TKO Group Holdings Inc (TKO) 2018 Q4 法說會逐字稿

Hello, and welcome to the webcast entitled WWE Fourth Quarter Earnings.

We have just a few announcements before we begin.

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

Please go ahead, sir.

Thank you, Amanda, and good morning, everyone.

Welcome to WWE's Fourth Quarter 2018 Earnings Call.

Leading today's discussion are Vince McMahon, our Chairman and CEO; as well as George Barrios, and Michelle Wilson, our co-presidents.

Their remarks will be followed by a Q&A session.

We issued 2 releases earlier this morning, one pertaining to our 2018 earnings and the second announcing a share repurchase program.

These releases, our earnings presentation, other supporting materials have been posted on our website, corporate.wwe.com/investors.

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.

For the year, we achieved record revenue and profit as well as demonstrating we continued to effectively execute our strategy.

In other words, we know what we're doing.

Our international revenue surpassed $300 million for the first time in history and of course, it's always been one of our goals to achieve more international revenue, we're getting there.

Just a reminder, we completed our agreements with Fox and USA to provide a much more powerful platform for broadening our audience and driving growth.

It's not just that, it's also the promotion behind it, which we think will be exponential with both parties, which is going to help us not just in terms of television, it's our overall exposure.

As you know, everything else comes behind that in terms of CPG, et cetera, et cetera.

As far as our -- we performed large-scale record-breaking events, Greatest Royal Rumble, WWE Super ShowDown, which is in Australia and actually was like -- it's the largest attendees we've had for an event overseas in the past 25 years.

We grew WWE Network with an 8% increase in average paid subs to 1.65 million.

We focused on other deepening engagement in terms of production and content, the Miz & Mrs., which is a hit television series featuring The Miz and his wife, Michelle.

And we delivered an 8th season, that's pretty much, that's remarkable, an 8th season of Total Divas, and a 3rd season of Total Bellas.

In addition to that, we also produced Evolution, which is an all-women's, pay-per-view that did quite well for us.

And we have Mixed Match Challenge, in which we did a second season on Facebook Watch.

But generally speaking, we're pleased with our performance and we continue to transform WWE and hopefully, have another year of record-breaking results.

George?

Thanks, Vince.

There's several key topics, which Michelle and I would like to review today.

It includes management discussion of our financial performance, the progress of key strategic initiatives and our business outlook.

As Vince said, in 2018, we effectively executed our strategy, leveraged our brand to increase the monetization of our content worldwide and across multiple platforms.

We generated record revenues for the fifth year in a row of $930 million, with international markets surpassing $300 million for the first time in our history.

These results reflected higher content rights fees, increased advertising sponsorship sales and the continued growth of our direct-to-consumer WWE Network.

We achieved adjusted OIBDA of nearly $179 million, which is also a record that exceeded the high end of our guidance primarily due to some cost savings and timing of certain initiatives that shifted from the fourth quarter into the current year.

During the fourth quarter, our strong results reflected our ability to create captivating new content, broaden the audience and drive performance based on economies of scale.

In the period, we produced several spectacular large-scale events, such as Crown Jewel and Super Show-Down, that had a meaningful impact on our results as evident in our media and Live Events segments and accounted for a substantial share of our overall $23 million growth in adjusted OIBDA.

To review our business performance in the quarter let's turn to Page 5 of the presentation, which shows revenue, operating income and adjusted OIBDA by segment as compared to the prior year.

Looking at our media segment, adjusted OIBDA increased $22.8 million based on a 40% or a $58.9 million increase in revenue.

Revenue growth was driven by the distribution of new content in international markets, as George referenced, and higher rights fees and core content agreements.

The significant monetization of new content was an integral component of the quarter's other media and advertising revenue.

Additionally, WWE Network added to the growth as average paid subscribers increased 7% to nearly 1.6 million and contributed to subscriber growth of 8% for the full year.

The increased monetization of content reflected some important operational achievements.

We produced approximately 425 hours of content, worked to optimize our future distribution and capitalized on new opportunities to expand our audience across platforms.

Extending our reach on television, we completed our eighth successful season of Total Divas, as Vince mentioned, with a ninth season planned for 2019.

We also announced new seasons of both Total Bellas and Miz & Mrs., which has both rapidly gained a very loyal audience.

Our streaming service, WWE Network, we expanded live in-ring content and original programming, which continue to drive viewer engagement.

Among the network's most viewed programs during the quarter were international pay-per-view events, Super Show-Down and Crown Jewel.

