World Wrestling Entertainment, Inc.
Q1 2016 Earnings Call Transcript

Published: 10 May 2016

[Operator:]

Please standby. Hello, and welcome to the Webcast Entitled WWE First Quarter Earnings. We have just a few announcements before we begin. For technical assistance, you will find a help icon under the question mark in the upper right corner. To ask a question at any time, type your question into the question box located on the web interface and click send. [Operator Instructions] I will now turn the call over to Mr. Michael Weitz, Senior Vice President, Financial Planning and Investor Relations. Please go ahead, sir.

[Michael Weitz:]

Thank you, and good morning, everyone. Welcome to WWE’s first quarter 2016 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 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, WrestleMania occurred in the second quarter of 2016 versus the first quarter of 2015. In order to facilitate analysis of our financial results on a comparable year-over-year basis, we have prepared a pro forma statement, which identifies this timing impasse as shown in our earnings release and our presentation. Finally, as a reminder, today’s conference call is being 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.

[Vincent McMahon:]

Thanks. Well, you can see we had a strong earnings growth about 13% revenue growth, which is pretty good. Our network had 1. – almost 1.3 paid subscribers over the quarter, which is about 40% above last year and reached 1.82 million subs following WrestleMania. Speaking in WrestleMania, most of you know that we broke our own attendance record finally after almost, well, I guess, maybe 28 years or something, and the attendance record of a 101,000, which speaks to the strength of the brand and by the way almost all those tickets were sold out when we put them on sale. There’s a lot of brand equity in the name WrestleMania. Our network, as I mentioned had 1.82 million total subscribers. WrestleMania Week by the way on the network, this is an astonishing stat. We featured 19 hours of prime-time, premier programming. Our subscribers watched 22 million hours of content, which is about 12 hours per subscriber, which is extraordinary, all of that during one week. We’re excited about our content on our network, and it’s coming, some of which has already started including Camp WWE, it’s an adult animated cartoon, and it’s doing extremely well on our VOD status. Swerved Season 2 drops in June. Holy Foley in August, which is a reality show featuring Mick Foley and his family. Speaking of television, we announced a new television series Total Bellas, which is a spin-off from Total Divas on the E Network, premiering this fall, its the sixth season and by the way of Total Divas. State of social media, which is – we reached 650 million followers, which is extraordinary, up 34%. An a content of 4 billion video views on social and digital platforms in the first quarter, which is up from 1.6 billion in the previous quarter of last year. So that’s a huge increase, indicate again the strength of the brand. Creative talent, in terms of our status there, we’ve had a lot of injuries even coming into WrestleMania, and we’ve made some pretty good chicken salad out of that. Coming in the next 30 days so many of our stalwarts are coming back into the fold. There are approximately 17 alligators [ph] have been injured that are coming back, including Randy Orton, Seth Rollins, Bray Wyatt, John Cena, and so many others. And even probably a better stat is that, over the last three months, we’ve introduced 13 new talent, which is extraordinary and speaks to the strength of our NXT brand and how that is building these extraordinary talents coming up. So we have probably more talent coming in the next 30 days on the roster than we have ever had before. And that’s always a good positive indication as well. So, George, I’ll turn it over to you.

[George Barrios:]

