TKO Group Holdings Inc (TKO) 2016 Q1 法說會逐字稿

Hello, and welcome to the webcast entitled WWE first-quarter earnings.

(Operator Instructions)

I will now turn the call over to Mr. Michael Weitz, Senior Vice President, Financial Planning and Investor Relations.

Thank you, and good morning, everyone.

Welcome to WWE's first-quarter 2016 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, IR.corporate.

WWE.com.

Today's discussion will include forward-looking statements.

These 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.

As a reminder, WrestleMania occurred in the second quarter of 2016 versus the first quarter of 2015.

In order to facilitate analysis of our financial results on the comparable year-over-year basis, we have prepared a pro-forma statement which identifies this timing impact as shown in our earnings release and our presentation.

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 is my privilege to turn the call over to Vince.

Thanks.

Well, you can see we had strong earnings growth, about 13% revenue growth, which is pretty good.

Our Network had almost 1.3 million paid subscribers over the quarter, which is about 40% above last year and reached 1.82 million subs following WrestleMania.

Speaking of WrestleMania, most of you know that we broke our own attendance record, finally, after almost, well I guess maybe 28 years or something.

The attendance record of 101,000, which speaks to the strength of the brand -- and, by the way, almost all of those tickets were sold out when we put them on sale.

There's a lot of brand equity in the name WrestleMania.

Our Network, as I mentioned, had 1.82 million total subscribers.

WrestleMania week, by the way, on the Network -- this is an astonishing stat -- we featured 19 hours of primetime premier programming.

Our subscribers watched 22 million hours of content, which is about 12 hours per subscriber, which is extraordinary.

All of that during one week.

We are excited about our contents on our Network that's coming, some of which has already started, including Camp WWE.

It's an adult animated cartoon and it's doing extremely well on our VOD status.

Swerved Season 2 drops in June; Holy Foley, in August, which is a reality show featuring Mick Foley and his family.

Speaking of television, we announced a new television series, Total Bellas, which is a spin-off from Total Divas on the E!

network, premiering this fall.

It's the sixth season, by the way, of Total Divas.

State of social media, which is -- we reached 650 million followers, which is extraordinary, up 34%, and a content of 4 billion video views on social and digital platforms in the first quarter, which is up from 1.6 billion in the previous quarter of last year.

That's a huge increase, indicating, again, the strength of the brand.

Creative talent, in terms of our status there, we've had a lot of injuries, even coming into WrestleMania, and we've made some pretty good chicken salad out of that.

Coming in the next 30 days, so many of our stalwarts are coming back into the fold.

There are approximately 17, I think it is, that have been injured that are coming back, including Randy Orton, Seth Rollins, Bray Wyatt, John Cena, and so many others.

And, even probably a better stat is that, over the last three months, we've introduced 13 new talent, which is extraordinary and speaks to the strength of our NXT brand and how that is building these extraordinary talents coming up.

We have probably more talent coming in the next 30 days on the roster than we have ever had before.

That is always a good positive indication as well.

George, I'll turn it over to you.

Thanks, Vince.

There are several topics which I would like to review today.

Management discussion of our financial performance, the progress of key strategic initiatives, and our business outlook.

For the first quarter, our financial results surpassed our guidance, primarily due to the timing of some results and, to a lesser extent, better performance than we expected in some of our businesses.

We expect that the portion of overperformance attributed to timing will reverse over the remainder of 2016.

As Vince described, our first quarter reflected strong execution of our strategy and included the sustained year-over-year growth of WWE Network, avid consumption of video content across all our platforms, and the recent record-breaking attraction of WrestleMania.

WWE Network averaged 1.29 million paid subs over the first quarter, which was in line with our guidance and represented a 39% increase from the first quarter last year.

Our flagship television programs, Raw and SmackDown, continued to deliver among the highest level of average primetime ratings on cable, measured on the [line] same-day basis.

Demonstrating our ongoing ability to create content with broad appeal, WrestleMania achieved record-breaking attendance, ticket sales, viewership, and social media activity.

WWE Network reached a record 1.82 million total subscribers, who consumed nearly 22 million hours of content during the week of WrestleMania and represented a staggering average of 12 hours per subscriber.

