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World Wrestling Entertainment, Inc. (NYSE:WWE)

Q2 2013 Earnings Call

August 1, 2013 11:00 AM ET

Executives

Michael Weitz – SVP, IR and Financial Planning

Vince McMahon – Chairman and CEO

George Barrios – CFO

Analysts

Daniel Moore – CJS Securities

Richard Ingrassia – ROTH Capital Partners

Jamie Clement – Sidoti

Brad Safalow – PAA Research

Michael Weitz

Thank you and welcome everyone. Welcome you to today’s Second Quarter 2013 Earnings Conference Call. Joining me for today’s discussion are Vince McMahon, our Chairman and CEO; and George Barrios, our CFO. We have issued our earnings release earlier this morning and posted our release and the earnings presentation on our website for your reference corporate.wwe.com.

For any non-GAAP financial measures discussed on this call, reconciliations to GAAP measures can be found in our earnings release and in our website presentation. In today’s discussion to the extent that we make any forward-looking statements. These statements are based on management estimates. Actual results may differ due to numerous factors, as described in the presentation and in our filings with the SEC.

At this time I’d like to turn the call over to Vince.

Vince McMahon

No sense in dwelling although obviously it’s of extreme importance, no sense in dwelling on our performance that is lack of it in terms of the Q2 OIBDA were down 9.5 which was a little bit more than what we said originally that it could be. Pay-per-view was one of the reasons why we’re down a little bit, but the mixed metrics really in terms of our build to the future and you guys have heard that before, but it is exact, we do know what we’re doing by the way. WrestleMania was a highest-grossing pay-per-view we’ve had, it was the second most profitable event, other achievements which garnered here thus far as we have begun producing an first installment of the Total Divas show which is (somewhere a departure) for us, it’s a reality show and its growing our audience because its only E! Network which is predominantly women which is key to us in terms of the gatekeepers of the entrée for young people and again from women from that standpoint as well looking at our brands in a totally different way.

And it’s been to quote all the network executives at E! was a homerun. So we’re looking forward to continue to be in that business of the reality show business because we think we do it well and we think now no doubt that we have something on (indiscernible) that we do it well. So that broadens our opportunity to do more things like this and other programming as well which are natural spin-offs, what we do with our corporate running of Raw and SmackDown. And speaking of Raw and SmackDown those television ratings are about the same although we’ve increased our television audience by about 10% overall, which is a strong indication of growth. We’ve a couple of things as well. We’re going to be doing Warner Bros. Animation, we had another project and this is one with the Flintstones Yabadabadoo and we’ve announced as well a partnership with Bridge Direct which is one of the things we’ve been lacking in terms of CPG is a construction, which is a huge portion of that business and we’re very happy to now finally be working in partnership with the Bridge Direct.

Also as well other aspects you should know is our partnership with Kmart, we are launching a John Cena Line and Clothing this fall. We think that’s going to be very profitable for us. We’ve renewed our Post Fruity Pebbles, Fruity Pebbles partnership and once it’s just sort of a on in and out itself a real big deal but it really does in terms of somewhat of a Housekeeping Seal of Approval. And speaking of that our sponsorship is really opening up for us because everyone is understanding now the WWE is a safe environment to be associated with. When our PG programming although obviously does a bit of an edge and should be, but it’s a safe environment and I think mentioned before that Kraft was joining us and Doritos is going to be a presenting sponsor of SummerSlam and there are other things we’re going to be announcing shortly did indicate again that a good Housekeeping Seal of Approval and everyone understanding that it is a safe environment to be associated with WWE.

From an attendance standpoint which is one of my key indicators. It’s about the same as last quarter. We are in Australia right now or just finishing up the Doritos rightly which went very well. And not withstanding live events from a social media standpoint once again it is a key metric for us we have 176 million social media followers which is of course the combination of a lot of things. That’s up 74% from last year. One of the things that just one of the things we have a lot of one day called products coming out as well and we’re leading not just cutting-edge, we’re really leading so much of what social media means in terms of programming and the interaction. And when we say the WWE app is the new way of watching television and we lead it because when you sit in front of your television and almost everyone has – there is smartphone next to them. And when you’re using the WWE app which more is a free app and we’re about close to 7 million downloads now.

