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World Wrestling Entertainment, Inc. (NYSE:WWE)

Q3 2011 Earnings Call

November 3, 2011 11:00 am ET

Executives

Michael Weitz – Senior Vice President, Investor Relations

Vincent K. McMahon – Chairman and Chief Executive Officer

George A. Barrios – Chief Financial Officer

Analysts

Marla Backer – Hudson Square Research

James Clement – Sidoti & Company

Cody Slach – Roth Capital Partners LLC

Michael Kupinski – Noble Financial Capital Markets

Brad Safalow – PAA Research

Robert Routh – Phoenix Partners Group

Dan Kilmurray – UBS

Marla Backer – Hudson Square Research

Operator

Welcome to WWE 2011 Third Quarter Earnings Call. My name is John, and I will be your operator for today’s call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session.

I will now turn the call over to Mr. Michael Weitz, SVP of IR for WWE. Mr. Weitz, you may begin.

Michael Weitz

Thank you, John, and good morning everyone. Welcome to our third quarter call. Joining me for today's discussion are Vince McMahon, our Chairman and CEO; and George Barrios, our Chief Financial Officer.

We issued our earnings release earlier this morning, and as is our practice, have posted the release, our earnings presentation and other supporting materials on our website at corporate.wwe.com. These materials can be referenced in conjunction with the discussion today to clarify our performance and to shed light on the trends in the business.

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

Now as we have that exciting information out of the way. It's my privilege to turn the call over to Vince.

Vincent K. McMahon

Thanks, Mike, good morning, everyone. I’d like to make a note of our Q3 adjusted EBITDA growing at about 5% over last year notwithstanding a $5 million impairment on our films, but notwithstanding that we’re up about 5% profits largely attributed to home video and pay-per-view offset by an absence of television rights for about two hours, and a decline in sale of licensed products, especially toys, but nonetheless our event attendance is declined above 6%, a lot less than it has been, to about 4,900 on average.

Pay-Per-View buys are slightly down as well about 4% a lot of less than in past. RAW television ratings remain flat to last year, which is good news. And most of our declines in key metrics support our view that we are gradually improving the general status of our overall financial health.

We are – in speaking of which, we are continuing to implement that in our plans and continue discussion with multiple partners as far as our network is concerned. We’re still confident that we are in a really good place in terms of where we are with the network. We are anticipating some degree of operating expenses attributed to the network, some $4 million to $6 million coming up particularly in staffing.

Capital expenditure is about $10 million to $15 million mostly in equipment and construction for our network. And we believe that, obviously we have finally turned the corner on where we are with our network, and we’ll soon be making a very big announcement as it relates to that.

So that we are generally speaking of where we are with the quarter this year. And notwithstanding that, again, we are taking advantage as we always do with all of our strategic opportunities as well as I’ve said before, including launch of the WWE Network, so with that we can achieve meaningful growth as far as that in other aspects of our company is concerned. George?

George A. Barrios

Thanks, Vince. I’d like to provide some additional perspective on the company’s third quarter results. Recorded at $5.1 million in impairment charges related to several films. These charges are non-cash in nature; I’ll view it as non-recurring and derive in part from forecast of future performance. To clarify trends in our business, I will discuss our performance on an adjusted basis including the impact of these items.

On an adjusted basis, operating income increased 3%, and adjusted EBITDA increased 5%, highlighted by increased profits from our home video and pay-per-view operations. Although, these results benefited from timing, they also reflected real underlying demand for products, and as such we view these results as positive development.

Such developments were nearly offset by lower sales of our licensed products, which experienced decline across all of our major product categories except video games. Our key metrics shows mixed results in the quarter, domestic pay-per-view buy has increased 3%, TV ratings for our flagship RAW program were flat and average attendance at our North American live events declined 6% from the prior year quarter.

In general, trends in our metrics show modest improvement and support our views that the business is stabilizing and showing signs of improvement. For a more detailed review for our performance in the quarter, let’s turn to page six of our presentation, which was the revenue profit contribution by business as compared to the prior year quarter. Starting with our live events including merchandise sales of these events, revenue from both domestic and international markets was essentially flat to the prior year quarter.

