TKO Group Holdings Inc (TKO) 2011 Q4 法說會逐字稿

Welcome to the WWE fourth quarter and fall year 2011 earnings call. My name is John, and I will be your operator for today's call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. I will now turn the call over to Mr. Michael Weitz, SVP of Investor Relations for WWE. You may begin.

Thank you, and good morning everyone. Joining me for todays discussion are Vince McMahon, our Chairman and CEO, and George Barrios, our CFO. We issued our earnings release earlier this morning and have posted the release, our presentation, and other supporting materials on our website, corporate.wwe.com. These materials can we referenced in conjunction with the discussion today to clarify our performance and the trends in our business.

In our discussion today we will make several forward-looking statements. These statements are based on management's estimates. Actual results may differ due to numerous factors as described in our presentation, and in our filings with the SEC. For any non-GAAP financial measures discussed on this call, reconciliations to GAAP measures can be found in our earnings release and in our website presentation. Today we will review our results for the fourth quarter and full year 2011 and we will follow the review with a Q&A session.

Are at this time it is my privilege to turn the call over to Vince.

Good morning everyone. We have had less than a stellar quarter obviously, and as a result a less than stellar full year. 95% of that less than stellar really comes from the lack of performers from two areas. One would be the film division and the other would be television licensing.

If you recall in a previous call I mentioned that if the new strategies, new film strategies does not work we probably in all likelihood would be out of the film business. I still feel very strongly the new strategy will work under Mike Luisi, and because it really concentrates on more of a significant change relative to our approach. Increasing our partnerships with the major studios, and specific ones and specific genres, as well as better terms of distribution and things of that nature. So I am still not just hopeful, but I really feel strongly that under this new guidance and this new approach that film really is going to work, despite the previous performance and we have pretty much written off most of our old stuff by now in terms of impairments and things of that nature.

The other aspect of less than stellar comes from television licensing decisions, and quite frankly that was more strategic than anything else. We are back out in the marketplace because the time is right now to exploit our in-ring television licensing programs, as well as those that are out of the ring. I must say there has never been a stronger demand for WWE product than there is now, so we really feel strong in terms of capitalizing on what we didn't capitalize on, two names in specific of television shows, Superstars and NXT, whether we bring out those specific titles or not, and add to those things, for instance of reality programming. Tough Enough, we brought that back, Tough Enough an original series on MTV. We brought it back to the USA,highly successful.

We then are currently actually in production with something, a reality show called Legends House, and a great deal of anticipation for that coming to the marketplace. We likewise have initiated a much more developmental situation with YouTube. We have nine original YouTube short form series out there as well. We are continuing to develop in preparation about 27,000 hours in our digital video library for television broadcast as well. We have lots of products with WWE and a great deal of demand in every respect.

And I guess maybe one of the things to lend to that stronger demand would be how we have done in social media, which quite frankly we are one of the few commercial brands that have really just been burning up social media on a global basis. We have had there is more than 1 billion views in 2011 on YouTube alone,some 50 million Facebook friends,18 million Twitter followers. So the brand itself is extremely strong and very hungry for more WWE content. We really feel strongly about that, and where we are from a strategic standpoint.

Other initiatives that I think sort of tell where we are now and always have would be live event attendance, which despite the economy is up 7% in the quarter. To me that has always been the barometer of where we are, and where we are going when you break it down to just the basics. So with that in mind, and further developing our brand presence as I mentioned over all aspects of distribution, I think that the business looks very strong going forward.

As internationally, we mentioned any number of times and since the last call we have done a number of things. We have had television events in Mexico, tremendously successful. Just last week we were in Qatar which was enormously successful. We have finally broken through on some of the BRIC countries. On the air now in Brazil and Russia.

We have expanded even our broadcast in China to approximately 130 million homes, opened offices in Singapore and Miami to develop the Asian market, as well as the Latin American market through Miami. We remain confident really of our ability to take advantage of growing demand for WWE content, and that is pretty much the way I view things at the moment. George do you want to make some comments? George Barrios.

