World Wrestling Entertainment's (WWE) CEO Vince McMahon on Q3 2016 Results - Earnings Call Transcript

World Wrestling Entertainment, Inc. (NYSE:WWE) Q3 2016 Earnings Conference Call October 27, 2016 11:00 AM ET

Executives

Michael Weitz – Senior Vice President, Financial Planning and IR

Vince McMahon – Chairman and Chief Executive Officer

George Barrios – Chief Strategy and Financial Officer

Analysts

Evan Wingren – Pacific Crest Partners

Brandon Ross – BTIG

Eric Katz – Wells Fargo

Dan Medina – Needham Investor Group

Daniel Moore – CJS Securities

Rob Routh – FBN Securities

Operator

Hello, and welcome to the webcast entitled WWE Third Quarter Earnings. We have just a few announcements before we begin. [Operator Instructions]

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

Michael Weitz

Thank you and good morning everyone. Welcome to WWE's third quarter earnings conference call. Leading today's discussion are Vince McMahon, our Chairman and CEO; and George Barrios, our Chief Strategy and Financial Officer. We issued our earnings release earlier this morning and have posted the release, our earnings presentation and other supporting materials on our website ir.corporate.wwe.com.

Today's discussion will include forward-looking statements. These forward-looking statements reflect our current views are based on various assumptions, and are subject to risks and uncertainties disclosed in our SEC filings. Actual results may differ materially and undue reliance should not be placed on them. Additionally, the matters we will be discussing today may include non-GAAP financial measures. Reconciliation of non-GAAP to GAAP information is set forth in our earnings release and presentation, which are available on our website. As a reminder, today's conference call is been recorded, and the replay will be available on our website later today.

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

Vince McMahon

Good morning everyone. Just a few notes I’d like to make reference to. Our revenue as you know was a $164 million, it’s on part with Q3 of last year, about an 8% increase and we delivered our results in line with our guidance albeit on the lower end of our guidance. We remain very bullish on our long-term opportunity with our WWE Network and the ability to distribute our content directly to our global audience. The network itself at 1.46 million average paid subs over the quarter which is about 20%, 24% higher than last year’s Q3. As far as television ratings are concerned, our brand extension we think continues to work very well.

As far as is SmackDown as you know we went to a live format, it’s live format is about twice the ratings that were in the same time slot a year ago and is about 16% above what we were doing with SmackDown on a tape basis on Thursday nights on USA. Nonetheless, the increased value of our broadcast programs as well as increased value over all platforms has strengthened our brand, continues exhibited in a number of ways and NBCU for argument sake secured 50 new blue chip advertisers over the last two year period and growing. We think that’s a really good sign. We also completed the content distribution deal in Germany with Prosieben, which continues to grow the value of our programming on an international audience standpoint. And as far as value is concerned in social and digital platforms we are constant at 11.5 billion video views over 9 months leading up to where we are now and this which represents a 71% increase from 2015, that’s extraordinary.

And many sites are picking this up is results of that, ESPN, any number of them now, which again everyone is recognizing the value of our programming and taking advantage of it. As far as looking ahead, on 2017, we’re anticipating continued growth in our network, as well as overall revenue and profits to record levels. And speaking of the record our goal to invest and achieve earnings growth reaching an OIBDA of $100 million which would be an all-time high for 2017 again, it represents the confidence we have in our future.

George Barrios

Thanks Vince. Several key topics which I’d like to review today. These include management discussion of our financial performance, the progress of key strategic initiatives, and our business outlook. For the third quarter, we achieved revenue comparable to last year’s record third quarter and financial results were in line our guidance. Our performance to date reflect the execution of our strategies that grow our direct-to-consumer WWE Network, enhance the appeal of our television programming, engage our fans on digital and social platforms.

The growth of our key operating brand metrics demonstrates the successful execution of the strategy. WWE Network average 1.46 million paid subscribers for the quarter in line with the guidance although as Vince mentioned on the low end and represents a 24% increase from the third quarter of last year. Since we transitioned SmackDown to a live format on USA Network in July, SmackDown generated average household rating to more than double the same time slot last year and 16% above the rating would air on Thursday.

