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World Wrestling Entertainment Inc. (NYSE:WWE)

Q4 2011 Earnings Conference Call

February 23, 2012 11:00 AM ET

Executives

Michael Weitz – Senior Vice President, Investor Relations

Vince McMahon Chairman and Chief Executive Officer

George Barrios – Chief Financial Officer

Analysts

Cody Slach – Roth Capital Partners

Michael Kupinski – Noble Financial

Brad Safalow – PAA Research

Daniel Kilmurray – UBS

Jamie Clements – Sidoti

Marla Backer – Hudson Square

Operator

Welcome to the WWE Fourth Quarter and Full Year 2011 Earnings Call. My name is (John) and I will be your operator for today's call. At this time, all participants are in 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 Investor Relations for WWE. Mr. Weitz, you may begin.

Michael Weitz – Senior Vice President, Investor Relations

Thank you and good morning everyone. Joining me for today’s discussion are Vince McMahon, our Chairman and CEO and George Barrios, our CFO.

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

In our discussion today, we'll make several forward-looking statements. These statements are based on management's estimates. Actual results may differ due to numerous factors as described in our presentation and in our filings with the SEC. 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. Today, we'll review our results for the fourth quarter and full year 2011 and we’ll follow this review with a Q&A session.

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

Vince McMahon – Chairman and Chief Executive Officer

Good morning everyone. We have had less than a stellar quarter obviously, and as a result, the less than stellar full year. 95% of that less than stellar really coming from the lack of performers from two areas, one will be the film division and the other will be television licensing.

If you recall in a previous call, I mentioned that if the new strategies, new film strategies does not work we probably in all likelihood would be out of the film business. I still feel very strongly the new strategy will work under Mike Luisi and because it really concentrates on more of a significant change relative to our approach increasing partnerships with the major studios and specific ones and specific genres as well as better terms of distribution and things about nature. So, I am still not just hopeful, but I really feel strongly that under this new guidance and this new approach that the film really is going to work despite the previous performance and we've pretty much written off most of our old stuff by now in terms of impairments and things of that nature.

The other aspect of less than stellar comes from television licensing decisions. And quite frankly, that was more strategic than anything else. We are back out in the marketplace, because the time is right now to exploit our in-ring television licensing programs as well as those that are out of the ring. I must say, there has been never been a stronger demand for WWE product than there is now. So, we really feel strong in terms of capitalizing on what we didn't capitalize on two names in specific of television shows Superstars and NXT, whether we bring out those specific titles or not and add to those things, for instance, of reality programming. Tough enough, we brought that back, tough enough an original series on MTV, we brought it back to USA highly successful.

We then are currently actually in production with something a reality show called Legends House and a great deal of anticipation for that coming to the marketplace. We likewise have initiated a much more developmental situation with the YouTube. We have 9 original YouTube short form series that's out there as well. We are continuing to develop in preparation about 27,000 hours in our digital video library for television broadcast as well. So, we have lots of products with WWE and a great deal of demand in every respect.

And I guess maybe one of the things to lend to that stronger demand would be how we have done social media, which quite frankly we are one of the few commercial brands that have really just been burning up social media on a global basis. We had more than 1 billion views in 2011 on YouTube alone, some 50 million Facebook friends, 80 million Twitter followers. So, the brand itself is extremely strong and very hungry for more WWE contents. We really feel strongly about that and where we are from a strategic standpoint.

Other initiatives that I think sort of tell where we are now and always have would be live event attendance, which despite the economy is up 7% in the quarter. To me, that's always been the barometer of where we are and where we are going when you break it down to just the basics.

So, with that in mind, I am further developing our brand presence that I mentioned over all aspects of distribution. I think that the business looks very strong, going forward. As internationally, we mentioned any number of times and we, since the last call, we've done a number of things. We've had television events in Mexico, tremendously successful. Just the last week we were in Qatar, which was enormously successful. We have finally broken through on some of the brick, concretes (indiscernible) now in Brazil and Russia.

We have expanded even our broadcast in China to approximately 130 million homes, opened our offices in Singapore and Miami to develop the Asian market as well as the Latin American market through Miami. So, we remain confident really of our ability to take advantage of our growing demand for WWE content and that's pretty much the way I view things at the moment and George you want to make comments? George Barrios.

