WWE Business Outlook Maintains Potential for Significant Earnings Growth
WWE (WWE) today announced that it has reached a multi-year agreement in principle with NBCU for the renewed U.S. licensing of WWE's flagship programs and ratings juggernauts Raw and SmackDown. Given the anticipated increase in television rights, and with successful WWE Network subscriber growth, WWE management continues to believe that the Company can achieve significant earnings growth, potentially doubling or tripling 2012 OIBDA1 results to a range of $125 million to $190 million by 2015.
"We continue to achieve significant increases in the value of our largest television agreements, a key component of our business plan" stated Vince McMahon, Chairman and Chief Executive Officer. "The rising value of our content coupled with the global expansion of WWE Network will provide the foundation for long-term growth that continues to transform our business over the coming years."
"With the favorable renegotiation of our largest television agreements, WWE transitions to a subscription-based business model for future growth," added George Barrios, Chief Strategy & Financial Officer. "Successful execution of our WWE Network strategy could significantly raise the Company's earnings profile and better reflect WWE's tremendous global appeal and brand strength. With such execution, the Company anticipates sufficient financial resources, including debt capacity, to fund growth, support ongoing business requirements and maintain its current dividend."
Renewal of Key Television Agreements
Over the past six months, the Company has negotiated television distribution agreements in the U.S., U.K. and Thailand, and is in the midst of discussions regarding the distribution of WWE content in India. The Company estimates that it will increase the average annual value of these key television agreements to approximately $200 million, representing an increase of more than $90 million, that is nearly three times (3x) the increase achieved in the previous round of negotiations.
Management believes that the new agreements more fully reflect the value of WWE content, including significant first-run hours, a passionate and loyal fan base, and 90% "live plus same day" viewership, in the U.S., which makes WWE content, like sports, "DVR-proof." The Company plans to capitalize on the value of WWE content to drive further increases in value in other international markets.
The Global Expansion of WWE Network
The Company's consumer research indicates a high proportion of U.S. and international broadband users have an affinity for WWE content. This research indicates that in the U.S. and certain international markets, approximately 50% of broadband households have an affinity for WWE content, representing 77 million homes (WWE Homes) in these markets. The Company's research also indicates that based on an overall take-rate of 3% to 5% of WWE homes in these markets, between 2.5 million and 3.8 million subscribers could subscribe to the WWE Network in these U.S. and international markets at a "steady state" (when the ramp-up of subscribers has been completed and subscriber levels are relatively stable), representing a sizable economic opportunity.
At a retail price per month of up to $9.99, this would represent estimated incremental OIBDA, net of potential pay-per-view cannibalization, between $50 million and $180 million. Managing subscriber growth contains significant execution risk and actual results could vary materially from this range based on, among other factors, the rate of subscriber adoption and churn rates, as well as changes in pricing, promotion levels and distribution terms.
As shown below, the Company estimates that the WWE Network, on a global basis, will require 1.3 million to 1.4 million subscribers at "steady state" for the WWE Network's incremental OIBDA to offset the complete cannibalization of the Company's Pay-Per-View and SVOD businesses. At 1.3 million to 1.4 million subscribers, the Company's Network segment, which includes the results of WWE's Network, Pay-Per-View and SVOD businesses, would generate OIBDA results of $40 million, (+/- 10%), which is on par with the OIBDA profits generated by the Company's Pay-Per-View and SVOD businesses in 2012.
WWE Business Outlook for 2014 and 2015
The rate of subscriber adoption is a critical determinant of the Company's projected future financial performance. If WWE Network achieves approximately one million subscribers by year-end 2014, it would yield a 12-month average of 650,000 subscribers for the year.9 This rate of adoption in 2014 translates to an estimated 2014 OIBDA loss ranging from $35 million to $45 million, and a 2014 Net loss ranging from $45 million to $52 million.
If WWE Network achieves an average of 2 million to 2.5 million subscribers for 2015, the Company's 2015 OIBDA is expected to range from $125 million to $200 million, and 2015 Net income expected to range from $57 million to $105 million. Actual subscriber levels and financial performance could vary materially based on various factors.