As Vince mentioned, our digital engagement metric continues to grow. For the first 9 months, consumption of WWE content increased 71%, more than 11 billion video views across Facebook, YouTube, wwe.com. And social media fan engagements measured across all our social platform increased 43% to 873 million. These outcomes highlight our tremendous strength of the brand and we believe the potential to capitalize on the strength to drive long-term growth. To review our performance in the quarter, let’s turn to Page 5 of our presentation, which shows the revenue with the contribution by business as compared to the prior year quarter. As shown we generated revenue of $164 million, which was on par with a record third quarter last year. You should know that the prior year performance included $14 million in revenue associated with our license reality series Total Divas and Tough Enough. These shows aired 21 episodes in the prior year period. These episodes do not have a material impact on prior year OIBDA results.

There are no such episodes airing in the third quarter this year, therefore excluding the prior year impact of Total Divas and Tough Enough, revenue increased 8%, driven by contractual escalation TV right fees, in our key distribution agreements and a year-over-year increase in WWE Network subscribers. OIBDA increased $1.1 million as the growth driver, I just described were partially offset by decline in licensing profits and investments in key areas including content technology and technology in our global operations. Changes in foreign exchange rates did not have a material impact on our revenue.

As shown on page 6 of our presentation, Network segment revenue increased $4.2 million with growth in subscription revenue, and $42.8 million as the network customer base increased 24% to an average of 1.46 million paid subscribers. Network segment OIBDA was essentially unchanged from the prior year quarter as the growth in subscription revenue was offset by increased program production costs, including a $3.2 million allocation of production expenses shared between our network and television segments.

We continue to increase the global distribution of WWE Network. As measured on a year-over-year basis, the network have 1.49 total subscribers at quarter end including 1.07 million paid U.S. subscribers and 373,000 paid international subscribers. WWE Network content continues to drive viewer engagement and we remain on track to add more than 300 hours of original content that the networks feature programming in 2016. We also expect to add approximately 2,500 hours of our title content. At year-end, this would result in an on-demand library of nearly 7,000 hours about 4 times the size of a library of the Network's February 2014 launch.

Profit from the licensing and television content increased $6 million reflecting both the higher right fees in our key distribution agreements and the allocation of share production costs or network segment that I just described.

On page 9, licensing profits declined to $2.5 million based on a 22% decrease in licensing revenue attributable to the timing impact of a lower effective loyalty rates for our franchise video game and lower sales of toy products of that in the prior year quarter. As a reminder, the lower effective royalty rate derived from an increase in rate structure of the 2015 year as compared to a flat structure this year.

For the full year we expect the rate for 2016 will be comparable to the average rate for 2015. Corporate and Other expenses increased $3 million to $44.8 million reflecting investments in branding, data and technology and certain talent initiatives. In terms of WWE's overall performance, changes in other business segments were largely offsetting and as such did not have a material impact on our consolidated results.

Page 7 of the presentation shows selected elements of our capital structure. As of September 30, 2016, WWE held $68 million in cash and short-term investments. And we estimate that we have approximately $150 million in debt capacity under the company's revolving credit facility. Through the first nine months of the year, free cash flow declined approximately $20 million due to the increased payout of management incentive compensation, higher capital expenditures primarily to the purchase of the facility and the timing of working capital, which we expect to reverse over the next several months.

Looking at the fourth quarter, our prior quarter, our financial and operating results continue to reflect our progress in transforming our business model. For the fourth quarter, we project average paid subscribers of approximately 1.49 million plus or minus 2%. This represents 13% increase from the fourth quarter 2015. We also estimate fourth quarter 2016 adjusted OIBDA of approximately $20 million to $24 million. This range represents an expected year-over-year increase primarily due to the increased monetization of our video content and more favorable year-over-year comparisons in our fixed cost base. This performance would result in 25% growth in average paid subscribers so 1.40 million for the full year and with the yield 2016 adjusted OIBDA of 80 million to 84 million. Consistent with our previous business outlook and represents adjusted OIBDA of 16% to 22%.

