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WWE Ends 2014 on High Note as Future Rests on Shoulders of WWE Network

There was an interesting line in WWE’s latest earnings report: “The rate of WWE Network subscriber adoption is a critical determinant of the company’s projected future financial performance.”

People who buy stock in publicly traded companies generally don’t like risk. They prefer companies that have divisions that pump out reliable numbers quarter after quarter. But WWE has taken a big risk since February 2014, when it launched the WWE Network, its over-the-top streaming service that makes all of its pay-per-view events and other programming available for a flat monthly fee of $9.99.

While analysts freaked out that WWE would take a massive hit — charging $9.99 a month for 12 PPV events, including “WrestleMania,” rather than the roughly $50 per event it did in the past — the impact hasn’t been as negative as expected.

WWE surprised Wall Street on Thursday when the company reported better-than-expected results for not only the fourth quarter but all of 2014.

Revenues during the fourth quarter rose 19% to $140.5 million, while it posted a net loss of $1.6 million — an improvement over a loss of $7.9 million during the year earlier quarter that ended Dec. 31.

For the full year, revenues rose to $542.6 million from $508 million, although the company was forced to report a net loss of $30.1 million vs. net income of $2.8 million in 2013.

The loss signals just how much of a hit WWE has taken to launch the WWE Network last year. But the fourth-quarter figures should have WWE’s investors breathing a little easier.

Subscriptions for the network are on the rise as the network rolls out in more foreign territories, and experiments to increase figures have paid off through the offer of free months to viewers who want to sample the service. Its overseas rollout started taking place in August. At year-end, WWE Network had approximately 44,000 international subscribers, signaling a significant an area of growth for the company in the future.

The network ended the year with 816,000 subscribers, WWE said, adding 85,000 during the fourth quarter, representing a 12% increase from Sept. 30. It surpassed the 1 million mark in January, 11 months after its launch.

During the holiday quarter, the network generated $23.3 million in revenue based on an average of 721,000 paid subscribers over the quarter, due to churn rates, now that the network is available without the previously required six-month commitment.

A free membership promo in November attracted 242,000 trial subscribers. The company’s offering a similar free subscription this month.

As a result, PPV contributed $3.9 million in revenue, a decline of 62%, with approximately 271,000 buys as three events were produced during the quarter.

During the quarter, each division at WWE saw gains, with revenues from the company’s media division up 26% to $89.5 million, driven by the ramp-up of the WWE Network and the escalation of television rights fees.

Advertising and subscription sales from the WWE Network and PPV events boosted network revenues 64% to $27.2 million during the quarter, with the streaming service accounting for much of that figure, or $23.3 million.

Television revenues increased 20% to $50.5 million due to higher distribution fees for its shows around the globe, including flagships “Raw” and “SmackDown,” which air on USA Network and Syfy in the U.S.

Home entertainment posted sales of $7.8 million, up from $5.1 million, due to the recognition of a $2.1 million minimum guarantee associated with 2014 sales, although unit shipments declined 47% due, in part, to the switch of its homevid distribution deal from Cinedigm to Warner Bros.

The availability of WWE’s PPV events took a toll on the digital media division, with revenues at $4 million compared to $7 million during the prior year quarter.

Live event revenue increased 6% to $26.9 million primarily due to the staging of additional events in North America and higher attendance figures in international markets. There were 82 total events during the fourth quarter, compared to 78 last year.

Consumer product sales increased 23% to $20.4 million, as the company has increased its licensing activity. That area increased 26% to $9.1 million due to increased video game revenues. Venue merchandise revenues increased 6% to $3.6 million, and the WWEShop increased sales by 28% to $7.7 million, due to holiday gift giving.

The company’s film division, however, took a $1.5 million hit from film impairment charges primarily related to the expected performance of the movie “Oculus,” which was released theatrically in April 2014. While “Scooby-Doo: WrestleMania Mystery” performed better than expected, the division generated a loss of $400,000 in the quarter compared to profits of $100,000 in the previous year. For the full year, WWE Studios generated $10.9 million in revenue, up slightly from $10.8 million in the prior year.

As it kicks off 2015, “We believe that our 2015 road map provides significant opportunities for growth, as we continue to execute well, innovate faster and expand WWE Network, the single greatest opportunity to transform WWE’s business model,” said WWE chairman-CEO Vince McMahon.

That’s largely due to bright spots for the company throughout 2014. TV ratings for WWE’s weekly series “Raw” and “SmackDown,” through which WWE hypes the WWE Network, rose 2% and 3%, respectively,  and consumption of WWE content on YouTube increased more than 80% to approximately 3.9 billion video views, while its social-media presence grew more than 80% and recently surpassed 450 million followers.

“We believe that we have reached a financial inflection point,” said George Barrios, WWE’s chief strategy and financial officer, with the company expecting the WWE Network, higher TV rights fees and the rest of the company’s divisions to increase year-over-year growth during each quarter in 2015.

The results lifted WWE’s stock throughout the day, to close up 7% to $14.36.

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