In North America, 6% decline in average attendance to 4,900 was offset by the addition of two events in the quarter and by slight increase in average ticket prices. In our international market, a 7% increase in average attendance to 7,200 fans was offset by a comparable decline in average ticket prices.

The fall in ticket prices reflected differences in territory mix that was mitigated by favorable changes in foreign exchange rates. In our pay-per-view business, revenue increased 16% or $2.2 million from the prior year quarter driven by the impact of buys associated with WrestleMania, a prior period event.

Our distribution partners reported 65,000 additional buys in the period for WrestleMania, which have a higher retial price than our other events. These buys contributed approximately $2.2 million in incremental revenue to the quarter. The buys of the three comparable events in the period however declined 4%, reflecting a 3% increase in domestic buys that was more than offset by a 14% decline in international buys primarily Mexico and Italy.

Revenues from the distribution of our television programming increased by 9% or $0.9 million primarily due to improve deal terms and escalators built into our existing contracts.

In addition our television rights were favorably impacted by our revised contracts with a Canadian distributor. Under this revised contract we received television rights fees plus advertising revenue. These factors were partially offset by the absence of domestic rights fees for our NXT and WWE Superstars program as discussed in our second quarter call. Our decision not to place these programs is strategic in nature and related to optimizing the long term value of our concept.

In our consumer product segment, home video revenue increased 15% or $1.1 million driven by an adjustment to our allowance for return and an increase in revenue per units partially offset by a reduction in shipments. A reduction in our allowance returns is 21% of growth revenue compared to 43% in the prior year quarter reflects an adjustment for better than expected sell through rates for titles released in prior quarters.

Average prices increased 4% to $13.18 due to the timing of promotional activity and a reduction in manufacturer’s discount. Partially offsetting these factors, gross shipments declined 17% from 686,000 units, as we made adjustments to effectively manage our (inaudible) inventory retail.

Turning to our licensing business, revenues decreased 17% or $1.8 million reflecting lower sales across almost all of our major product categories. During the quarter, the most significant declines were generated by toys, collectibles and apparel products. Revenues related to toys declined 24%, or $0.9 million, reflecting a challenging retail environment for certain toy products including action figures. Revenues related to collectible declined 90% or approximately $0.7 million due to a tough comparison to a very successful product launch in the prior year.

Revenue from our video games, however, increased by $1.1 million primarily due to the launch of our new video game WWE All Stars, which contributed to a 5% increase in total video game shift to 396,000 units. These new game sales more than offset the decline in revenue from our SmackDown vs. Raw franchise. During the quarter, shipments of our SmackDown vs. Raw video game declined 59% to 135,000 units.

Recognizing the potential of this popular title, we are working with our video game licensee THQ to develop and launch its successor WWE '12, which is expected to debut later this month. As we remarked last quarter, the release marks a significant overhaul in the games software and early indications from media and consumers are very promising.

In our Magazine publishing business, revenue decreased 27% to $0.7 million reflecting lower newsstand sales in the current quarter. In our Digital Media segment revenue increased 1% to $6.9 million. Higher sales of merchandize on our e-commerce website WWEShop were nearly offset by lower sales in mobile content. Revenue from e-commerce increased 14% or 0.4%, as online purchases increased 15% to approximately 68,000 orders, while average revenue for order increased 2% to $46.94.

During the quarter, WWE Studios recognized revenue of $3.7 million, compared to $7.6 million in the prior year. This decline was driven by the relative performance of our current film releases compared to the prior year quarter release. Film profits on an unadjusted basis declined $5.5 million from the prior year quarter due to the performance of recent releases, Inside Out, Knucklehead and The Chaperone.

Lower home video sales anticipated contributed to revise ultimate expectations, which resulted in a impairment charge of $5.1 million associated with these films. Excluding the charge for these, adjusted film profits declined $0.4 million due to low receipts from our licensed film, and the previously disclosed change in our distribution model for film.