Now looking on to 2017. Over the past few years we placed increasing strategic emphasis on optimizing the value of our content, developing digital and technology platform and expanding our global presence. Execution of these initiatives has been strong and results demonstrate the successful transformation of our business model. Every day we become more digital, more global and more direct-to-consumer.

Looking ahead to 2016/2016, we expect to achieve another year of record revenue. As Vince mentioned we target adjusted OIBDA of $100 million. It would be an all-time record and represent approximately 20% growth from one to expect to finish 2016.

Supporting the continued growth in our revenue and profit, we anticipate contractual increases in television rights fees and expect the level of WWE Network subscribers will continue to increase on a year-over-year basis. As we believe there's a significant long-term growth opportunity for WWE. We plan to continue to invest in key areas that optimize both our long-term performance but also drive short-term results. Given the current scale and levers of WWE Network, subscriber increases have the potential to drive meaningful growth in revenue and profit.

Even if subscriber growth decelerates from 2016 we define success by the achievement of the sustained year-over-year increases over the long-term. With such growth we believe we can achieve our target record financial results in 2017. In addition to supporting our 2017 financial objectives, the continued growth of WWE Network enables us to deliver a wide range of content and strengthens our engagement with the broadening audience of our most ardent fans.

Importantly, it also provides us with the flexibility to adapt to the rapidly changing media landscape around the world.

So that concludes this portion of the call and I’ll now turn it back to Michael.

Michael Weitz

Thank you, George. Denise we’re ready for questions now. Please open the lines.

Question-and-Answer Session

Operator

[Operator Instructions] We will take our first question from Evan Wingren of Pacific Crest Partners.

Evan Wingren

Hey George, would you be able to just walk us through the variables that caused the sub results this quarter to come in at the low end of the range relative to your expectations? And then sort of walk us through your assumptions of what you're seeing that would cause the incremental decline in subscribers in the fourth quarter.

George Barrios

Yeah, so in terms of the first part of the question for Q3 the gross add number, is on the materials, we just saw 388,0000 gross adds in Q3 compared to the 450,000 last year. That was the number that came in at the low end of guidance. And so then you have a couple of things and as we go into the fourth quarter. Number one, it's a subscription business, so the impact on Q3 kind of cycles forward as you have that versus last year. And then as far as the expectations for those gross adds we tuned it a bit in the performance we saw in Q3. We're still doing big numbers obviously in terms of gross add, but a little bit less than last year, so that's really the primary driver.

Evan Wingren

Yeah and when we think about the gross adds down 15% and sort of step back and away from sort of the 90 day window and think about the longer term projection you guys have of reaching 3 million to 4 million subs. I guess how do you get comfortable with that level of gross add decline in the context of reaching those longer term goals? I guess would you maybe not – would you caution us maybe to not extrapolate that level of declines going forward, is that how you think about it or some color there would be helpful.

George Barrios

Yeah obviously we’re guiding 13% year-over-year growth. I think to the first question over the long-term as long as we continue to grow the network year-over-year we’re still confident we can get to that 3 million to 4 million. I think to your point in the short-term and that, you know 90 days, 180 days, 270 days, I think there were going to be ebbs and flows along the way, I think that’s fairly natural for subscription businesses as you build them. The product will keep getting better, the content will keep getting better, the way we marketed and package it will keep getting better and more creative. But I think there will be ebb and flow and certainly you know at the end of the day is where content business so the attraction matters as well. Well we always feel great about what we're doing some days are better than others. So over the long-term, we still feel real good about it and we are optometric that will look at is are we increasing year-over-year. In the short-term I think you're going to see times when we’re a little bit better than you expected and like we saw in the third quarter contrary to on the low end what you expected from.

Evan Wingren

All right. Thanks for taking my questions.

Operator

We’ll take our next question from Eric Katz of Wells Fargo. Please go ahead, sir.

Eric Katz

Last year the guide for OIBDA you also gave some sort of soft expectation for subs growth and the incremental investments. I was wondering if there's anything you can provide for ‘17 as well. I was sort of thinking about you know 15 million or 20 million of the strategic initiatives for ’16, if you strip that out, you kind of get to – somewhat close to a normalized OIBDA of $100 million for ’16, so just trying to think about the variables for ‘17.

