TKO Group Holdings Inc (TKO) 2012 Q2 法說會逐字稿

Welcome to the WWE 2012 Second Quarter Earnings Call. My name is John, and I'll 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 Michael Weitz, SVP of Investor Relations for WWE.

Thank you, and good morning everyone. Joining me for today's discussion are Vince McMahon, our Chairman and CEO and George Barrios, our CFO.

We issued our earnings release earlier this morning and as is our usual practice, have posted the release, our earnings presentation and other supporting materials on our website, corporate.wwe.com. These materials can be referenced in conjunction with the discussion today to clarify our performance and to shed light on the trends in the business.

In our discussion today, we will make several forward-looking statements. These statements are based on management 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'll review our financial results for the second quarter, and we'll follow this review with a Q&A session. At this time, it's my privilege to turn the call over to Vince.

Good morning, everyone. I guess, it should be noted pretty much in the quarter we're essentially flat, which is nothing to write home about, of about $24 million. Results are reflective pretty much of our profit growth, which George will talk about for the most businesses. We've had a strong Pay-Per-View performance, which is a 17% increase, which is actually pretty good.

We've had somewhat reduced losses from our movie business and again, we're bullish on that, and I guess George will reflect some of that as well. We've had some decrease in licensing profits because of the absence of a video game, which was being produced called All Stars. Somewhat increased SG&A expense to -- it's mainly staffing to sort of the reset of a management incentive comp.

I guess maybe key metrics are encouraging, little mixed, but encouraging. Pay-Per-View, as I said, up 17%, which is substantial. Social media is exploding for us. Live events remain pretty much flat, as well as television ratings notwithstanding a third hour of Raw, which just debuted with excellent television ratings. We just did the 1001 last Monday, a television show which is obviously, as you know, speaks to the staying power of the brand. No television show like it in prime time has ever come anywhere near 1001 episodes.

And third hour is going to give us all the more exposure and somewhat of a new audience as well to continue to build on the interactive strength of Monday night Raw. Likewise, in October we're going to be producing a one-hour television show on ION, that's called the Main Event. And we think that that television show will roughly give us an audience that we currently do not have. That's I believe on a Wednesday in prime time 8 or 9 o'clock.

We continue as well to distribute and create content for YouTube, which is very popular and also gives us an opportunity to take similar television segments on YouTube and perhaps make larger shows out of them. As far as films are concerned, we've done deals with IM Global [and any number of them] as we spread out our risk, as well as our reward on some of our films in terms of the new philosophy that we have. And we've remastered No Holds Barred, which was produced in 1989 and almost forgotten. It's been on the shelf and in terms of the remastering we've done extremely well. We're releasing that and over the last four weeks have done a -- [I used it before] very well.

Brand strength and television strength of Raw is extremely strong, has been for year-after-year. As far as Syfy is concerned, where SmackDown is on, we're number one, have been since the very first broadcast on Syfy. We had continued, as I mentioned before, the explosive growth in social media, which we think could effectively change not so much the way we do business, but can change the overall impact of our business extraordinarily. In one year's time, we should be much, much better positioned than we are now on a global front. And I would say, we did make an investment in something called Tout, which I'll let George explain here, I think, in further detail in a moment.

International growth, we held live events in Russia, which were sold out in Brazil, which was an okay in debut. And so one another thing that, obviously, needs to be talked about is the launching of our Network. The guys have been very patient in terms of what is it and when is it. And right now, you've heard this story for a long time, we're not ready to make an announcement. I feel relatively confident, however, that next quarter we will be making one. Just to make sure that we have continued to -- and we have continued to develop content for it, system implementation and continued negotiation with key distributors, but I hope next quarter I will be making an announcement on our network.

So with that in mind, George, I'll turn it over to you.

Thanks, Vince. There are several key points, which I'd like to review today. These include the progress of our strategic initiatives, including our investment in Tout; our second quarter financial performance; and our business outlook for the remainder of this year.

In terms of our strategic initiatives, we made important progress in the second quarter, expanding our content in distribution and building our brand strength. I'd like to reiterate this, because both these goals are perhaps our most important strategic imperatives that form the foundation of our future growth. Consistent with these objectives, we announced two new content agreements.

Under the first, we will produce and license a third hour of Raw that has already begun distribution on USA Network. Under the second, we will launch a new one-hour original series, WWE Main Event for ION Television. As a result of these agreements, we have increased the number of hours of original WWE content that will be aired in prime time on domestic televisions from four hours per week to six hours per week.

Including the nine original short-form series that we produce for YouTube, this means that during the upcoming fourth quarter, we will create and monetize at least 85 hours of original content compared to 52 hours in the fourth quarter last year. Moreover, we believe we can continue to expand our program production and based on the popularity of our brands, monetize our new program in a way that takes advantage of the growing demand for content.

