TKO Group Holdings Inc (TKO) 2015 Q4 法說會逐字稿

Hello and welcome to the WWE fourth-quarter earnings call.

We have just a few announcements before we begin.

Please download the full slides via the download presentation tab at the bottom of the webcast screen.

Also at the bottom of the screen you will find a help icon for technical assistance, an enlarged slide button, and you may ask a question anytime by typing your question into the question box located at the web interface and clicking submit.

(Operator Instructions)

As a reminder, today's call is being recorded.

I will now turn the call over to Michael Weitz, SVP Financial Planning and Investor Relations.

Please go ahead Michael.

Thank you and good morning everyone.

Welcome to our fourth-quarter earnings conference call.

Leading today's discussion are Vince McMahon, our Chairman and CEO, and George Barrios, our Chief Strategy and Financial Officer.

We issued our earnings release earlier this morning and have posted the release, our earnings presentation and other supporting materials on our website at Ir.corporate.wwe.com.

Today's discussion will include forward-looking statements.

These forward-looking statements reflect our current views, are based on various assumptions, and are subject to risks and uncertainties disclosed in our SEC filings.

Actual results may differ materially and undue reliance should not be placed on them.

Additionally, the matters we will be discussing today may include non-GAAP financial measures.

Reconciliation of non-GAAP to GAAP information is set forth in our earnings release and presentation which are available on our website.

Finally as a reminder, today's conference call is being recorded and the replay will be available on our website later today.

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

Good morning everyone.

As you all know we achieved revenue of $659 million for the year, representing the highest actually in our entire history, and a record performance across our businesses.

International revenue increased 46%, which we're pretty proud of.

As far as content is concerned, consumed on YouTube, we more than doubled that to, and I don't use much hyperbole in these settings as opposed to promotional, but it really is a monumental eight billion views, making us the number one sports channel on YouTube and one of these days the number one channel across the board.

Social media engagements likewise increased substantially, 50%, to 790 million which is the sixth most social brand in the world.

Combine that with the digital strategy, it's one huge awesome ecosystem for us, as well as television ratings and all combined.

Our network, WWE Network, had nearly 1.3 million total subscribers at year-end, that's a 56% increase year-over-year.

Our network was recently made available in the Indian subcontinent, Germany, Australia, Switzerland, and Japan.

We debuted on the network about 85 hours of new content during the quarter.

With any number of shows, Breaking Ground, NXT Takeover, From London, and many shows like that.

Interesting that our subscribers consumed the 188 hours of content in 2015, more than every cable network, so our audience obviously enjoys the network.

We're excited about the new content coming to the network as well.

One title is An Edge and Christian Show That Totally Reeks of Awesomeness.

Camp WWE going to be awesome [in assets], our March to WrestleMania is good, and in general we're thrilled with our 2015 performance, although some investors apparently are not, based on where we are valuation wise.

Nonetheless we're thrilled with it and proud at the moment.

Mike?

Thanks, Vince.

Several key topics which I'd like to review today, these include discussion of our financial performance, the progress of strategic initiatives, and our business outlook.

As we entered 2015, we communicated an overarching long-term objective to increase the monetization of our video content across multiple platforms.

Our strong financial performance throughout the past year demonstrates the successful execution of that strategy.

As Vince mentioned, we generated revenue of $659 million, representing the highest annual revenue in the company's history, with record revenue from a majority of our business segments.

Network, television, live events, venue merchandise, WWE shop.

Additionally, our international revenues reached a record high of $170 million.

While the significant increase in revenue was driven by the growth of WWE Network, and the realization of higher television rights fees, our revenue and earnings growth also reflected continued innovation across all of our segments.

In our view, our financial results demonstrate how we're successfully transforming our business model and capitalizing on the strengths of our brand, our diverse products, and our global audience.

I would like to highlight some of our achievements, which are listed on page 4 of the presentation.

During the year, we enhanced our talent development, evolving our developmental system NXT, into a recognized global brand.

We enhanced our television distribution, completing new agreements in Singapore, Italy, Germany, Switzerland, and Austria.

And in the US, we recently transitioned SmackDown to USA Network.

Since it has moved to USA, SmackDown has generated ratings 15% higher than the programming that was in its place at the same time last year.

We also entered new markets for our live events, such as Warsaw, Poland; Budapest, Hungary; and Jeddah, Saudi Arabia.

In North America, we managed a 9% increase in average effective ticket prices for our live events, which contributed to a $10 million increase in the profitability of our event operations.

Among our consumer products, we maintained a dominant position, with the third-highest selling action figure property in the US.

