TKO Group Holdings Inc (TKO) 2016 Q4 法說會逐字稿

Hello, and welcome to the webcast entitled WWE's fourth-quarter earnings. We have just a few announcements before we begin.

(Operator Instructions)

I would now like to turn the call over to Michael Weitz, Senior Vice President, Financial Planning and Investor Relations. Please go ahead, Michael.

Thank you, and good morning, everyone. Welcome to WWE's fourth-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 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 is my privilege to turn the call over to Vince.

Good morning, everyone. Most of you -- I'm sure all of you have the numbers, which is in terms of revenue, $729 million. It is the highest in our history. To add a little color to some of those numbers, our international revenue increased 11%. That, too, is a record, at $189 million for 2016.

One of the things we're doing in terms of our networking, we're super-serving our audience, which in terms of that, we have created a number of live shows, and some we record as well, but it's mostly in-ring content. We've created something called 205 Live, which is a show involving our Cruiserweights which is another whole division in which we are starting up now, which will, again, have its own sources of revenue in terms of live events, as well as other things that are all -- merchandising, licensing, and all of that.

And we did something as well in the United Kingdom. We had a championship tournament, crowned our first United Kingdom champion. That's an effort to localize more talent and localize more content for the United Kingdom, and that will continue in a lot of other ways.

In terms of subs, we had 294 million hours of content, which is up 15%. Some subs watched 294 million hours of content. That's up 15%, as I said, which means a lot of people are doing not a lot of things except watching WWE Network.

We had an average of approximately 1.5 million total subs, which represents a 25% increase over 2015. Of note, having -- well, it's all associated. I started to say having to nothing to do with the network, but it's all associated in everything that we do. Our social and digital platforms, which is a big barometer for me, our content had more than 15.1 billion video views in 2016. That's up 45% from the previous year.

Our social media engagements increased 45%, to 1.1 billion. And I mentioned before about the land grab in terms of social media and digital platforms as well. We continue to grab our portion of that land and a bit more, which, of course, reinforces everything that we are doing.

In addition to that, just a little bit more color on WrestleMania. We were proud to set our attendance record of over 100,000, which includes, by the way, ushers and ticket takers and all of that. It wasn't 101,000 paid, but nonetheless, it was a record for us. And again, the network reaching 1.8 million subscribers following WrestleMania.

We've strengthened our global reach as we continue to strengthen that. We completed distribution deals in China, Australia, Germany, and Spain, and we'll continue along those lines. We're satisfied -- I don't want to say thrilled, we're satisfied with our 2016 performance, and obviously, we're focused on achieving our financial objectives, driving our long-term growth.

Thanks, Vince. There are several key topics which I'd like to review today. These include Management discussion of our financial performance, progress on key strategic initiatives, and our business outlook. Over the past year, we've placed continued strategic emphasis on optimizing the value of our content across all platforms, investing in technology, and expanding our global presence. Execution of these initiatives has been strong, and our results demonstrate the successful ongoing transformation of our business model. Every day, we become more digital, more global, and more direct to consumer.

As Vince mentioned, we generated revenue of $729 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, and WWE Shop. Additionally, our international revenues reached record high of $189 million. While the significant increase in revenue was driven by the growth of WWE Network and higher television rights fees, our revenue and earnings growth also reflected significant achievements across all our businesses to develop and capitalize on the strength of the WWE brand.

I'd like to highlight some of these achievements. They are listed on page 5 and 6 of our presentation. Starting with the continued growth of WWE Network. Driving that growth, we added more than 300 hours of original content to WWE Network's featured programming and more than 2,500 hours of archival content. At year end, our subscribers could access an on-demand library of over 7,000 hours, which is more than 4 times the size of that library at the Network's February 2014 launch.

As Vince mentioned, to super-serve our most ardent fans with live in-ring and local content, we launched the weekly series 205 Live, continued our extremely popular NXT Takeover, and in January of this year, held a UK championship tournament featuring local talent. Other programming in 2016, including the production of WWE Story Time, of Holy Foley, and of course, WWE 24.

Importantly, the Network's pay-per-views, original series, and specials continue to drive viewer engagement. Over the 2016 year, subscribers watched a total of 294 million hours of content, representing an average of 194 hours per household. This puts WWE Network among the top cable and broadcast networks in terms of viewer hours per household. In fact, we rank behind only the broadcast networks of CBS, NBC, and ABC.