In order to cultivate further the unique passion of our global fans, which underlies the value of our content, we have continued to expand our use of social media. Most recently, we entered a strategic agreement with Tout Industries, a social media technology company, which enables users to capture and share 15-second videos. Integrating fan Touts in our programming, such as the July 16 episode of Raw, set a precedent for reaching an unheralded level of fan interaction.

Our faith in the capability of content sharing technology, our knowledge of our fans' appetite to engage in this form of communication, and our ability to drive usage of the Tout platform led us to invest $5 million in the Series B financing of Tout. Immediately after making this investment, we featured fan Touts in the July 16 episode of Raw and the social media platform skyrocketed from Number 37 to Number 6 in the Free Photo & Video category of the iTunes App Store. And the Tout app was downloaded more than 30,000 times within hours of our broadcast.

Our experience demonstrates that integrating Tout in our programmings can enhance our brand in an unique way, dramatically raise the level of Tout users and perhaps potentially increased the value of our investment. During the second quarter, as we executed our broader strategy, we continued to manage some positive development in terms of our fundamental operating metrics.

Our pay-per-view business generated double-digit year-over-year revenue growth from each of the pay-per-view events in the quarter. In fact, a sterling performance of our pay-per-view operations and reduced losses from our film business offset the tough comparisons in our licensing business and our network-related investment. As a reminder, we released the video game WWE All Stars in March 2011, but that release will not be refreshed in 2012.

Driven by the improved pay-per-view performance, we generated a 5% increase in profit contribution and achieved EBITDA results essentially on par with the prior-year quarter. Excluding the impact of $1.7 million in network-related operating expenses and $3.3 million in film impairments in the second quarter of last year, adjusted EBITDAR would reflect a 7% decline of about $2 million. For a more detailed review of our performance in the quarter, let's turn to page six of our presentation, which lists the revenue and profit contribution by business 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. The strong performance of WrestleMania was somewhat offset by weak results from our international markets. In North America, revenue grew $1.7 million predominantly due to a 28% increase in the average ticket price at WrestleMania and an 8% increase in the paid attendance at that event.

The strong performance of WrestleMania was offset by our performance in international markets. These markets experienced a 7% decline in average ticket prices to $63 and a 6% decline in average attendance to 6,200 fans. These declines were due to the weak attendance at our events in Mexico and to changes in territory mix, as we held our first live event in Brazil, a market with long-term strategic importance to WWE. Average attendance at our events in Latin America declined approximately 60% to 4,200 fans while the average ticket price for these events declined approximately 15% to $45.03.

Turning to our Pay-Per-View business, revenue increased 19% or $6.4 million, reflecting a 17% increase in buys from our second quarter events. WrestleMania accounted for approximately 60% of this revenue growth with a 15% rise in buys. Revenue from our other second quarter events increased 28% reflecting a combined 20% increase in buys and a 6% increase in average revenue per buy. The latter was attributable to higher retail prices charged for viewing our events in high definition.

Each of these events generated year-over-year growth in revenue and buys with the growth in buys ranging from 14% to 26%. We believe the improved performance derived both from relatively easy comparisons to our prior year activity and from favorable advances in our Pay-Per-View operations, the latter included the continued development of our talent base and created storylines, as well as increased brand awareness that arises from our YouTube program and social media campaigns.

Revenue from the distribution of our television programming increased by 1% to $32.4 million, reflecting additional rights fees and contractual increases inherent in our global TV distribution agreements. These factors more than offset the absence of domestic rights fees from our WWE Superstars program.

During the quarter, we completed and announced two new television distribution agreements. The first agreement extends our Raw program from two to three hours and began in July 23 with the 1,000th episode of that program. Under the second agreement, we will produce and license a new one-hour original series WWE Main Event to ION Television. The new show, which will air on Wednesday night at 8 PM, will debut on October 3. ION Television is a leading US general entertainment network and since its recent launch in 2008, ION's reach has grown to 100 million households and has become one of the top 15 TV-rated US networks in record time.

In our Consumer Products segment, our licensing revenue declined by 45% or $5.4 million, primarily due to a $4.6 million reduction in video game sales with one fewer release, WWE All Stars, in the second quarter of this year. WWE All Stars was released in March 2011 and will not be refreshed in the current year. Although shipment of our franchise video game, WWE '12, increased 13% in the quarter to 221,000 units, shipments to date have declined 23% compared to that of the prior year release.

To date, royalties from the sale of video games have declined 31%. In the quarter, royalties from the sale of toys declined 12% or $0.4 million. To date, royalties from the sales of toys have declined 8%. Industry data suggests the domestic sales in the action figures category have [fallen] 10% to date in 2012.