Overall, our unadjusted profit contribution increased by 3% or $1.3 million. Increased profits from home video and pay-per-view businesses were only partially offset by the decline in licensing and the absence of domestic rights fees for NXT and WWE Superstars program. Based on these changes in product mix, adjusted gross profit margins increased to 45% from 44%.

For the quarter, SG&A expenses were essentially flat for the prior year quarter, as increases in salary, severance and invested costs, as well as higher legal and professional fees were offset by a reduction in accrued management incentive compensation. The increases in professional fees were due in part to the anticipated launch of a network in 2012.

Page nine of our presentation, compares the quarter-over-quarter results and provide the summary of changes by business. As shown, adjusted operating income increased 3% to $21 million driven by the increase in our adjusted profit.

Adjusted net income as referenced on page 11, decreased approximately 1% to $14.1 million primarily due to the realization of foreign exchange losses of $0.4 million in the current quarter, compared to realized foreign exchange gains of $0.9 million in the prior year quarter.

Page 12 of the presentation contains our balance sheet, which remains strong. On September 30, we held nearly $180 million in cash and investments with virtually no debt.

Page 16, shows our free cash flow. On a year-to-date basis, we generated $37.3 million in free cash flow including $4.8 million in the current quarter. Through the first nine months of the year, our free cash flow increased approximately $14 million from the prior year, driven primarily by the timing of our future film production activity.

Over the next six months, we expect to release remaining three film projects that were produced under our self distribution model. We continue to closely monitor the performance of our film business, and to make adjustments to improve our future performance. Some recent changes to our approach include increasing emphasis on channels with greater Pay TV and international appeal, using coproductions to reduce our equity investment per film and installing the international distribution rights prior to completion of our film projects. Our goals for the film business remain unchanged, to grow the WWE brand or delivering economic returns that exceed our cost of capital.

Turning to our year-to-date financial results, operating income declined 26% or $17.7 million due to approximately $11.2 million in film impairment charges, and the assets are more than $9 million in domestic rights fees for our NXT and WWE Superstars program.

Looking ahead; we’ve made important progress on our strategic content related initiatives. Specifically, the 2012 launch of the WWE Network. That progress comprises continued discussions with potential partners, through the development of our creative plans, and in depth organizational staff, system and process planning.

Our valuation of the network shows that it can significantly accelerate our earnings growth. Even before consideration, some of the longer term and second order benefits, these would include the development of new product and distribution opportunities especially in terms of our global TV distribution, and more broadly increased demand for all our products based on added television exposure. The anticipated launch of WWE Network in 2012 is expected to impact our near-term results.

We expect our fourth quarter 2011 results will reflect $46 million in startup operating expense and $10 million to $15 million in capital expenditures for equipment and construction. This investment will provide space for additional staff and production equipment and allows for a redesign of enhanced interactive website to support a full range of network programs. Further, as we evaluate our network alternatives, in 2011, we do not expect to license or replace the domestic television license fees, which we receive in Q4 2010 from our WWE Superstars or NXT programs.

We are hopeful about the positive impact that our talent development and creative initiatives could have in our live event and pay-per-view businesses. However, we also expect that the challenging retail environment impact will continue to adversely impact our licensing business in the fourth quarter.

We remain conscious about our short-term business outlook and very optimistic about our long-term prospects. And executing our long-term strategy, we remain highly focused on developing new content and pursuing additional forms of distribution such as WWE Network. Our discussion with numerous stakeholders reinforces our view that we can transform our business and create meaningful value for shareholders.

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

Michael Weitz

Thank you, George. John, we're ready now. Please open the lines for question.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from Marla Backer from Hudson Square. Please go ahead.

Marla Backer – Hudson Square Research

Thank you. A few different questions, first on the network, are you where you expected to be in terms how close you were actually launching the Network and if you are looking for partner announcing about firming (inaudible) not announcing further. Are you on your projected schedule?