And we extended our presence in the interactive gaming sector, beyond the ring and beyond the console, with more than 23 million downloads of our mobile games WWE SuperCard and WWE Immortals.

We also developed deeper partnerships with blue chip companies such as Coca-Cola and General Mills.

37 new advertisers were secured for WWE programming following NBCUniversal's Upfront.

And these were just a few examples of the extraordinary achievements of the WWE team.

Moreover, we accomplished these feats while successfully executing our most important initiative, growing WWE network.

Moving to page 5. In 2015, the network segment generated revenue of $159 million, nearly double the average revenue of our legacy pay-per-view business in the five years before network launch.

It is approximately 70% more than the highest annual revenue in the history of that business.

The growth of WWE network has demonstrated our ability to transform a legacy transactional business into a global, direct to consumer subscription business with high growth potential.

At quarter end, WWE network had nearly 1.3 million total subscribers, representing an increase of 56% from the fourth-quarter 2014.

During the quarter we prepared more than 85 hours of original content on WWE network, increased the network's comprehensive on-demand library to more than 4,300 hours, and continued to broaden its global distribution.

We recently made the network available across the Indian subcontinent, Germany, Austria, Switzerland, and Japan.

We continue to work on launch plans for our three remaining markets: China, Thailand, and the Philippines.

At quarter end, WWE Network had approximately 277,000 paid international subscribers, representing 23% of paid subscribers worldwide.

Recognizing its successful growth, WWE Network was identified by Parks Associates as the fifth-largest direct-to-consumer subscription service in the US, ranking alongside Netflix, Amazon, Hulu, and MLB.

TV.

Importantly, the network's content continues to drive viewer engagement.

Over the 2015 year, WWE networks and subscribers watched the total of 256 million hours of content, representing an average of 188 hours per household.

As shown on page 6 of our presentation, this puts WWE network among the top cable and broadcast networks in terms of viewer hours per household, ranking behind only the broadcast networks of CBS, Univision, ABC, and NBC.

In 2016, we expect to add more than 300 hours of original content to the network's featured programming, and more than 1,000 hours of our title content to the network's VOD library.

New original content coming into the network includes the live special, March to WrestleMania on March 12, building anticipation in advance of the premier event, WrestleMania on April 3.

Other highly awaited shows include the animated series Camp WWE, An Edge and Christian Show That Totally Reeks of Awesomeness, a comedic variety show featuring its titled superstars, and of course the network will also deliver new seasons or new episodes of highly successful programs such as Swerved, WWE 24, and Stone Cold Podcast.

We believe our content-focused strategy for attracting and retaining subscribers will facilitate the expansion of WWE Network and provide a global platform for driving growth.

To review our performance in the quarter, let's turn to page 7 of our presentation, which shows our overall revenue and adjusted OIBDA contribution as compared to the prior-year quarter.

As shown, revenue increased across our businesses, generating overall growth of 18% to over $166 million.

Adverse changes in foreign exchange rates reduced revenue by about $2 million but did not have a material impact on our reported profit.

Our fourth-quarter results included a $7.1 million non-cash abandonment charge to write off the valued cost related to a media center expansion project which were incurred several years ago.

We have excluded this non-cash item from our adjusted results.

For the quarter, adjusted OIBDA increased approximately $6 million, driven by the increased monetization of our network, television and digital content, and reflected in our media division.

Moving to page 8, network segment OIBDA increased $8.2 million reflecting strong growth in subscription revenue to $37.2 million as the network's customer base increased 72%, to an average of 1.237 million paid subscribers.

Profits from the licensing of television content increased $4.4 million, primarily due to contractual increases associated with key distribution agreements, the largest of which became effective in the fourth-quarter 2014 and the first quarter of 2015.

The increase in revenue was partially offset by the timing of Total Divas, which aired six fewer episodes during the fourth-quarter 2015 that in the prior-year quarter.

These episodes did not have a material impact on television profits in the prior-year quarter.

Profits from digital media increased $2.6 million, primarily due to increased advertising revenue, which of course reinforces our view regarding the importance of social and digital platforms.

Shown on page 9, live event profits increased $2.7 million from the performance of our events globally and also reflected the addition of an NXT tour in the UK.

The latter marked the first year in which NXT, our showcase for developmental talent, performed outside the US.

At our events in North America, we achieved a 9% increase in average attendance while managing a 13% increase in the average effective ticket price.

Reduced profits from home entertainment and increased corporate and other expenses partially offset our overall anticipated OIBDA growth.

Changes in other areas of our business were largely offsetting and as such did not have a material impact on our overall results.