Our home video revenue increased 4% or $0.3 million, primarily due to the recognition of minimum guarantees from our international licensing activities. Domestic home video revenue was essentially unchanged from the prior year quarter, a 9% decline in units shipped and a 3% decline in average price per unit to $12.16 were offset by improved sell-through rates primarily from prior period releases. The latter, we've used estimated returns to 39% of gross retail revenue compared to 41% in the second quarter last year.

In our magazine publishing business, revenue decreased $0.3 million, reflecting somewhat lower newsstand sales in the current quarter. Given the significant revenue decline that our magazine publishing has experienced over the last several years from over $15 million in 2008 to less than $7 million over the trailing four quarters, we have re-engineered the cost structure of this business, so that we can modestly surpass breakeven profit levels with revenue in the range of $5 million to $6 million.

In our Digital Media segment, revenue increased 26% or $1.6 million to $7.8 million, driven by increased rights fees associated with the licensing of original content to YouTube. Content provider under this new agreement included original short-form programs with tremendous popular appeals such as Backstage Fallout and WWE Inbox. Propelled by this programming, WWE's Fan Nation has become the fourth most watched channel for original content on YouTube since the launch of YouTube's original content channel strategy according to Ad Age.

Sales of merchandise on our e-commerce website, WWEShop, increased 7% or $0.2 million from the prior-year quarter. The number of orders increased by 7% to approximately 63,000 and the average revenue per order increased 4% to $48.70. Effective product merchandising and the absence of deep discounts contributed to the change in both orders and the average revenue per order as compared to the prior-year quarter.

During the quarter, WWE Studios recognized revenue of $0.6 million compared to $4.3 million in the prior-year quarter, primarily due to the relative performance and timing of releases from our movie portfolio. There were no new releases in the current-year quarter and in the prior-year quarter, we released That's What I Am.

In the second quarter last year, lower home video sales anticipated for that movie resulted in revised ultimate expectations and a $3.3 million impairment charge. Excluding the impact of that charge, film losses decreased to $0.5 million from $0.8 million.

In July, we issued a remastered DVD edition of No Holds Barred, originally a 1989 theatrical release produced by WWE starring Hulk Hogan. We are very pleased with the strong DVD sales that it has achieved in its initial weeks of release. With total cost of less than $100,000, the project is expected to generate a profit of approximately $300,000.

Additionally, over the past few months, we have completed agreements with Pathe, Fox, Lionsgate, IM Global and Troika Pictures to produce and release movies for 2013 and future years. Our first four movies scheduled for release in 2013 exemplify our revised approach to filmed entertainment. The first, The Marine; Homefront stars WWE Superstar The Miz. This is a third installment of the popular actions franchise, which has generated the two most profitable movies in our portfolio. As before, the movie will be co-produced and distributed by Fox.

The second anticipated release in 2013, Dead Man Down, is a romantic thriller starring Colin Farrell and featuring WWE Superstar Wade Barrett in supporting role. Dead Man Down has been co-produced and co-financed with IM Global and has received domestic theatrical distribution from FilmDistrict.

A subsequent 2013 release is The Hive, a thriller starring Halle Berry with WWE Superstar David Otunga in a supporting role. This film is being co-produced with Troika Pictures and will be distributed domestically by Sony Pictures Worldwide Acquisitions.

The fourth movie scheduled for release in 2013, No One Lives, is a horror film co-produced and co-financed with Pathe. The movie, which stars Luke Evans and features WWE Superstar Brodus Clay in a supporting role, was recently accepted to the opening weekend of the prestigious Toronto International Film Festival and will have several screenings as part of the Midnight Madness series, a preeminent program for horror, genre and cult cinema.

The strong content and distribution partnerships represented in each of these movies is indicative of our revised approach to filmed entertainment. It's also important to note that WWE's equity investment in each of these movies would fall within a range of $2 million to $4 million, averages approximately 40% of the average investment in our eight previous self-distributed films.

We anticipate the strength of our production and distribution partnerships. Including better deal terms will facilitate a much higher rate of return for WWE. As a reminder, the last film produced under our self-distributed model, Barricade, a thriller starring Eric McCormack will be released this September.

Overall our profit contribution increased 5% or $2.5 million reflecting better results from most of our businesses. Increased profits from the performance of our Pay-Per-View operations, reduced losses from our movie projects were partially offset by the aforementioned reduction in video game sales. These factors, as well an incremental rights fees for our online programming content contributed to an increase in gross profit margins from 38% to 40%. Excluding the impact of last year's film impairments, however, adjusted profit contribution in margins of approximately $56 million and 40% respectively were essentially flat to the prior-year quarter.

For the quarter, SG&A expenses increased 10% to $31.8 million, reflecting increased staffing cost, a $1.5 million increase due to the reset of management incentive compensation, including bonus and stock compensation, and to a lesser extent increased legal and professional fees. The rise in staffing cost was incurred primarily to support a potential network. These network-related costs reached approximately $1.7 million in the current year quarter. Excluding the impact of these costs, adjusted SG&A expenses increased 4% from the prior year quarter.

