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World Wrestling Entertainment Inc. (NYSE:WWE)

WWE Network Overview Conference Transcript

January 14, 2014 11:00 AM ET

Executives

Michael Weitz - SVP, Financial Planning and IR

Vince McMahon - Chairman and CEO

George Barrios - Chief Strategy and Financial Officer

Analysts

Daniel Moore - CJS Securities

Robert Routh - National Alliance Capital Markets

Brad Safalow - PAA Research

Jeff Thomison - Hilliard Lyons

Mike Hickey - Benchmark

Operator

Hello. And welcome to the webcast entitled WWE Network Overview. We have just a few announcements before we begin. Please download the slides via the resources written at the bottom of the screen. Also the bottom of your browser you'll find the help icon for technical assistance. Please note the slides will not advance during the presentation. You will see the cover page only. (Operator Instructions)

I will now turn the call over to Michael Weitz, SVP, Financial Planning and Investor Relations. Please go ahead, Michael.

Michael Weitz

Thank you, and good morning, everyone. Welcome to today’s conference call. Last week we made a historic announcement regarding the launch of WWE Network and we are delighted that we can follow that announcement by providing you with even more information and an overview of the Network opportunity.

Leading today’s discussion are Vince McMahon, our Chairman and CEO; and George Barrios, our Chief Strategy and Financial Officer. We posted our presentation for today's call and a more detail financial release on our website, corporate.wwe.com.

Today’s discussion will include forward-looking statements. These forward-looking statements reflect our current views are based on various assumptions and are subject to risks and uncertainties disclose from time to time 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 the notes to this presentation. Finally, as a reminder, today’s conference call is being recorded.

At this time, it’s my pleasure to turn the presentation over to Vince.

Vince McMahon

Good morning, everyone. First thing, I’d like to do is thank everyone for bearing with us, all of our investors through the years quite frankly, because it has taken years for us to come up with the right formula we have attempted to delve into around it’s a linear Network and had great discussions and things of that nature with similar providers. Almost did that and said wait a minute, that’s not quite right, let’s look at more of the premium model, because our audiences in fact has been accustom to paying for premium content in terms of pay-per-view.

Then we finally came to the right model and through exhaustive research and everything else, we have come up with the right model, the right formula at the right time and hence the announcement, finally, the WWE Network is here.

All I understand, I’d like to make efforts to other than thanking all of you to hanging in there with us. I’d also like to state that this quarter, I want to say it again. We are not at because of anyone cutting the court and that’s not what we want to do.

Where we are, our audience are alternative and this is the best alternative for them in terms of the way the Network is set up, in terms having a linear model as far as viewing 24x7 in addition to all these other shows in other ways in which you can use our Network. Our audience will be blown away with the way you can actually use our Network, with so many hours and have you, we talk about every years now, a legacy material, so many things we can do live.

Notwithstanding, pay-per-view which of course is from a financial standpoint extremely attractive to audience, when you add up all the cost of pay-per-view on an annualize basis over $600 and we are looking at $9.99 a month.

So there is great value and there is a different audience not just this strict pay-per-view audience that we are attracting because at $9.99, so many other people can afford this now that could not afford it. It also allows us to bring back last fans who have enjoyed the Hulk Hogan era, Stone Cold era, [Yardy Yardy] it can come back and participate as well. Hopefully we will turn those individual back into current fans.

The other aspect of this is that this is in your hand and everything we do is synergistic in all this and our Network will increase our television ratings for USA or hopefully with USA. (Inaudible) which is our right piece are coming up. So it all fits together in a very, very nice pattern and what’s good for WWE is good for everyone in the aggregate.

And with that in mind, I’ll turn it over to George.

George Barrios

Thanks Vince. There are several key topics which we are excited to bring you today. These include management discussion of our WWE Network business plan, our strategy, expected financial performance, as well as key milestones that we will use to measure and monitor our success.

As a key element of the company’s business plan, the launch of a global Network represents the historic milestone in our efforts to transform our business and significantly raise our earnings profile by 2015.

As highlighted on page five of the presentation, the significant economic potential of the WWE Network derives from the unprecedented value that it offers our fans and its availability on a global platform.

We believe the WWE Network is an innovative leg to deliver an uncompromising viewing experience to our fans that builds upon the tremendous appeal of WWE’s content.