George Barrios

Yeah so those expenses that we had in ‘16 and I talked about them before, primarily around new content across all platforms, not just the network. Our data and technology stack against is supporting all platforms, not just across the network. And then investing globally in a variety of ways, whether its marketing efforts, sales efforts, localization and content again across all platform. Those will continue with ’17. I think your question Eric around additional investment. I think that'll get fleshed out during our – as we build the operating plan for next year. But we feel comfortable that with continued growth in subscribers which we expect as well as the contractual increases in our licensed content that we’ll be able to both invest, and figure out what levels and still deliver on $100 million, but we’re not going to give a number on the investment for ’17, but we’re still fleshing that out.

Eric Katz

Okay. And one thing that’s sort of come out in at least analysis, I noticed you guys started survey recently walking through different tiers in pricing for different levels of service for the network. I guess, would you be able to talk through the thought behind the survey and why now? Is this something you consider both domestically and internationally?

George Barrios

Yeah I mean we've done this before Eric, in varying degrees, so we're always kind of talking to our audience for a variety of things, what type of content would they be interested in, what type of other services on the network would be of value to them and then to the point out made in terms of different content offerings and is there incremental value there that we can deliver to them. So we’re always doing it, so I wouldn’t read too much into what you just mentioned, it’s just part of kind of running the business and trying to get smarter and frankly being as connected as we can be to the audiences. Because at the end of the day we’re going to do what they really find valuable.

Eric Katz

Okay, thank you.

Operator

We’ll take our next question from Daniel Moore of CJS Securities. Please go ahead, sir.

Daniel Moore

I wanted to maybe talk a little bit about the guide. First given the anymore specificity I guess it's a echo of last question you might provide in terms of a range around net subscriber additions for 2017. And as a follow up if it happens to come in software for whatever reason are you prepared to sort of cut costs to protect the $100 million OIBDA guide you know. I guess how comfortable or confident are you in that piece of the guide.

George Barrios

Yeah, we’re not going to give any more guidance on the sub numbers for ’17. Dan we expect them to grow year-over-year or they could be at a lower rate than we saw in ‘16 on average. We’re not going to talk about that. As far as the you know as I answered before, I think our expectation is that the revenue growth, the decisions we’ll have to make really are onto the levels of investment. So as opposed to taking cost out, but having said that we’re putting the number out, honestly, we strive to meet or exceed our commitment as part of the culture of WWE. BUT we take it seriously when we the number out.

Daniel Moore

Very helpful and the follow up leads to exactly into that is of the buckets of increased incremental investment that we've had this year and indeed going back to ’15, are there any areas that perhaps aren't generating quite the return you had hoped and therefore you might consider dialing back a little bit?

George Barrios

Yeah some of the returns are easier to measure in the shorter term, right, so I think the success of these investments we got to – get measured on different timeframe. So as an example, we've been adding more and more people on the ground in different local markets. We think that's working great and I think Vince mentioned our new deal with Prosieben and that’s the financial element, but also if you look at the purpose of viewership in Germany which to remind everyone that’s Europe's largest economy. I think that to us is directly related to the investments we made locally, so that’s just one example and I’m not going to go through the list, but that's one example where we feel real clear on the site in the short term. I think when you look at for example investments in data and technology.

We see the benefit in helping us manage our business in day-to-day so for example, evaluating the success of the type of programming on WWE Network and that business is what we have, the richest data. But the real benefit of the investments we're making are going to be felt overtime. So on the deck stacked, the ability to be able to deliver more and more content direct-to-consumer to any broadband connected home in the world and the variety of business models, whether batch [ph] supported, subscription supported or some hybrid or transactional, we will be the real value of that today or even 2017. We believe you'll see the real value of that over the long-term.