Page nine of our presentation compares the quarter-over-quarter results and provides a summary of changes by business. As shown, operating income declined 7% or $1.4 million from the prior-year quarter. The growth in profit contribution was more than offset by the rise in SG&A expenses and depreciation, with the latter predominantly derived from our investment in assets to support creation and distribution of new content through a potential network.

Excluding the impact of network-related operating expenses and prior-year film impairments, adjusted operating income declined 12% or $3 million from the prior-year quarter. Net income decreased 16% to $11.9 million due to a rise in our effective tax rate, higher realized losses from foreign exchange transactions and cost associated with our $200 million credit facility. Our effective tax rate of 36% in the current-year quarter was negatively impacted by an audit settlement in excess of the previously reserved amount.

In comparison, the effective tax rate of 32% in the prior-year quarter was positively impacted by a benefit related to the shutdown of a Canadian subsidiary. Incremental cost associated with our credit facility included the amortization of loan origination cost and a fee related to the unused portion of our revolving credit facility, which was established in the third quarter of 2011.

Page 12 of the presentation contains our balance sheet, which remains strong. On June 30, we held $170 million in cash and investments with virtually no debt.

Page 16 shows our free cash flow. Through the first six months of the year, we generated approximately $27 million in free cash flow compared to about $33 million in the prior year. The change was primarily due to an increase in capital expenditures, which offset the receipt of a $7.5 million advance from a license fee included in our net cash from operating activities.

Capital expenditures increased approximately $12 million as we invested in assets to support our emerging content distribution strategy of a potential network. We continue to believe that our content investments will yield significant returns under almost any distribution scenario and by carefully evaluating our distribution alternatives we can maximize our risk-adjusted returns.

We feel very good about the opportunities that a network offers. We are continuing to evaluate a variety of business models. While we analyze the optimum approach to distribution, we continue to develop our programming, build production infrastructure and negotiate with top cable, satellite and telco distributors. While we're pleased with our progress, we do not believe it is in the best interest of our shareholders to discuss potential launch dates, the specific business model or the range of anticipated financial outcome at this time.

Based on our earnings growth in the first half of the year and the recent positive trend in our Pay-Per-View business, we are raising our financial forecast for the full year. While developing the transformative opportunity represented by the network, we expect that our 2012 earnings measured by either EBITDA or earnings per share will be roughly 5% to 15% above our 2000 results on an as-reported basis.

As a reminder, film impairments reduced net income in the fourth quarter last year by about $8 million or $0.11 per share. As our first half earnings growth and the absence of our fourth quarter impairment account for an approximate $12 million increase in net income, reaching 5% to 15% year-over-year earnings growth implies a very tough year-over-year comparison for the upcoming third quarter.

Our third quarter forecast reflects several key components, including the reset of management incentive compensation, the ramp-up of network-related operating expenses, difficult comparisons to prior-year Home Video and Pay-Per-View profits and increased depreciation expense associated with our investment in network-related assets. As indicated in our first quarter earnings call, several of these factors also impact our anticipated growth in the upcoming fourth quarter.

In terms of free cash flow, our expectations have improved somewhat based on our first half operating performance and timing of projecting build spending. However, we continue to anticipate that our full-year 2012 free cash flow will be below our 2011 results. This forecast includes investment of $10 million to $15 million to produce future movie releases and an estimate of $30 million to $45 million in support of the network. The latter amount includes investments of $5 million to $10 million to create new programming content, approximately $20 million of capital expenditures for facilities and equipment, and $10 million to $15 million of operating expenses, as previously discussed, to provide the broader infrastructure of personnel and systems that support this initiative.

Looking ahead, we believe that by expanding our content and distribution, we can dramatically raise our earnings potential. As I described in previous quarters, this view is anchored by two fundamental premises. First, the WWE brands are among the strongest commercial brands worldwide. Regardless of the metrics that are involved, our social media statistics, the 13 million unique visitors to our website, the top ratings of our television program, the statistics will support this conclusion.

In terms of social media, which we view as a critical component of brand presence, our metrics have continued to deliver dramatic growth. Since year-end, we've managed a 15% increase in Facebook friends to 72 million and a 65% increase in Twitter followers to 28 million. In the second quarter alone, we had more than 350 million views of WWE videos on YouTube and this presence should only increase with our Tout integration.

The second fundamental premise is that the proliferation of distribution alternatives is driving up the value of content on a global scale, especially compelling content with broad appeal. Based on these factors, we have tremendous confidence that we can take advantage of our developing opportunities. As evidenced by our recent agreements with USA, ION Television and YouTube, creating new content and distributing that content in traditional and emerging platform is a natural extension of our core competencies. By executing in these areas, we can drive unprecedented earnings growth.