Thanks Vince. In providing some additional perspective on our fourth quarter and full year, I will echo Vince's sentiments and say it is fair to characterize our financial performance as disappointing. While making progress on the development of our long-term content and distribution strategy, our earnings for the full year were significantly below our record 2010 performance.

Over the past year we have discussed our network initiative, which is part of a broader strategy to expand our content and optimize its distribution through traditional and emerging platforms. We believe that by executing this strategy effectively we can achieve a dramatic and sustained increase in our earnings, while we made significant progress in developing this transformative opportunity, our full year results were impacted by two key factors. These factors were significant noncash film impairment charges, stemming from the weak performance of movie releases and observed trends in the broader direct-to-DVD market. Specifically we recognized a total of $23 million in film impairment charges, including $12 million in the fourth quarter, and $5 million of additional films for the full year versus the prior year.

During the year we also made strategic decisions to withhold several hours of previously licensed television content for distribution on other platforms. These decisions resulted in a $12 million reduction to our television licensing profit. On a combined basis our film performance and program licensing decisions accounted for $40 million, or 95% of the $42 million year-over-year decline in EBITDA.

Focusing on the fourth quarter our financial results also reflected $4 million in startup operating expenses associated with the potential launch of a WWE network. Moreover our results demonstrated lower sales of licensed products, an increase in pay-per-view production and marketing costs. primarily related to the Survivor series event and a reduction in online ad sales. The largest of these factors were foreseen and highlighted as part of our third quarter earnings presentation. To clarify the operating trends in our business I will discuss our performance on an adjusted basis, excluding the impact of the film impairment and startup operating expenses of our network.

For further discussions of these items please refer to the supplemental schedule in our earnings release or our website preparation. On this adjusted basis operating income declined by $11.3 million for the quarter, and $17.9 million, or 22% to $64.4 million for the full year. Although our financial results were disappointing, the fourth quarter trends in our key operating metrics were somewhat encouraging.

Domestic television ratings increased 3% for flagship RAW program in the quarter, and 18% for the SmackDown program. Similarly average attendance at our North American live event increased 7% from the prior year quarter. In general, the positive uptick in these key metrics support our view regarding the enduring power of our brands which is critical to our future growth.

For a more detailed review of our performance in the quarter let's turn to page six of the presentation, which lists the revenue and profit contribution by business as compared to the prior year quarter. Starting with the live events including merchandise sales at these events, revenue increased primarily due to a rise in the number and proportion of our international events. Although changes in territory mix contributed to a 16% decline in average attendance at these international events to 6,300 fans the staging of five additional international events in the quarter more than offset that impact. In North America, changes in our venue mix contributed to a 9% rise in ticket prices, and a 7% rise in average attendance to 6,000 fans. However, these positive developments were offset by the staging of 11 fewer events in the quarter.

Turning to our pay-per-view business. Revenues increased 6%, or $0.8 million from the previous year, driven by an increase in buys for prior period events. Buys for the four comparable events staged in both the current and prior year quarters declined 3%, including a 15% increase in buys for our Survivor series pay-per-view.

Based on an increase in certain talent marketing production costs associated with that event, the profit consideration from our pay-per-view business declined 24% to $6.4 million. Revenue from the distribution of our television programming decreased by 5%, or $1.7 million from the prior year quarter primarily due to the absence of domestic rights fees for our WWE Superstars program. This more than offset the favorable impact from a revised contract with a Canadian distributor. Under the revised contract, we received television rights fees rather than advertising revenue.