These outcomes demonstrate the increasing strength of our brand and the potential to capitalize on these strengths to drive long-term growth.

To review our performance in the quarter, let's turn to page 5 of our presentation, which shows a revenue OIBDA contribution by business as compared to the prior year.

As we review these results, you should note that the timing of WrestleMania, which occurred during the second quarter of 2016 as compared to the first quarter of 2015, had an impact on the comparability of our results on a year-over-year basis.

In aggregate, the event's ticket sales, merchandise sales, pay-per-view revenue, and production costs increased first-quarter 2015 revenue by $24.9 million and had essentially no impact on profitability.

The pro-forma impact of the event's timing on profit is minimal because we do not adjust for the year-over-year change in subscription revenue when calculating the pro forma.

We view this as appropriate because the subscriber acquisitions surrounding WrestleMania did not impact average paid subscribers or subscription revenue in the current or prior-year quarters.

In contrast to the event's timing impact, however, the value of WrestleMania, which is significant, comes from its ability to spur subscriber acquisition and, therefore, generate meaningful economics as subscribers are retained over longer periods.

Although the timing of WrestleMania did not have a material impact on our overall earnings growth, it did impact our overall revenue growth and the comparability of results for specific business segments.

As such, I'll discuss our performance on a pro-forma basis excluding the timing impact of WrestleMania.

On a pro-forma basis, revenue increased 13%, to $171 million, and OIBDA increased $6.2 million, driven by the growth of WWE Network, contractual escalation of our television rights fees, and higher revenue from our video game licensing.

Moving to page 6, network segment OIBDA increased $3.7 million on a pro-forma basis, reflecting growth and subscription revenue to $38.2 million as the network's customer base increased 39%, to an average of 1.29 million paid subscribers.

The growth in subscription revenue was partially offset by an anticipated decline in pay-per-view revenue.

Pro-forma profits from the licensing of television content increased $3.3 million, reflecting contractual increases in our distribution agreements.

At the start of this year, as we improved our ability to measure and evaluate certain shared production expenses, we began to allocate these expenses between our network and television segments.

For the first quarter of 2016, the resulting change in allocation methodology reduced network segment OIBDA by $3.3 million and increased television segment OIBDA by a corresponding $3.3 million.

As shown on page 7, licensing profit increased $3.5 million, based on a 27% increase in licensing revenue that derived from a higher effective royalty rate for our franchise video game than in the prior year.

The higher effective royalty rate derived from an increasing rate structure over the 2015 year, as compared to a flat-rate structure in 2016.

The year-over-year difference in rate is expected to reverse over the remainder of 2016.

For the full year, we expect the rate for 2016 will be comparable to the average rate for 2015.

Corporate and other expenses increased $4 million, to $42.1 million in the quarter, primarily due to increases in business support costs, including certain talent expenses, which are not allocated to specific segments.

Expenses which we categorized as corporate G&A were essentially flat to the prior year.

As a reminder, the year-over-year reduction in OIBDA from our Live Events segment, while large, was due to the timing impact of WrestleMania.

On a pro-forma basis, Live Event profits were essentially flat for the prior year, and changes in other areas of our business were largely offsetting and, as such, did not have a material impact on our overall results.

Page 8 of the presentation shows selected elements of our cap structure.

As of March 31, 2016, WWE held $88 million in cash in short-term investments, and we estimate that WWE has approximately $200 million in debt capacity under the Company's revolving credit facility.

Free cash flow declined approximately $14 million, reflecting an increase in the annual payout of Management incentive compensation associated with 2015 performance.

Looking back over the quarter, our financial and operating results continue to reflect how we are driving innovation and transforming our business model.

We continue to develop compelling new network programming, as highlighted on page 9, such as Camp WWE, which recently debuted on the network; Swerved Season 2, which is coming in June; and Holy Foley, a new reality series that will premiere in August.

As part of our multi-platform content strategy, we also announced a new series spin-off, Total Bellas, that will debut on E!

this fall, along with the sixth season of Total Divas.

And on social and digital platforms, we've recently launched a successful news program with our captivating host, Cathy Kelley.