Vincent K. McMahon

Yes, we are Marla very much almost we have to accelerate quite frankly. We are seeing through get an optimum time actually for the introduction of a new network of our kind. So we feel that’s excellent point at this time.

Marla Backer – Hudson Square Research

And in terms of launching a new network, you’ve obviously seen as we have some of the different metrics on other broadcasters or other cable companies that have launched or rebranded network since with very valuing success, does that give you pause in terms of your plans to go forward with it?

Vincent K. McMahon

It only enhances it Marla, when you think about this product being totally different than anything else that’s out there, I would say I suppose the one of the notorious ones would be the Oprah Network.

Marla Backer – Hudson Square Research

Yes.

Vincent K. McMahon

Which is a miserable failure on all accounts because you have a brand like Oprah and it does take a genius to figure out that, okay. Why don’t we have Oprah do what she does best in our very own network and that's the one thing that doesn't happen.

So in terms of the introduction of a network theory, Oprah is an example, you're saying, okay, let's take Oprah, but let’s don’t use, let’s not whatever we do, we don’t use her and what she does best. Let’s just try and take an Oprah name and try and brand that in a big round about way, which obviously from a common sense standpoint, it doesn't make sense. Here we’re the (inaudible) we know what our WWE attributes are. So we have the opportunity to enhance all of that and bring further viewers, lapse viewers, and as well as current viewers and new viewers from a younger age set of two to 11 into the network, which will be extraordinary, (inaudible) because we are giving the audience what they want, not what they don't want.

Marla Backer – Hudson Square Research

Okay. A couple of questions now on other parts of the business. Toy revenue, although small, it’s still with a pretty steep decline year-over-year on a percentage basis. And you know, at about this point last year, there was so much enthusiasm because of the new Mattel relationship and how creative the Mattel management was been vis-à-vis the product. I mean, are you sure entirely attributable to the retail environment in the economy, it seems like an off-way steep decline to just assume it's all, economic related.

Vincent K. McMahon

Yeah, the data that we've looked at more or less first on a year-to-date basis, our toy business continues to be up, so we feel great about our partnership with Mattel. In the corridor, the data that we've looked at, external data on the business in general show that some categories and action figures is one of them, actually were hit a little bit harder than other toy categories. So we don't see anything in the data that says that we’re underperforming the categories in which we’re participating. We’re not happy about the results, we’re going to continue to work with Mattel to make sure that we’re branding the product as well as possible in the short-term, as well as looking at new products into the future. But we don't see anything particularly alarming vis-à-vis the current market conditions for that particular category.

Marla Backer – Hudson Square Research

And my last question is on WWE Studio. Given, what seems to be continuing pressure on home entertainment and DVD sales. Does it still make sense, I know your strategy had shifted from the original strategy of launching theatrical films, which would then progress into ancillary windows, I think when you shifted to launching smaller budget direct to DVD film.

Well, given how that market has remained under pressure for several quarters now, it doesn’t look likely to turn around in the near-term or ever. Does that – your strategy with WWE Studios still make sense in terms of your overall initiatives, especially given how much energy in investment you will be required to utilize for the new network?

Vincent K. McMahon

It will, as we’ve noted earlier, it is – there is an adjustment, and there is an ongoing adjustment and evaluation into this category.

Marla Backer – Hudson Square Research

But that doesn’t mean that you are backing away from future releases?

Vincent K. McMahon

It doesn't mean we're not.

Marla Backer – Hudson Square Research

Okay, all right. Thank you.

Operator

Our next question comes from Jimmy Clement from Sidoti & Company. Please go ahead.

James Clement – Sidoti & Company

Vince, George, Michael, good morning.

Vincent K. McMahon

Hi Jimmy. Good morning.

Michael Weitz

Good morning, Jimmy.

James Clement – Sidoti & Company

George, the numbers that you gave with respect to the fourth quarter in terms of the some of the incremental startup costs with respect to the network both from a P&L standpoint and from a CapEx standpoint. First on the P&L, are those costs that you would expect to be with you on a quarterly basis through, let's say 2012 or does that number come down, does that number go up, how should we think about that?

