TKO Group Holdings Inc (TKO) 2020 Q2 法說會逐字稿

Hello, and welcome to the webcast entitled WWE Second 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, Michael.

Thank you, and good morning -- good afternoon, everyone.

Welcome to WWE's Second Quarter 2020 Earnings Conference Call.

Leading today's discussion are Vince McMahon, our Chairman and CEO; as well as Frank Riddick, our Interim Chief Financial Officer.

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

We issued our second quarter earnings release earlier this afternoon and posted the release, our earnings presentation and other reporting materials 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 a replay will be available on our website later today.

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

Good afternoon, everyone.

Thank you for joining us today.

As you know, we generated strong financial results in a very challenging environment, driven by significant cost savings.

And in spite of the current environment, we also created scripted, nonscripted content for multiple broadcast, cablecast and streaming partners.

We're taking advantage of the strong engagement on our digital platforms in terms of WWE Network, especially, we set WrestleMania viewership records with nearly 1 billion video views across digital and social platforms.

That's up 20% from last year.

We successfully launched our free version of the WWE Network, which is designed to further engage fans with exclusive content, and of course, convert viewers to subscribers, and we preserve -- while we preserve the value of our premium content.

Versus last year, with the new free network, we achieved a 6% increase in WWE Networks' paid subscribers through Q2.

And of course, we are constantly strengthening our leadership team.

And with the announcement of the hiring of Kristina Salen as our CFO, we believe more than ever that we have the right team in place.

And it may not be so much appropriate, but I'd like to thank Frank Riddick, who stepped in from the Board, who was the Interim CFO, was doing an extraordinary job.

Thank you, Frank, and I'll turn it over to you.

Thanks very much, Vince.

There are several key topics which we'd like to review today, including a discussion of our financial performance, liquidity and capital structure and our business outlook.

We generated second quarter revenue of approximately $223 million and adjusted OIBDA of $73.5 million, which more than doubled from the prior year quarter.

The significant growth in profit with lower revenue highlighted the reduction in expenses that we've been able to realize.

Although government mandates associated with COVID-19 resulted in the cancellation of live events, we continue to produce content from our training center at a significantly lower cost, which helped offset the loss of ticket and venue merchandise sales.

During the quarter, revenue declined $45 million as the impact of our new U.S. distribution agreements were more than offset by the absence of Live Event ticket sales and the timing of our large-scale event in Saudi Arabia, which was held in the first quarter this year as compared to the second quarter last year.

Adjusted OIBDA, however, increased nearly $40 million driven by lower production costs as well as reduced expenses, stemming from the cost-saving measures that we introduced in April.

The growth in adjusted OIBDA also reflected a reduction in approved management incentive compensation to drive a lower full year 2020 performance expectations versus our incentive plan performance targets.

Coming into the quarter, we adapted our business to continue producing our televised programs, Raw, SmackDown and NXT.

Importantly, we also maintained our focus on furthering fan engagement by developing new content for multiple platforms.

Highlights of this effort includes the production of Undertaker's Last Ride and Tales from the Deadman for the WWE Network and the development of a new series, The Quest for Lost Treasures that builds on our partnership with A&E.

We also completed the fifth season of Total Bellas, which achieved a 9% increase in viewers to nearly 1 million viewers per episode, and announced a sixth season to premier on E!

in the fall.

These examples are just the tip of the iceberg.

During the quarter, we produced more than 600 hours, and WWE content garnered more than 1.4 billion hours of consumption across television, social and digital platforms.

You should note, we transitioned the production of our televised programs to our training center and began broadcasting without fans in attendance on March 13.

Television ratings for Raw and SmackDown reflect the importance of a live audience to the excitement of our events.

Since March 13, ratings for Raw and SmackDown have been down approximately 19% and 15%, respectively, as compared to the preceding pre-COVID period this year.

Of course, this decline also reflects the seasonal pattern post WrestleMania, media industry factors and channel performance.