And you’re watching television; it’s not just okay here are the stats and things of that nature which other networks try to do. And if we’re doing so much interaction, the term commercial breaks and things of that nature to make sure no one changes the channel and they stay with the network that were on, there is programming there, sometimes it’s a continuation of a match, other times if programming it is compatible that you won’t see on television and there is so much odd, but so many things we can do our WWE app and again I know we’re trying to teach the television audience how to watch television all over again, but we’re making progress. It is something that other networks and others shows more attempt to do but no one can do it likely again.

From a strategic standpoint we’re continuing to work with and evaluate our situation with global markets. We mentioned before about the UK market in terms of re-negotiation of our contract India as well it would be very, very big as well as back here in the U.S. everyone understands in the past that we have a bit undervalued and that will no longer be the case going forward. We have also just to make sure we have continued our success and guaranteed the flow of our raw material which is talent and we are opening a real world-class training facility down in Orlando, we had it once before but not quite anywhere near to the extent of this and the educational process and the ability to attract so many more individuals from all over the world in terms of the athletes participating in this.

So it really bodes well from a talent standpoint going forward not today, we are dealing with the talent we have today, but we have called up any number of talents over the last year at WrestleMania that we have so five or six brand new talents maybe even more that have never appeared at WrestleMania before and it takes a while of course for talent to quote as we stay in our business and get over in terms of popularity and things of that nature, but we have a plethora of really good talent in our developmental system that we hope to continue to develop and bring up to the main show of Raw and SmackDown. So those are some of the metrics. I really what I consider not withstanding a lousy quarter from a monetary standpoint, those are some of the metrics that really I believe should be considered moreover, more than anything else, its fixed to the brand strength and some of these other deals coming up speaks their transformation of our business in an ongoing upward way. Those are pretty much my remarks, George, you want to take it.

George Barrios

Thanks, Vince. The several key topics which I’d like to review today. These include management perspective on our financial performance, some additional detail regarding our second quarter results and a discussion of our business outlook for the remainder of the year. For the second quarter our financial results is measured by OIBDA declined approximately $9.5 million from the prior year. The decline reflected several factors that will reference is part of our first quarter 2013 earnings call. These factors included additional investment to produce and market our content as well as the timing of one less pay-per-view event in the quarter. The investments in content production were made to enhance our brand strength. Demonstrating their efficacy our premiere event WrestleMania became the highest-grossing event and the second most profitable event in the company’s history.

Our television audience reached 4.6 million viewers and 8.6 million homes in the U.S. representing increases of 10% and 12% respectively from a year ago. And our total social media followers including Facebook, Twitter and YouTube among others increased 14% over the quarter and now exceed 176 million. Achieving more than 30% growth on these platforms since year end had significantly elevated our presence in social media. Building the strength of our brands is evidenced in these metrics and taking advantage of that strength is a critical component of our long-term strategy. To review the key drivers of our performance in the quarter let’s turn to page six of our presentation which list the revenue and OIBDA contribution by business as compared to the prior year quarter.

Revenue increased by about 8% or nearly $11 million. The growth was predominantly due to increased rights fees for our content and increased ticket revenue from WrestleMania. Revenues from our television business increased by 17% or $5.6 million with growth primarily from the production and licensing of new programming such as the third hour of RAW, WWE Main Event and WWE Saturday Morning Slam. These programs are launched during the latter half of 2012 on the USA network, ION television and the CW Network respectively.

Notably a few days ago, we began airing a new production Total Divas on E. The series, which explores life beyond the ring for seven WWE divas attracted 1.3 million viewers in its Sunday debut an increase of 63% over the programming that it replaced.

Revenue from our Live Events including merchandise sales at these events increased 15% or $6.2 million in the quarter primarily due to the strong performance of WrestleMania XXIX and the timing of our Fan Axxess events, which are held annually in conjunction with WrestleMania.

WrestleMania added $3.6 million in incremental ticket revenue to the current year quarter based on a 39% increase in average ticket price and our paid attendance that was on par with the prior year quarter. Fan Axxess events added $2.3 million in incremental revenue to the current year quarter as these events occurred in the second quarter 2013 and primarily the first quarter 2012. Excluding WrestleMania both average attendance and average ticket prices at our events in North America were essentially unchanged from the prior year quarter.

