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I am a former HF analyst now managing my own portfolio. My focus has traditionally been healthcare, but I now prefer to focus on tech, financials, and retail. As a securities analyst and now as a SA Contributor I think my best and highest use would be providing fact and commentary that will... More
  • Follow Up On WWE Network's Cannibalization Of PPV Revenues. Interesting Exchange With Mr. McMahon And HF Analyst 0 comments
    May 3, 2014 11:47 PM | about stocks: WWE

    Andrew Peranick - Bastogne Capital Management, LLC

    Kind of walk through a little bit of the network numbers again. Obviously you talked about the annualized $80 million of revenue at the network right now. Based on some of the earlier slides from the January presentation of break-even at a million with some subs or 60 million of cannibalization as well as some comments, that I believe you made in an interview regarding the network itself pre-cannibalization getting to break-even profitable of 400,000 subs, we are getting need to the gross margin of about 80% to 85% or 83% on the network. Does that sound about right?

    Vincent K. McMahon

    Yeah. I will use the different terms and variable margins sit around there, so the network revenue less than direct costs and or splits depending on which platforms we're on, you will sit somewhere at between 80% and 90%.

    Andrew Peranick - Bastogne Capital Management, LLC

    Okay. And by that math there is around $40 million of fixed costs assuming. Okay - If I do that math right now pre-cannibalization at $80 million of revenue, the network itself - again pre-cannibalization is generating about $26 million of EBITDA.

    Vincent K. McMahon

    Yeah, so the question you are saying if you pulled out the pay-per-view element, we view the network break-even is around 400,000, you are pointing we have those 670,000 for a full year. The math is generally corrected in that math. We think the pay-per-view cannibalization is a important part of looking at, which is why we concluded it in the network segment, both revenues and costs, but the math you are doing is directionally correct.

    Andrew Peranick - Bastogne Capital Management, LLC

    Okay. And I agree. So then my next question will then be on cannibalization. I think we talked about this in the past how in all three scenarios, 1 million to 3 million domestically you kept it at 60 million. I'm assuming then that includes zero pay-per-view wise - including zero pay-per-view wise at WrestleMania.

    Vincent K. McMahon

    That's right. So when we put those numbers out just because we wanted to show the most conservative on the cannibalization, that's what those numbers in tail then obviously we had more than zero by, so if you wanted to look at that break-even number with those pay-per-view wise, it's obviously can be a little bit less than million subscribers we talk about.

    Andrew Peranick - Bastogne Capital Management, LLC

    Right, okay. So then I guess, kind of what I'm really trying to dig into here is to understanding that bucket of 60 million. As I look back in terms of 2012 EBITDA from pay-per-view it was about 45 million, it was about 35 million for 2013. Can you give me what the number is of that 60 million that you is considered pay-per-view flow cannibalization and some question of that would be, is that the total number that you took out or is part of that international that's not factored in the 60 million. How should I think about that?

    Vincent K. McMahon

    Yes. You shouldn't obviously looking EBITDA, because EBITDA includes a kind of fixed cost that's - are still with us to produce the show. So you have to look at the variable margin on pay-per-view domestically. So if you lose all the domestic pay-per-view, you look historically that's has been about $65 million, got about an 80% or 85% variable margin, you're down into the 50s on variable margin that you would lose and we also knew it would impact our (indiscernible) business obviously we shut it down, it's impacted quite a bit, and we also assumes potentially in some of our other businesses, not a 100% show where, but we put something for that, so that's how the $60 million came about.

    Andrew Peranick - Bastogne Capital Management, LLC

    Okay. So roughly $50 million to $60 million is pay-per-view?

    Vincent K. McMahon

    A little bit more than that, but yeah, roughly.

    Andrew Peranick - Bastogne Capital Management, LLC

    Okay. And did u give or do you mind giving a rough idea of what the domestic buys in pay-per-view for WrestleMania last year?

    Vincent K. McMahon

    Yeah, we published that is 720,000.

    Andrew Peranick - Bastogne Capital Management, LLC

    Okay. So roughly you lost 700, so cost 50% of the paper-view-buys.

    Vincent K. McMahon

    A little over that.

    Andrew Peranick - Bastogne Capital Management, LLC

    Okay. So if I was to basically then just extrapolate that across the Board, and say where I'm going with, this is assuming that if you didn't add one single subscriber from where you are right now and the pay-per-view trend stayed the same as for WrestleMania considering you're growing the market. Cannibalization then would come down by about $25 million, so we would be looking at $35 million of cannibalization and you're basically on a consolidated basis at 670,000 subs, losing about 10 million bucks right now, and you get to break-even then on that math of somewhere between 750,000 bucks and 800,000 bucks.

    Vincent K. McMahon

    Andy, we're going to have follow up with you on that because I lost you about half way through the dictation.

    Andrew Peranick - Bastogne Capital Management, LLC

    Okay.

    Vincent K. McMahon

    And I thought it was good enough for us…

    Andrew Peranick - Bastogne Capital Management, LLC

    No - effectively what I would ask on a hired-view level is clearly 750 last year - a million fifty plus domestically for WrestleMania you're growing the market, so effectively what I'm trying to suggest to you is that $60 million looks pretty conservative in terms of cannibalization and that break-even number on a consolidated basis is lower than a million bucks?

    Vincent K. McMahon

    I'll say two things on that. Everything else being equal at 660,000 so may be 1 million subscribers you may be right. I'm not sure you'll be right at 2 million to 3 million, but the other element everything is not necessarily equal. We know for a fact that DirectTV is not taking our next pay-per-view and frankly we're not sure who will and won't from this going forward, so there is two people that need to agree to have a pay-per-view business, it's not just in our hands. So that's another thing to keep in mind.

    Disclosure: I am short WWE.

    Stocks: WWE
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