Despite the challenging environment during the quarter, Monday Night Raw and NXT ranked as the highest-rated and third highest-rated programs, respectively, on USA Network.

In contrast to our performance on television consumption of WWE content on digital platforms such as YouTube and Facebook increased 15% to 374 million hours and digital video views increased 10% to 9.9 million in Q2 2020.

And we estimate these figures would have been approximately 25% higher had we not agreed to geo-block certain WWE content on social media in India to support our TV licensing agreement in that country.

Since March 13, consumption by our paid subscribers on the WWE Network as measured by digital video views increased approximately 55% through quarter end as measured on a year-over-year basis.

As a reminder, WrestleMania, which occurred in April, set viewership records with nearly 1 billion video views across platforms and generated the highest level of weekend subscriber additions in our history.

Importantly, we capitalized on this environment to successfully launch the free version of the WWE Network, which was designed to promote content sampling, and ultimately, paid subscription.

Paid subscribers at the end of the second quarter were up 6% from the prior year quarter, making the first such increase since the fourth quarter of 2018.

We believe these outcomes demonstrate our creativity in adapting our content, production and marketing in these unprecedented times.

To review our business performance in the quarter, let's turn to Page 4 of our presentation, which shows the revenue, operating income and adjusted OIBDA contribution by segment as compared to the prior year.

Looking at our media segment, adjusted OIBDA increased $53 million, reflecting the impact of lower production costs.

Revenue increased modestly as the escalation of domestic right fees for our Raw and SmackDown programs were offset by the unfavorable timing of our Super ShowDown event.

WWE Network's average paid subscribers declined 1.5% from the prior year quarter to approximately 1.66 million.

Ending paid subscribers increased with higher paid subscriber additions than in the prior year quarter.

While executing the launch of the Network's free version, we also made progress introducing localized pricing in select international markets and in further developing the Network's advertising capabilities.

We continue to believe in the viability of the alternative strategic options for the Network as our potential partners have been impacted by COVID as these discussions have been extended.

Currently, we're unable to estimate when an alternative option will be completed, but still believe in the potential for a transformative transaction.

Turning to our Live Event business as shown on Page 6 of our presentation.

Adjusted OIBDA from our live events declined $17.5 million based on a $47.8 million reduction in revenue.

These declines were primarily due to the government-mandated cancellation and/or relocation of events, which contributed to 76 fewer events than in the prior year quarter.

Until mid-March, we were unable hold arena and stadium-based events in front of ticketed audiences.

During the quarter, we held no such events.

At this time, we are not able to accurately predict when we will begin hosting fans at our venues, but intend to return to live events with an audience as quickly as we safely can.

In our Consumer Products segment, higher sales and merchandise on our e-commerce site, WWE Shop, nearly offset the absence of venue-based merchandise sales.

Adjusted OIBDA increased $1.9 million, primarily due to lower operating costs.

During the quarter, the growth of our e-commerce business was supported by growth in our collectibles category with the introduction of the new design of 6 new title belts, such as Rock Brahma Bull title and the Triple H Signature Series title.

Royalties from the sales of licensed console and mobile games continued to benefit from recent industry growth trends.

Video game revenue also reflected the licensing of WWE Superstars and IP for integration into popular titles, including King of Fighters All-Stars, while the company's mobile games, WWE SuperCard and WWE Champions, both generated more than 15% revenue growth from the prior year quarter.

We will expand our game portfolio with the launch of an arcade-style game, WWE 2K Battlegrounds, in the fall of 2020.

Page 8 of our presentation shows selected elements of our capital structure.

As of June 30, we held approximately $548 million in cash and short-term investments.

This includes $200 million that we borrowed under our revolving credit facility to ensure we have the necessary capital to execute our strategy and deliver long-term value to our shareholders.

In the second quarter, we generated approximately $68 million in free cash flow as compared to a $27 million use of cash in the second quarter of last year.

The increase was driven by stronger operating performance, improved working capital, and to a lesser extent, lower capital expenditures.