George Barrios – Chief Financial Officer

Thanks, Vince. In providing some additional perspective on our fourth quarter and full year, I will echo Vince's sentiments and say it's fair to characterize our financial performance is disappointing. While making progress on the development of our long-term content and distribution strategy, our earnings for the full year were significantly below our record 2010 performance.

Over the past year, we have discussed our network initiative, which is part of a broader strategy to expand our content and to optimize its distribution through traditional and emerging platforms. We believe that by executing the strategy effectively, we can achieve a dramatic and sustained increase in our earnings. While we make significant progress in developing this transformative opportunity, our full year results were impacted by two key factors. These factors were significant non-cash film impairment charges stemming from the weak performance of our movie releases and observed trends in the broader direct-to-DVD market. Specifically, we recognized a total of $23 million in film impairment charges, including $12 million in the fourth quarter and $5 million of additional film losses for the full year versus the prior year.

During the year, we also made strategic decisions to withhold several hours of previously licensed television content for distribution on other platforms. These decisions resulted in a $12 million reduction to our television licensing profit. So, on a combined basis, our film performance and program licensing decisions accounted for nearly 40 million or 95% of the $42 million year-over-year decline in EBITDA.

Focusing on the fourth quarter, our financial results also reflected $4 million in startup operating expenses associated with the potential launch of a WWE network. Moreover, our results demonstrated lower sales of license products, an increase pay-per-view production and marketing costs, primarily related to our Survivor Series event and a reduction in online ad sales. The largest of these factors were foreseen and highlighted as part of our third quarter earnings presentation.

To clarify the operating trends in our business, I'll discuss our performance on an adjusted basis excluding the impact of the film impairment and the startup operating expenses of our network.

For further discussions of these items, please refer to the supplemental schedule in our earnings release or our website presentation. On this adjusted basis, our operating income declined by $11.3 million for the quarter and $17.9 million or 22% to $64.4 million for the full year. Although our financial results were disappointing, the fourth quarter trends in our key operating metrics were somewhat encouraging.

Domestic television ratings increased 3% for our flagship Raw program in the quarter and 18% for our SmackDown program. Similarly, average attendance at our North American live event increased 7% from the prior year quarter. In general, the positive uptick in these key metrics support our view regarding the enduring power of our brands, which is critical to our future growth.

For a more detailed review of our performance in the quarter, let's turn to page six of our presentation, which lists the revenue and product contribution by business as compared to the prior year quarter. Starting with our live events including merchandize sales at these events, revenue increased primarily due to a rise in the number and proportion of our international events. Although changes in territory mix contributed to a 16% decline in average attendance at these international events to 6,300 fans to staging upon additional international events in the quarter more than offset that impact.

In North America, changes in our venue mix contributed to a 9% rise in ticket prices and a 7% rise in average attendance to 6,000 fans. However, these positive developments were offset by the staging of 11 fewer events in the quarter. Turning to our pay-per-view business, revenue increased 6% or $0.8 million from the previous year driven by an increase in buys for prior period events. Buys for the four comparable events staged in both the current and prior year quarters declined 3% including a 15% increase in buys for our survivor series pay-per-view.

Based on an increase in certain talent marketing production cost associated with that event, the profit contribution from our pay-per-view business declined 24% to $6.4 million. Revenue from the distribution of our television programming decreased by 5% or $1.7 million from the prior year quarter primarily due to the absence of domestic rights fees for our WWE Superstars program. This is more than offset the favorable impact from a revised contract with the Canadian distributor. Under the revised contract, we received television rights fees rather than advertising revenue.

I discussed in previous earnings call, our decision not to license either the WWE Superstars or NXT program domestically is strategic in nature and related to optimizing the long-term value of our content. In our consumer product segment, Home Entertainment revenue increased 12% or $0.7 million primarily due to an adjustment in the prior year quarter. Gross domestic retail revenue declined 14% or $1.8 million due to an 8% decline in shipment to 825,000 units and a 5% decline in average effective prices at $13.50.

The prior year quarter included an adjustment for lower sell through expectations of prior year releases. Additionally, our gross domestic retail revenue declined in the period, digital sales increased ten folds or about $320,000. Turning to our licensing business, revenue decreased 23% or $2.8 million reflecting lower sales across almost all of our major product category. During the quarter, the most significant declines were generated by our toy, collectible and novelty product.