All right. Thanks, Vince. There are several topics, which I would like to review today. Management discussion of our financial performance, the progress of key strategic initiatives, and our business outlook. For the first quarter, our financial results surpassed our guidance, primarily due to the timing of some results and to a lesser extent better performance than we expected in some of our businesses. We expect that the proportion of our over performance attributed to timing will reverse over the remainder of 2016. As Vince described, our first quarter reflected strong execution of our strategy, included the sustained year-over-year growth of WWE Network, avid consumption of video content across all our platforms, and the recent record-breaking attraction of WrestleMania. WWE Network averaged $1.29 million paid subs over the first quarter, which was in line with our guidance and represented a 39% increase from the first quarter last year. Our flagship television programs RAW and SmackDown continued to deliver among the highest level of average primetime ratings on cable measured on the line same day basis, demonstrating our ongoing ability to create content with broad appeal, WrestleMania achieved a record-breaking attendance, ticket sale, viewership, and social media activity. WWE Network reached a record $1.82 million total subscribers, who consume nearly 22 million hours of content during the week of WrestleMania and represented a staggering average of 12 hours per subscriber. These outcomes demonstrate the increasing strength of our brand and the potential to capitalize on these strengths 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 and OIBDA contributions by business as compared to the prior year. As we review these results, we should note that the timing of WrestleMania, which occurred during the second quarter of 2016, as compared to the first quarter of 2015 had an impact on the comparability of our results on a year-over-year basis. In aggregate, the events ticket sales, merchandise sales, pay-per-view revenue, and production costs increased first quarter 2015 revenue by $24.9 million and had essentially no impact on profitability. The pro forma impact of the events timing on profit is minimal, because we do not adjust for the year-over-year change in subscription revenue when calculating the pro forma. We knew this is appropriate, because the subscriber acquisition surrounding WrestleMania did not impact average paid subscribers or subscription revenue in the current or prior year quarters. In contrast, the events timing impact, however, the value WrestleMania, which is significant comes from its ability to spur subscriber acquisition and therefore generate meaningful economics and subscribers are retained over longer periods. Although the timing WrestleMania did not have the material impact on our overall earnings growth, it did impact our overall revenue growth and the comparability of results for specific business segments. As such, I’ll discuss our performance on a pro forma basis, excluding the timing impact of WrestleMania. On a pro forma basis, revenue increased 13% to $171 million and OIBDA increased $6.2 million, driven by the growth of WWE Network contractual escalation of our television rights fees, and higher revenue from our video game licensing. Moving to page 6. Network segment OIBDA increased $3.7 million on a pro forma basis, reflecting growth in subscription revenue to $38.2 million as the networks customer base increased 39% to an average of $1.29 million paid subscribers. The growth in subscription revenue was partially offset by an anticipated decline in pay-per-view revenue. Pro forma profits from the licensing of television content increased $3.3 million, reflecting contractual increases in our distribution agreements. At the start of this year, as we improved our ability to measure and evaluate certain shared production expenses, we began to allocate these expenses between our Network and Television segments. For the first quarter of 2016, the resulting change in allocation methodology reduced Network segment OIBDA by $3.3 million and increased Television segment OIBDA by corresponding $3.3 million. As shown on page 7, licensing profits increased $3.5 million based on a 27% increase in licensing revenue that derived from a higher effective royalty rate for our franchise video game than in the prior year. The higher effective royalty rate derived from an increasing rate structure over the 2015 year as compared to a flat rate structure in 2016. The year-over-year difference in rate is expected to reverse over the remainder of 2016. For the full-year, we expect the rate for 2016 will be comparable to the average rate for 2015. Corporate and other expenses increased $4 million to $42.1 million in the quarter, primarily due to increases in business support costs, including certain talent expenses, which are now allocated to specific