According to research conducted by Parks Associates, WWE Network is still the fifth-largest streaming video-on-demand service in the United States, alongside Netflix, Hulu, Amazon, and MLB.TV. Research by Parks Associates also found that WWE Network has the second-highest Net Promoter Score among these services in the US, behind only Netflix.

Our subscriber metrics demonstrates a successful execution of our content strategy. In 2016, average paid network subscribers increased by 24%, to 1.4 million, and average total subscribers increased by approximately 25%, to 1.5 million. We also produced the original content for television, transitioning SmackDown to a live format on USA Network and debuting Total Bellas on E!

Recognizing the tremendous appeal of our flagship programs, NBCU, in partnership with WWE, has been able to secure 50 new blue-chip advertisers over the past two years. To reach our substantial audience in the US and worldwide, Snickers will once again serve as the exclusive presenting partner of WrestleMania this April.

We continue to engage our fans on digital and social platforms as well, most recently creating a new Bella Twins channel on YouTube. Our digital metrics continued to grow. In 2016, consumption of WWE content increased to more than 15 billion video views across YouTube, Facebook, and WWE.com. And our fan engagements, measured across all social platforms, increased 45%, to 1.1 billion.

Strengthening our ability to create compelling and local content, we continued to invest and enhance our talent development. Approximately 40% of our new recruits came from outside the United States. 2016, more than 80% of our active-roster Superstars originated from our developmental system. Our talent perform more than 500 events, spanning 24 countries and five continents.

In consumer products, we maintained a dominant position, with the second-highest selling action-figure property in the US, behind only Star Wars. These are just a few examples of the extraordinary work and achievements of the entire WWE Team. They all highlight WWE's tremendous brand strength and our potential to capitalize on this to drive long-term growth.

To review our performance in the quarter, let's turn to page 7, which shows the revenue operating income and adjusted OIBDA contribution by business as compared to the prior-year quarter. As shown, revenue increased across all of our business segments, generating overall growth of 17%, to nearly $195 million. Changes in foreign exchange rates reduced revenue by about $2 million, but did not have a material impact on our reported profit. On a reported basis, OIBDA increased by $16.5 million, and adjusted OIBDA increased by $9.4 million. The strong growth in revenue and adjusted OIBDA was driven primarily by increased monetization of our content, as reflected in the segments that comprise our media division, as well as increased e-commerce through our WWE Shop site.

Network segment revenue increased $2.9 million, with growth in subscription revenue to $41.4 million, as the Network's average paid subscribers increased 14%, to $1.41 million. Network segment OIBDA was essentially unchanged from the prior-year quarter, as the growth in revenue was offset by increased programming costs, including a [$3] million allocation of expenses shared between our Network and Television segments.

We continued to increase the global distribution of WWE Network as measured on a year-over-year basis. The Network had 1.4 million paid subscribers at quarter end, including 1.03 million paid US subscribers and 370,000 paid international subscribers. OIBDA from the licensing of television content increased $8.6 million, reflecting both higher rights fees in our key distribution agreement and the allocation of shared production costs to our Network segment as I just described.

On page 10, OIBDA from our Consumer Products business increased $2 million, driven by the strong performance of our e-commerce business, WWE Shop. The increase in WWE Shop profits was based on a 29% rise in the number of orders, to $276,000, reflecting our effective promotion and enhanced product assortment.

In terms of WWE's overall performance, changes in other business segments were largely offsetting, and as such, did not have a material impact on our consolidated results. On an adjusted basis, our corporate and other expenses were essentially flat to the fourth-quarter 2015.

Page 11 of the presentation shows selected elements of our capital structure. As of December 31, 2016, WWE held approximately $267 million in cash and short-term investments, representing an increase of $200 million from the end of the third quarter. The increase was primarily due to our recent financing.

In December 2016, we issued $200 million of convertible notes, which was subsequently increased in January 2017 to $215 million through the exercise of an overallotment option. After consideration of all transaction fees and hedging costs, the net proceeds raised by this financing were approximately $193 million. Additionally, we estimate that WWE has approximately $100 million in debt capacity under the Company's revolving credit facility. We believe this capital structure enhances our ability to execute our long-term growth strategy.

