind Enemy Lines: Colombia, on January 6 of 2009.

We expect 12 Rounds, as well as our overall portfolio of films, will surpass breakeven profits.

Our overall profit contribution margin increased to 48% from 42% in the prior year on an adjusted basis.

The increase reflected improved margins in our Live and Televised Entertainment and WWE Studios segment.

In particular, the quarter was highlighted by reduced operating expenses in our television production live event operations and pay-per-view marketing.

For the quarter, reported SG&A expenses decreased 6% to $30.9 million, due mainly to declines in advertising and travel expenses.

These cost savings were partially offset by an approximate $2.2 million restructuring charge associated with our headcount reduction that occurred in January 2009.

Excluding the impact of the restructuring charge, SG&A expenses of $28.7 million represented a $4.3 million decline from the first quarter last year.

As a reminder, we expect that our commitment to reduce our 2009 expense base by $20 million will be realized in both lower SG&A expenses and lower direct expenses that are captured in our profit contribution.

Page 14 of our presentation compares the quarter-over-quarter results and provides a summary of changes by business.

As shown, operating income was essentially flat to the results of the first quarter 2008, after adjusting for both the restructuring charge and the impact of WrestleMania.

Net income was $10.3 million compared to $14.9 million in the prior-year quarter on an adjusted basis.

In addition to the aforementioned decline in revenue, the year-over-year decline in net income reflected a decrease in investment income and an increase in other non-operating expenses.

The former was attributable to lower average investment balances and interest rates.

The increase in other expenses reflected realized translation losses and the re-valuation of warrants held with licensees.

Also impacting net income, the effective tax rate of 35% in the current-year quarter exceeded the 30% rate in the prior-year quarter, which was reduced by the recognition of certain state tax benefits.

Page 15 of the presentation contains our balance sheet, which remains strong.

On March 31, we held more than $225 million in cash and investments with virtually no debt.

Page 18 shows our free cash flow.

For the quarter, we generated approximately $46 million of free cash flow compared to about $5 million in the prior-year quarter.

This increase was driven by the timing of WrestleMania, our feature film investments, and changes in working capital, including changes in the Company's tax position.

In addition, capital expenditures decreased to $1.5 million compared to $9.7 million in the prior-year period.

Looking ahead, we are focused on managing the Company to improve our cash returns.

We have already made changes to realize our targeted annual expense savings of at least $20 million in 2009 and to reduce our capital expenditures.

As indicated last quarter, through increased efficiencies and careful management of our growth, our goal is to deliver greater value to your shareholders.

That concludes this portion of our call, and I will now turn it back to Michael.

Thank you George.

Nick, we're ready now.

Please open the lines for questions.

(Operator Instructions) Richard Ingrassia, Roth Capital Partners.

This is Jared Schram filling in for Rich today.

We're a little ways off on the handoff from Jakks Pacific to Mattel on the Toy section.

Can you talk about what sort of expansion you can do with Mattel and how you plan to grow that segment of the business?

Yes, I'll mention it and then we'll go to Donna, who's really on the case.

This is like night and day comparing Jakks to Mattel --obviously, Mattel being the day.

These people are really, really smart people and as Donna is going to tell you, they just -- their approach to our product and the exploitation of it is nothing short of extraordinary.

The other thing about Mattel, which is important for us is, we're global; they are too.

It's not just what they're going to bring from a financial standpoint to the bottom line; it's also the fact that they're a good partner.

They're going to be a very, very good partner.

And they have offices and they have people on the ground that can help us in markets where we don't at the moment, in terms of the overall business climate, political climate, you name it.

So, we really know that they're going to be a partner, not just someone who benefits or we benefit from the bottom line.

Donna?

Jared, the other thing I would add to that is that we had seen some of the early product development that Mattel is working on and it's fabulous.

They're going to expand the product line by hitting three segments.

The collector business, which Jakks has done a good job at, but Mattel is going to take it to another level.

They're going to hit the kids business, which is an area where Jakks has not focused on.

They're going to go for the 2 to 11; they're going to advertise on kid programming, which Jakks had not done before.

They're going to create products that are so different than what you've seen -- they're going to have more articulation; they're going to have sound and movement.

They're going to do products besides the action figures.

They're going to do more additional products from role-playing to [mats] with championship belts.

We are so excited for the array of products that they're going to do.

And of course, they will continue with the basic action figures as well.

I just came from L.A.

yesterday where we presented to a number of retailers.

And the retailers are very, very charged up.

They're very excited by the breadth of products that Mattel is going to have out there -- and the support that Mattel gives, from the retailer to, as I said, to kids advertising, to the promotion.

They are connected to everybody; everybody in the quick-serve restaurants, so we can talk premiums and promotions.