The reduction in the home entertainment profits resulted from a decline in revenue attributable to a 34% in effective prices and the recognition of a $2.1 million guarantee in the prior year quarter associated with 2014 sales.

Corporate and other expenses increased to nearly $53 million.

This includes the non-cash abandonment charge of $7.1 million as described earlier.

Excluding this non-cash item, the $7.1 million increase in corporate and other expenses was primarily due to a $4.1 million increase in accrued management incentive compensation, based on the Company's performance.

Our fourth-quarter results contributed to full-year adjusted OIBDA of $68.7 million, a growth of $80.3 million from 2014, driven primarily by the revenue growth that we just described.

Page 10 of the presentation shows selected elements of our capital structure.

As of December 31, 2015, WWE held just over $100 million in cash and short-term investments.

We estimate that WWE has approximately $200 million in debt capacity under the Company's revolving credit facility.

In terms of free cash flow, we generated $30 million in cash flow in 2015, representing an approximately $13 million decrease from the prior year.

The decrease was primarily due to a $50 million advance in the prior year, related to the renewal of our domestic television agreement.

The resulting decline in free cash flow was partially offset by improved operating performance and decreased spending on film production assets.

Excluding the impact of the advance, net cash provided by operating activities increased approximately $45 million from 2014.

As we look forward, our financial results over the past year demonstrate how we've initiated a transformation in our business model while driving innovation across our product lines.

That innovation capitalized on the power of our brands, which as indicated by our key metrics, have continued to build upon their remarkable strengths.

In 2015 consumption of WWE content across YouTube, Facebook, and WWE.com increased 120% to more than 9.9 billion views, with more than 8 billion views on YouTube.

WWE was the most followed sports channel on YouTube and the second most followed sports brand on all of Facebook.

WWE's fan interaction on social media increased 50% to 790 million engagements as measured by likes, comments, shares, and retweets.

WWE was the most influential sports brand on Twitter and ranked as the sixth most social brand worldwide, along with Disney, Time Warner, and Google.

Regarding our expected Q1 performance for this quarter we project average paid subscribers of approximately 1.280 million with a range of plus or minus 2%.

This would represent an approximate year-over-year increase of 38% in average paid subscribers.

As a reminder, WrestleMania will occur on April 3 within the second quarter of this year, as compared to last year's event, which occurred within the first quarter.

Given that timing, the most significant subscriber additions within the quarter are expected to occur toward the latter part of March.

It's not expected to have a significant impact on our first-quarter subscriber average or our first-quarter financial results.

We also estimate first-quarter 2016 adjusted OIBDA of approximately $15 million to $19 million.

The range of projected first-quarter results reflects a year-over-year decline, primarily due to the timing of WrestleMania and related event ticket sales, as these events all grossed approximately $15 million last year.

It also reflects an increase in accrued management incentive compensation.

Although we're not providing an estimate of quarter ended subscribers for the first quarter at this time, we will communicate an update on network subscriber levels on April 4, the day after WrestleMania.

Over the past few years, we've placed increasing strategic emphasis on optimizing the value of our video content, developing digital technology platforms and expanding our global presence.

Execution on these initiatives has been very, very strong.

From 2010 to 2015, as shown on page 13 of our presentation, revenue from the monetization of WWE content has increased at an average annual rate of 10% and now comprises 65% of our total revenue.

Similarly, revenue generated on digital platforms has increased at an average rate of 46% and now comprises approximately 30% of our revenue as compared to 6% back in 2010.

And during that time, our international revenue has increased approximately 26%.

The growth that we've managed in each of these areas reinforces the potential we see from continuing investments in content, technology and digital infrastructure, and emerging markets.

You should know that these investment decisions have always been made through the prism of driving long-term growth and shareholder value.

We believe that based on the unique power of our brands, we are well positioned to capitalize on a global multi-platform content strategy and optimize these outcomes.

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

Thank you, George.

Ashley, we're ready, please open the lines for questions.

(Operator Instructions)

Brandon Ross, BTIG.

Thanks for the question.

In the quarter you added, what, 85 hours of original programming but lost about 50,000 subs in the US.

Can you talk to the engagement around that original programming and the role you believe it is playing in attracting and retaining subs?

And then secondly, as far as potential bundling is concerned do you see opportunities for bundling the network with other OTT services.

Not just Hulu or what Amazon is doing, but maybe with other more niche OTT offerings like the MLBAM properties or Crunchyroll or stuff like that?

Thanks.

Sure.

I think the first thing on the engagement, the metric that's real important to us, is how much consumption we have on the network.