Our first all-women's pay-per-view event, Evolution as well as the newly launched weekly series, NXT UK.

On social and visual platforms, consumption of WWE content continued to increase dramatically.

Over the year, digital video views increased 57% to 31.4 billion and fans watched more than 1.2 billion hours of content on those platforms.

That represents a 77% increase from last year.

Contributing to this growth, we produced approximately 165 hours of social and digital content including the second season of Mixed Match Challenge on Facebook Watch.

In 2018, in total, we produced more than 1,600 hours of original content across platforms, which generated consumption in the range of 6 billion hours.

Over the year, we worked to diversify our talent base and established our first Performance Center outside of the United States.

Looking ahead, we expect to increase our production capabilities and deliver even more localized content for our international markets.

We believe this will further engage and grow our global audience.

Turning back to our segment performance.

Adjusted OIBDA from consumer products increased from the prior year quarter, primarily due to a new FASB standard for revenue recognition.

The adoption of that standard increased licensing revenue in the period by approximately $8 million.

Excluding the impact of this change, adjusted OIBDA from the Consumer Products declined from the fourth quarter last year primarily due to lower sales of merchandise on our e-commerce site, WWE Shop, and lower royalties from the sale of our toy products.

Despite that result, we remained the #1 action figure in the United States and the latest release of our franchise video games, WWE 2K19, earned its highest Metacritic score since [2K] began producing our game back in 2013.

During the quarter, we also continued to increase the penetration of our mobile games.

At year-end, we had more than 100 million installs across our mobile game portfolio, which was led by WWE Champions and WWE Supercard, also included our newest game, WWE Mayhem.

Lastly, following the successful launch of WWE Custom Tees, a new component of WWE Shop, which we described last quarter, we are now planning to extend this service to our international markets and we believe it will drive 2019 growth in e-commerce.

Going on to Page 8 of the presentation, revenue from Live Events reflected the impact of holding several large-scale international shows, WWE Super Show-Down, which featured the most extensive roster of WWE Superstars to ever appear in Australia, became the highest attended event outside the U.S. in the past 25 years, attracting more than 70,000 fans.

Growth, however, was offset by the timing and performance of other events worldwide.

Specifically, we staged 14 fewer events in the quarter, in part to accommodate these special events.

Additionally, average attendance at our North American events declined 7% to approximately 5,000.

Regarding our Live Events, I thought it would be helpful to provide broader context on our North American business.

Turning to Page 9 of the presentation, I'd like to focus on 3 key points.

First, over the past decade, total annual attendance at our North American events and revenues from ticket sales at those events has followed a steadily increasing trend line.

Second, of the 310 main roster Raw and Smackdown events in 2018, only 113 of those were events where we created video content and monetized that media through content rights fees as part of our WWE Network subscription service.

And finally, for those 113 events where we created and monetized video content, our "TV and pay-per-view events," average attendance has generally been growing or stable.

Turning back to our overall results.

The significant adjusted OIBDA growth in our media segment and a onetime $11.3 million prior year charge with the adoption of the new Tax Act were the primary drivers of growth in net income.

Additionally, fourth quarter net income benefited from a $2.5 million unrealized gain due to a mark-to-market adjustment of a marketable equity investment.

You should know that as the underlying market value of this investment fluctuates, WWE is exposed to future earnings volatility to the extent we continue to hold this investment.

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

As of December 31, 2018 WWE held approximately $360 million in cash and short-term investments.

Additionally, we estimate to be approximately $100 million in debt capacity under the company's revolving credit facility.

In 2018, we generated approximately $154 million in free cash flow as compared to $72 million in the prior year, the growth driven by improved operating performance.

Partially offsetting this increase in free cash flow, we paid $51 million of payroll taxes associated with annual vesting of our equity awards.

The scale of this amount, reflected as a financing activity in our cash flow statement, was due to the significant increase in our stock price.

In terms of our capital structure, we are committed to maintaining a strong balance sheet, providing adequate liquidity for deepening our global brand moat through investments.

As we look to the future, we believe that WWE will generate significant cash flow that enabled us to pursue these objectives and return excess capital to shareholders.

This morning, we announced that our Board of Directors has authorized a stock repurchase plan of up to $500 million.

The authorization of the stock purchase program underscores our commitment to the company's shareholders.

The decision was supported by WWE's strong financial performance and demonstrates our confidence in the company's future.