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

Thank you, George. John, we're ready now. You can open the line for questions.

Thank you. (Operator Instructions) Rick Ingrassia.

Thanks. Good morning everybody.

Good morning, Rick.

First of all, thanks for the increasing detail on the economics, George, on specific products and products. I think every quarter your transparency gets better and better and I think that will ultimately help the Street get behind the stock again.

Thanks.

On that point, obviously, investors are waiting for more visibility on the cable net and I know you addressed that issue. Can you maybe say just a little bit more about the range of format options and aspects of that network that you're considering?

Rich, I think we've mentioned before, I mean, the three basic models that exist are some sort of broad basic distribution, although there's obviously tiering within that. The second is some sort of pay TV format, and the third will be over-the-top and I think they all have plusses and minuses and we continue to have discussions both internally and externally on all of those. But that's all we can say at this point.

Okay, fair enough. On your Internet traffic and this quarter was quite a bit higher for Q1 than the past. Do you think you can sustain it here with the help of a social push or should we expect a little more normalization here in the back half of the year?

We've done a lot of operational back-end improvements to the site and if you've gone on recently versus a few months ago, it jumped out at you. We've done a lot of improvement in the content and we've done a lot of integration of social into the site. And frankly, we still think there's a lot of opportunity at the site. Our social has grown a lot quicker than our website and we want to close that gap by bringing up the site's growth. So our hope is that we'll continue to see growth there year-over-year.

Okay. Of course, I meant Q2, the Q2 spike, not Q1. And finally, maybe just a refresher on exactly or if you can quantify the one-time costs you expect this year related to the cable network and other growth initiatives, just so we can get a sense of what the steady-state OpEx or fixed OpEx, if you will, is going forward?

Yes, I mean we're at -- obviously at some point, we're going to describe this in its full form, which will describe both the OpEx, CapEx to support the initiative long term. For this year, what we've said is, we're going to spend around $5 million to $10 million of costs on programming to get capitalized on the balance sheet and today, we've got about $5 million, the biggest of that is for Legends' House, which is roughly 70% of that capitalized asset.

The second piece is CapEx and we've said roughly $20 million would be spent this year, most of which has already been spent. And then on an OpEx basis, we've said about $10 million to $15 million and the range of motion there is primarily on the marketing spend. We know what we think the steady-state marketing spend is for a network, how much of it gets spent this year is going to depend on launch timing. So there is some variability there.

We've spent $4 million in OpEx on the network through the first half of the year and it will be ramping up through the remainder of the year. My guess is to get to that $10 million to $15 million. We spent about $4 million. That's about another $10 million to go, so you can see it's probably a $4 million to $5 million run rate in the third and fourth quarter. But again, to be completely transparent, there is variability there depending on how much we choose to spend on marketing. What's less variable and more controllable is the staffing, technology, facilities and so on and that -- we've got pretty good handle on for the rest of the year.

And then the going-forward amount for the network for 2013 or maybe say 2014, [when -- it's then is operation for you]?

Yes, I mean I think it makes sense to put that number in context of the revenue model when we discuss that. I think to throw that number out without that, it wouldn't make a lot of sense for anyone. So when we talk about the revenue model, we'll obviously talk about the expense model and the investment model.

Okay, you got me. I'm trying to get to it one way or the other. Thanks, George.

Michael Kupinski.

Hi guys. This is Chris Ferris on for Michael Kupinski. How are you guys today?

Hey, Chris.

Hey, how are you? Quick question on Pay-Per-View, which was nice and pretty strong in the quarter. Can you talk about what drove the mix versus price? How much of it was price and how much of it was the increased number of buys? And then, you had the same number of events in the quarter. So how did you really drive that growth and how much marketing muscle that you have to put behind it?

Yes. So I'll talk about the pure economics of it, maybe Vince can touch on the creative elements of it. But on the pure economics and mix issues, I'll separate WrestleMania and then all the others and then combine them. So WrestleMania buys were up about 15% and WrestleMania ASP was up about 1% roughly. All the other events had increases of 20% on the buy number and about 6% on the ASP.

And most of the growth on the ASP was driven by shifts in home -- in high-def purchases. So our high-def pay-per-views are about a $10 of charge on them. And we've gone from roughly 27% of our buys last year, year-to-date, being HD to roughly 34% now. So about a 25% slice. So that's what drove it. When you combine WrestleMania and the other events, you see we're up about 17% in buys for the in-period events and then the ASP was up about 2%. Does it help on the mechanics?

That's very helpful. And then just what about from a marketing perspective, was there any incremental cost to getting these buys or is it just really what you just detailed there, particularly the HD?