And as Vince said, to wrap up the circle, their international business is huge and they have distribution in every market out there.

And it's their own distribution.

It's their own people on the ground versus Jakks, who use third parties in many cases.

So the whole thing is very, very exciting for us.

We're chomping at the bit here for the first of 2010 to come, because I think you're going to see amazing products out there.

That sounds great.

Thank you.

If I could ask one more here.

So pay-per-view followed the TV in Mexico.

As far as pay-per-view goes, is there a rollout schedule at all?

Or can you give me some sort of insight on that, as far as Asia goes and Eastern Europe for pay-per-view?

We have to follow technology.

In certain countries, the technology is not there.

So, therefore, our model has to be somewhat different with each culture that we're involved in -- although Mexico does have pay-per-view and we just did WrestleMania at the very last minute, working with one of our pay-per-view providers there, and it did extraordinarily well.

So we think we'll be able to open up all of our pay-per-views into Mexico going forward.

And again, wherever there is pay-per-view, we're going to be there and benefit from that further distribution.

But in certain areas, there's no such thing as pay-per-view.

Okay.

Thank you very much, Vince.

That's it for me.

Maria Backer, Research Associates.

Thank you.

It's Marla Backer.

You know, Vince, you talked about how we're definitely in a difficult economic climate, and certainly on the cost side, you did a great job at managing those costs down to offset some of the revenue pressure.

What about -- are there any things you can think about in terms of tweaking pricing, including ticket pricing at live events, to see about whether that would help boost overall revenue?

And then separately, I know sponsorship has been something you've talked about, you alluded to in your remarks.

Any opportunities there to help offset what we're seeing with the decline in consumer spending?

Thank you.

Well, as far as live event ticketing is concerned, we have looked at that and made some differences.

As far as our more inexpensive ticket, we've reduced that, and we find that we can put more people in an arena and still maintain, if not increase, a small amount of revenue over the previous quarters.

So we've done that.

We've adjusted that already.

We see no diminishing demand for our higher ticket prices as far as ringside is concerned.

But again, we've already reduced that.

We like to consider ourselves -- and one of the things from a marketing standpoint and is, by the way, happens to be true -- we like to consider ourselves the best value in entertainment in every form that we reach, whether it's live events or pay-per-view or whatever.

So, I mean, we have reduced ticket pricing, but the result of that ticket pricing is exactly what we thought we're going to have, and that's more people on the arena; which, of course, then benefits more people who can reach out and touch your product.

It's really a grassroots, which is the best form of marketing there is.

People come, they have a really good time, they go out and they talk about it; which again, the benefits of that through all of our ancillary products is important.

So we have adjusted that.

We are looking at efficiencies along those lines going forward.

As far as sponsorship is concerned, again, we're just opening that door in a bigger way.

You'll see some dramatic increases going forward, as far as digital media is concerned.

And with that, as well, somewhat of a dramatic increase as far as the individuals who are sponsoring and the frequency in our television products -- which I said before, it doesn't come directly back for our bottom line, but does in terms of increased television rights and what-have-you, because, again, we're the best value in entertainment.

Thank you.

And I have just one other question.

I guess this is for Linda.

It's a housekeeping.

I think you get this every quarter, but on the Genius relationship, are you still happy with that relationship?

Are you saying any signs that Genius's own financial problems maybe impacting your product?

I'm actually going to let Donna Goldsmith answer that for you, Marla, because she's been right in the throes of all those renegotiations.

Marla, Genius has done a great job with us at retail.

If you get into Wal-Mart stores or Best Buy, you will see we have more facings than we've ever had before; many more retail placement.

For example, in Wal-Mart, you will see we have anywhere from 18 to 25 positions, depending on the size of the store, which is a huge number.

As far as Genius goes, they are -- they're still working things out.

They've paid us on time, through the first quarter; we're in good shape.

And they have the distribution and the reach that we need to get our product out there.

So we will keep watching them as you guys do, and so far, so good.

Thank you.

Alan Gould, Natixis.

Thank you.

I've got three questions for Vince and one for George.

First, for Vince -- Can you give us your thoughts on the TV production facility?

I realize the facility in Stanford you have now is cramped, but we're talking about a $90 million or so facility.

What are your thoughts on that?

Secondly, I was wondering if you could discuss your thoughts on the split dividend?

Would the McMahon family be willing to keep a split dividend a little bit longer, if that's what -- if that would be required to keep the dividend at the $1.44 rate to the public shareholders?

And third, your thoughts on the digital initiatives.

I know you, like most media companies, have been frustrated about that.

Any thoughts on how you can get digital revenue moving a little quicker?

As far as television production facility is concerned, that is something that we will go forward with at some time in the future.

We have put that on the back burner.