The objectives of our capital deployment strategy are to maintain significant financial flexibility, provide adequate liquidity for investing in growth opportunities, and to return excess capital to shareholders.

We plan to repurchase stock opportunistically when the price is below WWE's intrinsic value as conservatively estimated by management and the returns of share repurchase compare favorably to other capital allocation alternatives.

In our view, this should give us on the right path toward continuing to build shareholder value.

Turning to our outlook.

In 2019, we expect to achieve another year of record revenue of approximately $1 billion.

Previously [committed], we're targeting adjusted OIBDA of at least $200 million, which would also be an all-time record.

We believe that increasing the engagement of our fans over the next few years will enhance WWE's brand, thereby strengthening our ability to optimize the value of our content.

Given what we believe the potential magnitude of this opportunity is and its importance to our long-term growth, we will continue to invest in content, digitization and deepening our global footprint.

Key areas of investment for 2019 will include our talent, developing a wider range of content including localized content, developing the next iteration of WWE Network, and leveraging data to improve all areas of our business.

In 2019, as we have in the past, we'll continue to balance current earnings growth with investments that strengthen engagement and drive long-term value.

We know that net income in 2019 could be impacted by changes in the value of the marketable equity investments I mentioned.

Additionally, we anticipate an effective tax rate of approximately 25% before factoring in the impact of any discrete items, including the impact of the recent share appreciation on the vesting of share-based compensation.

We've previously discussed the step-up in capital expenditures to build out our content production infrastructure.

That spending was delayed in 2018 as our workplace strategy continued to evolve.

Total capital expenditures are now estimated at $70 million to $90 million for 2019, with continued spending in 2020 above the historic range of approximately 4% to 7% of revenue.

And we'll provide further guidance when the related plans and time lines have been finalized.

For the first quarter of 2019, we estimate adjusted OIBDA of $9 million to $14 million.

This range as well as expected performance through the third quarter, represent a year-over-year decline as higher rights fees are offset by increases in fixed costs, including the timing of strategic investments.

Achieving our target full year 2019 results assumes a substantial revenue increase, which should generate adjusted OIBDA of at least $100 million in the fourth quarter.

Importantly, our new distribution agreements in the U.S., which become effective in the fourth quarter, give us significant visibility into that expectation and into the strong year-over-year growth that we anticipate in every quarter of 2020.

Additionally, we're projecting average paid subscribers to the WWE Network of approximately 1.5 million for the first quarter.

As you know, since the launch of WWE Network, we've issued a release and held a conference call to report network sub levels following WrestleMania.

Given the success of WWE Network, we no longer believe such a call provides useful information to investors.

Based on these factors and frankly, the extremely short time period between WrestleMania and our first quarter earnings call, we don't plan on issuing a release or hosting a call the day after WrestleMania.

In conclusion, in 2019, we'll continue to focus on determining our distribution strategy in various international markets, and we expect to complete this work and provide additional perspective on our plans towards the first -- end of the first half of 2019.

We will also continue to work on developing the next iteration of WWE Network, creating new content, localized content and continuing to leverage data and new digital products.

We believe these strategic initiatives will further engage [fans and] deepen the moat around our business.

Our execution in the context of the ongoing media industry trends really creates a foundation for sustainable long-term growth and increases in shareholder value.

That concludes this portion of the call.

I'll now turn it back to Michael.

Amanda, please open the lines for questions.

(Operator Instructions) We will take our first question from Ben Swinburne with Morgan Stanley.

A couple of questions.

George, could you talk a little bit about the investments you're making in '19?

Any help in quantifying sort of the incremental spending that you're highlighting in the press release that you would call strategic?

And should we expect that to be fairly linear through the year since you guys obviously have a very back-end loaded EBITDA expectation?

And then secondly, I guess, I have to ask it since I'm the first on the call, any update on the U.K. process, which is now -- has gone beyond at least initial suggested time line for us to expect a result of that?

Yes.

So, Ben, on the first part on the investments, think about it this way.

If you look at our core fixed cost base in 2018, kind of where we started the year, that tends to grow at 3% to 4% annually.

You can kind of apply that, a little bit higher rate on compensation, which is frankly, the biggest chunk of our cost stack.

Throughout the year and frankly, it gets to the timing question, which I'll get to, but towards the end of the year, third quarter and then into the fourth quarter, we begin ramping up some of those strategic investments, and I'll talk a little bit about what they are.

But that's when they start as you get the full year impact in 2019.