As discussed in previous earnings calls our decision not to license either the WWE Superstars or NXT program domestically is strategic in nature, and related to optimizing the long-term value of our content. In our consumer product segment home entertainment revenue increased 12% or $0.7 million, primarily due to an adjustment in the prior year quarter. Gross domestic retail revenue declined 14%, or $1.8 million due to 8% decline in shipment to 825,000 units, and a 5% decline in average effective prices to $13.50. The prior year quarter included an adjustment for lower sell-through expectations of prior year releases. Additionally our gross domestic retail revenue declined in the period, digital sales increased ten-fold or $320,000.

Turning to our licensing business. Revenue decreased 23%, or $2.8 million reflecting lower sales across almost all of our major product categories. During the quarter the most significant declines were generated by our toy, collectible and novelty products. Revenues related to toys declined 15%, or $1 million reflecting a challenging retail environment for certain toy products including action figures. Although sales of WWE action figures continue to rank WWE among the top five selling brands in the US, overall industry sales in this toy category declined an estimated 8% in 2011. Revenues related to collectibles and novelty declined 37%, or approximately $1.2 million with a tough comparison to a successful product launch in the prior year.

In contrast to these declines revenue from our video games increased $0.4 million, primarily due to introduction of a new game, WWE All Stars. Shipments of our historic franchise, SmackDown versus Raw declined 51% to 162,000 units. As a reminder, we launched the successor to the title WWE 12 in November of 2011. In our magazine publishing business revenue decreased 35% or $1.1 million to $2 million, reflecting lower newsstand sales in the current quarter. In our digital media segment revenue decreased 14%, or $1.4 million, driven by a reduction in online advertising sales activity. Traffic to our WWE.com website decreased by 22% as measured by page views.

During the quarter, WWE Studios recognized revenue of $4.3 million compared to $7.9 million in the prior year quarter. The decline was driven by the relative performance of our film releases in the current and prior year quarters. Film profits on unadjusted basis declined $13.2 million from the prior year quarter, primarily due to $12.2 million in noncash film impairment charges. These charges stem from lower DVD sales projections and revised ultimate expectations for our previous releases, The Reunion, See No Evil, Knucklehead, and The Chaperone, as well as pending releases, Bending the Rules and Barricade.. Excluding the impairment charges for these films adjusted film profit declined $1.1 million, due to lower receipts from our licensed films.

As mentioned in the previous call and reiterated by Vince, we continue to monitor the performance of our film business and make adjustments to improve our future performance. Some recent changes include increasing emphasis on genres with greater pay TV and international appeal. Using coproductions to reduce our equity investment per film, and selling the international distribution rights prior to the completion of film projects. The production of two films for release in 2012, No One Lives and The Day exemplify this approach. We have also recently announced a partnership with 20th Century Fox to coproduce and cofinance, redirect to DVD title, including the third installment of our successful Marine franchise. In total, we expect to release between three and five movies in 2012.

As mentioned previously, there are a number of compelling reasons for WWE to participate in the movie business including leveraging our core competencies and content creation, and extending our audience reach. Although movies will not be released under the revised approach until the latter part of 2012, we expect it will reduce the risk and yield greater returns over the long-term. Overall our adjusted profit consideration decreased 22%, or $10.3 million driven by lower results across most of the businesses. Profits decreased primarily due to the absence of domestic television rights fees for the WWE Superstars program, declines in licensing and online ad sales, as well as increased pay-per-view production and marketing costs. Adjusted profit margins were 32% compared to 38% in the prior year quarter, reflecting the absence of domestic television revenue and decline in licensing revenue, which have some of our higher variable margins.

For the quarter, SG&A expenses increased 14%, or $4.1 million from the prior year quarter, driven almost entirely by $4 million network related expenses. Startup expenses associated with the strategic initiative included salary benefits and recruitment costs, as well as higher professional fees. On an adjusted basis SG&A expenses were essentially flat to the prior year.

Page nine of presentation compares the quarter-over-quarter results, and provides a summary of changes by business. As shown, adjusted operating income decreased to $3.1 million from $14.4 million in the prior year quarter, driven by the decrease in adjusted profit. Adjusted net income as referenced on page 11 decreased to $1.8 million from $8.1 million in the prior year quarter also reflecting the decrease in our adjusted profit.