We generated $27 million of free cash flow in 2016. The impact of improved operating performance was offset by a $10 million increase in capital expenditures. This included $5 million paid as part of the consideration towards the purchase of a building and the associated property here in Stamford, Connecticut. Looking back over the year, our financial and operating results continued to reflect tremendous progress in transforming our business model.

Now looking ahead, for the first-quarter 2017, we've targeted adjusted OIBDA of approximately $23 million to $27 million. We also forecast average paid subscribers of approximately $1.48 million (sic - see press release, "1.48 million"), plus or minus 2%. The midpoint of this forecast represents an approximate 15% year-over-year increase from the first-quarter 2016, and a sequential quarter increase of 5% from the fourth-quarter 2016.

Our first-quarter 2017 subscriber guidance is based on WWE Network's subscriber performance in January, as shown on page 13 of the presentation. As a January 31, 2017, WWE Network had 1.5 million ending paid subscribers. This included 1.1 million ending paid US subscribers and 0.4 million ending paid international subscribers, representing year-over-year growth of 15% and 27%, respectively.

To note, that WrestleMania will occur on April 2, 2017, within the second quarter of this year. Given that timing, the most significant subscriber additions within the first quarter are expected to occur towards the latter part of March. As such, they are not expected to have a significant impact on first-quarter subscriber averages or our first-quarter financial results. Although we are not providing an estimate of first-quarter ending subscribers at this time, we will communicate an update on Network subscriber levels on April 3, the day after WrestleMania.

Over the 2017 year, we will continue to focus on creating new content across all platforms, investing in technology, and expanding our global presence. As we continue to transform our business, we expect to achieve record revenues, record profits, and record subscriber levels. We've targeted adjusted OIBDA of $100 million, which would be an all-time record, representing 25% growth from 2016.

In 2017, we also expect to increase our capital expenditures. As you are aware, historically, CapEx has averaged close to go 5% of our revenue, and peaked in 2014 at 7%. In 2017, we anticipate CapEx will be at the upper end of this range.

Driving the continued growth in our revenue and profit, we anticipate contractual increases in television rights fees, expect the level of WWE Network subscribers to continue to increase on a year-over-year basis, albeit at a lower rate. As a reminder, WWE Network was fully distributed geographically, other than China, by the end of the first-quarter 2016. Given the current scale and leverage of WWE Network, our subscriber increases have the potential to drive meaningful growth in revenue and profit over the long term. Based on anticipated subscriber growth, we believe we can achieve our targeted record financial results in 2017.

In the coming year, we will also continue to evaluate our financial performance and balance delivering on our earnings growth with making investments that could enable us to deliver a wider range of content, strengthen our engagement, and support our continuing digital and direct-to-consumer transformation. That concludes this portion of our call, and I will now turn it back to Michael.

Thank you, George. Jennifer, right now, please open the lines for questions.

(Operator Instructions)

Eric Handler, MKM Partners.

Thank you very much for the question. Wondered if you could talk about some of the metrics maybe around the WWE UK pay-per-view event that you had there. What type of momentum you got in terms of maybe free sub growth and how that is trending since that time? And did you see an uplift, not just from the UK, but from other parts of Europe as well that were able to see this in their own prime time?

And then secondly, when you look at the WWE UK brand, how soon do you think you want to continue building on what you started here and maybe do a live weekly TV show on Sky or with one of your other partners, or maybe do you take that onto the WWE Network?

I'll take part of that, Eric. And by the way, welcome aboard. It's great to have MKM having picked up coverage.

The UK tournament did well, both on subscriber metrics and engagement. We saw a lot of engagement in the UK. We did see an uptick in ads in the UK specifically, and what was really interesting is we actually saw a lot of good consumption around the world of that tournament.

It gets back to what Vince said in his opening remarks about super-serving our fans. We have a broad ecosystem that includes AVOD on YouTube and Facebook. It includes traditional TV with our long-form live content. And it includes the WWE Network, where as Vince mentioned, it's about super-serving our most passionate fans. And one of the things we've learned is they will consume just about everything we throw at them.

And then the follow-up question was how soon do you think you might look to capitalize on that momentum and look for maybe a weekly TV show, be it on pay TV or your own WWE Network?

Eric, we have already capitalized. A number of individuals in that tournament, including the champion that we crowned, made appearances in other WWE programming. It's an integration of all that talent. Having the talent pool grow much larger helps us in so many different ways.