The Network takes advantage of the sharp ride in its consumption of screen video programming, especially among WWE fans, as it will be delivered to subscribers through over-the-top digital distribution rather than be a traditional providers.

As such, we will become the first content producer to distribute a 24 hour live screen Network exclusively on a digital OTC platform. Our fans will get a schedule Network and will also be able to view WWE content however, wherever and whenever they desire.

They will also benefit from never seen before footage and the tailored experience based on the viewing behavior. In addition, with the WWE Network app, subscribers will be able to access our content through a big screen TV, smartphones or tablets.

Ultimately, we believe the great experience fans enjoy with the WWE Network will enforce their affinity for WWE content and products and drive consumption across other lines of business including live events, television viewership and digital products.

Overtime, we expect to bring the same 360-degree monetization scheme that WWE has employed in its current business to the WWE Network. This may include additional consumer products revenue, integrated sponsorship and marketing among other opportunities. I’d like to discuss the underlying factors, which support the launch of a premium OTT Network. The first factor which we believe works to our advantage is the growing online video space.

Turning page seven, here we see that the rapid growth of Internet connected TVs, media players, consoles and tablet use is driving the growth of online viewing. Although, traditional TV accounts for the majority of video consumption today, online viewing already represents a material portion of viewing and is expected to overtake traditional viewing in the next few years.

While OTT consumption is growing among all age groups, it’s increasing at a much faster pace among the younger demographics. As indicated on page eight, 34% of millennials watch more online video than traditional TV. So while we see a tremendous opportunity today to capitalize on the robust state of online or stream consumption today, we also foresee continued growth in such consumption over a longer time horizon.

In addition, we’ve seen a proliferation of OTT video services in response to this growing demand as shown on page nine. Over the last few years, WWE has invested in the online video space, producing and distributing more video content through online channels and we believe now is the right time to launch our own platform.

A comparison of the WWE Network offering to existing OTT services currently in the market such as Netflix or MLB.TV is shown on page 10. As shown, the WWE Network offers a unique combination of features. These features include a 24/7 scheduled stream, live programming in the form of our pay-per-view events, other original programming only available on the Network and access to a deep video-on-demand library.

All of this will be offered as a subscription service for $9.99 per month which is very competitive, compared to other services and is a great value for our fans. Looking at the numbers of current OTT services subscriptions and in particular Netflix, we believe that there is proving demand for premium over-the-top video services. Based on the growth shown on page 11, Netflix has passed Comcast as the largest consumer entertainment subscription service.

Moreover, our internal research summarized on page 12, suggest that of the $116 million television household in the U.S., 53% or 62 million have some affinity for WWE. Among these, 41 million homes have an active WWE fan movie including passionate and casual viewers. And in addition, our research indicates that additional 80% of TV households, or 21 million homes, include lapsed fans that we have the potential to reengage with our content.

The combined 62 million homes and their members with affinity for WWE, represents the broadest fan base that could subscribe for the WWE Network. Similar response rates can be applied to the 88 million broadband homes in the U.S., which result in 47 million WWE broadband homes.

In general, our fans are TV fans that have already embraced OTT, therefore spending more time viewing content online than non-fans. As shown on page 13, passionate WWE fans were expected to be the Network’s earliest adopters, spend the most amount of time consuming online video. As such, the Network is entirely mainstreamed for our fans and should involve only a small learning curve for them.

Overall, we believe the viewing habit of passion and casual WWE fans provide compelling support for launching an OTT Network. As discussed, we see three main drivers that support our belief that our fans are ready for a WWE OTT Network. First, the consumption of OTT video content is growing rapidly, gaining traction, especially over the last few years. Second, WWE has a very large active fan base and third, these fans are already digitally engaged.

I would now like to walk you through the WWE Network offer and our value proposition in more detail. As mentioned earlier and summarized on page 16, the WWE Network will have two main content offerings. First, a live scheduled stream with a 24/7 programming schedule including all 12 of our live pay-per-view events and second, an extensive video-on-demand offering drawn from WWE Library including acquired brands such as WCW.

Subscribers will be able to view every WWE pay-per-view, every WCW pay-per-view, Raw, SmackDown and ECW programs wherever and whenever they chose. Both forms of programming will be accessible to all subscribers and will be delivered across the various devices where the WWE Network is available. The WWE Network will offer a unique mix of 24/7 schedules content, exclusive new original series and an extensive library.