So the compares in Q1, which I talked about the decline in OIBDA, and then they soften a little bit in Q2, a little bit more in Q3 and then by Q4, the year-over-year comps actually even out, so you don't have the investment impact at this point.

I'll say, as we go through the year, as you know, we have a forecast we start the year with, it gets updated just about daily.

So we will tune any further investments depending on what we see.

So if we're moving revenue at a faster clip than we anticipate, we may put some additional investments in the fourth quarter but all geared towards hitting that $200 million in OIBDA for the year.

And as we talked about in the prepared remarks, it really is on those areas of continuing to drive content, especially the localization of our current content and potentially local content in some of our key international markets.

We just think that's a big addition to the flywheel that we've built.

We'll continue to invest in digital products and digitization kind of writ large, the network being kind of one of the largest manifestations of that.

And we'll continue to put more people, more kind of functional roles in our key markets, in India, in the Middle East, in China, in Latin America.

So that's what we're going to do.

As we said again in the prepared remarks, we think there's a long tail for us in the monetization of content, both in the U.S. and outside the U.S. and we think the opportunity is one we want to make sure we take advantage of.

In terms of the rights renewal process outside the U.S., obviously, there's a lot of key markets that we're still working on, U.K., India, China, Latin America, the Middle East.

We'll announce those as the deals get done or shortly thereafter.

We will not update the economics on any single region.

What we will do is update the total core content licensing revenue that we expect, so you can see what the outcome is in total for the portfolio, But no individual market.

As opposed to the announcement around the U.K., you rightfully mentioned back in '17, we had said we thought we'd complete the U.K. agreement towards the back half of '18, it hasn't happened.

So I think it's fair to say that all the agreements will be completed substantively by the middle of the year, and so we'll announce those as they get done.

We're not going to put a specific date on any one agreement at this point.

We'll take our next question from Curry Baker with Guggenheim Securities.

I have one on content.

The second season of Mixed Match Challenge wrapped up in December.

Can you provide us any update on the metrics you've learned from having 2 seasons on the Facebook Watch platform?

And then, there's not been a renewal for the third season.

So how are you thinking about incremental content deals going forward?

Does a 6th hour of content each week make sense?

And if so, where are you in the process of maybe rolling out a third hour of SmackDown or anything like that?

So, Curry, it's Michelle.

On Facebook, as I mentioned on the last call, I think that both seasons of Mixed Match Challenge have been a great learning experience for WWE on our side around driving viewership on the Facebook Watch platform.

Again the metrics are the same that we follow all of our content, which is time viewed.

So again, we were pleased with what we learned, and we learned a lot about how to produce short form content for Facebook.

They worked with us very closely in terms of how to drive our fans from our large footprint in Facebook around our talent and the WWE pages to the Watch tab.

So again I think it was a great experiment for us, and we've learned a lot.

So again, I'll let George comment on kind of the 6th hour and what our plans are for that.

But that's pretty much it on Facebook.

Yes, Curry.

The second part of the question, just to give context, I know you know this but for everyone on the call.

So for a long time, we've created 6 hours of Live Event in-ring content on Mondays and Tuesdays, 2 hours of Raw, 2 hours of SmackDown and previously ECW / NXT Main Event Superstars.

Obviously, a few years ago, we moved to 3 hours for Raw and 2 hours for SmackDown.

That 6th hour, if you will, as you referred to it, continues to be things like Menace Main Event.

This past year, it was 205 Live on WWE Network, it was Mixed Match Challenge, which Michelle just spoke about.

So yes, we need to look at that.

Obviously, live event content is valuable and like every piece of content, whether it's Miz & Maryse or Raw or SmackDown or NXT, we have to think about what's the best platform for that content.

Is it on an AVOD platform, is it in the pay TV bundle, is it on direct-to-consumer.

So we're doing that evaluation now.

And once we finalize that decision, we'll let everyone know.

We'll take our next question from David Karnovsky with JPMorgan.

For both your revenue and OIBDA guide in 2019, does that currently include any large international event, like Saudi Arabia or the new Super ShowDown?

And then, just to clarify, are you expecting OIBDA declines in each of the first 3 quarters or just over that period in total?

On the first one, as you know, we announced a 10-year deal to do a major event in the Middle East.

So that's in there, I'm not going to comment on any other events that are kind of in our forecast.

We don't get into that level of granular detail.

And it gets to Ben's question, your second part, David, is the investment element and the timing of that is most pronounced in the first quarter, a little bit less in the second quarter but probably declines there as well.