Revenues related to toys declined 15% or $1 million reflecting a challenging retail environment for certain toy product including action figures. Although, sales of WWE action figures continue to rank WWE among the top selling – top five selling brand in U.S. overall industry sales in this toy category declined an estimated 8% in 2011. Revenues related to collectibles and novelty declined 37% or approximately $1.2 million with the tough comparison to a successful product launch in the prior year.

In contrast to these declines, revenue from our videogames increased $0.4 million, primarily due to the introduction of a new game WWE All Stars. Shipments of our historic franchise, SmackDown versus Raw declined 51% to 162,000 units. As a reminder, we launched the successor to this title WWE 12 in November of 2011. In our magazine publishing business, revenue decreased 35% or $1.1 million to $2 million reflecting lower newsstand sales in third quarter. In our digital media segment, revenue decreased 14% or $1.4 million driven by a reduction in online advertising sales activity. Traffic to our wwe.com website decreased by 22% as measured by page views.

During the quarter, WWE Studios recognized revenue of $4.3 million compared to $7.9 million in the prior year quarter. The decline was driven by the relative performance of our film releases in the current and prior year quarters. Film profits on an unadjusted basis declined $13.2 million from the prior year quarter, primarily due to $12.2 million in non-cash film impairment charges. These charges stem from lower DVD sales projections and revised ultimate expectations for our previous releases, The Reunion, See No Evil, Knucklehead and The Chaperone as well as pending releases, Bending the Rules and Barricade.

Excluding the impairment charges for these films, adjusted film profit declined $1.1 million due to lower receipts from our license films. As mentioned in the previous call and reiterated by then, we continue to monitor the performance of our film business and make adjustments to improve our future performance. Some recent changes to our approach include increasing emphasis on genres with greater pay TV and international appeal. Using co-productions to reduce our equity investment per film and selling the international distribution rights prior to the completion of our film projects. The production of two films for release in 2012, No One Lives and The Day exemplify this approach.

We've also recently announced a partnership with 20th Century Fox to co-produce and co-finance, redirect to DVD title, including the third installment of our successful Marine franchise. In total, we expect to release between three and five movies in 2012.

As mentioned previously, there are number of compelling reasons for WWE to participate in the movie business, including leveraging our core competencies and content creation and extending our audience reach. Although movies will not be released under this revised approach until the latter part of 2012, we expect that will reduce the risk and yields greater returns over the long-term.

Overall, our adjusted profit contribution decreased 22% or $10.3 million driven by lower results across most of the businesses. Profits decreased primarily due to the absence of the domestic television rights fees for our WWE Superstars program declines in licensing and online ad sales as well as increased pay-per-view production and marketing costs. Adjusted profit margins were 32% as compared to 38% in the prior year quarter, reflecting the affirmation and absence of domestic television revenue and decline in licensing revenue, which have some of our high variable margins.

For the quarter, SG&A expenses increased 14% or $4.1 million from the prior year quarter driven almost entirely by $4 million in network-related expenses. Start-up expenses associated with the strategic initiative included salary benefits and recruitment costs as well as higher professional fees. On an adjusted basis, SG&A expenses were essentially flat to the prior year.

Page 9 representation compares the quarter-over-quarter results and provides the summary of changes by business. As shown, adjusted operating income decreased to $3.1 million from $14.4 million in the prior year quarter driven by the decrease in our adjusted profit. Adjusted net income as referenced on page 11 decreased to $1.8 million from $8.1 million in the prior year quarter also reflecting the decrease in our adjusted profit.

For the full year, our adjusted operating income declined 22% while revenue was essentially flat from the previous year. The change in our performance can be attributed to the two key factors described earlier, namely the absence of television right fees for NXT and WWE Superstars program and the performance of our film business. Additionally, adjusted SG&A expenses increased 3% as higher staff related marketing and legal expenses were partially offset by an $8.3 million reduction in management incentive compensation. Adjusted operating margins fell to 13% from 17% reflecting the resulting changes in product mix.

Page 12 of the presentation contains our balance sheet which remains strong. On December 31, we held approximately $165 million in cash and investments with virtually no debt.