Page 17 takes a closer look at our programming mix. Our original programming will be anchored by our pay-per-view events. In addition, the Network will deliver new originals series such as the Monday Night War, which explores the shocking real-life stories that fueled the mid-90s rivalry between Vince McMahon’s WWE and Ted Turner’s WCW and WrestleMania Rewind, exciting review of the most groundbreaking matches and dramatic moments in WrestleMania history.

We believe that the transition of our pay-per-view events of the Network provides a strong incentive for current pay-per-view buyers and other fans to subscribe to the private Network. Moreover, we believe that the broader set of original programming including our pay-per-view events represents a remarkable value proposition for our fans.

A distinct advantage of the Network is that we can use our existing flagship programs to build must watched programming nights. In addition, we can tap into a video library for VOD that will include over 1,500 hours at launch and that will grow over time. With our current pricing of $9.99 per month with a six-month commitment, we believe the WWE Network offers tremendous value.

As shown on page 18, this is especially true for pay-per-view buyers who will be able to get access to all pay-per-views at more than 80% below the historical retail price. In addition, we believe there is upside to our current business model from non-pay-per-view buyers who desire more WWE content and perceive the significant value of the Network.

While, pay-per-views alone make the Network a great value, our pay-per-view buyers and non-buyers agree that the key elements of our programming are all very important to them. Based on our surveys, almost 80% of our fans are interested in the Network reported the high interest in our pay-per-view events, current TV programmers -- programs, original new programs and library content.

Now, I would like to take a closer look at our distribution strategy as summarized on Page 20. Fans can subscribe to the WWE Network beginning at 9 a.m. Eastern Time on Monday, February 24th at WWE.com, and for a limited time will be offered a free one-week trial. WWE Network, the first 24x7 Network delivered directly to fans through over-the-top digital distribution will be available on desktops and laptop via WWE.com.

WWE Network will also be available through the WWE App on Amazon’s Kindle Fire devices; Android devices such as Samsung Galaxy; iOS devices such as Apple iPad and iPhone; Roku streaming device; Sony PlayStation 3 and Sony PlayStation 4 and Xbox 360. Availability on additional devices, including Xbox One and select Smart TVs, will follow.

To deliver the best service possible to this great platform, we’ve entered into an agreement with Major League Baseball Advanced Media. MLBAM has a strong track record in managing the technical transmission and commercial processes around standalone OTT services.

As you know, MLBAM is a proven provider of OTT video services, not only for the highly successful MLB.tv service but for other media partners such as CBS Sports and ESPN3. MLBAM has powered more than 25,000 live events in 2013. Additionally, to provide our subscribers with best-in-class customer service, we’ve engaged Harte Hanks. Harte Hanks is one of the world’s leading marketing service organization, supporting top brands and call centers across 18 countries and in more than 25 languages.

Now, I’d like to provide some perspective on the financial impact of the WWE Network and the enormous value that we believe the Network will create, not only for our fans but also for WWE and our shareholders.

Let’s turn to Page 23 of the presentation. According to our projections, launch of a domestic WWE Network via the over-the-top digital distribution has the potential to generate incremental OIBDA of $50 million to $150 million at steady state, net of the potential cannibalization of other WWE asset including pay-per-view.

Based on our extensive market research including the evaluation of our fan based and projected Network take rate, we estimate that our fully distributed Network could ultimately attract between 2 million and 3 million subscribers at a steady state. Supporting this subscriber range, the take rates of 2% to 3% of U.S. broadband households or 4% to 6% WWE broadband households are based on the value proposition for the Network as discussed earlier.

At a price point of $9.99 per month, this would represent revenue to WWE of between $225 million and $350 million and incremental OIBDA between $50 million and $150 million at a steady state.

Similarly, the rollout of WWE Network in international market as shown on Page 24 also had significant earnings potential. We expect to launch WWE Network in the U.K., Canada, Australia, New Zealand, Singapore, Hong Kong and the Nordic countries by the end of 2014 or early 2015.

We estimate that our fully distributed Network in these Phase 1 countries could ultimately attract between 750,000 and 1.5 million subscribers in aggregate at a steady state. Supporting this subscriber range, the take rates of 1% and 3% broadband homes or 3% to 6% of WWE broadband homes in these Phase 1 countries are also based on the value proposition for the Network as discussed earlier and extensive consumer research.