The spread of COVID-19 and related government mandates have impacted our business as we have been directed to cancel, postpone or relocate our live events since mid-March.

To date, we've been able to offset the loss of ticket and merchandise sales at our live events by reducing operating expenses across all areas of our business, highlighted by the introduction of a new model for producing content.

To mitigate further potential risk to our financial performance, we evaluated our operations and implemented a comprehensive set of short-term cost reductions and cash flow improvement actions.

To enhance WWE's liquidity, we deferred spending on the company's new headquarters, temporarily suspended the repurchase of stock under our $500 million program and drew $200 million from our revolving credit facility.

For 2020, we've reduced capital expenditures by approximately $140 million, and now estimate total capital expenditures of $40 million to $50 million for the year.

We're continuing to adapt our business to the changing environment with a focus on enhancing the production content and furthering fan engagement.

Currently, we're evaluating the personal requirements to meet these objectives as well as potential investments to support our long-term growth strategy.

As we drive further innovation, we intend to demonstrate financial discipline, balancing near-term performance and our long-term growth objectives.

We may resume our $500 million stock repurchase program, which was temporarily suspended in April.

As a reminder, we view our stock repurchase program as a vehicle to return excess capital to shareholders after consideration of available investment opportunities.

WWE stock purchases under the plan will be executed opportunistically, that is when the repurchase price is below WWE's intrinsic value as conservatively estimated by management, subject to WWE's business outlook and liquidity and when the returns of share repurchases compare favorably to other capital allocation alternatives.

Going forward, the potential impact of COVID-19 on our business, which could be material, remains uncertain.

Accordingly, we previously withdrew our full year 2020 guidance.

And based on the sustained economic uncertainties, we are not reinstating guidance at this time.

As I indicated last quarter, we continue to believe that our growth prospects remain strong as the WWE is well positioned to take full advantage of the changing media landscape and the rising value of live sports content over the long term.

We're focused on developing new content for global distribution platforms and increasing audience engagement in new and exciting ways.

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

Thank you, Frank.

Justin, we're ready for questions.

Please open the line.

(Operator Instructions) Our first question today comes from Curry Baker with Guggenheim Securities.

My first one is for Vince.

The ratings have been soft recently.

I think we all understand that COVID's impacted production and the product.

How concerned are you about the ratings?

Can you tell us what insight you guys have into what you believe is behind the softness?

And what's the strategy to turn the ratings around both in the near term, given we have COVID constraints, but also longer term?

As far as rating is concerned, again, the -- more than any other sports, surely, our audience is a part of the program.

It's audience interaction that always is the plus.

Any time we do not have an audience -- and again, it goes all the way back to the origination of this genre in terms of yay and boos.

So the audience is integral to our success and our television ratings, again, because of the interaction or lack thereof.

Notwithstanding that, I think that we can have more compelling character, better storylines, new characters coming in to where we are right now.

And more of content that's not necessarily in the green, but yet one that focuses on their personalities and their story outside of the ring.

Okay.

And then I have one for, I think, Frank.

You guys have been able to do a lot on the expense line here in the second quarter.

Should we expect similar cost savings and cost discipline to continue in the third and fourth quarter?

It looks like we're still going to be working in a COVID world during those quarters as well.

Or is there anything else to think about on the cost line going forward?

Well, we continue to be well disciplined in controlling costs.

But going forward, to the extent that we restart live events, particularly in a COVID-constrained environment, we will see likely some increase in cost.

But we're being very cautious in the way that we're deciding to add cost, and it will depend on what the environment is and what we're able to do, particularly around live events.

So we have learned a lot through the COVID process, the COVID events and the process we've used to analyze the business.

And we have identified some things that will likely turn into permanent cost savings or differences in the way that we operate.

At the same time, as I mentioned in my remarks, we're looking at some potential investments mindful of the long term and want to be well positioned for when the content rights come to renewal.