George A. Barrios

Jimmy, a broad answer, and I’ll get into little bit more specific on that, at sometime near in the future when the time is right, we are going to give a fuller kind of exposition of how we view the network business model, both individually and also collectively across the WWE current businesses, and we’ll address questions like the one that you just report with the cost structures and so on.

So I don’t want to get into that – into too much of that right now because there are still some moving parts. On the $4 million to $6 million, I think it’s fair to say that some of those costs will be part of an ongoing basis, but I'm not prepared to say how much for example our SG&A costs are going to increase in 2012 because of the network.

James Clement – Sidoti & Company

Okay. And then the other, just another I guess tangentially related, your media production center, which I guess, gosh, I don’t know what it has been, three or four years since you originally kind of talked about replacing that, then I think the implication was, if you went down the road of starting a network which are, you are going to need a new one, however, just want to understand over the last couple of years you’ve actually done a fair amount of investment in that, in the existing facilities. So is the existing facility going to have to be scrapped or have you been able to do enough on a piece meal basis to kind of get it to the point where it will be functional to be able to support the additional needs of the network?

Vincent K. McMahon

I will answer somewhat indirectly. But I think it get to core question. For the launch, we will do it in a way that kind of fits with in our current infrastructure, some additional space in the area of where we operate today. Over the long term, we still believe the media center is part of kind of our infrastructure. So we’re not “scrapping” it and some of the cost frankly that we’re bearing today are just accelerating, it’s also on the equipment side.

James Clement – Sidoti & Company

Okay, right. No that’s what I was getting at. Because I know that you’ve already – you have been investing already for a while.

George A. Barrios

Yeah

James Clement – Sidoti & Company

Is your expectation, George, that as the network gets up and running is that, would that be like kind of a separate line item from a separate business line item such as consumer products that you’d be able to breakout revenue and profit separately, or I mean it seems like it would have a lot of cross over with some of your other business and that might not be so easy to do, I’m just kind of curious for your thoughts on how you’re into breaking that out?

George A. Barrios

As you know, the segment reporting one of the key issues with the new business, so actually on the financial reporting side myself, the team, the audit committee have actually started talking about that issue. I think, we don’t know where we’ll end up will end up…

James Clement – Sidoti & Company

Okay

George A. Barrios

If a surprise that there wasn’t at least some segment reporting around the network although you rightfully point out that there will be places we’ll cut across. So my guess is that there maybe some pro forma elements in the way with these segments, but it still to be determined.

James Clement – Sidoti & Company

Okay. That’s very fair. Thanks very much for your time.

Operator

Our next question comes from Rich Ingrassia from Roth Capital Partners. Please go ahead.

Cody Slach – Roth Capital Partners LLC

Thanks. Good morning. This is Cody for Rich. I got just got a few quick questions. International attendance is up, can you maybe give a little bit further color with specific regions are doing especially well?

George A. Barrios

We had some successful tours in the third quarter. Mexico actually did very well for us attendance wise, but to keep in mind both domestically and internationally, a kind of a quarter-over-quarter comparison is always difficult. Our touring schedule is kind of an 18 to 24 month touring schedule. So we are not in the same territories, sometimes with in those territories, we are not in the same venues. So I describe the international attendance is holding on, doing well, but I wouldn’t put too much into the specific third quarter comps.

Cody Slach – Roth Capital Partners LLC

Great. With The Rock returning to the ring at Survivor Series, can you kind of give any color on early indications on how intend is the shaping up for that event?

Vincent K. McMahon

It sold out in 90 minutes.

Cody Slach – Roth Capital Partners LLC

Okay. I guess, following-up on that earlier toy license questions, do you have any plans or any special holiday products geared up specifically towards WrestleMania?

Michael Weitz

We don’t get into specific product announcements’, but what we do is, we make sure we take advantage of what we’re doing in show and so on, so stay tuned.

Cody Slach – Roth Capital Partners LLC

Okay, great. Thanks guys.