segments. Expenses in which we categorized as corporate G&A were essentially flat to the prior year. As a reminder, the year-over-year reduction in OIBDA from our life events segment, while large was due to the timing impact of WrestleMania. On a pro forma basis lighter than profits were essentially flat for the prior year and changes in other areas of our business were largely offsetting and as such did not have a material impact on our overall results. Page 8 of the presentation shows selected elements of our cap structure. As of March 31, 2016, WWE held $88 million in cash in short-term investments. And we estimated WWE has approximately $200 million in debt capacity under the company’s revolving credit facility. Free cash flow declined approximately $14 million, reflecting an increase in the annual payout of management incentive compensation associated with 2015 performance. Looking back over the quarter, our financial and operating results continued to reflect, now we’re driving innovation and transforming our business model. We continued to develop compelling new network programming as highlighted on page 9, such as Camp WWE, which recently debut on the network. Swerved Season 2, which is coming in June and Holy Foley, a new reality series that will premier in August. As part of our multi-platform content strategy, we also announced a new series spin-on Total Bellas that will debut on this fall along with the sixth season of Total Divas. In our social and digital platforms, we’ve recently launched a successful news program with our captivating host Cathy Kelley. In 2016, we’ll also premier the second season of our popular series Superstar Inc. and WWE Game Night across digital platforms. These are just a few initiatives within our multi-platform content strategy. Q2 business outlook, the primary reason for holding these earnings call at a later date than usual, was to give us the opportunity to observe the behavior of subscribers who joined the network in conjunction with WrestleMania. Over the past month, these members converted to paying subscribers at already consistent with previous trends. Therefore, our current guidance for the upcoming quarter is consistent with the potential ranges that we discussed a few weeks ago. Specifically, for the second quarter, we project average paid subscribers of approximately 1.5 million. We also estimate 2016 adjusted OIBDA of approximately $5 million to $9 million. This range represents an expected year-over-year decrease that can be attributed to three primary factors. Our incremental strategic investments, the timing of WrestleMania production costs, and the timing of the lower royalty rates for our franchise video game, which I referenced earlier. Achieving the range of second quarter financial performance would result in adjusted OIBDA for the first-half of 2016, that’s essentially flat to the first-half of last year. Contrast to this outcome, we anticipate year-over-year adjusted OIBDA growth over the second-half of 2016, from continued revenue growth and more favorable year-over-year comparison in our fixed cost base. As stated previously, if the average paid subscribers to WWE Network increased at a rate in 2016 between 20% and 25%, adjusted OIBDA for the full-year could be in a range of approximately $70 million to $85 million. In addition, if the recent overarching subscriber trends continue over the remainder of 2016, average paid subscriber growth and 2016 adjusted OIBDA would be at the upper end of the ranges, I just mentioned. As a reminder, during 2016 adjusted OIBDA assumes our previously communicated incremental strategic investment. Also as recent historical data may not offer a comparable basis for projecting future results. And future results could differ from the range provided, we offer these ranges a potential 2016 full-year subscriber growth and income to provide additional insight and perspective rather than as formal guidance. Over the past few years, we’ve placed increasing strategic emphasis on optimizing the value of our content, developing digital and technology platforms and expanding and deepening our global presence. Execution of these initiatives has been strong and our results demonstrate how we’re transforming the business model. Given the changes in our business, we have reengineered our publication of key performance indicators or KPI, to sharpen their focus on the global consumption of WWE content across platforms, while continuing disclosure of our WWE Network subscriber trends and social and digital engagement. Going forward, we’ll publish this data on a quarterly basis in conjunction with the release of our earnings materials. We believe the revise metrics will provide even greater visibility into the unique power of our brand and how we’re capitalizing on our global multiplatform content strategy to drive long-term growth. That concludes this portion of our call and I’ll now turn it back to Michael.