So that was 188 hours that we averaged, that Vince mentioned.

And it's been strong all year.

As it gets to specific programming, obviously we look at how each show does in terms of engagement.

We know that different subscribers enjoy different shows, and we want to entertain and engage them all.

But so far we've been really, really happy with our original programming.

As far as the bundling, Brandon, I think it's still early days.

You mentioned a couple of the examples that have cropped up.

But we have discussions all the time with the players you mentioned, both some of the big players as well as some of the more niche players that you referenced.

So we're obviously open to all ideas as long as they make sense for our audience, for our shareholders.

So we'll continue that dialogue but nothing to announce.

Great, thank you.

Eric Katz, Wells Fargo.

Good morning guys.

I just want to clear up the OIBDA guide for Q1.

Looks like it's $15 million to $19 million, and the Street seems to be a bit higher, maybe close to double that.

And I know you mentioned there's a timing of WrestleMania and related event ticket sales that may be shifting?

I just wanted to clarify that maybe we're not capturing, that $15 million is actually in Q2 rather than Q1?

And also, is there incremental investments that you have mentioned before for tech, and the infrastructure buildout in India and China may be in there as well.

Maybe it's front weighted in the first half of the year?

I wouldn't say it's front weighted but I do think you start -- the compares are tougher because some of those investments started towards the latter half of 2015, so the compares get easier on the expense side versus the first half of the year.

So that's one element.

But the reason we obviously called out the timing of WrestleMania and the impact is to remind everyone so that they can adjust accordingly.

Okay, and then secondly, I know you guys had the Royal Rumble earlier in the quarter.

Is there any update you can give there, what kind of retention you are seeing or any qualitative comments?

I don't want to get into specific numbers but we came out of the fourth quarter at [1217].

We are guiding average paid at [1280] for Q1 so obviously we're expecting pretty good growth in the quarter and obviously some of that is informed by the fact we're 40% through the first quarter so we've got those results.

So we feel good about where we are which is why we felt comfortable giving the guidance we're giving for that type of growth.

Okay, and a last question for Vince.

WrestleMania, you guys have a lot of talent injured right now, I'm just curious how you plug the holes in the roster to make it a stronger event?

Thank you.

By being creative.

We'll have an awesome WrestleMania and it will be very attractive to our audience, just as attractive as last year's.

Thank you.

Laura Martin, Needham.

Vince, I want to start with you on this content.

When you look at the 85 hours of original content, can you remind us of the building blocks of how much of that is series that will then continue into subsequent quarters, and how much is events where when you're saying you're going to do 300 hours of original, you actually are starting over from scratch with a clean sheet of paper?

Which I think is harder than just continuing a series where you already have the original content, a lot of the themes established, like in this year's fourth quarter.

Can you remind us of that?

Laura, if you think about the 300 hours there's a big block of the pay-per-views, obviously, that's around 40, NXT does about 60.

We do some other interim shows and live pre-shows before Raw, so we will do a show called Superstars On the Network, live pre-shows, that's about 100.

And then you're left with some of those series like Swerved or Camp WWE and that's in the 30 to 50 range.

So that's basically how the buckets work.

Okay, so that 30 to 50, if I'm looking at Vince's slide where he's talking about Breaking Ground, live from Madison Square Garden, and NXT Takeover London, that 35 to 50 is like half of those 85 hours that Vince referred to in the slide, do I have that right?

Roughly, yes -- not half of the 85, half of the 300.

The 85 is one quarter, so I'm talking about the full-year.

Okay, not half the 85.

I see.

All right, fair enough.

Okay, and then from you, George, I was interested in India.

You guys launched on November 3, and I was just wondering what the actual sub number was in India, in the end.

What impact did it have?

We're not going to talk about specific sub levels, but as we mentioned before, we view India over the long-term.

Today, an OTT service at [9.99].

The pay-per-views are not [day and dated] in India because of our current partner deal that we have there.

So for us, launching the network in India was more about the long-term.

Okay, and then Snapchat.

So we've gotten a couple big announcements during the earnings season, of sort of traditional media companies doing deals with Snapchat Discover?

And given how important social is to you guys, and the revenue coming out of social and the marketing platform it provides, are you talking to other platforms other than YouTube about extending the WWE brand to competitive social platforms?

So look, I don't want to pat us on the back too much, Laura, but when you have the numbers that we have, not just on YouTube, but on Facebook.

We are the sixth most social brand in the world and I think the top four or five are Disney, Time Warner, Google, Viacom.

Any product that anyone is using, whether it's on Snapchat, Twitter, Facebook, or YouTube, they call us because we're dominant on all of them.