For the full year our adjusted operating income declined 22% while revenue was essentially flat from the previous year. The change in our performance can be attributed to the two key factors described earlier,namely the absence of television rights fees for NXT and WWE Superstars program, and the performance of our film business. Additionally adjusted SG&A expenses increased 3% as higher staff and related marketing and legal expenses were partially offset by $8.3 million reduction in management incentive compensation. Adjusted operating margins fell to 13% from 17%, reflecting the resulting changes in product mix.

Page 12 of the presentation contains our balance sheet which remains strong. On December 31, held approximately $165 million in cash and investments with virtually no debt. Page 16 shows our free cash flow which for the full year increased 11% to approximately $35 million. A $37 million reduction in film production spending was partially offset by increased capital expenditures, and the impact of $15 million in advances received from a licensee in the prior year. Capital expenditures increased $16 million primarily as we invested in assets to support our emerging content distribution strategy including a potential network.

We believe that our content investments will yield significant returns almost under any distribution scenario. By carefully evaluating our distribution alternatives, we can maximize our risk adjusted returns. While developing this transformative opportunity, we expect that our 2012 earnings will be roughly in line with our 2011 results. This forecast reflects three components. First, initial startup operating expenses of $15 million to $20 million and you should note capital expenditures in the same range to expand our content and distribution options including the potential launch of a network. Second, a material reduction in film impairment charges and film losses which totaled $28 million in 2011 and third a reset of our management incentive compensations which was reduced by approximately $8 million in 2011.

We expect that our 2012 free cash flow will be below our 2011 results. This forecast anticipates investments of $15 million to $25 million to produce our future movie releases, and $35 million to $50 million to support the development and distribution of new programming content including through a potential WWE network. The latter includes investments of $5 million to $10 million to create new programming content, $15 million to $20 million of capital expenditures for facilities and equipment, and $15 million to $20 million of operating expenses as previously discussed to provide the broader infrastructure, personnel and systems to support this initiative.

Looking ahead, we believe that executing this strategy effectively can dramatically raise our earnings potential. Our confidence in this outcome is based on two fundamental premises. First, WWE has powerful brands with tremendous global appeal. Regardless of the metrics that are involved, our 52 million Facebook friends, our 18 million Twitter followers, 1 billion views of WWE videos on YouTube, 13 million unique visitors to our own website, television programs that are always rated number one on the respective networks, the statistics all point to the same conclusion, they demonstrate that the WWE brand is among the strongest commercial brands worldwide.

The second premise which we reinforces our outlook is that the proliferation of distribution alternatives is driving up the value of content, especially compelling content with broad appeal. Our review of recent content deals, such as USB with Fox, CBS with Netflix, and the NHL with NBCU, provides some evidence of this perspective. Moreover we believe that creating new content and distributing in traditional and emerging platforms is a national extension of what we have proven we do well.

Finally, as we create and distribute new content domestically we expect to cultivate some second order benefits. These include the 360 degree monetization of the new intellectual property, global distribution of the new content, and more broadly, increased demand for all of our products based on added exposure. By executing in these areas, our objective and expectation is that we can drive significant earnings growth.

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

Thank you, George. John, we are ready now. Please open the lines for questions from our investors.

Thank you. (Operator Instructions). Our first question comes from Rich Ingrassia from Roth Capital Partners. Please go ahead.

This is [Koji Ikeda] in for Rich. I have a couple of questions. About the WWE network. Can you give a projected launch date and once it launches what do you expect in incremental revenues and profit on your cable net versus the cable deals that you have today?