Page 16 shows our free cash flow, which for the full year increased 11% to approximately $35 million. A $37 million reduction in film production spending was partially offset by increased capital expenditures and the impact of $15 million in advances received from a licensee in the prior year.

Capital expenditures increased $16 million, primarily as we invested in assets to support our emerging content distribution strategy including a potential network. We believe that our content investments will yield significant returns under almost any distribution scenario. By carefully evaluating our distribution alternatives, we can maximize our risk-adjusted returns. While developing this transformative opportunity, we expect that our 2012 earnings will be roughly in line with our 2011 results. This forecast reflects three components. First, initial start up operating expenses of $15 million to $20 million and you should note capital expenditures in the same range to expand our content and distribution options including the potential launch of a network; second, a material reduction in film impairment charges and film losses, which totaled $28 million in 2011; and third, a reset of our management incentive compensations which was reduced by approximately $8 million in 2011.

We expect that our 2012 free cash flow will be below our 2011 results. This forecast anticipate investments of $15 million to $25 million to produce our future movie releases and $35 million to $50 million to support the development and distribution of new programming content including through a potential WWE network. The latter includes investments of $5 million to $10 million to create new programming content, $15 million to $20 million of capital expenditures for facilities and equipment and $15 million to $20 million of operating expenses as previously discussed to provide the broader infrastructure, personnel and systems to support this initiative.

Looking ahead, we believe the executing this strategy effectively can dramatically raise our earnings potential. Our confidence in this outcome is based on two fundamental premises. First, WWE has powerful brand with tremendous global appeal. Regardless of the metrics that are involved, our 52 million Facebook friends, our 18 million Twitter followers, 1 billion views of WWE videos on YouTube, 13 million unique visitors to our own website, television programs that are always rated number one on the respective network.

The statistics all point to the same conclusion. They demonstrate that the WWE brands among the strongest commercial brands worldwide. The second premise which reinforces our outlook is that the proliferation of distribution alternatives is driving up the value of content, especially compelling content with broad appeal. Our review of recent content deals such as USB with Fox, CBS with Netflix, and the NHL with NBCU provides some evidence of this perspective. Moreover, we believe that creating new content and distributing that content in traditional and emerging platforms is a natural extension of what we've proven and we do well.

Finally, as we create and distribute new content domestically, we expect to cultivate some second order benefits. These include the 360-degree monetization of new intellectual property, global distribution of this new content, and more broadly, increased demand for all of our products based on added exposure. By executing in these areas, our objective and expectation is that we can drive significant earnings growth.

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

Michael Weitz – Senior Vice President, Investor Relations

Thank you, George. (John), we are ready now, please open the lines for questions from our investors.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Rich Ingrassia from Roth Capital Partners. Please go ahead.

Cody Slach – Roth Capital Partners

Good morning guys. This is Cody for Rich. I got a couple of questions. About the WWE network, can you give a projected launch date and once it launches would you expect an incremental revenue and profit on your cable net versus the cable deals that you have today?

Vince McMahon

We're going to launch sometime this year. There is no specific date. And we are continuing obviously negotiations with any number of cable systems. And what have you with, as far as the monetization is concerned, we are really unique in that respect, because we create our own program and we create our own demand and the cost of that programming is not anywhere near the cost of programming with other like networks starting up. We have a great advantage over that. And notwithstanding again the usage of that same programming and different forms, whether it's first run on other applications or a secondary run. In addition to opening up new international markets with these new products that we will have on our networks, so we are very bullish on the network. We want to make sure we get it right when we launch and that’s why all of this preparation.

Cody Slach – Roth Capital Partners

Great. Next question is actually about live events the total number of North American live events went down, but total international events increased. Is using 2011 North American events is benchmark a good level moving forward and should we expect any – or a continued increase an international events?

George Barrios

I think the range that we always give is that internationally we’ll do 70 to 80 events in most years depending on logistics, and domestically, we're going do 240 to 250, but that's again depending on logistics.

Cody Slach – Roth Capital Partners

Okay. Last question, can you talk a little bit about the ramp and fan engagement, how that's been to WrestleMania so far?

George Barrios

We missed that question in the beginning of that.