But content, again the value there, it depends on, which platforms, so we’re creating content for YouTube or O&O [ph] we see the monetization very clearly and that's working. When we create the content for the network because the value there is both in bringing new people and the similar is retaining them the direct value, one piece of content is hard to measure. It’s the entirety, but what we can do is measure the engagement and that's already, we know what's working, what works better than other and it’s kind of shaping our investment into the future. So I know it’s’ a long answer, but it’s so important because it really is about how we view the next 5 to 10 years and what we feel is important. So we can see the direct impact very much in some things in short-term and then others, we just really believe in the long term opportunity and we’re going to continue to do that. We’ll obviously tweak as we go but right now we feel really confident about where we're investing.

Daniel Moore

Its helpful and last one and I’ll jump back in queue. Switching back to the network TV agreements on the one hand, obviously you’ve made - your ratings continue to hold up exceptionally strong and you’re garnering a broader acceptance in terms of the advertising community as Vince alluded to. On the flipside cord cutting, cord shaving is accelerating. So when do you start, I know we’re still a few years away, but when do you start a conversations around, you know renewals for the TV agreements and maybe you're confident that you'll be able to renew or at comparable terms and it's always been about what type of uplift you can get, but are you comfortable that you can kind of protect what we have today.

George Barrios

Yeah so the only thing that we’re public about in terms of timing is that the U.S., the domestic scale expires at the end of September 2019 and the U.K. deal and our deal in India expired December 31, 2019, so one quarter later. And as we said before those are our three largest licensed content deals. That’s what all we’re going to say about timing. As far as your point on cord cutting, I think somebody I respect a lot always says his crystal ball is a little cloudy, so I would say I think everyone's crystal ball is a little cloudy in terms of the pay-TV ecosystem. What's really important for us is that we have incredibly strong position on AVOD, which we do, that we are incredibly strong position on SVOD, which we do. Then we have incredibly strong position within the bundle or pay-TV which we do. You look at the cumulative hours that WWE generates, first on viewership crosses the 260 live hours that we produce.

We’re up at the top of the list, so that’s a fact, so we feel good about our position in all three platform, kind of guessing ahead as to what's going to be the best place for our content to be. I think we’ll make those decisions when the time comes, but it’s obviously the most strategically important part of WWE, not only as the constant the key part of indirect monetization or promotions or other lines of business, but its’ also the biggest driver of direct monetization. We think a lot about that question in our views we're going to be prepared and we won the successful on all three along the way. So in essence we control our own destiny.

Daniel Moore

Thanks for the color as always.

Operator

We'll take our next question from Brandon Ross of BTIG.

Brandon Ross

Thank for taking the question. I have just one question and it's for Vince. So the AT&T Time Warner deal has once again highlighted the value of content, after we had to DreamWorks and the UFC deals earlier in the year at pretty significant premiums and multiples. So to unlock the most shareholder value why does it not make sense to consider a sale at this point while values are so high? Then even beyond shareholder value, do you think you could more of effectively unlock the opportunities that you have in front of you, if you are part of a much larger media company.

Vince McMahon

Again we're open to anything but I think that you know controlling all of the dust is so important. And I don’t know well how much you lose control over that you know by being absorbed or sold or what have you, but again, we’re to open to anything, we’re business people, so it's not a question of if the right deal came along, it’s one of those things where you do, to do any good reviews, we're listening. Otherwise you know we're creating our own content, which extremely valuable as George said over all platforms and that's important. The old content is king is true, maybe truer today than it’s ever been. So we're open for business.

Brandon Ross

So if there was a deal that had a structure that effectively allows you to manage your own destiny, would that be attractive to you?

Vince McMahon

We’re open for business.

Brandon Ross

Thank you.

Operator

[Operator Instructions] We’ll take our next question from Dan Medina of Needham and Company. Please go ahead, sir.

Dan Medina

Just a quick question, some of my other questions have already been answered, and great color on the Time Warner from Vince. My question is is that as you continue to expand overseas is there any sort of programming or any kind of content that you're finding that that might be, as you could bring back here into the States?

George Barrios

Yeah look I think Dan, more and more we’re localizing content for different geographies. So that - and that's really accelerating over the last 3 or 4 years and again across all platforms. So it’s on traditional pay-TV, digital and we’re continue to evaluate the localization of network content. As we do that the opportunity to create indigenous content in some markets, not in every market in some market is also kind of coming into focus for us. So obviously not going to make any announcement today, but I think we bare to speculate that if you stopped here 2 years from now and look back you’d say WWE did some pretty interesting things creating new types of content in these local markets.