Operator

Our next question comes from Michael Kupinski from Noble Financial. Please go ahead.

Michael Kupinski – Noble Financial Capital Markets

Thanks for taking the questions. Just going back to the network, I know that you had explored several models in terms of pursuing in that work. I was just wondering if there is any update in terms of what you can talk about it, how you are pursuing your network at this point, whether it’s a partnership arrangement with a distributor or what are you kind of focusing in on at this point.

Vincent K. McMahon

There is no partnership, it’s going to be solely owned by WWE and we just said that.

Michael Kupinski – Noble Financial Capital Markets

Okay, and in terms of the just kind of looking at the expenses in the quarter, the cost of revenues were a little higher than I expected. Can you talk about some variances that were in the quarter on anything in particular in terms of gearing up for the network or any extraordinary cost that might have been in there?

Michael Weitz

On an unadjusted basis, obviously the film amortization impairment around that is in those numbers, that’s a significant part on an unadjusted basis. On an adjusted basis we did have those gearing up cost starting in the quarter and we probably had about a million or so directionally.

Michael Kupinski – Noble Financial Capital Markets

Okay. And then, how much it might be in the numbers, you know I haven’t had a chance to go through all those in detail, but how much was the non-cash compensation in the quarter versus prior year. What was the variance?

George A. Barrios

The adjustment in the accrual?

Michael Kupinski – Noble Financial Capital Markets

Yes.

George A. Barrios

About $2 million.

Michael Kupinski – Noble Financial Capital Markets

$2 million. And in terms of looking at the SG&A expense, are we kind of look at something closer in the $30 million, $32 million. What do you anticipate in the fourth quarter?

George A. Barrios

I think our core business SG&A is in that $28 million to $30 million in the quarter. When I talked about the $4 million to $6 million for the network, how much of that actually impact SG&A is something we are not prepared to give visibility on.

Michael Kupinski – Noble Financial Capital Markets

Okay. And so, where would the – let’s say $4 million to $6 million, would it fall in the cost of revenues or some of it fall in SG&A is that what you are saying?

George A. Barrios

Well that’s my point. Yeah. Some of it will be in cost of revenue, some of it will be in SG&A, and just we’re not ready to give that kind of view at this point.

Michael Kupinski – Noble Financial Capital Markets

Okay. That’s all I have. Thanks.

Operator

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

Brad Safalow – PAA Research

Hi, thanks for taking my question. First question really is surrounding the creative there were some signs, I would say on course of summer an up tick, some momentum particularly heading into their money in the bank pay-per-view which comes out nicely. And then subsequently, the total pay-per-views in the quarter I think come down, and attendance, domestic attendance was down, could you comment on whether or not that’s kind of reality base, will continue with the company, and if that’s what you think will be a driver of an upswing (inaudible) in terms of driving actual metrics or if something else happened in the quarter that explains why maybe some of the, let’s say buzz building around the brands stop?

George A. Barrios

Not too shy to call it. The question is little bit, kind of alluding that, let me just say from a creative standpoint, we like where we are from a creative standpoint, and we think that there is buzz around the brand, a great deal of buzz around the brand, a great deal of buzz around the brand, and we will continue developing talent as we always have through the years and getting higher as we go forward.

Brad Safalow – PAA Research

Okay. I guess I’ll put a final point on it. I mean it does seem like the creative has been improving, you’ve actually been doing this for many decades now, how long it’s you know it’s a big role you got it shifted, how long will that take the benefit it self in the actual events that you report in terms of attendance and take new guys and things of that nature in your expectation?

Michael Weitz

I’m always very optimistic in terms of the creative and have been you know obviously for 50 years of whatever it’s been. I am just as optimistic, if not more so now than ever been.

Brad Safalow – PAA Research

Okay and then just shifting gears you mentioned the changes and reliance of the WWE video game, I guess pre-orders activity and I guess the stronger and so much (inaudible) 250%. Overall when I think about your relationship with [KC] I think they announced yesterday that they find lots of Facebook based games for the WWE. Can you comment at all on how you’re thinking about that in terms of growth opportunities for both the quarter and really next year?