In 2016, we'll also premier the second season of our popular series, Superstar Ink and WWE Game Night, across digital platforms.

These are just a few initiatives within our multi-platform content strategy.

Q2 business outlook.

The primary reason for holding this earnings call at a later date than usual was to give us the opportunity to observe the behavior of subscribers who joined the network in conjunction with WrestleMania.

Over the past month, these members converted to paid subscribers at a rate consistent with previous trends.

Therefore, our current guidance for the upcoming quarter is consistent with the potential ranges that we discussed a few weeks ago.

Specifically, for the second quarter, we project average paid subscribers of approximately 1.5 million.

We also estimate 2016 adjusted OIBDA of approximately $5 million to $9 million.

This range represents an expected year-over-year decrease that can be attributed to three primary factors: our incremental strategic investments; the timing of WrestleMania production costs; and the timing of the lower royalty rates for our franchise video game, which I referenced earlier.

Achieving the range of second-quarter financial performance would result in adjusted OIBDA for the first half of 2016, but it's essentially flat to the first half of last year.

Contrast to this outcome, we anticipate year-over-year adjusted OIBDA growth over the second half of 2016, from continued revenue growth and more favorable year-over-year comparisons in our fixed-cost base.

As stated previously, if the average paid subscribers to WWE Network increase at a rate in 2016 between 20% and 25%, adjusted OIBDA for the full year could be in a range of approximately $70 million to $85 million.

In addition, if the recent overarching subscriber trends continue over the remainder of 2016, average paid subscriber growth and 2016 adjusted OIBDA would be at the upper end of the ranges I just mentioned.

As a reminder, the range of 2016 adjusted OIBDA assumes our previously communicated incremental strategic investments.

Also, as recent historical data may not offer a comparable basis for projecting future results and future results could differ from the range provided, we offer these ranges of potential 2016 full-year subscriber growth and income to provide additional insight and perspective, rather than as formal guidance.

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

Execution of these initiatives has been strong, and our results demonstrate how we're transforming the business model.

Given the changes in our business, we have re-engineered our publication of key performance indicators, or KPIs, to sharpen their focus on the global consumption of WWE content across platforms, while continuing disclosure of our WWE Network subscriber trends, and social and digital engagement.

Going forward, we'll publish this data on a quarterly basis in conjunction with the release of our earnings materials.

We believe the revised metrics will provide even greater visibility into the unique power of our brand and how we're capitalizing on our global multi-platform content strategy to drive long-term growth.

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

We are ready for the Q&A portion of our call.

Please open the lines for questions.

(Operator Instructions)

We'll take our first question from Brandon Ross with BTIG Financial.

I think pre-WrestleMania was the first time that you marketed internationally.

Can you speak to the takeaways there?

And how you plan to market in the international territories going forward?

And what you see the international opportunity eventually being compared to the domestic opportunity?

And then, secondly, we received a survey about potential 1299 Tier for the network, which included [next day] Raw and SmackDown.

Can you talk to the contractual viability of offering such a tier with your partners?

And where you guys stand in terms of tiering going forward?

Is that something you guys are focusing on right now?

Thanks.

On the first one, Brandon, on the marketing, I wouldn't characterize it as the first time that we've marketed the network globally.

As you know, our own media is probably the most powerful platform to drive acquisitions and we've been using that since launch.

So that includes our flagship shows Raw and SmackDown as they're broadcast around the world, as well as -- as important if not more important -- our social and digital platforms, and engaging our audience through those.

So I wouldn't characterize it as a material shift.

Obviously we're always using new promotions and new creative, but I wouldn't say there was a significant shift in the approach internationally.

On the second question, around the survey that you mentioned and price points and different feature sets or content for the network, we're in market constantly surveying our audience and testing different things.

That was just one element of probably 20 or 30 different permutations we've tested over the last year.

For obvious reasons, I'm not going to comment on any specific contracts that we have and what the rights are on those.

Are you guys focusing more on tiering now than you have in the past?

Is that something we should expect coming up?

I think if you look at the history of WWE, we've always tiered our content.

And probably the biggest example of that was pay-per-view, and within the pay-per-view is WrestleMania.