Revenue in North America increased from the scheduling of eight additional events in the current year quarter but this growth was largely offset by a corresponding decline from a fewer events in international markets. In these international markets, average ticket prices increased 7% to $68.16 and average attendance increased 6% to approximately 6,600 fans from the prior year quarter. These increases in average ticket price and average attendance were due to changes in territory mix as the prior year quarter included weak attendance at our events in Mexico and our first live event in Brazil, a market with long-term strategic importance to WWE.

Partially offsetting the growth from television licensing and live event ticket sales, revenue from our Pay-Per-View business declined $3.7 million or 9% primarily based on the timing of one less Pay-Per-View event in the quarter. Our Over, The Limit Pay-Per-View event, which aired in the second quarter 2012, is scheduled to air in October that is in the fourth quarter of 2013.

Revenue from the three events in the current quarter declined 3% from the prior year quarter as a combined 13% decline in buys was nearly offset by a 12% increase in the average revenue per buy. The shortfall in revenue from these events however was offset by an increase in buys for prior period events. The rise in revenue per buy was due to an approximate 9% increase in the domestic retail price charged for viewing WrestleMania and to a higher proportion of buys to view our events in high definition, which generally garner a higher retail price.

In our Consumer Products segment, our home entertainment revenue declined 9% or $0.7 million reflecting a reduction in estimated sell-through rates and lower revenue from our international licensing activities. Domestic home entertainment revenue fell approximately $0.4 million or 6%, as a 15% increase in shipments to nearly 1 million units was more than offset by a 13% decline in the average price per unit to $10.59 and a rise in estimated returns to 41% versus 39% of gross revenue. The change in projected returns derived from an increase in catalog shipments over the last 12 months, which historically have been characterized by lower sell-through rates. Revenue from our international home entertainment licensing activities declined by approximately $0.3 million due to the transition to a new licensee in the EMEA region.

Revenue from the licensing of consumer products was essentially unchanged from the prior year quarter. Royalties from the sale of toy products increased approximately 15%, or $0.5 million led by higher sales of action figures in the U.S. with strong domestic retail support. Increased sales of toy products, however, were offset by a comparable reduction in video game revenue. With the transition to a new video game licensee, shipments of our annual franchise video game declined 65% in the quarter to 77,000 units. Based on available industry data however, global video game retail sales today have essentially matched prior year sales.

In our Digital Media segment, revenue increased 18% or $1.4 million to $9.2 million driven by higher advertising sales across various digital platforms. Supporting this growth in advertising sales key digital metrics such as unique visitors to the company’s website and mobile app, average monthly page views and CPM increased from the prior year quarter.

Our movie business also contributed $1.5 million to the company’s revenue growth. During the quarter WWE Studios recognized revenue of $2.1 million as compared to $0.6 million in the prior year quarter reflecting the impact of a current quarter release No One Lives and the timing of results generated by our overall portfolio movies including the impact of the Marine and the Marine 2 which were released in prior periods. Although five movies have been released to-date in 2013 including two movies in the current quarter and the successful release of the call in the first quarter revenues for these movies will be recognized on a net basis as participation statements are received from our distribution partners rather than upon release as was the case with our self-distributed movies.

In general we do not expect to begin recognizing revenues until four to six months after a film is released. As such the recognition of revenue related to the call is not expected until the second half of 2013. While not impacting our second quarter results, the release of the call is expected to generate domestic box office receipts of $52 million and yields an ultimate profit to WWE of $5.9 million on an equity investment of $1 million. Currently the movies produced from 2013 under our revised approach to filmed entertainment are expected to generate an internal rate of return of approximately 15%, which exceeds our cost of capital. The level of our future movie investments will be predicated on the evaluation of our portfolio rather than on any single film at the end of 2013.

Unallocated SG&A expenses increased to $32.2 million from $26.4 million in the prior year quarter. As defined these expenses include sales, marketing and talent development cost which have not been allocated to specific lines of business. The rise in unallocated SG&A during the quarter was driven by increases in compensation and benefit expense of $2.4 million, talent development cost of $1 million, marketing expenses of $1 million as well as higher consulting and professional fees. The increases in these expenses were primarily to support our content related initiatives including the potential launch of a WWE Network.

Operating income before depreciation and amortization or OIBDA declined $9.5 million from the prior year quarter. As mentioned earlier the decline in our results was predominantly from several factors. Additional investment to produce and market our content including staff related cost, the timing of pay-per-view events and lower profits from WrestleMania. As shown on page six of our presentation these factors resulted in a $9.7 million reduction in pay-per-view profits from the prior year quarter that more than offset both the expansion in the rights fees from the licensing of new television programs and the increase in live event ticket sales.