The answer to your question is a simple yes.

If there's a social platform out there and it's video focused we're one of the first folks they call.

Thank you very much.

Dan Moore, CJS Securities.

Good morning, this is actually Lee Jagoda for Dan Moore.

Hi, Lee.

First question relates to the number of subscribers you would estimate that you added last year for WrestleMania specifically, and what factors might cause that to be higher or lower this time around?

Obviously, as you know, we hit our high point of 1.3 million subscribers and obviously, that drove a lot of the year-over-year growth throughout the year so it's a unique event for us.

We expect it again to drive significant growth.

We're not going to talk about what that number is.

We don't have a lot of data points yet for WrestleMania, only two, but we are expecting some significant growth again.

And I know you are reluctant to talk about subscribers going forward but if I look backwards, what portion of the 1217 total subs at the end of Q4 were subscribers that paid for WrestleMania a year ago?

We're not going to get into that level of detail but I think if you just look at the numbers we were able to consolidate quite a few subscribers from that inflow from WrestleMania.

It's what drove the year-over-year growth but we're not going to get into that level of detail.

Sure.

One more for me and I will hop back in the queue.

Can you describe some of the more recent incentives and promotions you are using to drive new subscribers?

Is the one month free still effective, are there other incentives you might be using or ones that are being considered?

Well, as Vince mentioned, a lot of the quote-unquote incentive is around the creative and messaging to our fans, both prospective fans and current subscribers, or those that might be inactive, about the great content on the network.

As far as quote-unquote pricing or packaging promotions, the only thing we do is the one month free and obviously we've kept it in effect so from our perspective it's working.

Okay, thanks very much.

Jamie Clement, Macquarie.

Good morning.

Hey, Jamie.

George, are you noticing any real strong correlation week in, week out between your television ratings and network subs, or on the flip side, churn?

I wouldn't say kind of a granular correlation, I think, but when you look at us for us it's an ecosystem of content.

It's on TV every week, we're on SmackDown, it's 24/7 social digital, and then you go really, really deep on the network and that 188-hour average, which to us is stunning.

There is a correlation; when everything is working it works well together but not at the granular level of one week's rating has an impact on that week's churn.

That level, that we don't see.

Okay, and George, with respect to the abandonment charge of $7.1 million.

I was a little bit puzzled by some of the language in the press release.

Is the idea of doing a major project with respect to television production, that kind of thing, is that back on the table now?

So, in essence, Jamie, as you remember going back a ways, I think it was 2008.

We had announced we were looking at a media center because we had outgrown our current production.

We ended up hitting the financial crisis and at that point we pulled back.

We didn't think it was the right time.

Through the ensuing years, we'd always thought at some point we've got to deal with the space issue in some way, shape, or form.

And those plans would be useful if and when we decided a media center was the right solution.

What started happening here over the last couple of years is a real fundamental change in the operations, primarily driven by scale of the network.

And now after two years of operating it, what we've decided is if we were ever to do a media center, those plans probably are no longer relevant.

But we don't have any plans right now, Jamie, to do a media center, certainly not in 2016.

Okay, very good, thank you very much.

Mike Hickey, The Benchmark Company.

Hey guys, nice quarter.

Thanks for taking my questions.

Curious on your TV ratings, I think it's four straight quarters now, of year-over-year declines in ratings and looks like Q4 is pretty significant.

Always considered your TV business as your lifeblood, so just curious how we should think about the ratings reductions and what implications it may have for you over the immediate to long term?

Thank you, and I have a follow-up.

As far as ratings are concerned, our are down, but not as much as the networks in general that we're on.

I think you can see a decline in a lot of the networks in general because people are not watching television as much as in some capacity as online, or things of that nature.

George mentioned the ecosystem.

It's extremely important for us to be able to do television as well as -- television is sort of the old media, and not that it is not important to us, it's extremely important.

But when you add in all the YouTube, you add in all the digital you add in all the social, our audiences is consuming our product in the way they want to and when they want to.

And that's important for us to be able to do that, so it's not just about television ratings anymore.

We're not Philippe Dumond.

We're not looking at it that way, in old-school, we're looking at a from the standpoint of a total ecosystem, which as you can see is extremely strong for us.

So it's not just about television ratings, which we used to, before new media, used to live and die by.

Fair enough.

Thanks, Vince.

Also sort of curious on, if you could update us or remind us your OIBDA view for 2016.

I know that it is just a hypothetical exercise, George, before, but now with the global economic uncertainty as a more relevant consideration now for a lot of companies, how you're thinking about that?