We are going to launch sometime this year. There is no specific date. And we are continuing obviously negotiations with any number of cable systems and what have you. As far as the monetization is concerned we are really unique in this respect because we create our own programming, we create our own demand and the cost of that programming is not anywhere near the cost of programming with other like networks starting up. We have a great advantage over that and notwithstanding again the usage of that same programming in different forms we would first run on other applications or a secondary run in addition to opening up new international markets with these new products that we will have on our networks. So we are very bullish on the network. We want to make sure we get it right when we launch and that is why all of this preparation.

Great. Next question is actually about live events. The total number of North American live events were down but total international events increased. Is using 2011 North American events as a benchmark a good level moving forward, and should we expect any, or a continued increase in international events?

I think the range that we always give is that internationally we will do 70 to 80 events in most years depending upon logistics, and domestically 240 to [260] events again depending on logistics.

Okay. Last question. Can you talk a little bit about the ramp in fan engagement how that it is a has been to WrestleMania to far?

We missed that question, the beginning of that.

Talk about the ramp and how you fan engagement has been towards WrestleMania so far?

It has been tremendous. And the idea behind that is to bring back some of the stellar performers of the past. So we increase our audience, some of the audience then can flavor some of the newer superstars to follow in their footsteps, and the demand for this year's WrestleMania is the greatest demand we ever had for any WrestleMania, and we think it will carry through from Miami this year into what was announced just last week in terms of New York, and more specifically Met Life Stadium, where the Giants and Jets play for the following year. So we are very, very strong on WrestleMania and the demand for it.

Great, guys. Thanks.

Our next question comes Michael Kupinski from Noble Financial. Please go ahead.

Thanks for taking the questions. A couple of questions. You indicated 2012 you think is going to be pretty similar to 2011. I was just wondering if you could provide a little color on what your thoughts there are particularly as it relates to continuing operations, earnings from continuing operations. I guess if you backed out some of the impairment charges and stuff like that are you talking about just from a pure EPS standpoint? Can you just give me a little bit more color there?

I think obviously we don't expect to have any more impairments in 2012. Doesn't mean there won't be any but we don't expect it. You back that out and essentially offset that with roughly $15 million to $20 million of startup expenses for the broader content and distribution strategy including the network as well as reset of management comp so that offsets it. In the regular business as you know Michael we don't give guidance although we are giving some soft guidance here today obviouslyfor the rest of the business we see as relatively flat within a range of plus or minus 10%, depending on each individual businesses having slightly different secular and cyclical supporters or trends. But that is how we get the flat. The big items are offset by different things, and then the rest of the business we would see as flat to plus or minus 10%.

Got it. And what then are you using as the number for 2011?

We are using the reported number for 2011.

The reported EPS number?

For EBITDA, yes.

Okay. And then in terms of the film business. At what point do you determine that maybe this is not a business we want to be in? I mean is there a point where you decide that we are not really making the money that we thought we would make or that maybe things aren't as rosy as we think they might be? What point would you say maybe we will get out of that?

Under new leadership with Michael Luisi and a different approach as well as working with partners that we haven't worked with in the past. And negotiating much better terms of distribution. I really think this is going to work. Again, we have added a number of models that we thought would work in the past and I don't know that there is a, I would say, as soon as we start getting results from the new regime so to speak we will have a really good idea. We are not going to put good money after bad. So there is a specific time at which we say whoa, this is not working. I don't think we will get there.

I really don't in terms of having to make that decision because I believe that this new strategy that we have and taking our risk and spreading out over an aspect of many different studios being far more conservative and having a piece of this and a piece of that, and at the same time being able to exploit our superstars in most of these films I really think that is going to pay off and I really think we do have it down pat.

We are not going to know, there is no crystal ball here. It as business that we theoretically for sure should be in because we understand stories and we understand content and we understand our performers and what they bring as well as this global marketing change. Theoretically there is no doubt that we are in a position, a much better position than any studio to monetize this content. It doesn't necessarily theoretically mean that practically we have done it. We did well when we started out and then changed our model and this is yet another change, but this one is one that is far more conservative, spreading out our risk with major studios.