I mean, you know what we keep stressing it, but the marrying of this global brand, when you look at our digital and social metric and that 70%, 75% of all those numbers that Vince quoted are outside the U.S. So the global brand and to be able to reach that brand now either super direct through our network, right, our DTC platform or maybe just a slightly less removal, but still pretty directly on third party digital platform. We think that’s an incredible opportunity. I mean, we really think it’s an incredible opportunity. So yeah, we’re going to be doing more and more as you described.

Dan Medina

Great. Thank you.

Operator

And we’ll take our next question from Eric Katz of Wells Fargo. Please go ahead, sir.

Eric Katz

Thanks again, so just piggybacking of international a bit more. You know you guys didn’t launch in any additional countries during the quarter and I noticed that those figures are a bit flattish for international. So I was wondering if there's any thoughts behind why you believe you might not have been an organic list? Or is there anything you’re working on to maybe kick start the international growth and maybe accelerate it? I guess beyond that any update on launch in China would be appreciated.

George Barrios

Yeah so the reason we’re not announced any countries because there are none left other than China which is the last part. We’re continuing to look at that market obviously Netflix make some news recently when they kind of were pretty vocal about the direct-to-consumer, probably won't work in China that they made license some of their content there, so we’re in essence evaluating what’s the best way to get our network content to our Chinese audience, but nothing to announce yet just continuing to work on that and I think we'll figure something out here in the next several months.

As far as that goes year-over-year growth internationally, the reason growing our fundamentally is different than domestically. If you look at our gross add cadence last year we did 40% of the gross adds in Q1 part of which because that's the quarter WrestleMania was in. If you have to look at the month, you’d see a more concentration, because our events are the big drivers of our gross adds. So because of that that seasonality gross add as you apply your average turn to the bigger base throughout the rest of the year, just the way the math works, you begin to kind of flatten that number out a little bit, so the longer the way of saying WrestleMania, our expectation is will drive another big gross add, which lift both the domestic and international number.

Eric Katz

Okay thank you.

Operator

And we’ll take our next question from Robert Routh of FBN Securities. Please go ahead, sir.

Robert Routh

First during the recent news events about AT&T buying Time Warner and that Star Alliance taken together the original update in CX take a big scenario RO, JV to get the library in streaming [ph]. I’m wondering if you can comment a little on your thoughts about these transactions in the media industry. What do you think it's good or bad for content producers especially the AT&T Time Warner, do you have the same proposed. And also what does this say about the value of unique content given the content you have is definitely unique where most of the other stuff isn't it. It would seem to me that albeit this flurry activity means that what you have is much more valuable in reality than the markets you suggest because only you have and would love your opinions on these deals and how you look at them?

George Barrios

Yeah those are big questions Rob, obviously with no kind of clear answers. Look our view when these transactions happen again, whether they’re happening in the U.S. or any other market we’re in. What's really important to us is they’re vibrant kind of competitive market for content. As long as that exists to your latter point, our numbers are numbers, they’re pretty powerful and it's public and everybody can see them. We could see the engagement metrics, we can see the consumption metrics, everybody can see the ratings numbers and again I’m saying about the U.S., India, U.K. and Germany. So as long as the market dynamics are such that that its competitive we feel that we bring a ton of value to a partner when license content to them and therefore we feel that we’ll do well economically. I think the – you had a little point there about the value content and you rightly pointed out.

In some cases we're talking about aggregators of content coming together or aggregator of the content coming together with distributors content. We’re fundamentally different in the value chain, we are the creators and owners of the content and as creators and owners back to those three platforms, we think that gives us a pretty good position whether we’re distributing on third party AVOD platform or O&Os [ph] whether we’re distributing within a bundle and whether that bundle is a traditional facilities based bundle or a virtual bundler. We think we bring value there or whether we're going direct-to-consumer. So the fact that we created and own it obviously is a super differentiating factor compared to a lot of the people you mentioned in terms of coming together, which for the most part tend to be aggregators and then distributors. So we feel good about where we stand.