Cody Slach – Roth Capital Partners

Can you talk about a bit about the ramp and how fan engagement has been towards WrestleMania this so far?

Vince McMahon

Has been tremendous and the idea behind that is to bring back some of the stellar performers of the past. So, we increase our audience, some of the audience then can flavor some of the newer superstars to follow their footsteps. And the demand for this year's WrestleMania is the greatest demand we ever had for any WrestleMania. And we think it will carry through from Miami this year into what was announced just the last week in terms of New York and more specifically MetLife Stadium where the giants and the jets play for the following year. So, we are very, very strong on the WrestleMania and the demand for.

Cody Slach – Roth Capital Partners

Great, guys. Thanks.

Operator

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

Michael Kupinski – Noble Financial

Thanks for taking the questions. A couple of questions, could you just kind of go through you indicated the 2012 you think it’s going to be pretty similar to 2011. I was just wondering if you could just provide a little color on what your thoughts are there particularly as it related to continuing operations – earnings from continuing operations. I guess if you backed out some of the impairment charges and stuffs like that or you’re talking about just from pure EPS stand point. Can you just give me more color there?

George Barrios

Yeah I think, obviously we don’t expect to have any more impairments in 2012, doesn't mean there won't be any but we don't expect it. You back that out and then essentially offset that with roughly $15 million to $20 million of startup expenses for the broader content and distribution strategy including the network as well as the reset of management comp so, that offsets it. And then in the regular business as we know Michael, we don’t give guidance. Although, we are giving some soft guidance here today obviously for the rest of the business, we see is relatively flat within a range of plus or minus 10% depending on each individual business having slightly different secular and cyclical supporters or trends. But that is how we get the flat. The big items are offset by different things and in the rest of the business, we would see as flat plus or minus 10%.

Michael Kupinski – Noble Financial

Got it. And what then are you using as the number for 2011?

George Barrios

We are using the reported number for 2011.

Michael Kupinski – Noble Financial

The reported EPS number?

George Barrios

Yeah.

Michael Kupinski – Noble Financial

Okay. And then in terms of the film business, when is that – at what point you determine that may be this is not a business we want to be in? I mean is there a point where you decide that we are not really making the money that we thought we’d make or you know that may be that things aren't as rosy as we think might be. What point would you say may be we’ll get out of that?

Vince McMahon

Under new leadership with Mike Luisi in a different approach as well as working with partners that we haven’t worked with in the past and negotiating much better terms of distribution, I really think this is going to work. Again we've added number of models that we thought would work in the past and I don't know there is, I must say, as soon as we start getting the results from the new regimes so to speak. We have a really good idea. We're not going to put good money after bad. So, there is a specific time and which we say well, this is now working. I don’t think it will get really don’t in terms of having make that decision because I believe that the new strategy that we have and taking a risk and spreading out over an aspect of many different studios being far more conservative having a piece of this and a piece of that at the same time being able to exploit our superstars in most of these films. I really that's going to pay off and I really do think we have it down the path.

We are not going to know, there is no crystal ball here. It is a business that we theoretically for sure should be in because we understand stories and we understand content and we understand our performers and what they bring as well as this global marketing change so theoretically, there is no doubt that we're in a position – a much better position than any studio to monetize this content. It doesn’t necessarily theoretically mean that practically we have done it. We did well when we started off and then changed our model and this is yet another change, but this one is one that's far more conservative, spreading out our risk with major studios.

Michael Kupinski – Noble Financial

On the cable network side as you kind of already build it some expenses there. How is it that we should look in terms of our launch on the cable network side? Do you think that we’ll start off with a certain number of subscribers and then build from there? Do you think that you have a strategic partner where you might be able to have fairly critical math subscribers at least initially? Can you give us some color on where the thought process is on and where it's more likely to kind of like the launch is more lightly to kind of go from there?

Vince McMahon

You don’t want to start the network unless you have major partner. You need to have some degree of critical mass to begin with because that basically says okay since you guys are really often rolling. So that’s very important and you take any number of forms, which we all which look very good to us. And the matter of which way we go to network and network even from a standpoint of launch there are so many products emanating from the network that again that can be monetized in so many different ways. So that’s what we’re looking at the network and its form one form or another launching this year.

Michael Kupinski – Noble Financial

Until the paid like can you give us a benchmark of how many subscribers you might be able to launch with initially?