[Michael Weitz:]

Yes, we’re ready for the Q&A portion of our call. Please open the lines for question.

[Operator:]

Thank you, Michael. [Operator Instructions] We’ll take our first question from Brandon Ross with BTIG Financial.

[Brandon Ross:]

Hi, guys. Thanks for taking the question. Firstly, I think pre-Wrestlemania, it was the first time that you really marketed internationally. Can you speak to the takeaways there and how you plan to market in international territories going forward and what you see the international opportunity eventually being compared to the domestic opportunity. And then secondly we received a survey about potential 1299 tier for the network, which included next day RAW and SmackDown. Can you talk to the contractual viability of offering such a tier with her partners and where you guys stand in terms of tiering going forward? Is that something you guys are focusing on right now? Thanks.

[George Barrios:]

Sure, so on the first one, Brandon on the marketing – I wouldn’t characterize it as the first time that we’ve marketed the network globally. As you know our own media is probably the most powerful platform to drive acquisitions and we been using that since launch. And so that concludes our flagship shows RAW and SmackDown as they’re broadcast over the around the world as well as important, if not more important our social and digital platforms and engaging our audience through those. I wouldn’t characterize it as the material shift. Obviously we’re always using new promotions and new creative, but I wouldn’t say there was a significant shift in the approach internationally. And then on the second question around the survey that you mentioned and price points and kind of different feature sets or content for the network, we’re in market constantly surveying our audience and testing different things. So that was just one element of probably 20 or 30 different permutations we’ve tested over the last year. For obvious reasons, I’m not going to comment on any specific contracts that we had with the rights are on those.

[Brandon Ross:]

Right, but are you guys focusing more on tiering now that you have in the past? Is that something we should expect coming up?

[George Barrios:]

Well, I think if you look at the history of WWE, we’ve always tiered our content and probably the biggest example of that was pay-per-view and within the pay-per-view is WrestleMania. Today if you look at the way our content is “tiered” we have short form video content that we deliver on our owned and operated in third-party platforms, and as Vince mentioned that generated four billion video views and about 150 hours of consumption in Q1, and both of those up significantly year-over-year, so that’s one tier. The second tier is our flagship shows RAW and SmackDown where we license that around the world and it fit in the pay-TV ecosystem or free-to-air ecosystem. And then the third one is the direct-to-consumer that has our most premium content, our long tail content as well as new content that we create like WWE. So that’s the tiering today, how are things tiering the future, I think it will be discussion were always having is what content should go where.

[Brandon Ross:]

Great, and then just on the domestic versus international TAM, and how you sort of have seen that develop recently?

[George Barrios:]

Yes, that was just third one. Yes, I mean, look, when we launch Brandon, if we had always said that 3 million to 4 million, globally, 20% to 30% of that we felt out of international market. So today, we’re about halfway to the lower-end of the 3 million to 4 million in Q2 with that 1.5 million and about 25% of that’s outside the U.S. So, we want every number to be as big as it can, as fast as it can. But I think if you take kind of a high level view, it’s pretty much on track with how we thought it would be in terms of the mix.

[Brandon Ross:]

Great. Thank you.

[Operator:]

We’ll take our next question from Eric Katz with Wells Fargo.

[Eric Katz:]

Thank you. I just wanted to come back to your subs guide, it’s a little bit different now than the post WrestleMania release. And you mentioned that you’re looking at behavior for the early earnings call. What data are you looking at specifically and what trends are you seeing that helped to find the guide?

[George Barrios:]

Yes, it’s not different, Eric. It’s still at 1.5 million. I think on the call, we had the 15, 15 plus or minus 2%, we’re right in that zone. And I think to the question of how are we getting better at the visibility, it’s not one big thing, it’s a lot of little things. And in terms of both the acquisition cadence, the churn cadence for those subs choose to come in and out, engagement and kind of the level of engagement to what we think the behavior of a particular sub is going to. So it’s not one particular metric, but it’s the amount of all of those. I will give you to kind of put some scale on it for a new sub before we might have had one level of retention assumption, which then converts, so we will be one level of churn. We now have about 24, 25 different assumptions depending on geographically where you came from, how much content you’re consuming, and a variety of other minimal factors. But to give that sense of scale used to be one assumption that’s 24, 25, that level of granularity gives us a little bit more visibility. I will also say that we’re really still in early days. For everybody in the room here and everybody on the phone feels like, we’ve been talking about the network for ever. At the end of the day, we’re two years into it. So there is still a lot of learning, I’m sure that we’re going to do. I’m sure there will be some surprises in the future positive or negative as behaviors change and how some of our activities begin to influence the behaviors. But certainly after – with the two years worth of data and getting more granular, the visibility has tightened up quite a bit.