And also how your business has trended historically in recessionary environments?

We're not going to give any full-year guidance and don't feel the need to update what you referred to as the hypothetical that we talked about last year.

So we feel comfortable that that hypothetical is a good indication of where the business would be at that level of sub growth.

In recessionary environments, I think when you look back historically, which we have done, it depends on the level of employment impact.

So if you looked at the 2000 recession, which had very limited employment impact, WWE had very limited economic impact.

I think when you saw the 2008 through 2009 or 2010 it was a little bit more of an impact for us, given the employment.

So I think it's the quote-unquote nature of the recession and the depth of it, but we've done, I would describe [it to have been] fairly recession resistant generally speaking, but certainly we're not immune to something significant if it would impact the jobs front.

Thanks, George.

Best of luck guys.

Thanks.

Brad Safalow, PAA Research.

Thanks for taking my questions.

Just a couple quick ones, then a more thematic question.

First, can you disclose what the NXT revenues were for the year?

Just want to understand how significant that business has become, I know it's small but maybe it contributed as much as a percent of revenue growth for the year.

Can you give us some color on that?

No.

We are not going to talk about kind of specific product lines.

Obviously, we give a lot of visibility to a lot of revenue streams.

What we're really thrilled about is the engagement we've seen, both at the live event, on the network, and have a great social presence too.

It trends globally on Twitter during 2015 for NXT.

So we are really psyched about it but not going to get into the revenue numbers.

All right.

Outside of that, can you at least speak to live events for NXT, let's say outside of wholesale and what that might be for 2016?

Were going to continue to expand them.

I mentioned on the prepared remarks that we've now for the first time ever went outside the US.

So we did something in Japan in the middle of the year and then we did a small tour in the UK in December.

So we're going to continue to push that forward.

We're excited about it.

Okay, and then just on the international sub size for the network, obviously you had some significant launches.

Can you at least speak to what are the top five countries in terms of subscribers?

I think I have a sense for it but I would be curious if you could provide that detail?

For us the UK was a terrific market, if you remember last January when we launched in the UK that drove a good increase.

Got a good sub levels in Canada.

Outside of that, I'll say we've got in the top 10, a nice mix of countries for us.

Okay, and then what's the budget for investment in TV production and film this year?

From a guidance standpoint, we are not going to talk about any free cash flow guidance for the full year.

We've given the quarter guidance.

As we progress through the year, we will be able to give a little bit more visibility, obviously for the full year.

But we'll do more seasons of Divas in 2016, so that will show up on the balance sheet but it gets amortized fairly quickly and similarly on the TV productions, those get amortized fairly quickly as well for the most part.

Okay, and then Vince, your comments you just made, obviously you guys have had phenomenal success on YouTube.

I think you're at 9.7 million subs, that's up from I think 6 million just a year ago and you were talking to the consumption patterns, obviously, have changed.

Someone can go and watch a significant percentage of the content on Raw, in a consolidated manner.

One of the questions I have is, how would you describe the tension between NBCUniversal and what they are paying you for Raw and SmackDown and what you are providing to Google and/or YouTube and obviously there's a huge gap from a monetary perspective.

How do you see that playing out over the next couple of years and what kind of leverage can you exert on your digital distribution partners?

I think again, it's a combination of valuation.

I think one thing from an NBC U standpoint, it's generally speaking, we're live programming and that has tremendous value.

So I think going forward, we are going to be even more valuable to NBC U in terms of Raw SmackDown or whatever we do.

And it goes back into that whole huge ecosystem and I think, again just based on sheer volume alone and sheer popularity, we are poised to take advantage in that, not just in terms of promotion but from a financial standpoint.

So I think as we continue on, we're going to be more and more valuable to everybody.

Okay, it will be interesting.

Thank you.

It sure will.

(Operator Instructions)

Robert Routh, FBN Securities Inc.

Good morning and good quarter.

Quick question, as far as the on-demand programming.

You mentioned you are going to add 1,000 hours to on-demand from archival content.

I'm just curious, once you do that, how many more hours do you have in the archive that you could add and how long before the on-demand product will be your entire library?

We've talked about that we have a library with over 150,000 hours.

Not sure if all 150 will make its way onto the network, but Rob, we got a long way to go in our ability to take good content from our library and put it onto the network.

Okay, is it safe to assume the cost to do that is de minimis to you?

Relatively speaking, yes.

Great, and then just one other question.

Given the dividend you pay, the balance sheet you have, the growth that you see moving forward, and where your stock is in this meltdown we're seeing, is there any point at which management would consider repurchasing shares or putting a buyback in place?