Vince McMahon

I wouldn’t want to say that, but again it would be substantial.

Michael Kupinski – Noble Financial

Okay. Thanks very much.

Operator

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

Brad Safalow – PAA Research

Hi thanks for taking my questions. First question just want to clarify you said you’re planning on spending $15 million to $25 million on the film business just from a pure cash perspective this year?

George Barrios

That’s right applied into something that, Mike Kupinski just asked. Vince is that $15 million to $25 million won’t hit the screen until 2013 at the earliest and some of it may even go into 2014. So for us to really assess the efficacy of the new model there is some time that will take to get there.

Brad Safalow – PAA Research

Okay. I just want to clarify that and then also on the swing factor on the management incentive comp side is that order total amount we’re talking $8 million for ’12?

George Barrios

It just the change in other words we had $18 million adjustment this year down and if we reset that to meeting expected target I mean that goes up by about $8 million a rough numbers.

Brad Safalow – PAA Research

Okay. And then could you talk a little bit about the relationship you have with Google and YouTube. Obviously I think you launched those web series I think in the last month or two. To help us understand what the revenue structure is for that?

George Barrios

We’re not going to comment on the revenue structure. It is part of YouTube’s stated strategy of investing in original content with compelling brand and we were one of those initial launches with them. Obviously they know us very well because of those 1 billion video streams that we do. So they have a kind of very data driven understanding of the power of the brand. They thought it make sense to comes to us. We thought it makes sense to partner with them and we’re really excited. We think the content is terrific. It’s very different than what our content is on TV and it is us continuing to build muscle on creating and monetizing more content in all these different platforms.

Brad Safalow – PAA Research

Okay. And then just on NXT and Superstars are you guys holding back those shows and going to continue broadcast them on your site in advance of our basically anticipation of the launch of the network this year or you still out there marketing. I guess more than clearly you are exercising about them.

Vince McMahon

Both.

Brad Safalow – PAA Research

I’m sorry is it both?

Vince McMahon

Yes it’s both. Again the demand is so strong for our products and those two whether or not name change what have your format changes somewhat of the demand is strong. We can look at this from a both distributions and the network as well as strong demand it’s out there in working with others.

George Barrios

And the way Brad, the math is when we post two shows on the year we’re monetizing six hours domestically. Off the air there are four. So the question now is what do we monetize domestically, it’s five, six, or seven and that’s where we are getting at. We are going to do what we think is best for the long-term. I will say the NXT and Superstars not only those hours, but those titles continue to be monetized internationally.

Brad Safalow – PAA Research

Right okay on legends house is that similar situation, where maybe on the network or may not be?

Vince McMahon

Yes, the answer is yes. Again although there is very strong reaction to the concept and we’re in the production now from many number of sources.

Brad Safalow – PAA Research

Okay and just going back to your guidance for the year, your soft guidance. The way you’re telling us include monetization of NXT, Superstars and Legends House or no?

Vince McMahon

It includes our best estimate of what we’re going to do in those areas, yes.

Brad Safalow – PAA Research

Okay. And then just in terms of the network last quarter you said you were close to having an announcement obviously were announced three months later, is there anything you could say about the tenor of the discussions any sort of expectation on when you might announce something more formal. Obviously you already announced some things about, what kind of content we might be seeing, but as far as some more meat to the bones on to bones so to speak. Is there anything you can say about timing on that?

Vince McMahon

Other than this year again, specifically, and the demand and quite frankly the acceptance of all the new network, which the day and age is pretty much unheard of especially at the level that we're contemplating. So we feel strong about the network.

Brad Safalow – PAA Research

Okay. And then last question I guess one of the big concerns that we hear and when we talked investors is about management resources, no one is questioning the ability of management to work endless works, but obviously you are watching a network is incredible undertaking. Can you talk to us a little bit about, where you stand in terms of hiring process in particularly at the kind of the executive levels for the network?

George Barrios

As we mentioned we have $4 million in OpEx related to the network or in broader content distribution that strategy and primarily that went to people. So, we are very much engage in the hiring process some where between 40 and 50 people join us in the fourth quarter. And we're going to continue to do that. We think we have a pretty detail plan of what we need systems, people, processes to launch and we just executing on that.