[Eric Katz:]

Okay. And as far as the investment spend, can you give us anymore – share any details on the timing of the $15 million to $20 million throughout the year, how much is Q1? What’s expected for Q2, or anything that could help us gauge, how does it impact your expectation for royalty growth in the second-half?

[George Barrios:]

Yes. So the actual incremental investments are pretty evenly split throughout the year in terms on an absolute basis. On a year-over-year basis, though, because of some of them who started towards the end of the year, you get more favorable compare. So which is why we said that if the revenue growth is what we expect, including the growth in the network, we’d be at the upper end of those ranges.

[Eric Katz:]

Okay. And I guess, just a higher level, would you be able to quantify how much of your total costs are expensed rather than capitalized? And specifically thinking about the strategic investments and the ramp costs on the corporate segment to build your capabilities. And I guess, the point here is, could you see or that meaningfully accelerate in 2017 and 2018 just by virtue of any nonrecurring spend flowing off of the P&L?

[George Barrios:]

No. So the first question is not. We have a fairly small portion of our total expense base that’s capitalized. And the three pieces of that would be CapEx, our film spend, and then network programming. Everything else is almost expensed fairly close to pretty short of operating cycle. So now you wouldn’t have the impact that you just mentioned.

[Eric Katz:]

Well, I guess, maybe the question is, is there – how much of the nonrecurring expenses within your P&L? Is there anything that falls off after this year?

[George Barrios:]

I would – I – not fall off, I think we’ll have decisions to make and I’ve mentioned this before. If our revenue continues to grow, we have real high operating leverage, which gives you a lot of variable – incremental variable margin. I think the questions for us will continue to be how much of that do we reinvest into future growth? Now, there are things we did this year and to your point about quote unquote falling off or nonrecurring, it’s not something fall off or recurring. The question would be, do we maintain those? So we invested additionally in programming, for example, specifically in WWE Network. The question for us for 2017 is, do we keep that level, do we go back to 2015 levels, because we think that’s more appropriate to do we raise and we talked about kind of which path we’re going to take yet.

[Eric Katz:]

Okay, thank you.

[Operator:]

We’ll take our next question from Laura Martin with Needham & Company.

[Laura Martin:]

Hi guys, great numbers. A couple questions, Vince for you, talent injuries. So at some – eventually if these guys keep getting hurt, we have an NFL concussion issue and starts injuring the brand. So I’m interested in why you think so many of your wrestlers have been hurt lately. You’ve been in this business long time. Does it just going waves or are there moves getting more difficult or is it scripting to last minute, where the guys are for the left and since be going. So I wanted to right side just want to general but injuries and how affectionate business short-term and long-term. And then George for you, I have – to George’s follow-up question after Vince answers.

[Vincent McMahon:]

Laura, we always have the injury. I think that there are more visible now than ever, and most of the injuries that we have in this three months, probably three maybe four months in terms of coming back after an injury. And again what we’ve done there is nothing is anymore risky or what have you in terms of what we’re doing. We manage concussion stuff extremely well way ahead of everybody else. We feel good about that. We feel good about all of these things that we’ve built into our health and wellness programs and better than ever. So this is something that just occurs on an ongoing basis. It happens and occurs with some of our major talents with John Cena and Randy Orton et cetera. And again it’s just a cycle of some things that happen in our business and they’re replaced of course by the opportunity of new talent coming in. So we feel good about where we are in terms of injury aspect of our business is just more pronounced and a lot more visible now than ever.