Vincent K. McMahon

Generally, we talk about this all the time, the core of the company is taking its IP and monetizing at 360 degrees. And it’s been doing that for a long, long time and the platforms change, but the approach is pretty consistent. So if there’s another platform and then we will see how consumer react to it, but what we know is platforms do well our brands does well within those platforms.

Brad Safalow – PAA Research

Okay fair enough. And then you guys were talking in the past separate to the network initiative just about obtaining more distribution deals for your content. Can you provide an update on that in terms either timing or expectation of timing?

Michael Weitz

We've done something, and there was something recently announced around in YouTube and kind of tends to yield there. So we’ll continue to explore it. We like where we are as owners of IP, a significant library and we think there continues to be land grab for content and content that's going to track (inaudible) is very, very valuable. So we feel good about where we’re at.

Vincent K. McMahon

And that’s more of a demand for our content than ever before, let’s just put it that way.

Brad Safalow – PAA Research

Okay. And final question on the network, I understand that you have to be sensitive to reaching specific benchmarks before you give the investment community the details. Can you at least give us some sense of timing as to when you might actually provide more detail on potential partner and what the economics might look like as obviously where we said we know you're sending money, don't have a clear understanding of potential return and kind of evolution in terms of timing of that return?

Michael Weitz

Yeah. I mean I think it’s the same what I told Jamie. We hope to when the time is right, give the fuller exposition on both the network independent business model and the way we see it connecting to the current business. At this point, we’d be guessing it by, to put a date.

Brad Safalow – PAA Research

Okay. I mean just broadly speaking it’s a six month window. I mean, you haven’t talked much again '12. So I assumed that sometime over the next few quarters, you might...

Michael Weitz

I think we're under six months...

Brad Safalow – PAA Research

Okay.

Vincent K. McMahon

It’s one (inaudible). That’s it.

Brad Safalow – PAA Research

Okay, thank you. I'll turn it over.

Operator

Our next person is from Robert Routh from Phoenix Partners. Please go ahead.

Robert Routh – Phoenix Partners Group

Yeah. Good morning. There are two quick questions, talking about the network that you’re about to start. When it comes to your library, which is obviously a hidden asset that you have, could you give us an update as to how many hours you have in that library and how many titles and also what it's on the books there, which materially less orders or work if you were able to sell which portion that we were going to do. But just how many hours do you currently have and then what rights do you have tied to your library?

Michael Weitz

We have about 100,000 hours. We digitized roughly 30,000 that was the project we launched a couple of years ago. Our first quarter Q, we announced that we were now investing in turning that digitized library into program. So we see that 30,000 hours is providing kind of the first and it’s pretty significant programming into the funnel that will eventually be the network. And as you pointed out, it’s on the books for the minimums amount single-digit million. So, I agree it's the most underutilized probably and undervalued assets that we have.

Robert Routh – Phoenix Partners Group

Okay, great. And as far as that library, you do have all rights to everything from analog, digital, streaming rolling by the company and then have you [carved] that yet.

Michael Weitz

We are very, I think unique as an IP owner. We have just about 100% of all the rights and so we just license certain windows out to certain partners, but yeah, we own 100% of the rights for the most part.

Robert Routh – Phoenix Partners Group

Great. Okay and one last question, given your current calendar roster now and the development of new talent stars, how many stars do you currently have in your talent pool?

Vincent K. McMahon

Well, it depends on what you call the talent pool in terms of whether or not we include our FCW category.

Michael Weitz

Now we have a total about 150 people roughly under contract and about two-thirds of those were about 100 or as Vince mentioned in the development category, the rest of what we would term our main roster.

Robert Routh – Phoenix Partners Group

Okay. And out of that number obviously, you guys have some talented people, don't know about eventually, they become like John Cena, The Rock, they become very big important generators of revenue for you guys. Approximately, you’ve put a number on it but out of the names of the talented people, don’t know, what do you see in terms of the next Rock, I mean do you have few prospects in roster that eventually we’re going to see that having never been seen before or on a (inaudible).