Today, as you look at the way our content is quote, unquote, tiered, we have short form video content that we deliver on our owned and operated and third-party platforms, and as Vince mentioned that generated 4 billion video views and about 150 hours of consumption in Q1.

Both of those up significantly year over year -- so that's one tier.

The second tier is our flagship shows Raw and SmackDown, where we licensed that around the world and it fits in the pay TV ecosystem, or free-to-air ecosystem.

And then the third one is the direct-to-consumer that has our most premium content, our longtail content, as well as new content that we create, like Camp WWE.

So that's the tiering today.

How things tier in the future, will be a discussion we're always having, is what content should go where.

On the domestic versus international TAM, and how you have seen that develop recently.

When we launched Brandon, we had always said that $3 million to $4 million globally, 20% to 30% of that we felt out of international market.

So today we are about halfway to the lower end of the $3 million to $4 million in Q2, with that $1.5 million, and about 25% of that is outside the US.

We want every number to be as big as it can, as fast as it can.

But I think if you take a high-level view, it's pretty much on track with how we thought it would be in terms of the mix.

We'll take our next question from Eric Katz with Wells Fargo.

I wanted to come back to your subs guide, it's a little bit different now than the post-WrestleMania release.

And you mentioned that you are looking at behavior for the later earnings call.

What data are you looking at specifically?

And what trends are you seeing that helped refine the guide.

Its not different Eric.

It's still at 1.5 million.

I think on the call we had the 15/15 plus or minus 2%.

We are right in that zone.

I think, to the question of, how are we getting better at the visibility, it's not one big thing.

It's a lot of little things.

In terms of both the acquisition cadence, the churn cadence for those subs that choose to come in and out, engagement and tying the level of engagement to what we think the behavior of a particular sub is going to be.

So it's not one particular metric but it's the amalgam of all of those.

I will give you -- to put some scale on it -- for a new sub, before we might have had one level of retention assumption which then converts, so it would be one level of churn.

We now have about 24, 25 different assumptions depending on geographically where you came from, how much content you are consuming, and a variety of other minimal factors.

But to give that sense of scale, it used to be one assumption, not 24 and 25.

That level of granularity gives us a little bit more visibility.

I will also say that we're really still in early days.

For everybody in the room here and everybody on the phone, it feels like we've been talking about the network forever.

At the end of the day, we are two years into it.

So there's still a lot of learning, I'm sure that we're going to do.

I am sure there will be some surprises in the future, positive or negative as behaviors change and how some of our activities begin to influence the behaviors.

But certainly, with the two years worth of data and getting more granular, the visibility has tightened up quite a bit.

As far as the investment spend, can you give us any more or share any details on the timing of the $15 million to $20 million throughout the year?

How much is Q1?

What's expected for Q2?

Anything that can help us gauge how this impacts your expectation for OIBDA growth in the second half?

The actual incremental investments are pretty evenly split throughout the year in terms of on an absolute basis.

On a year-over-year basis, though, because some of them started it towards the end of the year, you get more favorable compares.

Which is why we said that if the revenue growth is what we expect, including the growth in the network, we'd be at the upper end of those ranges.

I guess just a higher-level: would you be able to quantify how much of your total costs are expensed rather capitalized?

And I am specifically thinking about the strategic investments in the RAM costs in the corporate segments, the booking capabilities.

The point here is could we see OIBDA meaningfully accelerate in 2017 and 2018, just by virtue of any nonrecurring spend falling off the P&L?

No.

The first question is not -- we have a fairly small portion of our total expense base that's capitalized, and the three pieces of that would be CapEx, our film spend, and then network programming.

Everything else is almost expensed fairly close -- pretty short of operating cycle.

So no, you wouldn't have the impact that you just mentioned.

I guess maybe the question is, how much of the nonrecurring expense is within your P&L?

Is there anything that falls off after this year?

Not fall off.

I think we'll have decisions to make and I have mentioned this before.

If our revenue continues to grow, we have real high operating leverage, which gives you a lot of incremental variable margin.

I think the questions for us will continue to be, how much of that do we reinvest into future growth?

Now, there are things we did this year -- and to your point about quote, unquote, falling off or nonrecurring, it's not that they fall off or nonrecurring, the question will be do we maintain those?