And then similarly, by the third quarter it begins to abate somewhat but potentially kind of flat to down in the third quarter as well.

And then the fourth quarter will be a significant increase as the U.S. rights deal comes into play.

And at this point, we're expecting as at least $100 million of adjusted OIBDA in that quarter.

Okay.

And then you mentioned investing in your talent base in 2019.

We've seen in recent months a new wrestling promotion announced.

And I'm just wondering how this is potentially impacting the market for talent, whether you're seeing more cost inflation there than normal?

Yes.

Too early to tell and we wouldn't talk about the specifics of that.

From our perspective, we think we are the premier global organization and the greatest wrestlers in the world want to be in the greatest platform, so we have a lot of confidence in our ability to manage that.

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

You have content deals in progress that I believe will impact 2019, including China and Mexico, I think.

How are these embedded in your 2019 guide?

And what progress has been made there?

And then on the China market, what specifically are you seeing there?

How has your progress and popularity changed since the last TV deal that you cut there?

So you're right, there's some deals that expired during the year so the outcome of those will impact '19.

As far as what's embedded in the guide, is our best estimates of where those deals will turn out.

Obviously, in some, we have better visibility than others just because of the timing of the discussions.

But in all, we have some level of visibility at this point.

So the conversations continue.

They're frankly, not that dissimilar market-by-market, a little bit kind of where you are in the conversation might differ just because of the timing.

But otherwise, everything continues apace and a lot of visas and so on in everyone's passport, which is a good thing.

And Michelle can touch on that.

On China, as a reminder to everyone, our content is distributed there on -- with a digital-first strategy with PP Sport.

And again we've seen consumption of both Raw and SmackDown.

And again what's great about that partnership, we are delivering Raw and SmackDown Live in Mandarin and so that has obviously been great to driving our viewership and our fan base in that market.

So consumption on Raw and SmackDown continues to grow well in that market, we're pleased with the growth.

Again, what's nice about digital and social is you can grow that pretty quickly.

As most of you know, we've had a strategy where we put some social media content producers on the ground in that market, that's also grown our social media footprint significantly.

As George mentioned, we are -- one of our primary focuses is putting investments into the market and China is one of them where we can do more localized content.

That means highlights and clips and how we tell the story of Raw and SmackDown on social platforms being in Mandarin.

And right now, we are just scratching the surface of that.

We believe long term, that will continue to grow our fan base in China.

So again, we're happy with the growth and we expect it to continue as we engage our fans deeper with localized content.

We'll take our next question from Eric Handler with MKM Partners.

Two questions for you.

First, George, a bit of a modeling question.

When you look at these investments, particularly what we're going to see in the first quarter, is that going to impact more the media division line?

Is that going to impact more on the corporate line?

Where are we going to see these investments show up?

Okay.

You'll see more on the media side as well as, as you know, we allocate some of our cost as well back to the segments, the costs that we feel appropriately belong in the segments because they're closer to the end customer.

So some of those costs as well, but yes, primarily just because of the scale of the media business, they'll be predominantly there.

Okay.

And then a question for Paul if he's there, if he's not, whoever chooses.

The other day, thanks to the magical power of the Internet, there was a picture of Paul making a presentation and behind him was a map of the world and forward-looking, thinking about where future performance centers can go and you had one in Latin America, in Asia and 5 different places, I think it was.

How close are we to -- I know you just opened up the U.K. center, but as you think about more localization of product, how close are we to actually seeing these performance centers start getting opened in various other regions?

To give it a little bit broader context, Vince in a discussion the other day, said something I thought was really impactful, and that is over the next 5 to 10 years, our ability to develop local content could be as valuable as the Western content that we today export, Raw and SmackDown.

So when we talk about this performance center strategy, canopy strategy globally, it has multiple points.

It has, number one, it gives us a greater pipeline of talent.

number two, it allows us in the short term to monetize.

And then number three, it gets to that longer-term vision that Vince mentioned.

So for us, the question is how?

How and when.

And you saw the U.K. was, I would describe, on kind of on a light scale.

If Orlando is the heavy scale, replicating that, U.K. is more on the light scale, and that's the beginning.

So we'll see over time because we're going to learn.

I think that's one of the things culturally the organization does really well.

It starts off small, it learns, it grows quicker and quicker and quicker.

And before you know it, you've got this huge overnight success.

So that will be the approach we take with the PC model.

I saw that picture of Paul too, he looked damn good on that.

And then just one last follow-up, if I could.