So at this point, we don't have a new forecast, as I said, because we're still trying to figure out exactly how the COVID situation is going to unwind and the impact on our business.

And our next question comes from Ben Swinburne with Morgan Stanley.

I want to ask about the Network.

You mentioned that there's nothing new to report on the strategic review, but how are you running the business today in terms of investing in new product, bringing new content or new international offerings, tiering, et cetera?

You had a product pipeline for that product over the last few years before you started to talk about potentially offloading the rights.

I'm just wondering what you're doing today and what the plan is in terms of investing in that product and improving it in the event you end up retaining it over the next couple of years?

And if you're able to spend, what do you want to spend on in this environment?

Or are you being a little more cautious around resource allocation?

I'm going to take us to Jayar Donlan to give us a better answer, other than I know there's been a -- we continue to have a robust area of entertainment.

But Jayar, if you can answer that for us, please?

Yes, happy to, Vince.

First, I'll touch on the content piece that still, we're obviously investing in content.

And we've had some really successful forays recently with things like Undertaker's Last Ride or Ruthless Aggression.

You talk about the product road map, there are a few things that have happened recently with localization as we've localized price, currency and UI in a handful of LATAM markets.

And we're also moving forward on advertising.

So we've developed that capability.

We're still testing the user experience, considering the economic value and essentially evaluating just our general perspective on rolling out further capabilities.

That's helpful.

And I just didn't know if you guys had any update at this point on the Saudi event later this year.

I think the expectation is it probably is not going to happen, but I didn't know if there -- a decision had been made yet.

Decision hasn't been made yet, although it -- based on where they are in their economy, I would doubt it.

Our next question will come from Eric Handler with MKM Partners.

Just sort of piggybacking on this last question.

I wonder if you can give some perspective on the initial feedback for the free tier launch of the WWE Network.

And at what point do you expect to be able to layer in that advertising as well as going with alternative pricing for certain markets rather than just the straight $9.99 level.

Well, let me go to Jayar for that answer as well.

Jayar?

I'll take the pricing component first.

So as I touched on, we've done that in a couple of markets already.

And so -- what was the front end of your question?

Can you give us some statistics around the success of the free tier launch of the WWE Network?

And at what point do you think you'll be able to layer in that advertising component?

So we've built the ad tech capability right now, and we're evaluating our philosophy around advertising.

I would say, the initial results on the free version are promising.

And again, the strategy being just encouraging sampling of the content, and those KPIs that we're looking at are active users and how we convert those active users to the paid service, no specific metrics to share right now.

I think we'll have more as we have more history with the free version.

But again, the initial results are very encouraging.

And our next question comes from Vasily Karasyov with Cannonball Research.

A couple of quick ones.

I believe this was the first quarter when the Indian contract switched to the new pricing.

So can you please confirm that and tell us if this -- the pricing increase or change in pricing in India contributed to year-on-year change in core content revenue?

And then I have one about buyback.

So yes, we are under the new contract in this quarter.

We don't disclose the specifics, but it did not have an effect on the year-to-year or the period-to-period change in content revenue.

And then about buyback, I think we know a lot of companies suspend it.

You are one of the first or first one that I heard of who says that you may resume it.

Can you give us a little more detail why you thought now would be a good time to do that and why you wanted to communicate it to the investors?

And also, did your criteria and sort of approach change compared to how you conducted your buybacks in 2019?

Well, the approach and the analysis did not change.

Of course, we suspended repurchases, so we didn't buy stock since -- haven't bought any stock since April.

I think the reason we said that we may resume repurchase is based on our analysis, we think there may be an attractive opportunity.

At the same time, we've generated very strong cash flow and feel very good about our liquidity position.

Of course, final decisions on that haven't been made.

And it's subject to if the business environment deteriorates or changes from here, we may not repurchase stock.

But we felt like things were going well enough that we should reinitiate the analysis and be prepared to buy back stock if the opportunity grows.

And next will be Eric Katz with Wolfe Research.