We invest it additionally in programming, for example, specifically in WWE Network.

The question for us for 2017, is do we keep that level?

Do we go back to 2015 level because we think that's more appropriate?

Or do we raise it?

And we haven't really talked about which path we are going to take yet.

We'll take our next question from Laura Martin with Needham & Company.

Great numbers.

A couple questions.

Vince, for you: talent injuries.

So eventually if these guys keep getting hurt we have an NFL concussion issue and it starts injuring the brand.

So I'm interested in why you think so many of your wrestlers have been hurt lately.

You have been in this business a long time.

Does it just go in waves?

Or are there moves getting more difficult?

Or is the scripting too last-minute, where the guys are going left when they are supposed to be going right?

So I wanted to talk about general injuries and how it affects your business short-term and long-term.

And then George for you -- I will do George's follow-up question after Vince answers.

Laura, we always have injuries.

I think that there are more visible now than ever.

Most of the injuries that we have are in the three months -- probably three maybe four months in terms of coming back after an injury.

And again, what we've done -- there's nothing that's any more risky or what have you in terms of what we're doing.

We manage concussion stuff extremely well -- way ahead of everybody else.

We feel good about that.

We feel good about all of the things that we've built into our health and wellness programs.

Better than ever.

This is something that just occurs on an ongoing basis.

It happens that occurs with some of our major talents, with John Cena, Randy Orton et cetera.

And again it's just a cycle of some things that happen in our business.

And they are replaced, of course, by the opportunity of new talent coming in.

So we feel good about where we are in terms of the injury aspect of our business.

It's just more pronounced and a lot more visible now than ever.

George, for you -- if I look at the other deck of slides -- I don't know what it is called, but this slide 5 is awesome.

If I look at paid subscribers from slide 5, US versus international, it looks like the over-the-top network subs were down about 10% paid.

And then the international subs, because we're opening new markets are about the same -- sorry, were a little higher -- which made up the decrease or the decline in the US subs for paid subs.

My question is, think one of the questions that we've all been grappling with is, we used to get $60 each from 1 million subs.

The question was, if we let them buy WrestleMania and product $10 a month, and this year zero if they wanted a free trial, that we would get more subs.

But if this number of US subs is now stable at 1 million, what it would imply is maybe those million were price insensitive and they would have still been willing to pay $60 instead of getting it for free or $10.

So from an economic point of view, do those people stay more than six months, so you're getting your $60?

And are the costs lower or the same on those 1 million?

Because if we're not going to get more subs, then wouldn't it be better to just to go back to getting $60 from each of them and only programming three hours a year?

I'm going to talk to the average paid sub, because I think is the tightest link to revenue and economics.

If you look at that in Q1, it was up 18% year over year -- 833 to 985.

If you remember for WrestleMania, when we talked about the growth in Q2, if trends were to continue -- and so far they have been, which is why we're confirming that 1.5 million -- domestic subs again would've been up in that high teens level.

We continue to see relatively high growth domestically.

Again, 18% in Q1.

Mid to high teens again in Q2.

We're not of the mind that it has plateaued.

I think to your general point, if the growth stops today, what we would have is a business that is about twice the size of our old pay-per-view business, has higher levels of profitability, has better incremental margins, and also has the ability to have a direct connection with our fans -- as opposed to one where it's going through a third party.

So I would say, as we sit here today, it's a better business than what we had.

I think the additional layer which could make it an incredibly better business is if it continues to grow at double-digit rates.

If it continues to do that on top of where we are today, then I think we're on a really nice journey moving forward.

At this point, I just don't buy the hypothesis that somehow the growth has stopped, because the facts don't bear that out.

What was the number of pay-per-view subs?

The guys who paid $60 this year?

What was that number in the end?

For Q1?

Yes, right.

We only generated globally about $2 million of revenue in Q1.

It was still a really small number of total buys for pay-per-views.

We'll go next to Evan Wingren with Pacific Crest Partners.

Would you provide us with an update on the engagement that you're seeing at WWE Network in terms of the number of hours viewed?

And is the engagement that you're seeing on the new episodic content for the network higher than maybe the other non-live content on the network?