With the share buyback, I'm just curious of what drove your decision to do a buyback rather than, let's say, increase the dividend at this time?

Yes.

So obviously, the first question was, what do we see in terms of free cash flow?

We have today a lot of confidence in that over the next several years.

And then we evaluate a variety of models.

And we just thought that the ability to balance the -- maintain the strength of the balance sheet and give us the flexibility around that, reacting to new assumptions that will have both about external -- the external environment and our own internal operations, we just thought authorizing a buyback program just gave us a lot more flexibility.

We'll take our next question from Vasily Karasyov with Cannonball Research.

I have a couple.

George, you just mentioned your confidence in free cash flow generation.

I think this year, your EBITDA-to-free-cash-flow conversion was around 90% and that's up from 53% last year.

Can you tell us what kind of level we should expect in the next 3 years?

What's the right kind of assumption?

And then I have a question on advertising and sponsorship.

Yes, I'm going to stay away from your question on free cash flow conversion.

I think there's some things we need to lock down before we can comment on that.

We do want to get the international renewals completed.

We want to have a little bit more visibility on our workplace strategy, the timing of that.

So we'll stay away from that.

I also will say, we have, when you look at our cash flow annually, there are timing elements around that.

I tend to, myself, look at a 2- or 3-year average to smooth out, especially the working capital changes.

But we're not going to peg a specific conversion number at this point for the reasons I mentioned.

Okay.

The second question is about advertising and sponsorship revenue accelerating in Q4 and for the full year in the media segment.

So my question is, A, should we expect this lumpiness in terms of growth rates in '19 to continue?

And then would it be fair to assume that the incremental margin for this revenue stream is close to like 85%, 90%?

So 2 things.

It's lumpy by the nature, so we're not going to get into quarter-over-quarter guide.

And then on the margin, it depends on -- a lot of this is our digital assets are part of that.

And within that specifically, our relationship with YouTube.

And so the way we record the revenue and attendant COGS depends on whether it's sold by us or sold by them.

So I don't want to get into all the mechanics of that.

I think it's fair to say it's very, very profitable revenue.

The 80%, 90%?

So I wouldn't say it's at that level again because of this mix issue.

We'll take our next question from Eric Katz with Wolfe Research.

You've been able to find a number of incremental opportunities over the last few years, whether it's Saudi Arabia, Facebook or new TV shows.

Is there anything you can tell us about potentially new opportunities or areas of interest you're looking into for '19 and beyond?

And sort of in that vein, any thoughts of putting some NXT content on Fox?

Yes.

So on the first part, I think, Vince mentioned that on the last call that, again it gets to the culture of the company, this kind of continuous re-imagination of itself.

And we have a pretty robust process, Eric, of evaluating both organic and inorganic opportunities.

I was just reading one with Michelle earlier this morning.

So yes, there's a lot in the pipeline, I'm not going to talk about what those are.

But I will say, it's really rigorous, we've got a real focus on return profile.

In some cases, that return is over multiple years because our ability to monetize content, for example, might be driven by contractual agreement.

But I will say, it's a really rigorous process around what the return threshold is on the investments.

You had another one.

With regard to potentially putting NXT on Fox.

Right.

Yes, I think we talked about it a little bit earlier.

The main thing and there's 2 big changes that have really happened over the last 10 years.

Number one, WWE has become predominantly a media company with over 70% of its revenue in 2018 was from media, as opposed to from tickets or products.

But that's a fundamental shift in the last 10 years, and that percentage will probably grow as we hit the fourth quarter this year, and into 2020.

And that's -- the business model is almost inverted.

The second thing along that is, the monetization of the media now comes across multiple platforms.

10 years ago what was being monetized was really one choice, and usually you were dealing with a limited partner, partner set.

Today, we have multiple platforms, some of which we control ourselves.

So the question we have for everything, including NXT, is what is the best place for that content?

And you take the prism of our fans, where are our fans consuming?

What piece of content is tailored to which part of our fan group because everyone has different appetites for different things.

And then, obviously, monetization, both direct monetization and indirect, the promotional element.

So all of that goes into -- those are the prisms we look at.

And so NXT is no different, we have the same discussions.

And sometimes, there's constructive debate internally around that because it's not an easy call.

So it's a long way (inaudible) we're open to everything .

Just on that, do you know what the awareness is of NXT content beyond those who are on the network?