On the cable network side as you kind of already built in some expenses there, how is it that we should look in terms of a launch on the cable network side? Do you think that we will start off with a certain number of subscribers and then build from there, or do you think that you will have a strategic partner where you might be able to have a fairly critical mass of subscribers at least initially. Give us color on where the thought process that is going on, and where it is more likely to kind of like the launch is more likely to kind of go from there?

You don't want to start a network unless you have a major partner. You need to have some degree of critical mass to begin with because that really says gees, you guys are off and rolling. That is very important and it can take any number of forms all of which look very good to us no matter which way we go with the network. And the network even from a standpoint of launch there is so many products Emma emanating from the network. That is the best way we are looking at the network in one form or another launching this year.

Can you give us a benchmark of how many subscribers you might be able to launch with initially?

I wouldn't want to say that but again it would be substantial.

Okay. Thanks very much.

Our next question comes from Brad Safalow from [PAA Research]. Please go ahead.

Thanks for taking my questions. First question want to clarify you said you are planning on spending $15 million to $25 million on the film business from a pure cash perspective this year?

That is right, applied into something that Mike just asked Vince is the $15 million to $25 million won't hit the screen until 2013 at the earliest, and some of it may even go into 2014. For us to really assess the efficacy of the new model there is some time that it will take to get there.

Okay. I just wanted to clarify that. And then also on the swing factor on the management incentive comp side is that total amount we are talking about $8 million for 2012?

Just a change. In other words, we had an $18 million adjustment this year down, and if we reset that to meeting expected targets that means it goes up by about $8 million rough numbers.

Okay. And then can you talk a little bit about the relationship you have with Google and YouTube? Obviously I think you launched those web series I think in the last month or two. Help us understand what the revenue structure is for that?

We are not going to comment on the revenue structure. It is part of YouTube's stated strategy of investing in original content with compelling brands and we were one of those initial launches with them. Obviously they know us very well because of those 1 billion video streams that we do, so they have a data driven understanding of the power of the brand. They thought this made sense to come to us and we thought it made sense to partner with them and we are really excited. The content is terrific. Different than what our content is on TV and it is us continuing to build muscle and creating and monetizing more content in all these different platforms.

Okay. And then just on an NXT and Superstars are you guys holding back those shows and going to continue to broadcast them in your site in advance of our basically anticipation of a launch of the network this year, or are you still out there marketing them? I guess I'm a little unclear what you are actually saying about them.

Both.

Both?

Yes it is both. Again the demand is so strong for our products and those two whether or not the names change what have you, or the format changes somewhat the demand is so strong, we can look at it from a both distribution on our network as well as demand that is strong demand that is out there in working with others.

And the way Brad , the math is when we post those two shows on the air we were monetizing six hours domestically. Off the air there is four. So the question now is what do we monetize domestically,it is 5, 6, or 7. That is what we are getting at. We will do what is best for the long-term. NXT and Superstars, not only those hours, but those titles continue to be monetized internationally.

Right. Okay. And on Legends House is that is similar situation where it may be on the network and might not be?

Yes. The answer is, yes. Again although there have very strong reaction to the concept and we are in the production now from any number of sources.

Okay. And just going back to your guidance for the year your soft guidance. Does what you were telling us include monetization of NXT, Superstars and Legends House?

It includes our best estimate of what we are going to do in those area, yes.

Okay. And then just in terms of the network last quarter you said you were close to having an announcement. Obviously we are now three months later. Is there anything you can say about the tenor of the discussions, any sort of expectation on when you might announce something more formal? Obviously you already announced some things about what kind of content we might be seeing, but as far as some more meat to the bone, or on the bone, so to speak, is there anything you can say about timing on that?

Other than this year. Again, specifically, and the demand and quite frankly the acceptance of a new network which at this day and age is pretty much unheard of, especially at the level that we are contemplating so we feel strong about the network.