At price points ranging up to $10 U.S. per month, this would represent revenue to WWE of between $70 million and $140 million and incremental OIBDA between $25 million and $85 million at steady state. The economic potential of these WWE Network in international markets could be larger with continued expansion beyond these Phase 1 countries.

In addition to launching WWE Network, we expect we will be able to negotiate our key domestic agreement, content agreement by the end of April 2014 as we’ve disclosed previously. Although these initiatives hold significant potential, our financial performance for 2014 could fall within a wide range of outcome depending on the rate of Network subscriber acquisition, the level of potential pay-per-view cannibalization and the outcome of our content negotiations.

This wide range of outcomes in 2014 includes potentially lower earnings in 2013. We expect to have better visibility on the Network and our key content agreement by the time we announced our first quarter earnings. At that time, we expect to update you, our analyst and investors, on our guidance for 2014 and our progress towards doubling or tripling our 2012 OIBDA results of $63 million by 2015.

As we manage the transition to such earnings growth, our plan indicate efficient financial capacity to fund our growth initiatives, support ongoing business requirements and maintain our current dividend. I’d like to close by outlining key milestones as we execute our plan and these are listed on Page 26.

In the first quarter 2014, we’ll finalize our initial platform distribution agreement. We’ll also put the finishing touches on the service itself to ensure we deploying effective content delivery mechanism at launch and the WWE Network will be launched on February 24, 2014.

During the second quarter, we’ll focus on continuing to rollout our Network service on other platforms and devices and worked at new content. By year end 2014, we expect to reach over 1 million subscribers. By that time, we’ll already be looking to expand our offering of compelling original programming.

In the fourth quarter 2014 and early 2015, we expect to launch the WWE Network in United Kingdom, Canada, Australia, New Zealand, Singapore, Hong Kong and the Nordic countries. As mentioned earlier, the launch of the Network is a key element of our business plan and marked a historic milestone in our effort to transform our earnings profile.

Management may change its expectation that the planned Network will contribute to potentially doubling or tripling the company’s 2012 OIBDA results of $63 million by 2015. In addition to delivering a significant contribution to WWE’s economic returns, we’re confident that the Network will further reinforce our global appeal, brand strength and direct relationship with our fans.

That concludes this portion of our call. And I will now turn it back to Michael.

Michael Weitz

Thank you, George. John, we’re ready now. Please open the line for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instruction)

Michael Weitz

Go ahead and take the first call please.

Operator

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

Daniel Moore - CJS Securities

Good morning and congratulations on the launch of the Network.

Michael Weitz

Thanks Dan.

Daniel Moore - CJS Securities

You mentioned during the prepared remarks that you -- the launch of the Network you believe would increase viewership of the RAW and SmackDown of the traditional TV outlet for NBCU and Syfy, given the fact that you will be rebroadcasting some of those programming, just maybe elaborate on why the launch of the Network wouldn't be somewhat cannibalistic to your -- potentially cannibalistic to your current audience base for those key properties?

Vince McMahon

No, the idea is live and that’s the value of our output deals. It’s live live. So meaning that RAW is live and that’s the huge value that NBCC or NBCU sees and WWE, as well as other providers, they see the value of live. And so there’s -- if you will note there is no repeats, Monday night RAW in any form whatsoever on USA. The reason for that is again it’s the live value.

That means that much to them and by the way this is not something that is just a WWE point of view. This is also a USA point of view having discussions obviously with management. There they to the Network USA, they too believe this is going to increase television ratings.

When we take some of our legacy footage, we take some of the things that we’re currently going to do, even some of the pay-per-view, you drop it back into a Monday night RAW, drop it back into SmackDown, not to the extent that you don’t have the Network. But it samples, it shows the breadth and depth of our programming and what we can do. Reality shows, things of that nature are already in the camp. So it will increase the overall awareness of WWE and exponentially lost increasing the interest in overall televisions ratings. So again it’s not just a WWE view. This is a USA view as well.

Daniel Moore - CJS Securities

Very good. And along those lines, can you update us all on the status or potential timing of renegotiations of this contract?

George Barrios

Dan, just like we mentioned before, we’re in exclusive window now and regardless of what the outcome is, we think we’ll have something to announce by the end of April, early May.