[Laura Martin:]

And then George for you, if I look at the other deck of slides, I don’t know what this is called, but this Slide 5 is awesome. And so if I look at paid subscribers from Slide 5 U.S. versus international, it looks like the over-the-top network subs were down about 10% paid and then sort of the international subs, because we’re opening new market are about the same. So the number of – we’re little higher which made of the decrease or the decline in the U.S. subs for paid subs. My question is to you is, I think one of the questions that we’ve all been grappling with is we used to get sort of $60 each from a million subs. And the question was if we get, let them buy sort of WrestleMania and the product $10 a month and this year is zero, if they wanted a free trial that we would get more subs. But if this number of U.S. subs is now sort of stable at a million, what would imply is maybe those million were pricing sensitive and they would have still been willing to pay $60 instead of getting in for free or $10. So from an economic point of view, do those people stay more than six months, so you’re getting your $60 and are the cost lower or the same on those million because we’re not going to get more subs or maybe wouldn’t be better just to go back to getting $60 from each of them and only programming three hours a year? Thank you.

[George Barrios:]

Yes, so I’m going to talk to the average paid sub, because I think is the tightest link to revenue and economics. So if you look at that in Q1, it was up 18% year-over-year. So 833 to 985, if you remember for WrestleMania, when we talked about the growth in Q2, if trends were to continue and so far they have been and which is why we’re confirming that 1.5 million. Domestic subs again would have been up in that high-teens level. So we continue to see relatively high growth domestically again 18% in Q1 mid to high teens again in Q2. So we’re not at the mind that it has plateaued. I think to your general point, if the growth starts today what we would have the business that is about twice the size of our pay-for-view business has higher levels of profitability has better incremental margins and also has the ability to have the direct connect with our fans, as opposed to one where it’s going through the third-party. So I would say as we sit here today, it’s the better business than what we had. I think the additional layer, which can make it an incredibly better business is that continues to grow with double-digit rate. It continues to do that on top of where we are today that I think we’re on a really nice journey moving forward. So at this point, I just don’t buy this – the hypothesis that somehow the growth has stopped because the facts don’t bear that out.

[Laura Martin:]

Okay. And what was the number of pay-per-view subs – the guys who paid $60 this year? What was that number in the end?

[George Barrios:]

For Q1.

[Laura Martin:]

Yes, right.

[George Barrios:]

Yes, we only generated globally about $2 million of revenue in Q1. So it’s a – still a really, really small number of total buys for pay-per-views.

[Laura Martin:]

Okay, perfect. Thanks, guys.

[Operator:]

We’ll go next to Evan Wingren with Pacific Crest Partners.

[Evan Wingren:]

Thanks. Would you provide us with an update on the engagement that you’re seeing at WWE Network in terms of the number of hours you would? And as engagement you’re seeing on the new episodic content for the network higher than maybe the other non-live content on the network?

[George Barrios:]

Yes. So I think the last update that we gave in terms of consumption and we said previously well from time to time give update. So we think are interesting was for the full-year in 2015, we average about a 188 hours of consumption for the – across average subscribers, which on per hour – per subscriber basis put those among the top 10 networks in terms of engagement and ahead of some pretty big names like HBO, for example. The second element of engagement we gave, as Vince mentioned in his opening remarks that we had 22 million of hours of consumption just during the week of WrestleMania and that worked out to 12 hours per – across the 1.8 million subs averaged during the week, which is our highest level of consumption for any one week period. In terms of the programming, I mean, as you would – we now have over 5,100 hours of VoD and we continue to put more hours VoD continually on the network, which gives people a lot of different content to enjoy. But our special live events what we used to call pay-per-view is still are the anchor, both in terms of acquisition and in terms of consumption and engagement. And as we said before if it’s live, we get a lot of the event live for the shows live, we get a lot of live viewership. If it’s not live then we see a lot of VoD consumption. So that you can definitely see that for non-live events people really enjoy being able to program it themselves and watch it when they feel like watching it.

[Evan Wingren:]

Okay, that’s helpful. And then just on the Total Bellas spin-off, it’s debuting on E! in the fall. Was this previously considered in your contract with NBCU, or is this something that was incremental and opportunistic?

[George Barrios:]

It’s more on the latter. So obviously as you follow, Total Bellas has been a great success free. And so we work together to come up with a new concept and it’s Total Bellas and it’s going to be a lot of fun.