We could easily morph that into a weekly show. It's something that we are thinking about, nothing we've announced yet. Our partners are very interested in that.

The tournament and the buzz from the tournament was highly successful in the UK. And there might be other Europeans that might join in the future. There is a lot here in which the expansion, which you are trying to get to, and the expansion of that, it can be exponential.

Thank you very much.

Eric Katz, Wells Fargo.

Thank you. Two questions on what I believe was the three-month free trial you guys offered in November. First, just wanted to know what the rationale was behind three months instead of one, and was this purely experimental or a new strategy you will use more often?

And then second, you called out 1.5 million paid subs as of January 31, and I'm wondering if any of these subs that come off the three-month free trial would be included in that, or is that exclusive?

On the first one, Eric I think we talked about on the last call specifically on the promotion. As we get more and more sophisticated, I think you will see us try different promotions to encourage folks to come in and experience the WWE network. So the way you described that experimentation is a good way to do it. When you do the math, the 1.5 million that we had at January 31 includes some of those free-to-paid conversions.

Okay. And with regard to the [Q1] guide, I'm wondering if you can go through some of the puts and takes for expenses in the quarter and maybe the cadence of some of the strategic initiatives throughout the year? Thank you

Eric, can you repeat it? You got muffled a little bit when you just mentioned the cadence of something. I lost what you said in there.

Sure. The cadence of the strategic investments made throughout the year?

Obviously, we've targeted $100 million for the year, which implies significant growth year over year. Our guide for Q1 doesn't have that same level of growth, so we expect the growth to come starting in the second quarter and then accelerating throughout the rest of the year, a lot of that driven by the cadence of sub adds that we expect for WrestleMania and then the monetization for the tail throughout 2017. That's on the revenue side.

On the investment side, the quarter -- there is some timing elements to it, so the first quarter has a slightly more year over year, which is also impacting the year-over-year guide. As far as the rest of the year, as I mentioned in the prepared remarks, we are really focused on delivering on the $100 million, but we have also said that the big thing we work on every day is balancing driving the short-term results but also investing for the future. So we will continue to monitor the forecast for 2017, and then we'll make decisions throughout the year about how much we want to invest in addition to what we are investing already.

Great. Thank you.

Curry Baker, Guggenheim Securities.

Hi. Thanks, guys. I have a couple questions on the Live Events segment. One, you grew the number of live events from 344 to -- from 329 in 2015. Should we expect you to continue grow the aggregate number of live events in 2017 and beyond? And if so, what markets are you targeting for additional live events?

And secondly, you had 103 live events in the fourth quarter versus 82 last year with revenue up 17%, yet OIBDA declined 5%. Can you go into more detail regarding why the live events in the fourth quarter appeared less profitable? Thanks

Sure. On the first part, we are going to do more events. As we've mentioned before, once we executed our brand extension and we had separate talent rosters for Raw and SmackDown, it allowed us to add an event on Monday night, a SmackDown event Monday night, a broad live on Monday. So that's going to drive the increase.

So the short answer is yes, there will be an increase in events. We don't believe there will be a material impact in profits in 2017 because we're also dealing with a different stadium capacity for WrestleMania, which offsets some of the growth in attendance revenue that we'll see from the additional events. So obviously, we set a record at AT&T, over 100,000. The Citrus Bowl has a smaller footprint, so you have a year-over-year comp.

And then on the second element of your question where you talked about the profitability, we did increase our marketing spend in Q4 on the live events side, both for events in 2016 in the quarter, but also for 2017. We had, obviously, a really successful Royal Rumble at the Alamodome with over 50,000 in attendance. So you had some of the timing of that because even though it's for a January 2017 event, we expense it in the period. So in essence, the answer to your question is the profit was impacted by timing somewhat.

Mr. Baker's line disconnected on accident, it looks like.

Brandon Ross, BTIG.

Hi. Good morning. Thanks for taking the question. First, on the guidance for the year, last year, you very accurately predicted your subscriber growth for the year before the year even started. Could you drill down a little more on your sub expectations for 2017 that are underpinning that $100 million OIBDA guide for the year?

And then on the Q1 guide, in terms of subscribers, I think you finished January at 1.5 million. Your guidance seems to imply basically no subscriber additions in February or March, which seems unlikely. Are you just being conservative there? Than I have a follow-up.