Daniel Moore - CJS Securities

Can’t blame me for trying one more while I little got here. Maybe talk a little bit about the agreement with MLB elaborate on what they bring to the table. Is it a revenue-sharing model or are they paid by subscribers just help me help us understanding the economics that are a little better?

George Barrios

Yeah. I’m not going to get into this specific contract as a deal but it’s not any type of equity participation. They are providing a service for us.

Daniel Moore - CJS Securities

That’s a fixed cost potentially.

George Barrios

Say that again I missed that Daniel.

Daniel Moore - CJS Securities

It’s not a first subscriber cost, it’s a more …

George Barrios

I don’t like to add to this specific mechanics but there’s not an equity like participation really as a service fee.

Daniel Moore - CJS Securities

Got it. Okay. I will jump back in queue.

Operator

Our next question comes from Robert Routh from National Alliance Capital Markets. Please go ahead.

Robert Routh - National Alliance Capital Markets

Yeah good morning and congratulations. Few quick questions, first give me what you are doing in the uniqueness of your content convert to everything upside out there. And you are renegotiating all these linear deals now because we’re all coming up for renewal?

And we assume you have the leverage that you could possibly get the linear distributors to have the option of not only having many the linear rights but also bundle linear in some way with an Internet-based product. Now I was wondering if you consider that where, they would pay one rate to you guys for the linear but if they wanted to bundle it and sell through the distributors et cetera with the Internet and broadband that could pay $799 a month instead of $999 but you would suddenly get $5 million subs instead of a $0.5 million to $1 million. If you follow any ways to market the service, that ways as you go in to your renegotiations with the Network as far as distribution than I have a one follow-up?

George Barrios

Sure. Yeah we thought about a variety of different models Rob, including kind of options of general model you are describing. We think this is the best way to go and frankly kind of continue something that we've been pretty good after a long time, which is tiering our content.

So we’re going to bring our core program like Vince mentioned live-live which has immense amount of value to Networks today and to our audience. And then we’re going to tier and provide a second tier content for our more passionate fans through the WWE Network.

So it kind of continues in the model that we’ve been pretty good at but answer your point directly. We considered a lot of thing at discussions on variety of models and we think the one we settled on is just about perfect for us.

Robert Routh - National Alliance Capital Markets

Okay. Great and then similar type of questions is given how popular WWE content is, especially the live events and now you are growing internationally. Have you considered, now that you’re launching this very soon initially possibly giving anybody buys a ticket to a live event. They free one week or two week trial to this Network include with your ticked at no cost because that way I would think people going live events and all their remember they go home and login to as another way to kind of really promote and grow the subscribers base very quickly.

Have you considered kind of cross promoting that way or giving discounts on WWE merchandise, brought through the site of people who are subscribers to the WWE Network, it’s that not something you start considering?

George Barrios

Well we’re not going to give away all our secrets today on the call but I think most people would say we’re pretty creative marketers. So I think you are going to see a lot of cool offerings out in the market place. And starting with one week free, so we will launch with one week free which we think is a great way for someone who might be on the fan. Although frankly, I don’t know why it would be on the fans. But if they are, they get one week free and then after that our marketing time as some cool things in store but we’re not going to give it away on an earnings or on a financial call.

Vince McMahon

But one week free, it would not be a weekend visitors at pay-per-view front?

Robert Routh - National Alliance Capital Markets

Fair enough. And just one last question, given how popular your content is here and has been for decade and now internationally continues to grow. Where do you in see in 5 or 10 years, having the bigger opportunity domestically or the international market place given kind of the size that they are now and this obviously will allow people in any country anywhere to access all your content whether or not it’s carry by their international cable company or what have you because now they can do it to the internet and that’s why you have been building long term as a potential domestically, internationally under growth.

George Barrios

Well, I -- none of has a crystal ball but the U.S. is big, the rest of the world is bigger. Rest of the world is prior going to faster. So if you ask me to take a point of view 5 to 10 years from now, I think wee will be looking at faster rates outside the U.S. Although I’m still bullish on the U.S. because of the Network we announced today and some of the other initiatives we have.

Robert Routh - National Alliance Capital Markets

Great. Sure. Congratulations again. Thank you very much.

George Barrios

Thanks Rob.