So it looks like you ended the quarter with more paid network subs than your average for 2Q, which I believe you mentioned earlier, which is interesting since you launched the free version on June 1. So is there any particular reason that you noticed in the data?

Jayar, take that one, please.

There are a few things going on.

I'm not going to touch on anything specific on the free version, but obviously, launching that is a contributor.

But I just think in general, our promotion across our platforms, we're doing new things across the digital and social ecosystem as well as with our TV partners, you would have been able to sample content on ESPN or FS1 driving back to the Network.

We talked about some of the compelling content we've had, everything from Undertaker's Last Ride, and we're an attraction business, I think we've had some really fantastic cinematic match attractions in our recent pay-per-views.

And then the last piece would be, there has just been some macro industry factors.

There's just a general growth in digital viewing and some -- that's accelerated post COVID.

I guess on that topic, is there a way to sort of maybe understand like what percentage of digital views increase was related to the free network?

And then secondly, to your point on social, it looks like in your KPI metrics, this is the first time I can remember social media followers falling.

Was there a notable reason why, maybe a one-off that was worth calling out?

I don't know if -- I think I heard something a restriction in a certain market.

I don't know if that's the reason.

So on the social media, the impact on viewership was affected by the Sony deal that we mentioned, where we're geo-blocking certain content, and those numbers are no longer showing up, particularly user-generated views.

Okay.

And do you know how much of the digital views increase is related to the free network?

Or is it just too early?

Right now, we can't.

It's too early to discriminate what's driving the increased viewership.

The viewership is up for paid subscribers as well as free subscribers, so -- but we can't really split the percentages right now.

Fair to say -- we didn't hurt ourselves by going to the free as opposed to a 30-day free trial.

We have not hurt ourselves and that much we can definitely say.

That's helpful.

Maybe just one more, if you don't mind.

Look, we've seen cord cutting accelerate in the pandemic, which has made it easier for streamers to acquire subs than just even 6 months ago.

At the same time, we've talked about the ratings being a bit challenged, which is understandable with some stars on the sideline.

But for someone on the outside looking in, it would seem like maybe your negotiating leverage with a potential licensor of the network could have potentially taken a hit while the deal is on hold.

So maybe it would be helpful to understand what really stands out about the Network to the licensors.

And then what gives you sort of confidence this deal looks the same, whether it's 6, 12 months from now, when the deal gets done instead of maybe coming in a bit lower than you initially expected?

Well, I think it -- obviously, as we talked about, we're continuing to invest in the network and driving further subscribers and engagement, building very compelling content, which makes it attractive to potential partners.

The other part is just the way -- with the addition of streaming services with a number of entities, Disney, Comcast, et cetera, we believe that there is -- WWE product would be very attractive for some of those platforms.

So -- and the overall macro trends that you mentioned.

We are seeing increases in streaming, and we're seeing some changes in some of the limited streaming properties that are not doing well, so there are going to be clear winners and losers.

And we certainly think that the WWE content would be valuable to one of those winners.

Our next question comes from Brandon Ross with LightShed Partners.

I have some follow-ups on the ratings issues that were identified a little earlier.

First, why do you think -- these are for Vince.

Why do you think AEW and NXT have bounced back better from the initial COVID shock than Raw and SmackDown?

And then based on your commentary last quarter, it seems you had a strategy for fixing Raw that indicated patience in "getting over" some newer talent.

Did you abandon that plan in firing Heyman?

And more broadly, why did you fire Heyman?

And lastly, given Paul's recent relative success with NXT, do you think he could be of help on Raw and/or SmackDown in an elevated role?

That was a lot.

Sorry.

We could break it down, if you want.

But just first, why do you think AEW and NXT have bounced back better from the initial COVID shock than Raw and SmackDown?

I think because those are new.

It's something that's new and what have you, and it's up us to make Raw and SmackDown feel more youthful.

That is where we're going.