So I'm going to correct the premise of the first question. We didn't really predict the sub levels last year. We gave in essence a hypothetical construct where we said if the sub levels fell within a certain range, here would be the range of our OIBDA. To your point, it ended up those subs came in within that range, but we won't take credit for being so accurate. We wanted to give people -- given that we weren't giving OIBDA guidance, give people a construct that they can lock into.

This year, we feel more and more comfortable in our ability to forecast sub growth, and that's why we just focus on giving the OIBDA guidance. So we're not going to go into a full-year sub guidance. We will keep doing what we do, which is in the quarter.

As far as Q1, we're not being conservative. There's the mechanics of the sub growth when you have a good month of sub adds, as you would expect, for a really large amount like WrestleMania, on a smaller scale, Royal Rumble, the combination of future month sub growth versus the attrition that you see from that previous month has an impact. So we're not being conservative.

As far as March, we're guiding to average daily paid, so any adds in March, the big gross adds coming in from the promotion would in effect average daily paid. It will affect the total, but not the average daily paid. You wouldn't see that in the Q1 guidance.

So there's some ins and outs there, but the main thing I would correct is that we are not being conservative. We feel the forecast, the point we've given is as best visibility as we have right now.

Great. And then following up on Eric's question on promotions, you experimented in the quarter with doing a bundling promotion with Crunchyroll. Can you tell us any takeaways from that offering?

And a lot of SVOD services have seen huge lifts by allowing Amazon to sell their services, such as Starz recently commented on that at their Analyst Day. What is your latest thinking on allowing third parties to sell the network?

On the first one, we're going to stay away from commenting on individual promotions. Eric asked about the three-month, mentioned the Crunchyroll. Again, like I said, you will see us do different things throughout the year, and probably more and more, but we're not -- we're going to stay away from commenting about individual ones. We'll learn from them, and on the ones that work well, we will do more like them, and the ones that don't, we will do less.

As far as Amazon or any other third party, our perspective on doing deals like that really come down to three things: number one, the economics; number two, the sharing of the customer information; and number three, the sharing of consumption. As we build a direct-to-consumer business that's anchored by the network, we are starting to see the immense value of having all that information. It really makes us a lot smarter both on a business side and on the creative side.

So if we can't strike a deal with someone where we feel comfortable with the economics, where we're getting the customers' information, and where we're getting the consumption data, we're not going to do that deal.

Right. So it would be accurate to assume that Amazon is not offering that data to you.

It would be accurate to assume that we haven't gotten comfortable yet doing a deal like that across those three levers. I don't want to really speak about one particular potential partner or not.

Okay. And just one final question. You raised $215 million with the convert. What's the rationale there for having that much cash? You said to execute your long-term growth strategy, but could you give us more details on your cash needs there and any other reasons that holding so much cash would be strategic for you? Thanks.

In addition to general corporate purposes, we've said that we want to continue to invest in the growth strategy, which is about content, it's about technology, and it's about expanding our global presence. And one example I mentioned on the CapEx guide being on the high end of our historical range, that facility we purchased back in the third quarter we'll begin retrofitting the facility out to serve our production need, so that's an example of us having -- or why we did the convert to support that.

And then finally, in addition to general corporate and investing in our strategy, in the media sectors, you know Brandon, is fairly consolidated, which means that when we're talking to potential partners about potential commercial relationships, we are usually dealing with organizations that are much larger than we are. And what we've found -- and we've formed a perspective -- is that having the balance sheet with significant cash on it is good for us. I think it shows we have the wherewithal to take advantage of a variety of options and how we execute it to the future, so we think it's beneficial for that purpose as well. So those are the three reasons we did it.

Thank you very much.

Dan Moore, CJS Securities.

Good morning. This is actually Robert Majek filling in for Dan this morning. Following up on a previous question, how much flexibility do you have in the cost structure to hit that $100-million target if subscriber growth continues to decelerate?

As you know, Robert, because I know you pay attention to a lot of what we're doing, we've made a lot of investments over the last few years, so we think there is flexibility in the cost structure. The tough thing for us is always going to be we're so bullish about the future, is we want to make sure we are investing for the long term.