The last update that we gave in terms of consumption -- and we said previously, we'll from time to time give updates that we think are interesting -- was for the full year in 2015 we averaged about 188 hours of consumption across average subscribers; which, on per-subscriber basis puts us among the top 10 networks in terms of engagement -- ahead of some pretty big names like HBO, for example.

The second element of engagement we gave, Vince mentioned in his opening remarks that we had 22 million of hours of consumption just during the week of WrestleMania and that worked out to 12 hours across the 1.8 million subs average during the week, which was our highest level consumption for any one-week period.

In terms of the programming, we now have over 5,100 hours of VOD and we continue to put more hours of VOD continually on the network, which gives people a lot of different content to enjoy.

But our special live events -- what we used to call pay-per-views -- still are the anchor, both in terms of acquisition and in terms of consumption and engagement.

As we've said before, if the event is live, or the show is live, we get a lot of live viewership.

If it's not live, then we see a lot of VOD consumption.

So that you can definitely see that for non-live events people really enjoy being able to program it themselves and watch it when they feel like watching it.

That's helpful.

On the Total Bellas spinoff, this debuting on E!

in the fall -- was this previously considered in your contract with NBCU?

Or is this something that was incremental and opportunistic?

It's more on the latter.

Obviously, as you follow, Total Divas has been a great success for E!

and so we will work together to come up with a new concept ;and it's Total Bellas and it's going to be a lot of fun.

I believe that you updated your user terms and now that limits the number of streams per account to one.

One -- why did you do that?

And two -- do you have an estimate for the number of accounts that were currently -- that were sharing before you did that?

Obviously, there's always some sharing.

In our view, it's never been material, but we tweak the user terms from time to time and that was one of those tweaks.

We'll go next to Daniel Moore with CJS Securities.

I wanted to see if you might provide us a little bit more color.

You talked about the magnitude of the incremental strategic investments and the cadence over the year.

Just remind us -- any color around the specificity of what it is that you were bucketing the incremental spend for this year?

And one follow-up.

Just as a reminder, there are three key areas where we are investing: programming, international, and then technology and data, writ large.

And they cut across people, tools, and changes in the way we operate.

The programming is probably the easiest.

Things like Camp WWE are things we're doing today that we weren't doing last year.

On the technology and data side, it really is about driving that consumption that we talked about, going for 1.6 billion to 4 billion.

It's really about understanding that data, utilizing it, and not only driving deeper consumption within the platforms, but then being able use that data across platforms and across our businesses.

Internationally, it's primarily people and primarily social and digital resources -- in some cases general management resources -- but a lot of social and digital resources putting them in key markets for us.

To date we've operated primarily from a centralized perspective and then pushed the content out.

We will continue to do that and that will be the vast majority.

But in some key markets we are going to have people on the ground and more finally tune the content to that geography.

Very helpful.

Given your comments in the prepared remarks and on the call around the FY16 OIBDA -- the contemplated range.

If for whatever reason, be it in elevated churn or growth is slower, if the average sub growth comes in lower than the 20% to 25% for the full year, would you take steps to cut costs and protect the lower end of that range?

I'm just trying to understand how you're thinking about it as relates to whether it's guidance or simply a contemplation.

I remember Vince telling me once, we don't plan to be down.

And given that we were at around $69 million of OIBDA last year, we definitely want to plan to be up year over year.

Without giving a firm answer to your point, hopefully that's enough color.

We'll go next to Mike Hickey with Benchmark.

Nice quarter.

I'm not sure if you articulated this or not, but I'm curious -- what is Shane McMahon's current role and maybe longer-term role with the Company?

And also sort of thinking about China development.

I think you've been building your team there.

I think you hired Jay recently; and curious if you have any updates on how you think about the network in China and maybe a commercial launch there?

As far as Shane is concerned, he's come back as one of our talents who has done extremely well at WrestleMania and an ongoing storyline with Shane and Stephanie and it's working out extremely well.

In terms of China, Mike -- as we've mentioned before, it's a market that's become even more important than it was over the last 12 months or so.

When we talk about those investments before, the strategic investments on the emerging markets like China is definitely one of those.