Look, if you think about the building of that brand and it's the second most -- if you think of WWE Network as a bundle of contents, you're always thinking about what's the incremental value of any unit in a bundle, in our view, it's the second-most valuable unit in our bundle behind the pay-per-view.

So it has significant value there for us.

And if you look at when we do a takeover, it's trending, globally, right?

We just did -- for those of you who were watching the Super Bowl and following social media simultaneously, the interest of NXT is significant on the social media following.

So we -- Paul and his team did Halftime Heat, which was brought back from 20 years ago, which took place an NXT Match during the halftime Super Bowl.

And it trended worldwide and beat out a lot of the top advertisers trending at the same time.

So when you talk about awareness, when you can drive global trends during the Super Bowl around NXT as a brand, I think that speaks volumes to the awareness of that brand.

So again those social metrics tend to be a very good indicator around awareness.

And again trending worldwide is not an easy thing to accomplish on Super Bowl Sunday.

It's certainly better than the halftime show.

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

So Vince, you've had a stable SVOD environment for the last couple of years while you guys have grown the WWE Network.

And now in this year, we're going to get AT&T, Disney, NBC, lots of SVOD new entrants as well as a lot of AVOD new entrants.

And I'm interested in your point of view about how many SVOD services do you think the average household is going to take?

And whether you think these new competitors, big competitors with a lot of marketing dollars and [3 avails] sitting behind them are going to affect the OTT growth and your viewing jump?

Well, first of all, there's nothing in the world like WWE.

Whether it's Disney they have, what -- their platforms and whether or not that works, it that all works.

But nonetheless, this is -- it's not really a niche-type situation, but it's a very unique form of program, you can't get it anywhere else.

And that's really a tremendous advantage that we have over everything else.

And again the nimble nature of what we can do as an extension of all of this.

So we can fit in, we can fit into a bundle, we can fit into just our network, there's so many ramifications of this art that we can be a part of, a number of things, we can be separate, a combination of all of the above.

I think that we fit in very well in terms of who we are and the unique nature of our product and the demand for it.

I think it's a plus, not in terms of being an island, an island is good in this respect.

And Laura, the other thing I would add to that, we've had a lot of discussions around these other streaming services.

We were at this in 2014, and I think our value proposition has continued to be very strong.

We survey our subscribers regularly, and we constantly hear the value that we deliver in the content that we're putting out.

As George mentioned, the next iteration of WWE Network, we're doing that for a reason and making that investment to ensure that we continue to deliver a great product, the best user experience and great content.

So we feel good about our streaming service relative to the other choices that consumers have.

Okay.

Ronda Rousey, again, Vince, I don't know if you're willing to -- this is maybe controversial for you.

But Ronda Rousey was an experiment, she built her brand on a different platform, she brought it with her to WWE.

I see that you put the Evolution ad, which is awesome, on the financial outlook page, which is the Wall Street key page.

And I'm just wondering if she leaves, under this type of political question, let's say, Ronda Rousey leaves the WWE, does that damage the WWE franchise?

And does that make the experiment a worthy experiment to bring in people from -- that have built brands elsewhere than in the WWE, when they may in fact then exit and hurt the WWE brand?

I'm curious as to that experiment and your learnings from this Ronda Rousey experience.

Well, again we can bring people in from the outside into our environment.

It can't be just a one-off type thing because then our audience realizes that's not going to push the envelope at all as far as their enjoyment of what we do.

Nonetheless, bringing Ronda in gave us more visibility in terms of the initiative of reaching more women.

And when you do something like that, it allows you to not just use Ronda's platform from a different niche to come into WWE.

Ronda, in and of herself, becomes a brand of WWE.

It's a different Ronda than what you saw before in terms of UFC and things of that nature.

So when you put talent, rub talent, so to speak, up against Ronda, Ronda can help us make talent and she is doing just that.

And she knows how to do it, she's one of the brightest people we've ever done business with.

And the fact that she has adapted to the WWE culture so fast, it really is truly an amazing salute to her as an athlete and as a human being.

So the Rondas will come in and out.

And when they do, as long as we know what those dates are, you plan around it.

The unfortune aspect of sometimes in our business is that we -- our performers are not cartoons, they get hurt.

And this year leading up to where we are now, we've had an inordinate number of injuries.

And when you have injuries, and again, there's a whole bunch of them, Roman Reigns being a principal among them.

And even John Cena, not an injury-type thing, but we thought we were going to have John more of a part of our programming than we do.

John, God bless him, he's making more movies.

And even John, I would think, would say, "geez, I thought I was going to spend more time with what I love to do, which is WWE".