[Evan Wingren:]

Okay. And then just one more for me. And I believe that you updated your user terms and now that limits the number of streams per account to one, I guess, one why did you do that? And two, given estimate for the number of accounts that are – that we’re currently – that we’re sharing before you did that? Thanks.

[George Barrios:]

Yes, obviously, there’s always some sharing. It in our view, it’s never been material. But we tweak the user term from time to time and that was one of those tweaks.

[Evan Wingren:]

Thanks.

[Operator:]

We’ll go next to Daniel Moore with CJS Securities.

[Daniel Moore:]

Good morning. Thanks for taking the questions.

[George Barrios:]

Hi, Dan.

[Daniel Moore:]

What if I may see if you may provide just a little bit more color yo,u talked about the magnitude of the incremental strategic investments and the cadence over the year. Just remind us any color around the specificity of what it is that you are sort of bucketing the incremental spend for this year? And one follow-up. Thank you.

[George Barrios:]

Sure. Yes just as a reminder there are three key areas where we’re investing programming, international, and then technology, and data with large and they cut across people, tools, and changes in the way we operate. The programming by the easiest things like Camp WWE or things we’re doing today that we weren’t doing last year. On the technology and data side, it really is about driving that consumption that we talked about going from $1.6 billion to $4 billion. It’s really about understanding that data, utilizing it, and not only driving deeper consumption within the platforms, but then being able to use that data across platforms and across our businesses. And then internationally, primarily people and primarily social and digital resources in some case general management resources, but a lot of social and digital resources putting them in key markets for us. So we’re to-date we operate primarily from a centralized perspective and then push the content out, we’ll continue to do that and that will be the vast majority. But in some key markets, we’re going to have people on the ground and more finally tune the content to that geography.

[Daniel Moore:]

Very helpful. And one follow-up just switching gears, given your comments in the prepared remarks and on the call around the fiscal 2016 OIBDA, the contemplated range, if for whatever reason be at an elevated churn or growth is lower, if the average sub growth comes in lower than the 20% to 25% for the full-year, would you take steps to cut costs and protect the lower end of that range? I’m just trying to understand how you’re thinking about it as it relates to whether it’s guidance or simply really just a contemplation?

[George Barrios:]

Yes. Well, I remember, Vince, telling me once, we don’t plan to be down, and given that we were at around 69 million of OIBDA. Last year we’d definitely want to plan to be up year-over-year. So without kind of giving a firm answer to your point, I think, hopefully that’s enough color.

[Daniel Moore:]

Okay. Thank you, again.

[Operator:]

We’ll go next to Mike Hickey with Benchmark.

[Mike Hickey:]

Hey, guys, nice quarter. Thanks for taking my questions. I’m not sure if you articulated this or not, but I’m curious sort of Shane McMahon’s current role and maybe long-term role with the company. And also sort of thinking about China development, I think you’ve been building your team there, I think, you hired Jay recently and sort of curious if you have any updates on how you think about the network in China and maybe a commercial launch there? Thanks, guys.

[George Barrios:]

Yes, as far as Shane is concerned.

[Vincent McMahon:]

Now he has come back, he is one of our talents who has done extremely well. So at WrestleMania and an ongoing storyline with Shane and Stephanie and is working out extremely well.

[George Barrios:]

Yes, in terms of the China, Mike, as we’ve mentioned before, it’s a market that become even more important than it was over the last 12 months or so. So when we talk about those investments before the strategic investments on the margin emerging markets like China is definitely one of those. So, Jay, is an example of the – at the general management level, a significant investment for us, and we’re real excited about that. And then also in social and digital, we put people on the ground. I mean, we’ve talked about we’ve built fairly massive scale digital and social platforms on the global platforms. We hadn’t made the same level of investment on the indigenous platforms in China. We’re going to change that and we’re going to strive to have similar levels of success in China that we’ve had everywhere else – else in the world. We’ve got a long way to go, we’re in early days, but that’s what we’re striving for. So as far as the network, obviously China is the one market, where the network is not available today, so WWE Network became global in August of 2014. We have one market left and we’re working to figure out what the right model is for China.