Brad Safalow – PAA Research

Do you feel like you guys need to hire outside talent with cable network experience kind of the executive level is that something you're pursuing?

George Barrios

Yeah, I mean on the production side, on the programming side, people we have brought in already have that experience. So, the answer is yes.

Brad Safalow – PAA Research

Okay. I'll turn it over. Thanks.

Operator

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

Daniel Kilmurray – UBS

Good morning guys. George, would you just confirm what you said the cash balance on the slide shows just 155, I thought I heard you say 165?

George Barrios

We are including the ARF element in there that gets put down below in long-term investments.

Daniel Kilmurray – UBS

Okay, thank you. On the films side, talk of a spend of $15 million to $25 million do you have a number of -- is there a number of projects attached to that dollar amount?

George Barrios

Not specifically, Dan. If we look at the model, it's portfolio approach of four to five different ways that we might participate in a film. So, I can give you a range that $15 million to $25 million it's probably four to eight depending on how we participate. But I think the key point is that it's more than what we would have done under the previous model because of as Vince mentioned. We are actually going back to something we use to do in our first iteration, which is partnering with folks on the equity side.

Daniel Kilmurray – UBS

Okay. So just trying to expand on that so this whole processes is a lot more money than that is going get spent on the development promotion and distribution of the films. This is just your contribution to this product its going get developed, promoted and distributed by the studios?

George Barrios

That’s generally correct. Well, I will say is the $15 million to $25 million does include the promotion of any scenario that’s really is the production costs. The promotional costs are really most part of the specific P&L depending on the size of the project. But your general point is correct the total production costs will be greater than $15 million to $25 million for the projects.

Daniel Kilmurray – UBS

And you're looking at this now that you decided to cap the amount of your capital, shareholder capital you're going to spend on this effort over the next couple of years at that dollar amount?

George Barrios

I would say we've always done that I mean if you look historically and it’s been lumpy, but if you look historically we've average around $20 million a year in capital deploy for this so.

Daniel Kilmurray – UBS

Okay. That’s per year then. So, you have targeted this as an annual until further notice capital. So, this is not just what you are going to do in '12 your thinking that this is an annual situation?

George Barrios

I think I didn’t say that. We said $15 million to $25 million on '12. We didn’t say anything else about extending beyond that.

Daniel Kilmurray – UBS

Right, but we have no results on how that returns are until ‘13 to ‘14 until the films release?

George Barrios

We have a couple because the $15 million and $25 million doesn’t included a couple of films under the new strategy. No one lives and today that was part of 2011 investment and those hopefully will be released towards the end of this year and trickles into the beginning of next year. But your general point is correct I think we will see some indications a little bit before than those project related to the $15 million to $25 million.

Daniel Kilmurray – UBS

Okay. On to the network you laid out some numbers in terms of programming facilities etcetera. I thought I heard $35 million to $50 million is the budget of what your spending is that sort of accurate on capital needed to launch this network?

George Barrios

Yes, if you think about in the fourth quarter we did about $15 million in CapEx related for the start-up cost, about $4 million in OpEx. So, for 2012, the guidance is $15 million to $20 million in OpEx, which is primarily people system maybe some marketing dollars. $15 million to $20 million in CapEx which is equipment, space and then $5 million to $10 million in programming expense that won’t hit the P&L until the launch amortize it. So, that’s with the $35 million to $50 million cash. That indicative of a run rate model

Daniel Kilmurray – UBS

That’s what I was going to ask next. So, if you look at this what would you assume your run rate costs are going to be once you get to a certain point here and when?

George Barrios

I mean that’s related to the revenue question. We are not going to comment on the business model at this point. We hope to soon.

Daniel Kilmurray – UBS

Please.

George Barrios

In the eventful business model has a lot of the permanent in, when the times comes we will share more information, but at this point we can’t.

Daniel Kilmurray – UBS

So, you really have no idea what your run rate costs are going to be for programming and people to launch a network?

George Barrios

No, I didn’t say that. We have actually a very good idea under a various scenarios. I said we are not prepared to share that today.

Daniel Kilmurray – UBS

Okay. Thanks guys.

Operator

(Operator Instructions) Our next question comes from Jamie Clements from Sidoti. Please go ahead.