And I just -- as far as continuing on, I said what was new is building characters, and you always have to build characters constantly.

And it seems to me that as far as Paul Levesque helping out on Raw and SmackDown, that happens, it's all hands on deck in terms of all that we do.

As far as Paul Heyman is concerned, he did, I thought, a very, very good job in terms of creativity.

Okay.

And then lastly, maybe if you guys could speak a little bit to the role you foresee Kristina having.

Will she have her hand in company strategy or stick to more traditional CFO duties?

In other words, is she going to have sort of the George and Michelle type role or just be a straight CFO?

No.

She's going to have, as George did and as I have in the interim position, strategy and data reporting to her.

So it is a broad CFO role, including strategy.

The Michelle position really had nothing to do with finance.

Our next question comes from Steven Cahall with Wells Fargo.

Sorry to beat maybe a dying horse here on ratings.

But I was just wondering if you could speak a little bit to periods in the past when you've seen some rating softness and how long it took to rebuild viewership.

I think right now, there's maybe a concern that some of those viewers have found new streaming services because we've seen such strong sub growth in that part of the market.

And I would just love to hear what you think the timing is to recapture that audience.

Is this something that gets done in months or does it take years?

And then I have a couple follow-ups.

No, it just takes months.

I mean, again, the key here is to be in front of an audience, and that's the main thing.

So these are from -- getting in front of an audience, they're like a third person in the ring, so to speak.

And right away, you get action and reaction.

You're able to shoot the audience, and we shoot the audience a lot more than any sport because they're such an integral part to what we do.

So maybe -- I would like to think it's months away.

Yes.

Okay.

And then it looks like core content rights were down just a touch sequentially.

I think you've talked in the past that international is coming down a little bit and U.S. is growing.

Should we think about that trending down sequentially kind of each year and then stepping up in the fourth quarter?

Or will we start to see that grow sequentially from here because of some of the recent contracts that might have been renewed?

Well, I think the impacts in the quarter are, as we said and talked about, smaller deals in international markets, which are really challenged by COVID right now.

So I think some of what you're seeing is what's happened because of the environment around the world in media, particularly with smaller partners and smaller markets.

Overall, it hasn't been material to our company.

And we don't have any -- for the rest of the year, there are no major renewals coming up, so I wouldn't expect big changes in this line item.

Great.

And then last one for me.

Could you maybe just speak to incremental margins as revenue does start to come back when you can shoot in front of a live audience?

I think in addition to just the like travel expense, there's some talent cost as they sell more consumer products that come back.

So as we start to see revenue rebounding, how do we think about incremental margins on that [in terms of revenue].

Well, I think I'll -- just at a high level, overall, as I alluded to and have been talking about the reentry of the live events, particularly given the complexity as we come out of the COVID and it's going to be very much market by market.

There's likely to be limitations, the situation is changing quite rapidly, almost city by city.

So I think we would expect that margins would decline because expenses are going to go up in the short term.

Now we think that will, at some point, your guess is as good as mine, it will return to normal.

But no doubt, we're benefiting greatly from the way that we're producing the product today.

And when we go back to touring and live events, costs are going to go up, so margins will likely get compressed on.

But at some point, we'll get back to full audience events at some point, and then we'll have full venue merchandise and full ticket revenue, and we would expect them to stabilize back where they were at that point.

But again, that's very difficult to say when, given the uncertainties in the environment.

Our next question comes from John Belton with Evercore.

I just wanted to ask in another way on the expense area.

So it looks like your media segment operating expenses were down about $50 million year-over-year during the quarter.

So just trying to see if you could help kind of bucket exactly where that's coming from.

You used to talk about 3 areas of investment for your media business, those were localization of content, digitization of WWE Network and some international investments.

It seems like you're still kind of making those, so you're getting a lot of expense savings.

So I just wanted to see if you could give any color on that.

And then I have a quick follow-up after that.