So Jay is an example at the general management level: a significant investment for us and we're real excited about that.

And then also in social and digital we put people on the ground.

We've talked about before, we've built fairly massive scale digital and social platforms on the global platforms.

We hadn't made the same level of investment on the indigenous platforms in China.

We're going to change that, and we're going to strive to have similar levels of success in China that we've had everywhere else in the world.

We've got a long way to go.

We're in early days, but that's what we're striving for.

As far as the network -- obviously China is the one market where the network is not available today, so WWE Network became global in August of 2014.

We have one market left and we're working to figure out what the right model is for China.

Best of luck.

(Operator Instructions)

We'll go next to Brad Safalow with PAA Research.

Just a couple of housekeeping items.

Did you provide an update on the number of unique subs acquired for the network?

I think the last update we had was 2.5 million individuals.

We stopped with that particular metric, Brad.

And we think what's really more relevant is, in essence, where you are in net subs.

Obviously we continue to provide some of the gross churn data, but in our view the real relevant metric is what's the net growth in average paid subs.

To your point, we haven't provided any more data on uniques.

What was the traditional pay-per-view buy rate for WrestleMania?

WrestleMania would've done anywhere between 900,000 and 1.2 million buys over the last 10 years or so, which is as far back as my memory goes.

It would have been about 2/3, 1/3 domestic/international.

Sorry, you misunderstood my question.

What was the actual buy rate in legacy distribution channels?

So the 150,000 or so that you had in the first quarter?

I'm just looking for the number that you had for the WrestleMania event so we can get a sense of total audience between network subs and traditional.

I just gave it to you.

The total buys were 900,000 to 1.2 million.

Maybe I don't understand the question?

I will follow up.

On the YouTube, obviously on the subscription side, you have 11.2 million or something as of today.

Is there any way you can give us a sense of the distribution of subs between domestic and international?

I know you have the data, I don't know if you'd be willing to disclose it.

We have said before, without getting into any specific metric, that when you look at our social and digital data writ large, whether it's on our owned and operated or third-party platforms, anywhere between 70% and 80% of whatever that metric is, is coming outside the US.

So whether it's views, shares, and engagement, and so on.

Just on Tapout, I know you guys launched distribution with JCPenney.

I'm assuming that's not an exclusive deal.

Can you help frame what your expectations are for the brand?

And how you think about the economic opportunity for WWE?

We have several investments that we've made.

Tapout is of one of them.

We don't get into specific guidance on any one of them, so we're not going to do that.

But we're real excited.

We think it's a great brand.

We think it's a great fit with our audience.

We think it's a great value proposition.

If you haven't tried any of the apparel yet, it's terrific quality, great price.

We're excited about how it will do.

On your guidance, Vince, you mentioned earlier that it's quite a backlog of star power returning to the roster here in the next 30 days.

Does your guidance imply, let's say, better gross sub acquisition going into SummerSlam?

Or better retention as a result of people like Rollins, Cena, Wyatt, et cetera, coming back to the roster?

Or is it, you are just using the same metrics as you would have used otherwise?

It's always a blend of the more established talent as well as new talent.

And again the star power of going forward seems stronger than normal in terms of the stalwarts coming back and new talent being created.

To the guidance part of that question, Brad -- in the prepared remarks we said, if recent trends were to continue, we'd end up at the upper part of the range.

If recent trends were to continue.

(Operator Instructions)

We'll now take a follow-up from Eric Katz with Wells Fargo.

Just a clarification -- going back to Laura's question earlier on domestic subs.

Is the comparison of domestic paid subs apples to apples in Q1?

I think there wasn't a free offering last year, correct?

Yes, the free doesn't really impact the paid by definition.

So last year in Q1 we did free in February.

But the WrestleMania element of it, Eric, wouldn't have impacted either quarter all that much.

International subs -- it looks like it jumped nicely after WrestleMania.

Would you be able to, if not quantitatively, qualitatively talk to how much came from the recent launches in the overseas markets?

We don't break out the international to specific market.

But it was a combination of organic growth in the markets that were there last year and then obviously growth in the new market.

So we don't get into breaking that out.