Net income declined $6.7 million to $5.2 million reflecting the decline in our OIBDA results, increased depreciation and higher effective tax rate. The change in depreciation derived from our investment in assets to support the creation and distribution of new content including through potential network. Our effective tax rate was 38% compared to 36% in the prior year quarter.

Page 13 of the presentation contains our balance sheet which remains strong. On June 30 we held more than $120 million in cash and investments with no long-term debt. Page 16 shows our free cash flow. Through the first six months of the year we used approximately $7 million in free cash flow compared to generating about $27 million in the prior year period. The $34 million decline was driven by an approximate $19 million reduction in operating performance and an $11 million increase in the annual pay-out of management incentive compensation with the return to a more normalized level of management compensation in 2012 and changes in working capital associated with our international live events and pay-per-view events.

Partially offsetting that decline capital expenditures decreased by approximately $4 million from a higher level of investment spending in the prior year quarter to support our content initiatives. We continue to believe that these content investments will yield significant returns. Given the duration and magnitude of investments that we’re making in our business we believe it’s important to reiterate our rational for these investments. As indicated in our last earnings call and in our published business outlook we believe we have the potential to double or triple our 2012 OIBDA results by 2015.

The primary drivers of this growth includes the potential launch of a WWE Network, the re-negotiation of our four largest content agreements in the U.S. and international markets and the execution of our digital strategy developing digital products such as gamification and mobile gaming. Regarding our potential network in the U.S. our market research and analysis indicate the potential for a meaningful subscriber base and the significant economic opportunity. As in the U.S. we believe that a network and other distribution models also represent a sizable opportunity in international markets. The renewal of key content agreements is another primary source of future earnings growth. Over the next 18 months we expect to renegotiate our four largest television agreements in the U.S., the UK and India.

Benchmarking our rights fees to the fees paid for other original scripted series and to the fees paid for sports programming indicates that our license agreement has significant upside potential. Recently announced content agreements only strengthen our view. These recent deals such as NASCAR with NBC Sports, the Rose Bowl, and U.S. Open with ESPN, the NFL with Verizon and (indiscernible) with Netflix reinforce our view that the proliferation of distribution alternatives is driving up the value of content especially compelling content with broad appeal.

Our confidence that we can realize much greater value from our intellectual property through a network and the renewal of these content agreements is baked on the tremendous global appeal of our brands and the rising value of content. In order to achieve our targeted growth it’s critical that we maintain investments in key areas of talent development, content creation and marketing. Based on our earnings performance over the first half of the year, we have refined our 2013 guidance. We expect our full year 2013 OIBDA performance excluding any film impairment charges will fall within the lower end of the range previously communicated, which was plus or minus 10% from our 2012 OIBDA results of $63 million. In addition as shown on Page 10 of our website presentation we’ve refined our outlook for net income. As we execute on our growth strategy we’ll measure our performance against several key milestones over the next 18 months. This include making progress on our TV rights renewals, completing a network distribution agreement, developing digital products and improving the performance of our movie portfolio. While our results in the near term maybe challenged we are committed to establishing a firm platform for meaningful unprecedented earnings growth.

That concludes this portion of our call and I will turn it back to (Michael).

Michael Weitz

Thank you, George. John we are ready now, you can open the lines for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Daniel Moore from CJS Securities. Please go ahead.

Daniel Moore – CJS Securities

Good morning. Could you estimate the – if you said this in your prepared remarks, George I apologize, but you are – the OIBDA impact during the quarter of the shift and timing from over the limit from Q2 to Q4 this year?

George Barrios

It’s about $3 million revenue impact and about $2 million OIBDA impact.

Daniel Moore – CJS Securities

Perfect. And mentioned obviously cuts on the potential WWE Network, maybe update us on your thinking about going that the route with traditional carriers, cable satellite carriers versus perhaps going over the top and how that’s evolving?

Vince McMahon

All these options were open to us, that’s really a nice situation to be in. Again we talk about the rights fees coming up that could very well be tied to a WWE Network in a durational sense. In addition to that of course there is over-the-top and other options as well, so we report it no matter which way we go in a very, very good fashion.