Because it would seem that would be a good use of your capital given where the equity is and where probably is going to go, and the dividend.

Just curious if that's ever crossed your mind?

I think you have to put it in context of the scale of the dividend payout, which, as you know, is very high relative to earnings.

It's something the board regularly discusses, is the right return of capital approach.

Great, thank you very much.

Jamie Clement, Macquarie.

George, looking at the investment spending that you all laid out roughly three months ago for 2016.

As we think about investment spending, multi-year in the networks, is that the kind of number, 2017, 2018, does that number go up, does it stay about the same, does it go down?

How should we be thinking about that?

Jamie, it will depend on the results we see from it and how they manifest themselves through this year.

A lot of the growth that we've seen, the reason we've had record revenues this year, we feel, is from the investments made in previous years.

And as you know, our largest revenue stream grows in kind of a lumpy manner, because it's based on contract renewal, so sometimes the investments you are making today in the brand and global infrastructure, the payoff may take a few years to get back but we think of it in the long-term.

Specifically on 2017 and 2018, don't know yet and we will have to see how we feel about the way things are working in 2016.

Okay, fair.

Thank you very much.

Brandon Ross, BTIG.

Hi guys, a couple more.

You have more digital engagement than almost any creator in the world.

Almost all of that engagement is happening on third-party platforms like YouTube and Facebook.

Is there a way to make the WWE app more of a destination for free digital content to keep fans closer to the network subscribe button on mobile?

Also, Vince touched on the outperformance of your programming, relative to the rest of cable and NXT is clearly becoming more successful on the network and starting to as a live business.

What are your thoughts around the possibility of licensing NXT content to traditional media beyond Hulu as a revenue opportunity and to increase the profile of that content?

Thanks.

Look, on the first point about our owned and operated, whether it's our dot com site and the app, that's an important part of our strategy.

Our app has been downloaded now more than 25 million times, so it is important but we're also cognizant of the power of broadly distributed and engaging platforms like YouTube and Facebook, so there's a tension there and we'll manage it.

But we're going to continue to invest in our owned and operated, we're going to continue to invest on our mobile web and in the WWE app and you'll see the manifestation of that over time.

As far as NXT, I'll broaden the question.

I think for a long time, we're going to have the really great situation of creating content and deciding where the best place is for that content.

Is it within the pay TV ecosystem, is a within the social and digital ecosystem, or is it on our own network?

I think that's a decision we're going to be making about NXT and everything else for a long time to come, and it's a good problem to have because we are powerful on all the platforms.

And I'll remind you specifically on NXT, today it does get licensed in some markets, so domestically it's only available on WWE Network.

But there are some markets in the world where we have licensed into the pay TV ecosystem.

So that should give you a sense that we're willing to be flexible, it is just really about what's the best place for each piece of content.

Great, thank you.

Laura Martin, Needham.

Maybe a couple more.

George, can you remind us what international markets you are not in yet and are any of those ones you might roll out in 2016?

There's only three left, China, Thailand, and the Philippines.

I think you will hear from us over the next 12 months in at least one or two of those, if not all three.

Okay, great, that's helpful.

And then the free cash flow was $45 million on a same-store basis, if we exclude last year's $50 million payment.

When you think about that trajectory, which is a really lovely, upward swing trajectory, is there any reason to think when we're modeling next year that that trajectory would not continue or can we continue that trajectory?

I think the trajectory will be influenced a lot by our full-year operating performance, and so we haven't given guidance there but people can use their judgment over that.

We've talked about the hypothetical in the last quarter call, about what OIBDA might be.

After OIBDA, we're fairly simple to model.

We've always said that we'll spend on a net basis roughly $20 million on film.

Some years less, some years more, but that's what the average is and if you looked over the last 10 years or so our CapEx has averaged about 4% of revenue, which to me is a reasonable target.

Sometimes it'll be a little lower, sometimes a little more.

And then we're almost a full taxpayer when you look at our effective tax rate.

Again, we are not going to give guidance, but we've talked about conceptually those levers and then the operating performance will be what the operating performance will be.

We're not going to give full-year guidance right now.

Okay, that's perfect, that's very helpful on the free cash flow calculation.

And then can you tell us, can you give us an update on when you look at the OTT viewing, just OTT, and you look at that 188 hours.

Could you break out what's happening with trends in viewing of the library versus viewing of originals versus viewing of the live events?

I guess the way I would say it, if you think about the pay-per-views, we do about 37 hours of pay-per-views during the year.

At most it could be about 20% of that 188, that's 37 hours, if everybody watched it, it would be around roughly around 20%.