Well, I detailed the easy stuff. I think the Creative was great. WrestleMania was amazing. And so I think that really is what drove it, the content, the talent on some of those pure marketing spend, our marketing was essentially flat year-over-year roughly for all the events. So the marketing, obviously, is a huge part of it, but it wasn't necessarily more than last year.

Got it. Thank you. And then a quick question on the attendance, down slightly. Can you talk a little bit about what's happening there and what some of the dynamics are in attendance, North America I mean?

Yes, I mean attendance is always tough just because you're in different territories quarter-over-quarter. So it's hard to make precise comparisons. I think when we peel it back, our SmackDown brand is probably a little bit behind where we'd like it to be and that's pulling down the attendance number. But we're feeling good about some of the things that we've done both on the creative side and also on the production side.

We've actually invested quite a bit to improve the production values of our live events, which are different than -- when we use that term live event, it's different than our televised events and our pay-per-views, and the production values there are amazing. But we've tried to close that gap with our pure live events. So we feel better, the numbers were higher, but right now we're viewing it as essentially status quo, no big trends up or down and some of it is territory mix, as I mentioned before.

Thank you. And then one last question. You highlighted some of the really impressive online statistics, social media metrics, particularly the YouTube views. Is there any sense and you're getting so much engagement online in social media, but is there any sense of how you're really being able to monetize that? So if I'm watching something from WWE on YouTube, is that cannibalizing your television viewership or do you view that as additive, for example?

Not, it's all enhancement, it's all additive. There is an insatiable thirst for the genre and we are the genre. So in so many different respects, whether or not it's humor, which is obviously some of the YouTube stuff, whether or not it's more of a dramatic variety shows we do on television. And adding a third hour on RAW gives us a broad audience as well and it's difficult to change your viewing habits. But nonetheless, normally someone is accustomed to tuning into RAW at 9 o'clock, it's been that way for many, many years. So the 8 o'clock hour gives us somewhat of a new audience and a broader spectrum to promote everything, pay-per-view and you name it.

And likewise from an international standpoint, if we were to capitalize on that extra hour, it is quite substantial notwithstanding the fact that we have deals already in place and much like everyone else, if you have an annual budget, you can't get that much out of on one hour yet until these deals come up to speed and open again. And again on the -- notwithstanding that the extra hour we're going to be producing for ION, that too is available for international growth on an extraordinary basis.

But again, we've got certain contracts in certain areas like the United Kingdom in which they're maxed out in terms of their budget. When those deals come up, we'll be able to capitalize substantially, what those two extra hours even on an international basis, but there's just so much demand for individual brands, as well as the overall brand in so many different directions. There's an insatiable appetite if we do our jobs well, an insatiable appetite for where we're going to go.

Thank you very much for answering the questions.

Thanks, Chris.

Brad Safalow.

Hi. Thanks for taking my questions. First question, what is your percentage of ownership in Tout?

We haven't disclosed that. We've just disclosed the investment amount.

Okay, so that's not even going to appear in your Q?

No, not the percentage.

Okay. And then I just want to clarify something on the film side, you said $10 million to $15 million. I just want to make clear, is that for the rest of the year, for second half 2012 or is that for the full year?

Yes, I could have been clearer. Our guidance at the beginning of the year was $15 million to $25 million and we reset it to $10 million to $15 million for the full year.

Okay.

The other thing I'll say on the talent investment, one of the things that is in the Q is that we will be accounting for using the cost method, which implies some level of ownership.

Okay. Just on the $10 million to $15 million, is that just a timing issue and some of the spend will go into 2013 or is there just a change in your overall investment in the slate?

I mean we'll give guidance, obviously, for 2013 and there are two elements to any amount of the spend, some of it is spent to produce now and some of it is spend that essentially we're committing to later. So when I'm talking about the $10 million to $15 million, that's actually cash this year that will go towards film investment. When we started the year at $15 million to $25 million, that was our goal, filling the pipeline with projects that we think have the creative potential, the brand enhancement potential and the financial return that we're looking for. It ended up that we now think $10 million to $15 million for this year.

Okay. And then just going back to the great progress on the social media side, outside of looking at your Facebook fans and your Twitter followers, where do you expect to see the most immediate impact on your business?

Look, I mean at the end, WWE has always been about this great content and promoting it and social media is just the next generation of how you interact with fans. So in a lot of ways we've been social for 20 years. I mean if you go to any of our shows you'd see the social element to the way our fans interact with our content. This is the new generation of that.

So it's sometimes hard to draw the direct line. Obviously, you can talk about monetizing eyeballs and so on and there will be some of that, I believe, as we go forward. But I think the bigger win is just enhancing the brand and engaging with our audience and then that ripples through everything. So unfortunately, it's not a neat (inaudible) where you need direct line. I think it's actually second order benefits for the most part. There'll be some of that direct, but my view is this, it's more about driving the brand's awareness.