Daniel Moore – CJS Securities

Kind of share one more and then jump back in queue. So taking out or adjusting for WrestleMania and not withstanding this quarter. Average ticket prices continue to increase attendance down a little bit over the last several quarters or years. Maybe just walk us through the decision process on pricing and do you think you may run risk of pricing certain number of fans out of the marketed if ticket price inflation continues?

George Barrios

Yeah I mean we’re essentially flat year-to-date on the attendance (indiscernible) we’re up a little bit on the average yield and I think that’s a concept, its average yield that we’re getting per ticket, so if you actually drill down and looked at the ticket pricing at the events themselves and where the seats are, what you find is that our lower price seats have remained essentially unchanged, which is driving the higher ticket prices is actually at the premium seating level and there we have had no impact on sell-through. So we don’t think it’s any elasticity issue on the price versus the attendance.

Daniel Moore – CJS Securities

Very helpful. I’ll jump back in queue.

Operator

Our next question comes from Richard Ingrassia from ROTH Capital Partners. Please go ahead.

Richard Ingrassia – ROTH Capital Partners

Guys, good morning everybody and congrats in finally ending the drought there in future films with the call, obviously the change of the model was the way to go, but I really don’t want to ask about that, I think I’d rather ask Vince to may be step back for a moment and talk about what the company has learned in general over the past few years in terms of selecting such projects investing and then marketing them?

Vince McMahon

As relates to film?

Richard Ingrassia – ROTH Capital Partners

Yes.

Vince McMahon

Well we’ve tried a number of models and we finally on the correct model and it’s a model in which we were engaging in partnerships whereby a risk is a lot less. It’s also (indiscernible) to change the management as (indiscernible) who has extensive background in terms of film, its heading this up, it’s a far more selective process and one in which again we’re partnering with major distributors in studios, the selection process is one that best fits what we do and our audience to bring that audience to these films as a basis and not that it’s just WWE fans coming to the theater, it’s not. Again we need to broaden our footprint in everything we do, so it’s making money for us now in addition to that it’s broadening the WWE brand and a far fast more way than we have in the past.

Richard Ingrassia – ROTH Capital Partners

And as far as applying talent I mean clearly as a headliner Cena has worked but really it appears better to have talent more in secondary roles supporting roles?

Vince McMahon

It does at the moment and that’s the idea although John always looking carry a future film and in a smaller way, some of our other talents that have well, Miz, Randy Orton things of that nature. So on a smaller scale in terms of direct to DVD some of our talents can star, be the star. In terms of larger theatrical releases its important that can we have a supporting role hopefully a very large supporting role as our talents develop the skills that are necessary to headline a major theatrical release.

Richard Ingrassia – ROTH Capital Partners

Okay, thanks Vince. And then a question on TV, if the USA and the Sci-Fi contracts are at the end of next year, when do you expect to begin negotiating those nuance and given all of the cash disputes these days and some of the ridiculous rates being paid for some pretty low rate at live sports. How do you possibly come away from those deals with anything less than double what you’re getting paid today?

Vince McMahon

I don’t know I think you answered the question, I have no idea if we told of them but again I think our content is far more compelling to any one particular sport really that is available because there is nothing available. This the last great franchise if you look at it from a sports family and I think that sports networks will look at WWE in terms of the entertainment value then it brings to their sports networks, you can’t deny the numbers my god they’re huge. So to have that in terms of the sports folio different than what we’ve had in the past it opens up far greater revenue opportunities for us. So, you’re right in terms of lesser sports getting a huge rights fee we’re poised more than anything more than any shows that’s out there certainly from a conglomerate standpoint to garner what we would hope to be double or who knows.

Richard Ingrassia – ROTH Capital Partners

Okay, thanks. A quick question for George too, just obviously attendance in the sales were very strong at WrestleMania, but where exactly if you can be a more specific of where are the incremental costs when that drove profits out of there?

George Barrios

At WrestleMania specifically, Rich?

Richard Ingrassia – ROTH Capital Partners

Yes, yes.

George Barrios

Production cost in New York were significantly higher than we’ve seen before on the talent side, we invested a little bit more, those are the big drivers a little bit on the marketing.

Richard Ingrassia – ROTH Capital Partners

So the venue and then I mean was it paying The Rock or more than that?

