WWE Earnings Impacted by Cost to Launch Digital Network

During a week that saw Dish Network pull out of offering WWE pay-per-views, including Sunday’s “Elimination Chamber” and April’s “WrestleMania 30,” for the forseeable future, WWE isn’t showing signs of concern that its new WWE Network will prompt other providers to make similar moves.

“A majority” of the traditional pay-per-view providers have agreed to carry “WrestleMania 30” with a month-to-month approach to events after that, WWE chairman and CEO Vince McMahon said Thursday during an earnings call with analysts to discuss the company’s fourth quarter and 2013 results.

While the WWE Network, which launches Feb. 24, the day after the “Elimination Chamber,” will provide all of the company’s PPVs to subscribers who pay $9.99 a month, the PPVs are still available in 85% of U.S. households through traditional PPV providers, the company said. Satellite services Dish Network and DirecTV represent 35% of its PPV business.

SEE ALSO: Dish Stops Offering WWE’s PPVs Before New Network Launch

WWE has high hopes for the WWE Network to become a significant source of revenue for the company starting this year. Its goal is to sign up 1 million subscribers by the end of 2014, but believes it can add as much as $50 million to $150 million to its bottom line through 2 million to 3 million subscribers.

The launch of the network has taken a hit on WWE’s bottom line, however.

Overall operating income came in at $5.9 million compared to $43.2 million for 2013, WWE announced Thursday morning, due largely to an investment in resources to launch the digital network. Lower homevideo and consumer product sales also did not help.

The fourth quarter didn’t fare much better with WWE taking a $7.9 million loss for the three months that ended in December.

WWE said the costs reflected “increased investment in staffing, talent and marketing to support our strategic content initiatives, including the launch of WWE Network.” Company is expected to post a first quarter loss of $12 million to $15 million because of costs to launch the network and other investments.

On the positive side, WWE saw mostly across the board revenue gains during the year from key areas, including its live events biz, TV licensing fees, websites and apps, and film studio.

For the year, WWE generated $508 million in revenue, up 5%, and a 3% increase in sales of $118.4 million during the fourth quarter.

A majority of those gains came from a 12% growth in international markets, WWE said, from more events and TV licensing deals.

“During the past year, we laid the foundation for future growth and enhanced our brand strength,” McMahon said. “We have now announced the renewal of our television distribution agreement in the U.K., are continuing the negotiations regarding our domestic content, and are poised to launch our global WWE Network in the next few days.”

Revenue from live events and WWE’s TV business grew 8% for WWE in 2013 to $382.3 million. Ticket sales rose to $111.5 million, up from $103.7 million, while venue merchandise rose to $19.4 million from $18.8 million.

But the biggest gains came from TV rights fees, however, which increased to $160.9 million from $139.5 million, due to increases in international TV agreements and the additional of new shows like “Total Divas” on the E! Network. New show now enables WWE to reach 14.2 million viewers on average each week, WWE said.

That will be key for WWE as it renegotiates its current deals for “Monday Night Raw” and “Friday Night SmackDown,” which currently air on USA Network and Syfy through the end of September. WWE is looking to get that figure closer to the kinds of TV fees professional sports orgs earn from their live events.

During the fourth quarter, WWE’s PPVs earned $15.7 million in revenue, up from $13 million during the same period in 2012. The top seller was October’s “Hell in a Cell” at 228,000 buys, up from 199,000 in 2012. December’s “TLC” was also up (181,000 vs. 175,000), but November’s “Survivor Series” came in lower than the previous year’s event (177,000 vs. 208,000). “Battleground” was a new PPV added in October, which also generated 114,000 buys.

The numbers are significant since PPVs will be a key part of the WWE Network’s programming and a major draw for subscribers to access the channel across multiple devices.

Still producing the PPVs is getting costlier for the company, with WWE seeing a $10.8 million reduction in profits from the events due to increased production costs, it said.

WWE still believes that it can double or triple its operating income before depreciation and amortization by 2015 to as much as $189 million due to the revenue it expects to generate from the launch of the WWE Network and new licensing fees for its TV shows.

But it has some other sectors of its business still to deal with.

Somewhat alarming is that revenue from its consumer products biz decreased 31% to $14.1 million during the peak holiday shopping season, due to a declines in WWE’s home entertainment business, videogame sales and toy licensing. Overall, toy sales were up during the year but fell 14% during the final quarter of 2013. WWE recently re-upped with Mattel to produce action figures and other merchandise for the company for the next five years.

Still WWE’s consumer products arm saw a 13% decline in sales from homevideo, videogames, publishing, toys and other merchandise last year, earning $76.4 million.

However, its digital media division, which includes WWE.com and its online store, gained 12% to earn $38.5 million during the year.

And the release of five films and the made-for-TV pic “Christmas Bounty,” on ABC Family, boosted the haul of WWE Studios to $10.8 million, compared to $7.9 million in 2012. Pics released during the period included the Halle Berry thriller “The Call,” “No One Lives,” “Dead Man Down” and direct-to-DVD titles “12 Rounds 2: Reloaded,” “The Marine 3: Homefront.”

Low performing films released during 2010 to 2012, as well as “Dead Man Down,” that bowed in early 2013, are still dragging down results, however, forcing WWE Studios to report a $12.7 million loss due to $11.7 million in impairment charges.

Still the studio arm generate sales of $5 million during the fourth quarter, up from $600,000 during the same year-ago frame, with earnings coming mostly from “Christmas Bounty.”

Wall Street reacted strongly to the results, raising WWE’s stock by more than 7.5% to close at $24.74, a gain of $1.74 a share. Price hit another record high for the company since 1999.

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