We have found new ways of efficiency, as far as nooks and crannies and what-have-you concerned, to be able to operate as we are with some of the reduction in staff.

That's opened up other areas that otherwise were cramped.

So, in the short run, and perhaps even in medium, we may be -- we are finding different ways to better utilize our facilities.

So the amount of money and even that whenever we want to do it is on hold for the foreseeable future.

As far as a split dividend is concerned, that's something -- as far as dividends in general, that's something we review every quarter.

As you know, we just announced another dividend just the other day.

But we review this on a quarterly basis, depending obviously on economic conditions and things of that nature and notwithstanding McMahon generosity, which is unusual.

In Wall Street, because only a few individuals in the world would ever do that, they can't quite figure out why we're doing it.

And it is only because of generosity.

There's no end game to it.

No chicanery or what-have-you, that's what it is.

But to the extent that we continue our current dividend and split dividends and all of that, that's reviewed on a quarterly basis.

As far as digital is concerned, we have been behind the eight ball, I think more so than other companies, as far as their digital is concerned.

I mentioned that Army National Guard and some of the other sponsors.

One of the -- we've just -- and also I mentioned about our management and how proud I am of our -- our management is better than it's ever been.

We've gone through a reorganization in almost every area, but there especially.

I'm very pleased at the moment with the results you're going to see, as far as our new sales organization is concerned.

We have some crackerjack people in there.

We haven't in the past; and again, the management is going to bring us, I think, benefits we haven't seen before in the past.

Okay.

And if I can just follow-up with George on one question.

You mentioned that you thought 12 Rounds would reach breakeven.

I was wondering if you could drill down a little bit on your film ultimate assumptions.

Because I look at the film costing $20 million to produce and Fox spending $18 million to $20 million to release it, and with about $6 million of rentals out of the domestic theatrical, I just don't see how you quite get to breakeven.

Well, I'm not going to drill down into our ultimate model.

That's something that we build.

We use an external firm to help us build it.

But I will say that one of the things where we over-index is on DVD sales.

And also, at least historically, on some of the international TV licensing.

So that's where it's coming from.

But again, we use an outside firm who takes into consideration not only the genre, generally, the size of the production spend, but also looks at how our product has performed.

And as I mentioned before, we see 12 Rounds as well as the entire portfolio being profitable at this point on an ultimate basis.

And all in, let me just make reference to that -- this is Vince again.

And all in, we've made approximately $6 million over what is projected off of 12 Rounds as well as our previous films.

That's not a lot of money, to say the least, in terms of being in that form of content and development.

But it's something that -- it is a logical avenue in which we should engage in as a part of what we do.

It is never going to be the most important part, but nonetheless, it's logical.

We are storytellers.

We have our own intellectual property.

We don't have to go out and hire Brad Pitt at some ridiculous amount of money.

And again, to the extent we're going to do $20 million productions again, I don't see that in the foreseeable future.

If we do theatrical, it's going to be at a reduced budget.

As it is, I think most studios are looking at it that way now as well.

And more direct-to-DVD films with a limited theatrical.

Control as well -- greater control over distribution, greater control over marketing of our films, and to have to use our assets as we do for live events and everything else, use them in a different way, a more efficient way as far as film distribution and marketing is concerned.

It is a part of what we do, as I said before.

We're set up different than any other Hollywood studio.

We have tremendous advantages again.

We have our own intellectual product with our performance.

And again, going forward, we can utilize in a different way new distribution techniques and greater marketing using our assets.

The other aspect of where we have a leg up over everybody else is that we have this promotional juggernaut on a global basis, in which we can promote our films at, quote, no cost.

So there -- we have benefits that no one else has.

We've learned the business.

I think anyone can say they've entered -- and I won't say we've [interviewed] start-up in Hollywood, but -- because I think that's not the right way to look at it -- but we've learned so much.

And anyone who's entered that business and not lost their shirt is doing pretty well.

So again, to have made a small margin of profit off of our films and to have learned as much as we have without losing any money, and considering this as a -- what I consider to be a substantial contribution to our profit going forward.

That's why we're in the business in general.

So, Vince, it sounds like your emphasis is much more on direct-to-video and much less on $20 million theatricals?

It is.

When you look at the risk reward basis, there -- $20 million is a tough number.

When you consider the -- we can look at the -- when you look at the film itself and Fox distributed that for us, you say, well, it's a $50 million film onscreen.

That's all well and good, but it's [going] to cost us $20 million to do.

So I don't foresee us doing a $20 million productions [again].

I don't think there's a need for doing $20 million productions.

As far as when you look at that genre, that action genre, with all the special effects and all of that -- if it's a car crash, someone else is going to use five cars, we're going to use one.