In terms of engagement, I think 60% to 70% of your social media followers are overseas. Are you seeing any enhancement in the ratings across -- there's so many markets there and at this point, do you see any benefit there yet or is that something that we should even think about?

Well, we think about it. I think rating is international and as you probably know, here in the US we've got a nice structured approach to measuring television ratings and even online, getting some level of data. Internationally it's different. So we can get ratings from our top 20 markets, different formats, so on and so forth. It's hard to see that there's been a direct correlation on the ratings, but what's not hard to see is the engagement that Vince mentioned, and it's on a global level.

And even when you just take the Tout investment, now that it's a global platform given that it's on iOS and Android and so on, but all those numbers that we talked about were on a global level. And so we believe one of the reasons we made the investment is we thought we could grow the global profile of Tout. So their technology can help us and we can help them and we said we want to share in some of that potential upside. So the same answer to your first question is we're seeing engagement broadly, it's hard to draw direct lines off.

Okay. And then any update on Superstars or NXT?

Well, Superstars and NXT continue to be produced and monetized internationally. NXT has had a fairly fundamental change in how it's produced. It used to be produced at our television production on Mondays and Tuesdays. It's now been moved down to Orlando, Florida in a partnership with Full Sail University, which is a university that specializes in developing talented professionals in digital and [positional] media. So we're actually filming the shows. They are at a stage that they have and it's been going real well and the show looks great. We're getting to get a lot of good young talent to work on the show and I think Full Sail is benefiting from having their students work on one of the best produced shows on TV.

Okay. So in terms of distribution now, no expectation for a timing?

Domestically, Superstars and NXT are not licensed. They're continuing to be licensed internationally and that may change going

forward, but that's what we are right now.

And then last question on the network. Obviously, a lot of the stock price and actually at least as far as I can tell is based only on the uncertainties surrounding the network. I know you guys appreciate that and are probably incredibly frustrated as every shareholder probably is. What can you tell us more at least about what the programming slate looks like? I mean we know how you're reconstituting a lot of older content and kind of refreshing it, and you've talked a little bit about that. We know about Legend's House, but we really don't know anything else, but I think that's part of the reason why people are so concerned about your spend relative to the potential economic opportunity?

Yes, I mean the slate obviously for it to be the level of transformation that we want, it's got to be compelling and we think we have some compelling content. We talked about some of it. You mentioned Legend's House. Our guess or our plan is that there will be some element of live programming on the network, as well as -- when it's described as reconstituting some of our library, I think it doesn't do a justice. Obviously, we do have a massive library and we own 100% of that IP. We've digitized about 30,000 hours, but we're creating fresh new content around that.

So, for example, one of the kind of coolest time periods in WWE's history was the real life battle between WWE and WCW back in the 1990s and business battles between Vince McMahon and Ted Turner. We've developed a really compelling series around that called the Monday Night Wars. My guess will be on the WWE network and it's programming like that, real original compelling content that will be on there. There are some other things that -- we can't talk about all of it, but our goal is to make the WWE network an absolute must-have for our fans.

Okay. I mean I'll just say this as a shareholder, you guys need to say more than you have, it's frustrating to watch the stock. And I think you can do better for shareholders in your communications. I understand there's -- about the distribution, I can understand your sensitivity there, but at least helping us to understand what the content will look like would at least -- I think some people comfort as to why this is a good investment for the Company?

I'm quite confident that in the next earnings call, we'll have a lot more clarity for you.

All right, I appreciate it. Thanks.

Robert Ralph.

Yes, thanks for taking my questions. I have a couple of quick ones. You just mentioned, obviously, the library, how much have you digitized. Could you give us a sense as to how big the library is now, I mean obviously it's not on the balance sheet or anything, so it's a hidden asset. And given you are going to do something on the network side, are we going to see an increase per year in the amount of hours of [per-view] programming that you plan to create above and beyond what you currently do now with the live events every week?

So I'm not sure I understood the second part. The first part, first question on the library, it's about 100,000 hours in total and we've digitized about 30,000 hours. And I'm not sure I understood the second question.

As far as -- once you do something on the network side, do you plan to increase the number of hours of original programming that you as WWE are going to produce every year or your annual spend or is it going to be relatively similar to hours as been in the past?

Well, we're going to produce the amount of content that we think makes sense economically. I mean Vince talked about it before, and the data supports it. When we've had more hours of television programming domestically, our unduplicated number of viewers has grown. So the [content uploads] one cannibalizing the other. We haven't seen that in the data. So we think the best way to grow the brand and also to grow our economics is to get compelling content on the air in both traditional formats and new formats, including the network. Exactly, how many hours, I think that's something that we'll talk about as we move forward. But we're bullish on the value of content long term.