Operator

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

Brad Safalow - PAA Research

Thanks for taking my questions. First question has to do with the size of the potential fan universe that would be interested in the product. You’ve given us a nice kind of total addressable market in terms of the WWE fan base. But I’m interested in your research of that fan base. What percentage demonstrated an affinity to actually pay out-of-pocket for, what is now the Network but something a kind of a Network.

George Barrios

Yeah. So we did -- the numbers you see that $2 million to $3 million recorded essentially that is the range that express the interest to pay. So that’s where those numbers came from and as you can imagine, we did a lot of testing on price points and so on to kind of understand the elasticity, so all of that went into the final decision-making.

Brad Safalow - PAA Research

Okay. And then you guys had a big press event last week. I mean, we can see that for a period of time, WWE Network was trending number one on Twitter. How would you characterize response to the Network offering?

Vince McMahon

Enormous, we knew it was a great value and we hear that our audience has been waiting a long time for this. But the positive response has been overwhelming.

Brad Safalow - PAA Research

Okay. And I was just curios why aren’t coming soon available sign up now? I thought that was kind of a curious decision.

George Barrios

Look, a lot of it -- some of you asked me in a perfect blow. How would you have done it? I said, unfortunately we don’t live in one of those but there was a lot of timing issues around discussions with our current provider and pay-per-view. And at the end of the day, we did not want to miss the six-week, seven-week run up to WrestleMania.

So without getting too much into kind of contractual gymnastics, this was the best time to do it. We knew one of the potential downsize was people were going to be chopping at the bit of order. So they’ve got a few weeks to wait, but we think it was a right way to go.

Brad Safalow - PAA Research

Understood. And then just looking at slide 23, I just want to make sure that this is crystal clear. The incremental OIBDA that you’re showing is incremental for the last pay-per-view revenues whatever you are going to lose on the DVD, WWE Classics On Demand and maybe some digital.

George Barrios

That’s right. That’s the best estimate of what that cannibalization will be.

Brad Safalow - PAA Research

So that was $60 million.

Vince McMahon

In contact with our pay-per-view providers, our normal pay-per-view providers and we are hopeful that in addition to the WWE Network that our pay-per-view providers will supply programming as they normally do to a WWE customer through pay-per-view.

Brad Safalow - PAA Research

And just on that point, I guess DIRECT TVs suggested they might not carry your pay-per-views going forward. What’s been the response from your other partners?

George Barrios

Look, I don’t want to devolve those conversations, they are private. I think DIRECT TV was one that made a public statement. But we will continue to work with them. I mean as Vince said, at the end of day we care most about our fans. We want to give them as much choice as possible, so we are ready, willing and able to continue providing our pay-per-views in that manner through our providers and we’ll work with them to make that happen.

Brad Safalow - PAA Research

Okay. One last question and I’ll jump back into the queue. Just on the expense side, you’ve given us some detail at $1 million, $2 million and $3 million results in the U.S. Obviously the incremental margins are going from $2 million to $3 millions, sounds quite high. Just want to understand from a notional perspective, are you assuming the same level of investment in advertising and content under these three scenarios and that we’re looking at is really the incredible cost of distribution?

George Barrios

No, the incremental -- in essence, there is two elements that I’d classify as variable. One hits the average revenue per unit or user, the ARPU and that’s where people subscribe and the platform splits, so there is one element of that. The second which is more of the variable cost into transmission and the variable cost not including the splits or price roughly 10% of revenue.

So what you see in that incremental increase is really fixed cost, its additional programming costs quite frankly. If we’re successful as we think we can be, we’re going to be as we do in our core businesses. We’re going to invest in them to make them even more successful, so it’s fixed costs.

Brad Safalow - PAA Research

I see. So this is not a -- hey, we got a 2 million subscriber based on the Network doesn’t exist today. There are some assumption on that there is an initial response rate and that you invest commensurately to get to these expensed numbers.

George Barrios

That’s right. I’d frame it a little bit differently. My point is, if we get to the 2 million to 3 million subscribers, we’re going to be investing significantly in the content.

Brad Safalow - PAA Research

Understood. I’ll go back in the queue. Thanks.

Operator

Our next question comes from Jeff Thomison from Hilliard Lyons. Please go ahead.