Vincent K. McMahon

We think that it probably bought anywhere from 99% to 100% of all of our developmental talents will be equivalent of the Rock.

Michael Weitz

We are very optimistic.

Vincent K. McMahon

Yeah we are optimistic.

Robert Routh – Phoenix Partners Group

Great, fair enough. And are you doing the hit mass, just picking up top $10 million, $20 million do you not realize how big your talent pool in RAW. Thank you very much.

Michael Weitz

You bet.

Vincent K. McMahon

Thanks, Rob.

Operator

Our next question comes from Dan Kilmurray from UBS. Please go ahead.

Dan Kilmurray – UBS

Hi guys, thanks for taking the question. George when you went through some of the fourth quarter cost, at the end of it you talked about certain television rights that will not be licensed again. Could at least if I say, I thought I heard you correctly, could you talk about what revenue lines will be impacted by your pulling back TV rights and/or what you are thinking about in terms of your existing shows that are running on other networks?

George A. Barrios

So I mentioned in the script, through the third quarter, the absence of those two hour for most of the year, well one of the shows ran through the first quarter have impacted us by about $9 million. I'm not going to give an exact number, but give you a little bit math of what that means, and for what the fourth quarter in and of itself, and it will impact the TV revenue line, television line.

As far as our other shows, I mean if you look at year-to-date, that line even without the like, domestic licensing of those two shows, that’s still up and that gets too essentially, we grow that business by number one contractual escalators that are built into our agreement, two when we renew agreements either domestically or internationally, and if we deliver numbers those renewals tend to be positive economic events for us and they usually are. And then three, when we add new countries or new programming agreements internationally especially so that’s what drive that line. In this case, the absence of those two hours in ‘11, for most of ‘11 it’s a pretty significant economic event for us. But as I mentioned before, we know there is a lot of demand for those two hours. We held back because given all the other discussions we were having we thought strategically it made sense when we thought about it from a long-term perspective.

Dan Kilmurray – UBS

Okay. And at least, I know you’re reluctant to give too much information about the network launch, but in the context of the shows you do have running, should we and have contracted. Should we assume that the network is going to be incremental and the existing shows that are running now will remain in place for at least the next the duration of their existing contracts?

Vincent K. McMahon

Yes, that’s important for us to have some of our core programming on a broader base network in order to promote the network. And I think it would be silly to know to turn our back on right fees, substantial right fees as well as the broad based exposure that we have, on the networks that we’re currently involved in. If you continue that at some juncture especially on an elevated basis then the network it self would benefit from that exposure and cost promotion, because we believe that it is good for WWE, it’s good for all of our partners much likely NFL model and it’s been proven with WWE.

Dan Kilmurray – UBS

Got it. Thank you very much.

Operator

Our next question comes from Marla Backer from Hudson Square. Please go ahead.

Marla Backer – Hudson Square Research

Thanks. I had a follow-up. Actually it’s relevant to the question that you just answered. First of all, can you remind us about RAW distribution agreement, how long does that last?

Vincent K. McMahon

Yeah, what we said around RAW was, that the agreement was a five year agreement through 2014, I believe October 2014.

Marla Backer – Hudson Square Research

Okay. And given that you own the rights to your content; would you be able to repurpose that content on the network after some specified period of time?

Vincent K. McMahon

We’re having a lot of discussions right now about windowing, and if you follow the entertainment industry, I know you do, it’s a big topic of discussion. So…

Michael Weitz

The answer is yes.

Marla Backer – Hudson Square Research

Okay, thanks according to that (inaudible). Thank you.

Operator

I’ll now turn it back to Mr. Weitz for closing remarks.

Michael Weitz

Well, thanks everyone for participating today. We very much appreciate your support and interest in the company. If you have any questions, don’t hesitate to contact me, Michael Weitz, at 203-352-8642. Thanks very much everyone.

Operator

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

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