He's only been coming in and out.

So he's not really a part of our storyline.

When you lose John, you lose Roman Reigns, and in addition to that we've had injuries.

Sasha Banks, Becky Lynch, who is one of our top female performers, was injured.

Kevin Owens, Sami Zayn, Bray Wyatt, Charlotte Flair, Alexa Bliss, Braun Strowman, Dean Ambrose, Ember Moon, Samoa Joe, Akam from our new tag team, Jason Jordan, Fandango, Big Show, Seth Rollins, it's like we -- you've had all these injuries, which is really unusual for us.

And they're characters.

It's no different than if you were writing a soap opera and all of a sudden, your main character wasn't there and you're in the middle of production, what do you do?

Well, you very nimbly change the storyline.

But it's not as good as the original one, sometimes it's better because we're pretty good at it.

But those are the things that we're faced with, and one of the reasons why television ratings have dropped.

And one of the reasons obviously, from a lot of Live Event standpoint, that's dropped too because you don't have your favorites on television, obviously, you can't see them at a live event either.

So we're wide open, Ronda's done an extraordinary job.

There will be other individuals coming from different areas that will join us on a long-term basis, they will help us as well.

I hope that answers your question.

And that answers my third question, too, which was about the attendance drop.

It sounds like some of these injuries have hurt the storylines and the content so that it's not secular.

You think next year if everybody's healthy, it sounds like you think attendance might tick back up again.

Right.

(Operator Instructions) We will take our next question from Evan Wingren with KeyBanc Capital Markets.

Just a quick one on subs.

The growth that you're guiding to for the first quarter implies a bit of a deceleration.

Is that something that you're seeing in the numbers from Royal Rumble?

And just sort of wondering if you could give a bit of color on what you're seeing in terms of gross ads and turns at a high-level kind of inter-quarter?

This is George.

I mean, first, for the specific obviously, it's context.

WWE Network is one of the most powerful engagement mechanisms we have with our most passionate fans.

It's also our second-largest revenue stream, incredibly profitable.

So we're all thrilled with the performance.

I'll tell you, Evan, we don't really worry about quarter-to-quarter that much.

We've been in the subscription business now long enough.

We understand that there are some quarters will be worse than others, and it's really about the long term on the platform.

So -- and we're not going to comment on kind of the specific events, obviously.

We'll take our last question from Alan Gould with Loop Capital.

Two questions, please.

In the release you talked about the next iteration of the WWE Network service.

Can you give us a little more detail on that?

Is it going to be a service with more live events at a higher price?

And secondly, with respect to CapEx, you said you've delayed plans but it's still $70 million to $90 million, which is a multiple of what it was this year.

Could you explain that a little bit?

We're not going to get into too much detail on the service, we've got a big reveal plan.

But we've talked about that there's 3 things that we think we can do.

First of all, it's an award-winning service right now, right?

The second-largest sports [Asbud] service in the world, won multiple awards on usability and functionality, our fans love it.

So we're thrilled, but we know we can do better.

I think we can do better in 3 ways.

Number one, we integrate what is a treasure trove of free video into the service that exists today on multiple platforms.

We think we can do something pretty wonderful with that.

Number two, we think we can create an opportunity where when you are connecting with us across any one of our digital businesses, we can bring that all together for you as opposed to today, you've got kind of separate touch points.

And then number three, today, while the service is available around the world, it's only in English.

And we think there's an opportunity to go deeper in some local markets.

So that won't all happen at once, you'll start seeing it roll out sometime this year, and it will come in phases.

But that's really what the next iteration is, and we're really excited to share it with folks here in the near future.

On the CapEx, yes, we've talked about the timing because earlier in '18, we guided towards -- our historical percent of revenue on CapEx has been 4% to 7%.

We said in '18, we expect it to be beyond that, and it wasn't, to your point.

So that was the delay into '19.

So we'll be a little bit more specific on the exact plan, but as we've said for now 18 months, as the company has grown and as it sees the opportunities into the future, our workplace strategy needs to reflect that.

So we're kind of putting the final crossing Ts and dotting Is on that.

But that's what's driving -- the timing referred to '18 into '19.

At this time, there's no more phone questions.

I'd like to turn the call back over to our presenters for any additional or closing remarks.

Thank you, everybody.

We appreciate you listening to the call today.

If you have any questions don't hesitate to contact us.

Thanks.

This concludes today's call.

Thank you for your participation.

You may now disconnect.