Robert Routh

Okay great. And then guys just two more from me. First, the easy one is obviously when you guys renewed with NBCUniversal is there is kind of as a partnership is more than just a television distribution deal. Given that, could you talk a little bit about what other opportunities you could do with Comcast, NBCU, on the same park side or any other area given how big they are and how good they are with what they do, how good you are with what you do, seeing there a lot more opportunities that yet to be explored.

George Barrios

Yeah I mean, we like to think, when we license content to any partner around the world, so whether its [indiscernible] in the U.K. or Fox in Latin America, OSN in the Middle East or Zee in India, soon to be Sony, it looks like. But whatever partner, we tend to look at it as more than just we're going to license your content and then step away, we’ve never done business like that. Actually the way we do it is we're going to a license the content, then we're going to work with you really, really closely to make as valuable to you as possible. Obviously we benefit as well but the real focus is working with our partners to make them as successful as possible utilizing the content. So that's what we do with NBCU. Look I think it's fair to say over the last 3 years we’ve had a long partnership with NBCU and with its predecessor organization. But Vince mentioned the 50 blue chip advertisers over the last few years, we think that’s a little bit of a sea change and I think it reflects, probably on both our parts and even stronger commitment to working together to accomplish what I said before, which is driving up their business. So we think they're really excited about what the last two years have brought, we are too and we’re really happy for them. And obviously that accrues to our benefit eventually we think. But the partnership has been great. As far as the theme parks and [indiscernible] as you know we're going to be in Orlando, at the fiscal next year for WrestleMania as you know it is more than just a one day event, it’s kind of a week-long extravaganza, so my guess is stay tuned, we’ll probably mention a few things about what we're doing with NBCUniversal around that.

Robert Routh

Okay, great. And along the same lines with the same question, given the partnership you have there, would you be averse to a potential investment in WWE either a stock swap between contest in WWE for each equity and each other to kind of solidify the relationship, is that something you’d even consider or is that off the table?

George Barrios

I’ll quote Vince, we're open for business. I mean, I don't know a better way to say, that's kind of the way we do it everything, is what's best for the brand long-term and short-term and. So yeah so the short answer of your questions is of course we would.

Robert Routh

Okay great. And then just a final question is obviously, WWE Network has growing incredibly fast, it’s done incredibly well, but as we all know, [indiscernible] margin returns is it gets bigger and bigger, it’s harder and harder to add the incremental subscriber. Have you considered or would you consider kind of a reverse bundling type proposition where you said the next 500 people to subscribe can commit to a year gets a free tickets to WrestleMania or what have you and then anybody else who doesn't get that gets a free video game or something like that. It would seem given you know the diverse socioeconomic backgrounds of your fan base, there’d be a ton of people that would be interested in such a deal and sign up for a year and of course, whenever you get nothing, but it would seem doing something like that, giving a ticket to a live event in your area or the WrestleMania for the first 200 or 500 feet and everybody else gets a free video game or some piece of merchandise if they commit to a year or 6 months, just kind of a way to get people that are on the fence to not only subscribe to the network, but commit to being there for a full year rather than signing up for WrestleMania and SummerSlam and then cancelling. So is there, so you guys have been maybe pondering or would consider.

George Barrios

Rob, if I didn’t know you better I would assume that you were applying for a job in our subscription marketing group, so I think some of those ideas I have on list somewhere. But look as I said before, so get out of the in the moment financial results for the operations and network, which is great. So as you mentioned, our second biggest business and we got there in 2 years, our second most profitable business and its our fastest growing business so far in 2016. So that feels good.

Strategically over a long-term and you touched on it we think the network becomes the hub of how we interact and connect with our most passionate fans and you mentioned a few of the examples and so the answer is yes. We're definitely considering that. And then also as I mentioned strategically, it also gives us a direct connection to those fans around the world to any broadband enabled home where you can watch on the big screen, little screen, pass it to the big screen, however you choose to do it. So strategically those are the real drivers of value we believe in the network. But a lot of the examples you brought out, you're going to see things like that, again, we’re not going to make news, but here in the next few months I’m sure you’ll see something and go, yeah, that’s exactly what I was thinking might make sense.