Even that, to be in that action adventure genre, the competition is so great that we need to look at some action, obviously, on what we're doing, that makes sense.

And the greater emphasis is on characterization -- the storyline and bottom-line profit.

We don't need to do $20 million films in order to turn this around and make it a highly profitable enterprise.

Having said that, let me just say that anyone who is looking at us in terms of an investment, current or future, I would advise them -- don't invest in us if you're -- if you're a film buff, then go invest in Warner Bros.

or something.

This is a logical thing of what we do, but only a part of it.

So I don't want anybody investing in what we're doing saying, oh great, you guys are in the film business and that's where my money should be.

It's just a part of what we do.

Okay, thank you very much.

Hey, Alan, I'm going to just clarify something in your first question, when you talked about the expansion of the Media Center at $90 million.

We [went] public at $65 million to $75 million as the target spend for that.

Okay.

Thank you, George.

And again, that's on the shelf.

Luke Shagets, Sterne Agee.

Thank you and thanks for taking the call.

Yes, real quick on your live and televised segment.

It looks like there was -- seeing an improvement in the gross margin, I guess from 30% last year to 47% this year.

Is that permanently due to the revenue mix there?

Or was there something else driving that?

And then another quick one, just on the SG&A, the $28.6 million in this quarter, I guess ex the restructuring charges, is that a good number to use going forward, I guess, in the next couple of quarters in terms of modeling?

On the first question on the gross margins of live and televised events, it's primarily been part of that $20 million commitment, what Vince talked about being more efficient in everything we do.

So both the production costs on our pay-per-view side, which is in there, as well as the marketing costs on the pay-per-view side, which are also in the Live and Televised Event segment.

So, those are the biggest drivers there.

A little bit of product mix but it's primarily those areas.

On the SG&A side, I'd look at SG&A from an annual standpoint.

I talked about it before.

Last year, we had about $456 million of total costs, about $131 million of SG&A.

If you look at the $20 million, that's roughly 4.5%, 5% of the total cost base.

SG&A will go down kind of pro rata to the cost base.

So I'd look at that kind of 5%, 6% reduction in SG&A, like I would look at total expenses.

And frankly, we're pretty bullish on that number.

I think we can do even a little bit better than the $20 million, but we're sticking to the $20 million commitment.

Okay.

All right, thank you.

(Operator Instructions) Jamie Clement, Sidoti & Company.

Good morning.

Mr.

McMahon, you, in your prepared remarks, mentioned live events and interactions being the real driver really all your businesses.

And it seems to me that going from the late 90s period of time to where we are now is late 90s and earlier in this decade, there were a lot of older wrestlers that had been around for a long time.

I think some of that was perhaps the Turner promotions doing.

You guys had a lot of younger, fresher faces now that have kind of emerged over the last two to three years.

How do you feel about where you are in that process?

And first of all, do you think my assessment is accurate?

And second of all, sort of on a scale of 1 to 10, how well do you think your creative people are hitting the audience?

Well, Jamie, let me first address the first thing you said is my prepared remarks.

I don't know how prepared they are.

I'm not reading from anything.

I'm just giving you what I have.

I think that you really can't compare the product to the 90s.

You're right about the more older performers that have pretty much gone by the wayside.

We had -- actually at, to this past WrestleMania 25th Anniversary, we had three or four guys who actually participated in WrestleMania -- one in a obviously very minor role.

Nonetheless, it's kind of nice to go back to some of those guys.

But they're not a part of our mix now.

It's important that our audience as well as audiences in general -- they want [fresh] (technical difficulty).

At the same time, they still want a couple of characters or what-have-you that they can rely on and they know that characterization, a Triple H.

and Undertaker kind of like thing.

But new is important.

It always has been.

And as you said, we're poised now for some of these new stars to break through.

That's always been a very important (technical difficulty) [in business] always will.

New storylines, new and stronger characterizations, and that's always going to result in, generally speaking, obviously, as far as consumer products is concerned, you've got new stars, you've got people who want to buy new things.

It should help us in terms of pay-per-view and television ratings and all of that.

So, I don't -- it's a different program and it's a different company, different business, almost, than the 90s.

Okay.

Thanks very much for your time.

I appreciate it.

You bet.

Nick, do we have any more questions?

And at this time, it does appear that there are no further questions.

Yes, but Nick, don't let anybody be bashful.

Thank you, everyone.

We appreciate you listening to the call today.

(multiple speakers) Nick?

If you have any questions -- Nick, or anybody, if you have any questions, don't hesitate to contact me, Michael Weitz at 203-352-8642.

Thank you.

Thank you guys very much.

Once again, we'd like to thank everybody for joining us on your call today.

This does conclude your teleconference and you may disconnect at any time.