Would you be able to speak to how much the video game royalties contributed to OIBDA in Q1?

And how we should think about the rest of the year as far as lumpiness?

The CPG business generally -- the licensing business within that -- because our revenue recognition is when our statements are received and there's a lag, you always see the biggest performance for licensing business in Q1 because it has the Q4 holiday season in it.

So it's always lumpy and it shouldn't be fundamentally different, other than the video game portion of that, which will even out by the third quarter.

So we saw overperformance in Q1, as I mentioned, the year-over-year decline in Q2 is because the royalty rate flips.

Once you get towards the back half of the year, the average rate for 2015 and 2016 will start evening out.

And we'll take a follow up from Laura Martin with Needham & Company.

I am always fascinated with the economics tied to social.

Maybe I misunderstood you, George.

But I think what you just said in the answer to the question before the last question -- it said US international subs look at social and digital data writ large, 70% to 80% of that is from outside the US on social media.

My question is, if all the money is still being made in the US, I think for the over-the-top network and all of the payments from NBC Universal, and 80% of my social is offshore -- and I know we don't make a lot of money, maybe $10 million a year from all the social media revenue, your share -- then again, I'm going to go back to this question I always grapple with: why do we care about social media if it's not turning, if it actually doesn't drive -- if that 80% of offshore social media isn't driving higher adoption offshore and higher economics, I can't figure out why I care about social media economically.

I will explain it to you again the next time I see you, but I will try on the call.

The ability to have 4 billion video views and have people consume 150 hours of your content and you be able to entertainment them 24/7 as opposed to just the 5 hours when you have them in front of the TV -- the morphing from 5 to 24/7 we think is huge in terms of driving all elements of the business.

When we look at the -- take the network specifically: a pretty big part of the awareness of the network and therefore the resulting ability to acquire subscribers has come from those assets.

You said, hey there's -- the growth in the network is domestic.

We have 300,000 average paying subs in Q1.

So oversimplifying -- say the ARPU on that is $10; it's not exactly $10 because some of it is licensed partners, but if you annualize that you're talking about $36 million of revenue.

It's not directly tied to social.

There are steps along the way because it's about the engagement; it's about the awareness; it's about connecting the storyline all the time around the world.

All joking aside, I struggle when people don't get that -- that people don't get how powerful that is.

At the end of the day, our entire business is about mind share and time.

And the ability to drive more mind share and more time is to me I part of the economic moat that we've got.

So it's huge for us.

Strategically, it's huge.

And we'll go back to Brandon Ross with BTIG financial.

Just a follow-up on the last question there.

I think the way I would ask the question is, if 80% of your engagement on social media and 80% of your engagement in longer-form content is abroad, why isn't the network eventually 80% international?

I think that's a great question.

I think the answer to the question is about time.

Right now, we'll take a country like India: incredible consumption for us across every platform, traditional pay TV, and as well as social and digital.

Great consumption.

The network right now is not a great proposition in India because of the price point -- A, because of bandwidth availability for video, which is low; and then for the cost of what availability exists in terms of video-capable broadband.

We know the network is not going to be as big in India as pay TV and digital and social are today.

And then the answer to your question about, why isn't it 70% to 80% -- because I think that's time.

We can't look that far ahead so the number we've got is more in the foreseeable future, when we mentioned the 20% to 30%, whether that's 5, 6, 7 years.

But if you went way beyond that, I think that opportunity, as economies grow around the world -- I think that's why we do this.

We are pretty -- we want to drive results in the short term but we're pretty focused on the long term.

And the long-term for us is not next year.

It's beyond that.

So the eventual TAM could be 80% international?

I'm not going to say that.

I would say all the math that we've done is 20% to 30%.

To your point, as I look about -- and it's not just the network, it's consumer products, it's the licensing of pay TV -- as these economies grow our ability to engage them on all these platforms we think drives revenue growth.

I'm not going to say what you said at this point.

With no questions in queue at this time, Mr. Weitz, I'll turn it to you for closing remarks.

Thank you, everyone.

We appreciate listening to the call today.

Of course, if you have any questions do not hesitate to contact us.

Thank you.

Ladies and gentlemen, thank you for your participation.

This does conclude today's conference.