Okay. And then last question I guess one of the big concerns that we hear when we talk to investors is about management resources. No one is questioning the ability of management to work endless hours, but obviously launching a network is an incredible undertaking. Can you talk to us a little bit about where are you stand in terms of hiring process and particularly kind of at the executive levels for the network?

As we mentioned we have $4 million in OpEx related to the network or in broader content distribution strategy and primarily that went to people. So we are very much engaged in the hiring process. We had somewhere between 40 to 50 people join us in the fourth quarter and we are going to continue to do that. We think we a pretty detailed plan of what we need systems, people, processes to launch and we are just executing on that.

Do you feel like you guys need to hire outside talent with cable network experience at the executive level? Is that something you are pursuing?

Yes. We have on the production side on the programming side people we have brought in already have that experience. So the answer is, yes.

Okay. I will turn it over. Thanks.

Our next question comes from Daniel Kilmurray from UBS. Please go ahead.

Good morning, guys. George, would you just confirm what you said the cash balance on the slide show says [155]. I thought I heard you say [165]?

We are including the ARF element in there that gets is put down below in long-term investments.

Okay. Thank you. On the Films side, talk of a spend of $15 million to $25 million. Do we have a number, is there a number of projects attached to that dollar amount?

Not specifically, Dan. Because there is when we look at the model it is portfolio approach of four to five different ways that we might participate in a film so I can give you a range. That $15 million to $25 million is probably four to eight depending on how we participate. The key point is that it is more than what we would have done under the previous models because of as Vince mentioned we are actually going back to something we used to do in the first iteration which is partnering with folks on the equity side.

Okay. So just trying to expand on that so this whole process is a lot more money than that is going to get spent on the development, promotion and distribution of these films, this is just your contribution to this product that is going to get developed, promoted and distributed by the studios?

That is generally correct. I will say the $15 million to $25 million doesn't include the promotion of any scenario that is really in the production costs. The promotion costs are more part of the specific P&L depending on the size of the project. But your general point is correct, the total production costs will be greater than $15 million to $25 million for the projects.

And you are looking at this now that you have decided to cap the amount of your capital, shareholder capital you are going to spend on this effort over the next couple of years at that dollar amount?

I would say we have always done that. If you looked historically and it has been lumpy but you if you looked historically we averaged around $20 million a year in capital deployed for this. So --

Okay. That is per year then. So you have targeted this as an annual until further notice capital so this is not just what you are going to do in 2012, you are thinking that this is an annual situation?

Yes, I think I didn't say that. We said $15 million to $25 million on 2012. We didn't say anything else about extending beyond that.

Right. But we will have no results on how the returns are until 2013 and 2014 until the films release?

We have a couple because the $15 million to $25 million doesn't include a couple of films under the new strategy, No one Lives and The Day that was part of 2011 investment. And those hopefully will be released towards the end of this year and trickles into the be beginning of next year. Your general point is correct but I think we will see indications a little bit before than the projects related to the $15 million to $25 million.

Okay. On to the network. You laid out numbers in terms of programming facilities et cetera. I thought I heard $35 million to $50 million. Is the budget of what you are spending is that sort of accurate on capital needed to launch this network?

Yes, so we if you think about it in the fourth quarter we did about $15 million in CapEx related to the startup costs. About $4 million in OpEx. So for 2012 the guidance is $15 million to $20 million in OpEx which is primarily people, systems, maybe some marketing dollars. $15 million to $20 million in CapEx which is equipment, space, so on. And then $5 million to $10 million in programming expense that won't hit the P&L until the launch amortize it. So that is where the $35 million to $50 million cash. That is indicative of a run rate model.

That is what I going to ask next. If you look at this what should you assume your run rate costs are going to be once you get to a certain point here and when?

I think that is related to the revenue question. We are not going to comment on the business model at this point. We hope to soon.