Okay, great. And then as a follow-up to kind of that answer, obviously a few quarters back you changed the name of the company to WWE, not World Wrestling Entertainment, as the goal was to more than just a wrestling company, but a fully integrated diversified media company. And obviously, you made some great strides there, obviously WWE Studios a few years ago got you into a different line of business, but since then there really hasn't been anything else other than wrestling, I think, an investor could see.

I wondered if you can just kind of [quantificate] in terms of what other opportunities you see that you can take the brand and the infrastructure that you created and you own all of and where the opportunities lies with other areas to make WWE more of a diversified media company as opposed to what people today view as predominantly a wrestling company?

Well, obviously, film has been a project for us and we think we finally have the correct formula with that, that makes us somewhat different there. Our company is so flexible and so manageable that there is no form of entertainment that we cannot

quite frankly reach. From a media standpoint, we do even more than Disney, because Disney got to do pay-per-view. We go everywhere. Whether or not it's social media, whether or not it's the DVD business, no matter what it is, the magazine business, we're into everything. And it gives us a platform to be able to spend things up, much like Legend's House, which is a reality show. We did Tough Enough, which was a reality show in USA, which did extremely well in the ratings. So [it stays full] -- we have our overall brands and then you have quite frankly individual brands that are part of it, John Cena brand.

There are many things like that in terms of capitalizing on the individual brands on a national and an international basis. So we are rich in terms of the things we can do. When you look at what we do now on Monday nights and on Friday nights it's a variety show. There is nothing like it in the world, sure there is wrestling in the ring, but it's a variety show to be able to expand some of that variety in terms of drama, in terms of I'll call it comedy, it's more of a humor and music and things like that, we do it all. It's just an expansion of some of the elements we have in variety show every Monday and Friday.

Okay, great. Because I think a lot of things I realized, what you do in the different business lines, it could be leverage with other partners or internally and obviously (inaudible) stock price for that as of yet. And finally, just last question, given the stock price and given the free cash that you have, and obviously increasing guidance you mentioned today, how do think the investment community should value the Company? Do you think the multiple of free cash flow makes more sense, earnings makes more sense, the enterprise value to OEBITDA, what do you think maybe the best way would be to capture the true value of WWE is for the investment community?

Yes, I think models on expected cash flow are the best fundamental measure of the business. I think the stock price today reflects a couple of things and Vince has touched on and I think we had -- one of the folks before mentioned it. I think you have the earnings that we hadn't last year and obviously, primarily driven by the film impairments. So that brought us from a $95 million, which was our all-time high in 2010 to the low-50s in EBITDA. I think that looks fairly jarring for all of us.

And then I think the overhang on films and lack of knowledge on the network are making people uncomfortable and I think we have to show on the former that we can execute. We feel great. I talked about it. Vince talked about it a little bit earlier on the partnerships that we have, the content, (inaudible) and that thing, how we're managing the risk, fundamentally different than what we did with the self-distributed models. So we feel good about that, but we also know we got to deliver and we got to show people we can deliver.

And then on the network, I think it's a slightly different band, I think it's more laying out the full business model, which we'd love to right now, but we think it makes sense to hold back a little bit and then delivering on that. So my view is you value the Company on its expected cash flow and I think once we get those things that I mentioned behind us, I think investors are going to feel good about where the Company is and where it's going.

Great. Thank you very much.

Jamie Clement.

Good morning, gentlemen.

Hi, Jamie.

Vince, I was wondering if I can ask you a question on the creative front. It seems to me and please correct me if I'm wrong, it seems like RAW and some of your pay-per-views have gotten a little bit edgier again from a content perspective. I know PG is important to you, but has there been an intentional move to kind of bring back some of the double en-tundras and that kind of thing back from the Monday Night Wars days and those sorts of things? I know Val Venis may not be coming back anytime soon, but you understand what I'm asking, right?

I do and I think that it is an [evolvement]. I think that the writing of the shows is -- they're just considerably better. There are subject matters in which -- actually there's no subject matter that we really can't touch upon these days, but do it in a more sophisticated acceptable PG manner. When you look at what PG means, I think we have been more on the G side than the P side. So there is an expansion to remain PG on quest. They've opened up so many doors in such a broader platform for us on a national and international basis, but within that environment, you can stretch certain segments and things of that nature without going all the way back to TV-14.

Right. Do you feel like you've been doing a better job on the P front maybe in recent months than you have -- do you think maybe you took it too far to the G level on Monday nights?

I would say that's pretty fair.

Okay, all right, thanks very much. I appreciate that.

I believe that's kind of our last question. Is that correct, John?

Yes, it is. I'll turn it back over to you for any closing remarks.

Thank you everybody. We appreciate you listening to the call today. If you have any questions, please don't hesitate to reach

out to us. Thank you.

Thanks.

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