We've always said we prefer a lumpy 15% CAGR than a straight-line 10% CAGR, so we're willing to take hits in the short term if we think over the long term we can deliver a bigger result. And by the same token, we wouldn't have made a public commitment if we weren't willing to do everything in our powers to deliver on that. We will continue to balance those two things.

Thank you. And in terms of international markets, where is the strongest growth coming from in new subscribers?

We don't break the subscriber levels down by market, but what we have said, if you think about WWE Network's international presence, it's an English-only network. It's priced in the US dollars. It doesn't have things like download [digital] functionality right now, which you need in markets that have low broadband penetration.

So we always talk about the international rollout as a soft launch, if you will. And then over time, we will figure out where we want to invest in the product to localize it more, and we're doing more and more localization. Starting last year, we were offering next day of our pay per views in multiple language as an example. Vince mentioned the UK tournament. That's another example. So you'll see us do more and more, but we don't give out specific countries.

Thank you. And lastly from me, what are your tax rate assumptions for 2017?

As you know, there's a lot of discussion about corporate tax rates going on right now. We are a full taxpayer, so our assumption is that if any of the plans as they currently have been detailed were to be executed, we'd be a beneficiary because we're at the top end of the tax rate. But I don't want to start talking about specific assumptions because we need to let the federal government sort that out.

Thank you.

Laura Martin, Needham.

Let's bring Vince into the conversation. Vince, a couple things for you. This UK thing is really interesting, both because I'm interested in how many markets you think you could do something comparable, and second, does that make you want to bring some of those like that UK champion back into WrestleMania as you've added some of the Asian talent?

And then secondly for you, this is just a staggering amount of hours that's being watched by these subs, and the only way you really get paid based on usage is to add ad revenue, or that's the best way. And you talked about ad revenue in the past, so could you talk about that potential revenue stream so we could monetize some of this amazing viewing that you are getting?

I'll let George handle that aspect of revenue, but as far as the UK tournament, it does allow us to capitalize on specific as well as a much larger pool of talent. And again, it's somewhat localizing. Obviously, for the UK in May, as I mentioned, developed more into a European-type show, which again, allows us to more localize yet in Germany, Italy, et cetera.

So we can do a lot more live events. We can do a lot more in terms of growth as far as specific talent to these specific countries, so there is just so much opportunity out there on a global basis. We haven't tapped into it really very much at all, and this is our first venture into tapping to that specifically, notwithstanding the fact that Paul has done extraordinary job of attracting talent from all over the world in an effort, obviously, to go back into the specific countries which they represent and continue to build a localized audience there as well. Our expansion internationally as far as talent is concerned is mammoth.

Laura, on the ad revenue question, we're not believers in the premise you laid out. We think the monetization of this passionate fan base that we're super-serving with a subscription service, that the best path to monetization is to keep increasing the number of subscribers.

For us, when you look at the way we monetize content, we have the subscription service, we license our content to partners, and really, our ad model is more on the AVOD platforms, on YouTube, on our own O&O, maybe someday other players like Facebook and Snapchat and so on where we have incredible engagement as they build out their ad tech. So that's the way we think about advertising. We have a light advertising load on the network right now, but I wouldn't expect that to grow.

Okay. And then just a follow-up for you George. Last year, we had the 30-day -- the free period had WrestleMania, and are you guys going to do anything extra? I assume you're doing that again.

But are you going to do anything extra to try to get people into WrestleMania, because you convert these trials subs at the 70% to 80% levels. So are you going to do anything extra to try to get more people into WrestleMania, which would then benefit the entire subsequent four quarters?

Our expectation is we'll keep the model we've had now for over year and a half of a 30-day free for new subscribers. It's for new subscribers only. And as we mentioned before in the discussion about promotions, we will continue to experiment.

So the answer is yes, we will try some things around WrestleMania. Obviously, we think if you come in for our premier event, you will get a real good feel for the value of the network. So we will do some things.

That's super helpful. Thanks guys. Great numbers. Thanks.

Mike Hickey, The Benchmark Company.

Hey, Vince, George, Mike. Congrats on the quarter. Thanks for taking my questions. Curious if you have a gauge or measure of fan interest or momentum going into this year's WrestleMania. Remember last year, there was a lot of injuries on the roster, and people were scratching their heads on how exciting the event could be, and of course, proved to be hugely exciting.