80% is a combination of what's in our library as well as our -- the new shows we are producing.

And we've talked about it before, if you looked at it from an analogous ratings perspective, if you wanted to use that as a way to think about it, our pay per views do the best, our original shows are second, and then the library's third.

And we always like to say when we talk about the library before, not everybody watches every piece of content on the library but every piece of content gets watched by someone, which is why it's so effective and drives a lot of engagement.

So your point would be that the hours are going to be different than that, meaning even though the per unit demand of the library is less than the originals, in aggregate, because the library is so much bigger than the original hours, it actually might make up the majority of total viewing of that 188 hours?

Right?

Do I have that?

That's right.

The math being what the math is, it makes up a pretty good chunk of that, that's right.

Okay, so it sounds like maybe 50% of viewing is library because you just said 20% is the pay-per-view, max.

I said 20% to 25% is the pay-per-view and we'll leave it at that.

Okay good, that's very helpful, thank you.

Brad Safalow, PAA Research.

Hi, just a couple quick follow-ups.

One, when does the TV rights deal with India change so that the pay-per-views will go back to the network?

We don't like commenting on the specifics of deals we have.

Okay, but you kind of referenced it.

All you have to do is ask someone in India, and you know it's not day and date, so that's publicly available information.

How the rights work and when they return to us, that's not, so I'd like to stay away from that.

Okay, that's fair enough.

And then just on Japan, you guys haven't talked too much about that market.

Obviously it has a long tradition of a large wrestling fan base.

I know you guys have signed some talent from new Japan.

If you were to rank the potential for growth both from TV rights fees and network subs in Japan, is this suddenly now an increased strategic focus for WWE, or is this more just normal course, hiring compelling talent in terms of creative?

I would say I hate the term normal course as we are working so hard as it is, but I wouldn't put Japan in the same group as I would put India, China, the Middle East, and maybe Latin America.

It's a great market for us, as you mentioned, and from a talent perspective a really good market but that's how we think about Japan.

Okay, thanks.

(Operator Instructions)

Eric Katz, Wells Fargo.

Just a quick follow-up.

A direct question on the guide.

I think your stock is getting hit because there's maybe the perception that the Q1 OIBDA is light and maybe the full year is different.

I know you guys gave a soft guide of 70 to 85 on the last quarter, so has that 70 to 85 changed at all?

And then secondly, I think some people are curious on why you guys decided to go with an average paid subs guidance as opposed to quarter ending?

Just any clarification on that as well.

Thank you.

Sure, like I mentioned before, Eric, what we said back on the past call was that we looked at Netflix's growth over its first few years and they were around 20% to 25%.

So to us we would consider that excellent performance and if that's the growth we showed year-over-year, we'd end up in that range of 70 to 85.

Now, obviously we have a whole other business around that, the network is big and growing, but it's less than 30% of the total WWE, so it's everything else being equal -- but we still feel comfortable that that range works at that level of subscriber growth.

Similarly, as we mentioned, on the average versus the period end, the period end, WrestleMania is going to be big for us, and it's hard to predict on the last day of March what that number is going to be.

That gets a little bit tougher.

We know we will start to see a real pick up as we get closer to April 3, so picking that one number at the end of the quarter seemed like an unreasonable thing to do.

The average, you have a full 90 days, we are already about 40% through that 90 days.

So however that comes in towards the end will have less of an impact on the average.

Obviously, it really will impact the average for Q2, what the ultimate growth is in terms of WrestleMania subs.

So that's why we went with average.

So, I guess to be consistent, would you guys continue with average?

Because I think the inconsistency is a little troubling for investors to switch back and forth

I think that's a fair point.

I think for us, being only two years in, in the case of WrestleMania, having only two data points we had to make the trade-off of do we not say anything about guidance, and just say, look, it's so unique so we are not going to talk about that period number?

Or could we give something?

And we thought we wanted to err towards the latter.

As far as how we'll talk about into the future, some of it is going to be determined about things like this.

Over time, I think we'll get more and more comfortable at doing a period end number but WrestleMania is unique for us.

It's very unique in a lot of ways and especially off the network and we just don't have enough data points.

We only have two.

I think most models are driven off the average, so we appreciate the guide with the average this quarter.

Thanks a lot guys.

There are no further questions.

I would like to turn the conference back over to our presenters for any additional or closing comments.

Thank you, everyone.

We appreciate you listening today.

If you have any questions please do not hesitate to reach out to us, Michael Weitz or Laura Kiernan.

Thank you.

And that concludes today's presentation.

Thank you for your participation.