George Barrios

We don’t want to get into specifics on who or what on the talent side, but we invested more on the talent side, the production cost because it’s New York and more than New York Metropolitan area, so it’s a little bit more expensive. And just to be clear because it can get a little bit confusing. WrestleMania is a total event all-in pay-per-view Live Event song was down about $1 million, second most profitable ever, so we’re really happy with the profitability. When you start parsing out the profitability of the pay-per-view versus the Live Events which frankly is some level of allocation that we make using our best judgment. The pay-per-view is down pretty significantly and the Liver Event is up pretty significantly, which is why you saw within the pay-per-view segment the profitability take a big hit, but the event overall which is the way we manage it was about $1 million down year-over-year, so we did about 79 we did about 19 last year.

Richard Ingrassia – ROTH Capital Partners

Got it, okay. Thanks.

Operator

Our next question comes from Jamie Clement from Sidoti. Please go ahead.

Jamie Clement – Sidoti

Gentlemen, thanks for taking my call. Good morning. With respect to video games with the change in licensee, would you expect shipments to return to more normal levels in the coming quarters?

George Barrios

We’re really excited about the partnership with Take-Two both from a technical standpoint on the gaming side, on a creative stand point passion for the brand. So we’re excited.

Jamie Clement – Sidoti

Do we have to wait for a new version of the game or will there be I mean I’m just curious as what your expectation sort of for the third and fourth quarter are?

George Barrios

Well certainly over the next 12 months the input will increase from Take-Two but they’ve had their hands on this game and we’re excited about what we’re saying and next year should be even better and the year after that even better.

Jamie Clement – Sidoti

Okay. And George to clarify your guidance, it’s obviously excluding film impairments but you should be getting a film gain from the call as you mentioned right so is the positive included in your guidance there?

George Barrios

Yes.

Jamie Clement – Sidoti

That is okay. And then last question and Vince maybe I don’t know if this question may be should be direct towards you or I noticed that the spending creeped up a little bit more than this quarter than perhaps we have seen the trend to be. Does that signal in anyway then perhaps you could be closer perhaps to an announcement or if the announcement could become soon or rather than later and if that spending isn’t perhaps a evidence of that from my totally off base there?

Vince McMahon

No, there is only off base I mean I think every quarter we have user in this call, we get closer and closer. So we’re making investments that are necessary to bring that to fruition as soon as possible.

Jamie Clement – Sidoti

Fair enough. And just the last question, a follow up to one of the previous questions. How tied are the Raw and SmackDown negotiations through the discussions around the potential network like in other words are those decisions that could be made in separate rooms or are those decisions that have to be made in the same room and if so why?

George Barrios

They’re separate discussions, Jamie.

Jamie Clement – Sidoti

Okay, okay, very good. Thank you.

Operator

Our next question comes from Brad Safalow from PAA Research. Please go ahead.

Brad Safalow – PAA Research

Thanks for taking my questions. Just first going back to the allocation products between Live Events and pay-per-view even if I combine the two for the quarter I think it was down about $6 million. I’m just trying to figure out what is kind of a recurring cost versus what was unique about WrestleMania being in New York some things you do with talent. Can you help us to segregate the decline in pay-per-view profitability and maybe a little bit more?

George Barrios

The pay-per-view segment at WrestleMania specifically?

Brad Safalow – PAA Research

Well the pay-per-view segment obviously you had a drop out of one event and…

George Barrios

Yeah so that’s basically had I mean we had WrestleMania, the WrestleMania pay-per-view was down primarily for the reasons I mentioned, the production cost, our investment on the talent side and then we moved the one event, so that in essence was the decline in pay-per-view profits that you saw in the quarter. When you look at WrestleMania overall and take all its components and we mentioned fan access, the Live Event, the pay-per-view WrestleMania as in all-in event was down about $1 million.

Brad Safalow – PAA Research

Okay. And so for next year with the event in New Orleans presumably you’ll have some benefit in terms of production costs?

George Barrios

Yeah I mean I think remember the average ticket price in New York which drove the big ticket sales number were up about 40% year-over-year because its New York I don’t think New Orleans is New York. So I don’t want to start talking about WrestleMania 30 profitability but I think there will be puts and takes.

Brad Safalow – PAA Research

Okay. And then on the OIBDA wwe.com I mean structurally inherently that should have been very high incremental margin business. Can you explain what’s going on there?