Jamie Clements – Sidoti

Vince, George, Michael, good morning.

Vince McMahon

Good morning.

Jamie Clements – Sidoti

Hey George getting back to the free cash flow commentary in your prepared comments, what’s your level of maintenance CapEx? For example you saw over the last 12 months and if that a good number going forward. Like in another words if you strip out the growth initiative spending what’s the run rate maintenance number?

George Barrios

Our maintenance CapEx is covered in the $10 million to $15 million range and we have done lots of capital to invest in the product. So, we did our HD conversion that was plug. Obviously the network is a significant one. We talked to you before about the media center. Obviously there is a Venn diagram on the spend between the media center spend and the network of content spend.

Jamie Clements – Sidoti

Right. George let me ask you about at the media center because a couple of years ago when this was originally, when this originally came up I think there was of $30 million something numbers associated with that. I could be wrong about that and please correct me, but I don’t know if the content distribution network the new plans you have in placed is that what form is that media production center take. How money is going in to that because that obviously helps the rest of our businesses too?

George Barrios

No, I will correct you Jamie I think the last public utterance we had on the media center was $65 million to $75 million.

Jamie Clements – Sidoti

I’m sorry okay.

George Barrios

And to your point, to your question, the second point of your question what was spending today in space equipment which is the CapEx and then the OpEx in the people is related to creating more content making our current top content more powerful and then monetizing it. The question of how much is the media center? I think that’s going to get determine after we are up and running in a network environment and actually living under that environment and we have significantly more additional space today.

Jamie Clements – Sidoti

Okay.

George Barrios

Four of five months ago now that space is leased not owned at this point, but all of that I think we will find its level as we work through and actually operate at the significantly higher level of content creation.

Jamie Clements – Sidoti

Now George what are you off, I don’t know if I what you are thinking is on this? But in terms of how you are going to report your P&L going forward. Under the assumption that you have a network launch this year, I mean do you expect to report this as separate line item. I mean I don’t know how easy that would be particularly with the cost kind of benefiting some of your other businesses do?

George Barrios

As you probably aware there is a lot of SEC guidance, a lot of that recent on segment reporting, so certainly when the times comes from a network we will do what we need to do to on that front.

Jamie Clements – Sidoti

Okay.

George Barrios

My guess is and there is a lot of analysis that needs to be take places that there will be some pretty fundamental changes to the way the reporting work for WWE.

Jamie Clements – Sidoti

Okay. That is helpful. I appreciate and just a final question here is, this is the question that comes up at a lot of companies particularly those that are kind of going into growth mode, which is what your intend obviously is with various initiatives in place. Vince, I’m wondering how committed are you in the rest of the board in your opinion to a dividend payout this is high as it is considering the growth opportunities that you have outlined like in other words hopefully you don’t have to, but if you are faced with the decision of putting more money into growth versus returning money to shareholders kind of where do you stand philosophically on that?

Vince McMahon

Based on everything that we see, we don’t see a change in the dividend at all.

Jamie Clements – Sidoti

Okay. Thanks very much for your time.

Operator

(Operator Instructions) Our next question comes from Marla Backer from Hudson Square. Please go ahead.

Marla Backer - Hudson Square

Yeah, hi guys. Can you give us a little bit more color on WrestleMania this year with Rock. It looks pretty exciting?

Vince McMahon

It’s very exciting. Again the concept action of the stellar stars such as the Rock and put more of a spotlight on the new emerging stars as well. It is very exciting. Creating a lot of buzz as quite frankly as I mentioned before in the press conference that we had at MetLife Stadium on last week, when Governor Christie announced the WrestleMania, which going to appear the following year in conjunction with our partners the Giants and Jets as well as the stadium officials and the expedition authority and things of that nature. It really it’ a joint effort as good as Miami will be this year and it will be awesome and all likely that we are looking for a best WrestleMania ever in terms of all measurements. We think even in the following years going to be better.

Operator

We have no further question at this time. Do you have any closing remarks?

Michael Weitz – Senior Vice President, Investor Relations

Thank you everyone. We appreciate you listening to the call today. If you have any questions feel free to reach out to us. We thank you for your support.

Vince McMahon – Chairman and Chief Executive Officer

Thank you very much.

Operator

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

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