Well, most of the expense savings is coming from production cost, as I mentioned, because of the way we're producing the show at the Performance Center, also in general expenses, operating expenses across the company in both the fixed area and other areas because of the cost-saving actions.

I mean we're continuing to invest in content.

The one thing that has been slowed down just because of the environment is significant investments in developing some PC in international market, for example, those have slowed down.

But the content investments have continued, and we're just benefiting from the cost reduction actions and the lower cost of putting on the show because it's not touring, it's in one location.

Got it.

And second question is just, looks like the -- a small acquisition you guys did this month.

Wondering if you have any comments on that?

And more broadly about the M&A opportunities you're seeing.

I would assume that there is some assets coming for sale in the current environment.

So just kind of your thoughts on that as well?

Thank you, John.

We had trouble hearing the first part of your question.

Would you mind repeating that?

Yes.

It's just on the small acquisition that it looks like you announced earlier this month of Evolve Wrestling.

Just any comments on that?

And then thoughts on the M&A environment more broadly for you.

Well, the Evolve was a content purchase deal and very straightforward and very small in size in terms of investment.

Right now, we're not actively looking at any M&A opportunities.

Hopefully, they will come along.

We are actively -- we do have investments in certain new technologies in new areas and we're looking for opportunities, but there's nothing imminent there.

Our next question comes from David Karnovsky with JPMorgan.

As you kind of just talked about, I think, prior to the pandemic, international expansion for your core brands and NXT also was one of the areas where your investment spend was focused.

Can you just kind of discuss a little bit about how you're thinking about this now in light of the global disruption we continue to see and whether this is still a key long-term opportunity for you?

Well, certainly, a key long-term opportunity, we believe.

And we believe that we have a large audience outside of the United States that we can take advantage of.

I think the India deal is an example of that and the viewership we get over there.

Just the uncertainty right now and the fact that it's a little bit -- there's no compelling reason to move forward on those at this point in time.

But as we get out of the COVID situation, and we certainly will, we just don't know when, that opportunity is still there.

We still believe in that, both with the potential to have Performance Centers, with our media partners, and Network -- growth of the Network, we see continued opportunity.

Okay.

And then, I mean, it's been mentioned several times on this call, the importance of a live audience.

But in absence of being able to run a normal touring operation, are there any kind of interim solutions you might consider to the Performance Center?

Is it feasible at some point to kind of switch production to a single location, maybe outside with some kind of audience?

We're looking into all those alternatives, constantly.

And our next question comes from Bernie McTernan with Rosenblatt Securities.

Just returning to costs here, and I know you hit on that with live events returning, cost should be returning as well, but there should be some sort of revenue offset.

So when live events do return, do you expect that to be a drag on EBITDA as well?

Well, I think, initially, it seems that from what we're -- looks like the way that this is going to evolve that the venues and the amount of people you can put in the venues and the cost of doing social distancing and other factors to put on the events would not allow us to fully recoup the incremental cost through venue merchandising and ticketing.

All that is highly uncertain, both as to when and where we'll be able to do those events, what the size of the audience can be, what the appetite of the consumer will be to come to those events.

And so I think we're just being prudent in saying, initially, we know if we go back, and we think we certainly want to go back as quickly as we can as we said, it's likely that there'll be some drag on profit margins because of that.

Got it.

And then just one follow-up.

Do you expect that with -- your live events still go back to 100% live events right away?

Or will there be some sort of hybrid approach in the interim?

Well, we believe it's going to be a phased approach because that's what we're hearing from the various locales and venues.

It will be phased.

And it probably will be limited in parts of the country.

And it certainly won't be what it was like pre-COVID initially.

And that does conclude the question-and-answer session.

I'll now turn the conference back over to you.

Thank you, everyone.

We appreciate you listening to the call today.

If you have any questions, please do not hesitate to contact me, Michael Weitz or Michael Guido and our Investor Relations department.

Thank you.

Thank you.

Thank you.

And that does conclude today's conference.

We do thank you for your participation.

Have a wonderful day.