Jeff Thomison - Hilliard Lyons

Thanks. Good morning. And thanks for having this call and taking my question. Most of my questions have been answered already, but I just wanted to give you a chance to revisit the topic of cannibalization. And that is -- Network subscription price of $10 a month for at least six months versus buying individual pay-per-views.

So, I guess why are you comfortable with the cannibalization outlook of up to $60 million? My first reaction to the pricing was happiness as a consumer, or perhaps some caution as an investor that is one to make you sure that I understand kind of the mechanics behind what consumers options are.

So in theory could a consumer sign up in February, be under a commitment for $60 outlay for six months and for that they could get all Network related content and features, several pay-per-views and WrestleMania and in theory cancel after six months and their are $60 outlay.

George Barrios

In theory they could. Obviously, we don’t think they will once they see the incredible value that the Network provides. And they will be getting our 12 premier live events on the Network but mechanically in theory they could.

Jeff Thomison - Hilliard Lyons

But that doesn’t concern you.

George Barrios

Well, I’ve got confidence in our ability to execute. We’re great at delivering great content, we‘re great in engaging our fans. I’ve had the benefit of actually playing around with live prototypes and I can't believe that once somebody gets a taste of this, they are going to back out.

Jeff Thomison - Hilliard Lyons

Okay. I look forward to being among your first subscribers.

George Barrios

Awesome.

Operator

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

Daniel Moore - CJS securities

Thanks again. Any additional detail you might be able to provide regarding the revenue sharing agreements with your initial technology partners, Roku, Sony, Apple, et cetera?

George Barrios

Dan, I don’t want to get into specific agreements but if you follow that world, there is a general standard that’s been said and it’s determined by where the subscription happens and this goes from magazines as well as videos, as well as digital newspapers and that. If you are within the platform and obviously, Apple is a leader in that space. It’s a 70-30 split. If you are outside the platform, there is no split. So that’s generally the way the world works today. Again, each distributor is a little bit different but I think everyone in the industry know that’s the general guidelines.

Daniel Moore - CJS securities

So initially it will be relatively standard then it has been, okay. And any sense, I know it’s obviously a crystal ball study but would you say expect more than 50% of -- say the first 1 million to come directly through wwe.com less than 50%, any guidelines on the thought process in the split would be helpful?

George Barrios

Yeah. My crystal ball is nowhere near as good as that, so we'll stay away from that. We think a million by the end of the year is a pretty good target.

Daniel Moore - CJS securities

Okay. And lastly, the potential cannibalization about the $60 million any range on what that might in your one?

George Barrios

Well, we gave the range up to 60 million across all the different scenarios, but potentially that could be in year one. And again a lot of that depends on the pay-per-view providers in the U.S. and also consumer behavior.

Daniel Moore - CJS securities

So that's not necessarily a top-end that 3 million subscribers in two years let's say that's up to…

George Barrios

Well, the relationship and I'm trying to avoid the question…

Daniel Moore - CJS securities

Yeah.

George Barrios

… it just because of some unknown. So one unknown is how many providers are going to continue to offer in the case of pay-per-view.

Daniel Moore - CJS securities

Yeah.

George Barrios

And then the second, irrespective of that is how quickly will people change their behavior, because even though it's an amazing value proposition, we all know there is human inertia. Some people takes them a little bit longer to change. So we don't know intersection of those two factors. At the most extreme case is that 60 million number but there is a million of potential outcomes below that.

Daniel Moore - CJS securities

Okay. Thank you, again, and look forward to see you tomorrow at conference.

George Barrios

Looking forward again. Thanks.

Operator

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

Brad Safalow - PAA Research

Just a question on the content $1,500 at launch, can you help us understand what your investment in content will be kind of on a steady state basis, you've outlined the situation in which Network essentially you invest more content which is understandable, but let’ say a trend that as you expect is the OpEx related to content that what we've seen for last couple of years for example?

George Barrios

No. That will be a little bit more than that and just and I know you know this, Brad, referring we on the call, when you're talking about the P&L impact of the content, it will be amortized, so there is an element going on the balance sheet in cash and then the amortization of that. So this year you'll see the amortization of shows we've already created as well on the cash side, you'll see as capitalizing the cost as we create new shows.

So there is that technicality, but if ask me in 2014 between amortization of dollars that has been spend and then additional content, for example studio show that we plan on putting on air in a few month, I would say roughly $20 million of programming OpEx in ’14.