But this year, it looks like majority of your stars are healthy, and then of course, you have the Goldberg effect, which appears to be driving a lot of excitement. So any thoughts there would be helpful.

And I'm also -- how you think about this year compared to last year in terms of fan momentum relative to where you are in subs in January where you are a pretty strong, and you would think that intuitively that momentum would carry you pretty well through the quarter end relative to your sub guidance, which all-in does appear conservative. Thank you.

Let me just say there's no one talent that makes this big wheel keep on turning. And there is a mixture of combinations in the storylines and of the resolution of those storylines at WrestleMania or Royal Rumble or SummerSlam or any of our other events. You will see some vacillation from one pay-per-view to the next, and it's just the nature of the business.

As far as momentum is concerned, I think we have more momentum this year than we did last year. And as you mentioned, fewer individuals are injured, so that always gives us a larger talent pool and more players to deal with and more storyline. So there seems like there's more momentum coming into this year's WrestleMania.

Thanks, Vince. The one last one from me. Curious on your brand extension. I was wondering if you could reflect on and maybe remind us what you're trying to achieve there. And obviously, we have seen the pickup in live events, which seems very constructive. But curious if you think that's been a success and how you think about maybe the TV ratings and how that ties into future TV rights fees. Thanks

As far as the brand extension is concerned, it's working extremely well. It's working exactly like we thought it would. If you like the product Raw, you are more likely to watch the product on SmackDown. There is some crossover, which is what we wanted.

At the same time, we are building -- new viewers come in. We're introducing new viewers in SmackDown, and that just in an of itself is what we're trying to do as well, and are doing. And more viewers come to SmackDown, then more viewers are likely to watch Raw as well, so it's a big wheel keeps on turning. That's our strategy.

And also it's like you have fresh talent coming from one brand to the next, so in essence, if you haven't seen a Roman Reigns on SmackDown, then what he does if and when he does come to SmackDown, then that's really a big thing. So it freshens up talent. It gives us much longer range in terms of the use of those talents and the IP that goes with them, so that's obviously that in addition to more live events.

And more room for more talent to be able to rise to the top. If you have only one show and one -- or two shows with the same talent, it's difficult to create new stars because the tendency is to just keep the new larger talent on top all the time. So it allows other stars to be able to climb the ladder of success.

So there is so many reasons why that -- and multiple touring. Again, if it was just one show, both Raw and SmackDown, you are limited to your international touring for argument's sake. And we can have the SmackDown tour in December and a Raw tour three weeks later or the next month. So it allows us a lot more flexibility as far as the brand growth is concerned.

And of course, the other aspect of that is that SmackDown is now a live television show. Television ratings on SmackDown have been extraordinarily good, much better than previous years. Raw rating continues to decline somewhat, much like the NFL ratings.

Thanks, Vince. Good luck guys.

Jamie Clement, Macquarie.

Everyone good morning. Thanks for taking my questions. George, I noticed on the Royal Rumble broadcast that you all highlighted all of the different language broadcast tables that you had there. I wasn't really sure, is that something you plan on doing more in the future, having German language, Italian, languages other than English and Spanish? And is the thought there to possibly build a backlog that you could populate the network with localized content going forward?

Jamie, we've been doing that now for about a year. So early in 2016, we started making available within a few hours after the end of the broadcast multiple language versions of the pay-per-view. Fans in Germany, if they want, they can enjoy it in German. Fans in Spain or in the US who prefer in Spanish can do that as well, and they can do that live in Spanish.

So yes, we've been doing that. We've got some surprises in store here coming up. But we think over time, you'll just see more localization of all different forms.

Okay. And then George, follow-up question. Is the direction of CapEx in terms of what you have planned for 2017, is most of the year-over-year increase, is that going to the facilities for your production needs, or are there other destinations for those that we should know about?

There's obviously other destinations, but if you looked at the increase --

Yes, the increase.

Yes, the increase is primarily around space. Obviously, we've grown the headcount quite significantly over the last four years, and it's a way for us to consolidate a lot of our creative folks, so we are excited about the buildup. But yes, that's a big driver of the year-over-year increase

Okay great. Thank you all for your time.

There are no further questions in the queue at this time.

Thank you, everyone. We appreciate you listening to the call today. If you have any questions, do not hesitate to contact us. Thank you.

That does conclude today's conference. Thank you for your participation.