UBS 39th Annual Global Media and Communications Conference Call

December 5, 2011 11:00 a.m. ET


George Barrios - Chief Financial Officer


Unidentified Speaker

Great. Good afternoon ,everybody. Welcome to the UBS Media Conference. It’s a pleasure to have with us today, George Barrios, the CFO of WWE. Prior to that he was VP and Treasurer at New York Times Company, prior to that CFO of New England Media Group. Also holding positions as President and COO of Netsilicon. Prior to that at HBO, among other things. So I want to jump right into it because we are on a tight frame. With that, George?

George Barrios

Thanks, Brian. Before we go the Q&A, I just wanted to give a brief overview of WWE. Strategically, we are at our core, an IP company and have been very successful over our history in securing all our rights and maintaining those. So while we license those rights out to different windows, for the most part we own 100% of our IP. The core of that IP is 100,000 hour library, of which about 30,000 is today digitized and commercially available for exploitation.

Operationally, I think one of the things that makes us very interesting is the diversity of our revenue platforms. We play in just about every media platform that there is, whether it’s pay-per-view, live event, TV licensing, advertising, home entertainment, music, digital advertising, sponsorship and so on. The other thing that makes us interesting is the global nature of our business. Roughly, 25% of the business today comes outside of the U.S. and our major countries are outside of the U.S. Even though we are -- our television show is seen 140 countries, we generate economics in about 40 countries. Our top four, five countries would be the UK, Mexico, India, Australia. So some diversity, even within the geographic diversity.

The second item, I would like to mention operationally is also the nature of our business model. While our gross margins are -- in the current mix of revenues are in the mid to upper 40%, our variable margins are in the low to mid-70s. So we have the ability because we own all that IP and the costs are incurred once and then it’s exploited across all those platforms and geographies that I mentioned. Pretty high variable margins across most of our businesses. From a capital intensity standpoint, our maintenance CapEx is roughly 2% to 3% of revenue, which I would characterize as low to moderate in terms of capital intensity.

And the final element of our business model is, that historically we have been pretty aggressive in returning capital to shareholders. Our dividend policy today, if you looked at it, the dividend load of roughly $35 million, as a percentage of historical average free cash flow it sits at around 70%. So we continue to view that as an aggressive form of returning capital to shareholders. Before we turn it over to the interview I would like to queue up a video if I could.

Question-and-Answer Session

Unidentified Speaker

Excellent. So I wanted to jump from a very broad level, I wanted discuss the kind of the fundamental operating metrics that you look at in the business. Give us an update, we saw in the (inaudible) 80,000 attendees, 90,000 attendees, can you give us an update on the core metrics you look at for driving the business.

George Barrios

Sure. Some of those metrics which we report monthly by the way, that we look at pretty intently, is our live event attendance both in North America and overseas, or television ratings for the four to six hours that we will have on the air domestically at given time, which we also report. We also look at our rating globally. Given the difficulty sometimes and the accuracy of that data depending on the country. We don’t report that publically but internally we take a hard look at that. We always look at how we are trending in social media, primarily Facebook ad Twitter. Google Trends and Google Analytics also gives us a sense of how the brand is trending from a search perspective. We look at our own unique and page views on our own site as well as the streams that we do, we do about 75 million video streams on YouTube every month. So we track that.

If you step back and said holistically how is the brand doing? We feel really good about where we are. On average there’s nine million homes in the U.S. who are watching one of our programs, that what we consider our current fans in the United States, and that would be of RAW and SmackDown. Earlier in the year it would have included Superstars, NGN, and at the end of last year it also would have included NXT. But today, roughly about 9 million homes. We will do 2 million tickets or thereabout worldwide in 2011, that’s where we are in trailing 12 months. So we feel pretty good about that.

We currently have 40 million Facebook fans, and John Cena alone has between 7 million and 8 million. So both WWE and John Cena. So from a broad sports entertainment brand and also from an individual standpoint, those are kind of at the top of the Facebook leader list. And those numbers are obviously global. So feel really good about the health of the brand. I think if you look in the moment, quarter-to-quarter, somewhat of an ebb for us, we have been going through a pretty significant talent transition over the last 12 to 18 months as we had some talent that either retired or were through injury and so on, had begun to leave WWE. And is normal part of our business, that that means you are introducing new talent and you saw a lot of those new faces in actually the video. If you would have gone back, you know 12, 18 months ago, when we did a (inaudible) in this kind of setting, you would have seen a lot of different faces.

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