Brad Safalow - PAA Research

Okay.

George Barrios

That’s -- we're learning as we go. So you have to put a range on that. But I think that's a pretty good mix on the range.

Brad Safalow - PAA Research

That's helpful. And then, I just want to clarify, your -- the model that you've laid out here or the scenario you laid out here did not include any sort of sponsorship for advertising revenues, correct?

George Barrios

That's right. At this point we'll see how it goes at launch and we've got some creative ideas. And Brad, I’d said, I just want to underscore the point because it's critical, on the programming that's incremental, so for example at 20 it does not include the programming cost for our pay-per-view, the cost are produce that we currently have today. So that was just incremental.

Brad Safalow - PAA Research

Correct. Understood. All right. I'll turn it over. Thank you.

George Barrios

Yeah. Thank you.

Operator

Our next question comes from Robert Routh from National Alliance Capital Markets. Please go ahead.

Robert Routh - National Alliance Capital Markets

Hi. Just a two quick follow-ups, everything else. I was wondering given the $9.99 price point per month, if you considering or will consider our prepaid annual subscription of discount somebody want to say, hey I want to do this, I'm pay whatever $100 per year, is that something that you would consider doing given your fan base is very loyal but at the same time the income all over the map?

And the second question is, since the WWE Network will be in OTT type Network where interactivity is easily facilitated. Are you considering adding things to what you already have in forms of possibly chats with stars that that people can pay extra for it, they want to talk to the divas or to John Cena or whatever, down the future or is it just going to be kind of as you have it now with the on-demand in the live events and all of that, I was just curious if there other things you might want, you thinking of adding to what you've already built in the future?

George Barrios

Well, on the first point, not only, we have the prepaid annual, you'll be able to give it as a gift. So I'm hopping not only you will give subscribe, but you'll give it to some of your closes friend and family.

On the second one, well, I don't like to sound like I'm showing, but I use our current second-screen app for RAW and I've used it for things like the Walking Dead and HBO Game of Thrones just to see what that's like. And I think we do the best job of anybody out there and we have said this is going to be the most interactive Network ever. So the second-screen app for the Network is going to do what you describe and a whole lot more.

Robert Routh - National Alliance Capital Markets

Great. And there is nothing in that $9.99 per month. Does that include that would all be at an incremental charger or would that be included or you don't know yet?

George Barrios

With the best value in entertainment, so that's come with the $9.99.

Robert Routh - National Alliance Capital Markets

Great. Okay. Thank you very much.

Operator

Our next question comes from Mike Hickey from Benchmark. Please go ahead.

Mike Hickey - Benchmark

Hey guys. Thank you for taking my question and congratulations on upcoming launch.

Vince McMahon

Thank you.

Mike Hickey - Benchmark

I am just curious if -- you're welcome. Just curious on the pricing $9.99, obviously, there is a lot of value to Premium and Netflix. I'm just wondering how you came to that price and how elastic you feel your audience is?

George Barrios

Yeah. We -- look we did a lot of testing and at the end of that we want to be able to drive value for our audience, we do our planning, we go through each of our businesses and the first thing we ask is how do we deliver more value to our customers, because we know if we do that we've got a great business. So that's what we were focused on.

Technically, if you look at all the pricing analytics that we did, we're pre-unitary elastic. So each, the price went up by X percent the take rates went down by that percent. So it really came down to once we understood that, it really came down to how do we bring the most value and bring the most -- our best content to the most -- to the big part of our audience and all of that we ended up at $9.99.

Mike Hickey - Benchmark

Okay. Thanks. I'm just curious, if providing that much value, if at any level you feel that you might kind of compromise the proceed values of your content to your fan base. Would you expect that there could be kind of follow-on pricing pressure to your live events or your pay-per-view events?

George Barrios

Not at all, we -- if we'll compare us and we spend a lot of time comparing ourselves to what others are doing, because we want to deliver the more value or rather than deliver great value, our toys deliver great value, that's Network deliver great value. So we're not really concerned about the proceed value decreasing.

Mike Hickey - Benchmark

Okay. Thanks guys. Good. Best of luck.

George Barrios

Thank you.

Operator

We have no further questions at this time.

Vince McMahon

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

Operator

Thank you, ladies and gentlemen. This concludes today's webcast. Thank you for participating. You may now disconnect.

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