George Barrios

I’m not sure I understood the question, Brad.

Brad Safalow – PAA Research

Well if you have, you had nice growth in terms of revenue at wwe.com, which I understand also includes some of these other digital distribution arrangements, but your EBITDA was actually or excuse me OIBDA was actually down year-over-year, so…

George Barrios

Yeah it does no, I got it. It’s a similar theme as when we talked about television production if you think of our operation we have a significant investment to produce television video in terms of graphics works, production creative also in the Digital Media we have similar investments. So you’ve seen a big growth there on the social media, on the app development side, on the business development side, so that’s the growth that you’re seeing on the staffing there that’s compressing the OIBDA.

Brad Safalow – PAA Research

Are you at a point now where incremental margin, actually incremental revenues here will be a kind of a 50%, 60% incremental margin which is more consistent with Digital Media businesses generally?

George Barrios

Well I think when Digital Media you’re really looking at a few different things, you’re looking at the advertising which has really high variable margins, you’re looking at the licensing of the content which has a pretty high variable margin depending on how much we’re increasing our cost to produce that content so for example for Yahoo or YouTube or the original content we give them. And then the third business you have in there is the eCommerce business which obviously has more traditional retail margin. So you can combine them all you get a margin for Digital Media but you have to look at each of them separately. The variable margins as we signed license deals and song will be high similarly in the advertising but we have a pretty, we’ve increased the fixed cost on the staffing pretty significantly over the last 12 months for the company as a whole and Digital Media specifically.

Brad Safalow – PAA Research

Okay. That’s helpful. And then can you talk about what the spend was in the quarter from both an OpEx and CapEx perspective on the performance center and then what will be kind of the run rate spend their I’ve heard that you guys are considering having 80 to 100 individuals in terms of talent development at any given time down there. Can you help us explain what that will be perceptively?

George Barrios

Yeah I mean we don’t go into individual CapEx projects but it was obviously in the spending happen predominantly in the first half of the year for the performance center. And the OpEx is up a bit but not materially to our financials from where we’ve been actually by moving locations we moved from the Tampa area to the Orlando area even though we have more square footage the cost per square foot is actually significantly lower, so it mitigated the extra space. So I wouldn’t describe them as kind of material impacts to the financials and we have traditionally had anywhere between 50 to 100 development talent which obviously are the pipeline for the future but again that the shift in those numbers or the range in those numbers aren’t material to the financial statements.

Brad Safalow – PAA Research

Okay. And then the last question I had was on some of the comments Vince that you made about television rights fees and what you feel would be an appropriate mark-to-market as far as at least doubling. I just want to be clear that you guys are going to be held to that standard I mean that’s based on the contracts in play here we’re talking about $75 million to $100 million of incremental EBITDA if you did in fact double your television rights fees. So I just want to make sure that I understand what you’re saying is that’s what you’re playing for here.

Vince McMahon

I’ll allow you to put a hammerlock on me if we don’t.

Brad Safalow – PAA Research

Fair enough. I’ll turn it over.

Operator

Our next question comes from Daniel Moore from CJS Securities. Please go ahead.

Daniel Moore – CJS Securities

I’m enjoying the hammerlock comment. The corporate unallocated expense it was up to a little over $32 million, is that a reasonable run rate to think about going forward or there may be some one-times in there?

George Barrios

There is probably few one-times I think 30 plus or minus is a good expectation.

Daniel Moore – CJS Securities

Got it. And I know you’ve kind of stop breaking this out but could you give us a sense for how much investment spend for the network was in the quarter?

George Barrios

At this point we describe is spend on content related initiatives but our OpEx right now if you were back to the kind of network-centric definition let’s say about roughly $3 million a quarter we’ve been there for a bit.

Daniel Moore – CJS Securities

Got it. And lastly just housekeeping, tax rate was up a little bit what are your expectations what should we think about for the remainder of the year?

George Barrios

Discrete items in FIN 48 releases are hard to gauge but my and we put it in the guidance page in the presentation, but 34% to 37% is probably a good range.

Daniel Moore – CJS Securities

Well I will refer to that. Thank you.

George Barrios

You got it. Okay. Go ahead, John.

Operator

(Operator Instructions)

Michael Weitz

Okay. Thank you everyone. We appreciate you listening to the call today if you have any questions please don’t hesitate to contact us. Thank you.

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