Please, please.

The eventual business model has a lot of determinants and when the time comes we will share more information but at this point we can't.

So you really have no idea what your run rate costs are going to be for programming and people to launch your network?

No, I didn't say that. We have a very good idea under various scenarios. I said we are not prepared to share that today.

Okay. Thanks, guys.

(Operator Instructions). Our next question comes from Jamie Clements from Sidoti. Please go ahead.

Vince, George, Michael, good morning.

Hi.

George, getting back to the free cash flow commentary in your prepared remarks. What is your level of maintenance CapEx for example that you saw over the last 12 months and is that a good number going forward? In other words, if you strip out the growth initiative spending what is the run rate maintenance number?

Our maintenance CapEx is covered in the $10 million to $15 million range and we when we have lots of capital to invest in the product. So we did our HD conversion that was Plug. Obviously the network is a significant one. We talked before about the media center. Obviously there is a Venn diagram on the spend between the media center spend and network or content spend.

Right. George let me ask you about the media center. A couple of years ago when this was originally, when this originally came up I think there was a $30 million-something number associated with that. I could be wrong with that and please correct me but I don't know if the content distribution network, the new plans you have in place does that, what form does the media production center take and how much money is going to that because that obviously helps the rest of your businesses, too?

No. I will correct you, Jamie. I think the last public utterance we had on the media center was $65 million to $75 million.

I'm sorry, okay.

And to your point, to your question or the central point of your question what we are spending today in space, equipment, which is the CapEx and then the OpEx in the people is related to recreating more content, making our current content more powerful and then monetizing it. The question of how much is the media center. I think that will get determined after we are up and running in a network environment and actually live under that environment and we have significantly more additional space today.

Okay.

Than four or five months ago nowthat space is leased, not owned at this point. All of that I think we will find a level as we work through and actually operate at the significantly higher level of content creation.

Now, George, I don't know if what your thinking is on this but you in terms of how you are going to report your P&L going forward, under the assumption that you will have a network launch this year. I mean do you expect to it report this as a separate line item? I mean I don't know how easy that would be. Particularly with the cost kind of benefiting a lot of our other businesses, too?

As you are probably aware, there is a lot of recent SEC requirements on segment reporting. So certainly when the time comes from a network we will do what we need to do on that front. My guess is and there is analysis that needs to take place that there will be some pretty fundamental changes to the way the reporting works for WWE.

That is helpful. I appreciate that. Final question, a question that comes up with a lot of companies particularly those going into growth mode in terms of what your intent is with the various initiatives in place. Vince, I'm wondering how committed are you and the rest of the Board in your opinion to a dividend payout that is as high as it is considering the growth opportunities that you all have outlined like, in other words, hopefully you don't have to but you if you are faced with the decision of putting more money into growth versus returning money to shareholders kind of where do you stand philosophically on that?

Based on everything that we see we don't see a change in the dividend at all.

Thanks very much for your time.

(Operator Instructions). Our next question comes from Marla Backer from Hudson Square. Please go ahead.

Give us more color on WrestleMania with year with The Rock. It looks pretty exciting.

It is very exciting. The concept action of the stellar stars, such as The Rock, and put more of a spotlight on the new emerging stars as well. It is very exciting. Creating a lot of buzz as quite frankly as I mentioned before the press conference that we had at Met Life Stadium last week when Governor Christie announced that WrestleMania will appear the following year in conjunction with our partners the Giants and Jets as well as the stadium officials, and the expedition authority and things of that nature. It is really a joint effort as good as Miami will be this year, and it will be awesome and in all likelihood we are looking for our best WrestleMania ever in terms of all measurements. We think even the following year is going to be better.

We have no further questions at this time. Do you have any closing remarks?

Thank you everyone. We appreciate you listening to the call today. If you have any questions feel free to reach out to us. We thank you for your support.

Thank you very much.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.