But we're going to do it smartly and we'll do it iteratively. What we don't want to do is confuse our audience. The product itself isn’t experienced and doesn’t put, it is really important, so we want to be smart about it. But I think you’ll see some experimentation around the topic that you mentioned.

Robert Routh

Great. Great, one big thing obviously investors worry about is churn to the network, that you have a very loyal fan base, but some of them have limited income but others don’t, so anything that comes with it if you commit for a year or whatever would seem to keep them making sticking and even though would hurt the margin a little bit on the market it would actually be material, so I would pinch [ph] the cash flow and make them happy, so just makes sense. Thanks very much.

George Barrios

Yeah.

Operator

[Operator Instructions] We’ll take our next question from Evan Wingren of Pacific Crest Partners. Please go ahead, sir.

Evan Wingren

Just one follow-up for me, on the gross addition number that we talked about earlier. I guess the one thing we didn't ask about was what you think is driving declines in the third quarter and implied guide for the for the fourth quarter.

George Barrios

Yeah I think the reason we give a range around on the guide, because it gets to the point of normal variability, it’s really hard to point it out precisely, so kind of look at historical levels and use that to inform our model for projections. But we know there is variability, that’s why put a range around it. Above the sense of this year question, I’d rather stay away, that’d be casting more than providing the answers, so I’ll it at that.

Evan Wingren

Okay, so just no really unique factors that you’d call out more of just a trend that you’re looking at?

George Barrios

That’s right. And we have people talk to us about well, with the attraction maybe not what you expected, is that the political season and that has rallying out people's attention. Is it the Olympics back in August, so everybody has got theories, it’s hard to kind of point it out, which is why I want to stay away from kind of attributing to any of those, it's more just based on the data.

Evan Wingren

Thank you.

Operator

We'll take our next question from Brandon Ross of BITG. Please go ahead, sir.

Brandon Ross

So you guys have worked with MLBAM since, you’ve launched the network. Now that Disney has come in and acquired a big piece of them, how do you think about your future and your relationship with them going forward? And if you continue to work with them, are there bundling opportunities that you see potentially with some of the other MLBAM partners. Thank you.

George Barrios

Yeah look they’ve been great partner with us and their proficiency is a big part of the successful WWE Network, that’s why we’re the largest SVOD service coming out of the U.S. And so what they do, they do well and they've been a big partner. As far as the Disney investment, we'll just let our eyes kind of evaluate over time, like we would do with any service provider and we’ll see how well the work gets done, how fast, how [indiscernible] and then we'll just judge, using those metrics what we do moving forward, so that’s kind of, of our perspective on BAM.

I think the bundling question is outside of BAM, I think that becomes more of a question does it makes sense and whenever we look at and we have looked at Brandon, bundling opportunities in a variety of different ways. There's three things we look at; number one, the economics, we think, they’ll be accretive. Number two, the customer information, as I mentioned before every day we get more global, more digital and more direct-to-consumer and we love the direct-to-consumer businesses that we have, not just the network, but our ecommerce business.

Our O&O business, our selling the tickets direct-to-consumer, they are important we have the customer information. So economic; number one, unbundling; that number two; customer information and number three, being the viewership and engagement metrics. We are so much smarter about the content on WWE Network because we can measure the engagement in so many different ways, not average viewers, not upgrading the metric, but real deep metrics. Start, stop times, repeatability of the content, viewership to completion. That really gives us more insight into the success of the concept, than we get on any other piece of content we do. So economics, customer information and engagement data that we get offered we think that makes sense. Bundles could definitely be a possibility.

Brandon Ross

Thank you.

Operator

[Operator Instructions] And there do not appear to be any further questions at this time.

Michael Weitz

Thank you everyone. We appreciate you listening to the call today. If you have any questions don't hesitate to contact us.

Operator

That does conclude today's presentation. Thank you for your participation. You may now disconnect.