[Mike Hickey:]

Thanks, guys. Best of luck.

[George Barrios:]

Thanks.

[Operator:]

[Operator Instructions] We’ll go next to Brad Safalow with PAA Research.

[Bradley Safalow:]

Hi. Thanks for taking my questions. Just a couple of housekeeping items, did you guys provide an update on the number of unique subs required for the network, I think the last update we have is 2.5 million individuals?

[George Barrios:]

Yes, We stopped with that particular metric, Brand, and we think what’s really more relevant is in an essence where you are in net sub. So obviously we will continue to provide some of the gross churn data. But in our view, the real relevant metric is, what’s the net growth in average paid subs. But to your point we haven’t provided anymore data on the unique.

[Bradley Safalow:]

Okay. And what was the traditional February buy rate from WrestleMania?

[George Barrios:]

WrestleMania would have done anywhere between 900,000 and 1.2 million buys over the last 10 years or so, which is as far back as my memory goes and it would have been about two-thirds, one-third domestic, international.

[Bradley Safalow:]

Sir, you misunderstood my question. What was the actual buy rate in kind of legacy distribution channels for the 150,000 or so that you had in the first quarter, I’m just looking for the number that you had for the WrestleMania event, so we can get a sense of total audience between network subs and traditional…

[George Barrios:]

Yes, I think total buys were 900,000 to 1.2 million, maybe I don’t understand the question.

[Bradley Safalow:]

I will follow up, it’s okay. Just – and then on the YouTube, obviously on the subscription side, do you have what is like a 11.2 million or something as of today. Is there anyway you can give us a sense of the distribution of subs between domestic and international? And I know you have the data, I don’t know if you’d be willing to disclose it?

[George Barrios:]

Yes, I mean we have said before without getting into any specific metric that when you look at our social and digital data at large whether it’s on our owned and operated or third-party platforms, anywhere between 70% and 80% of the whatever that metric is coming outside the U.S., so whether it’s views, shares and engagement and so on.

[Bradley Safalow:]

Okay. And just on Tapout, I know you guys I guess launched distribution with JCPenney, I’m assuming that’s not an exclusive deal. Can you help frame what is your expectations are for the brand and how you think about the economic opportunity for WWE?

[George Barrios:]

I mean we have a several investments that we’ve made Tapout is one of them. We don’t get into specific guidance on any one of them. So we’re not going to do that, but we’ll excite it. We think it’s a great brand. We think it’s a fit with our audience. We think it’s a great value proposition. If you haven’t tried any of the apparel, yes it’s terrific quality in price. So we’re excited about it.

[Bradley Safalow:]

Okay, then last question on your guidance, Vince, you mentioned earlier it’s quite a backlog of star power returning to the roster here in the next 30 days. Is this your guidance imply, let’s say better growth sub acquisition, let’s say going to SummerSlam or better retention as a result of people like Rollins, Cena, Wyatt et cetera, et cetera coming back to the roster or is it you’re just using the same metrics you would have used otherwise?

[Vincent McMahon:]

It’s always a blend the more established talent as well new talent and again the start power of going forward seems stronger than the normal in terms of the stalwarts coming back and new talent being created.

[George Barrios:]

And so the guidance part of that question Brad, in the prepared remarks, we said recent trends were to continue with end up that the upper part of the range, so if recent trends were to continue.

[Bradley Safalow:]

Okay, thank you guys.

[Operator:]

[Operator Instructions] We’ll now take a follow-up from Eric Katz with Wells Fargo.

[Eric Katz:]

Hey thanks. Just a clarification, going back to Laura’s question early on domestic subs, is the comparison of domestic paid subs apples-to-apples in Q1. I think there wasn’t free offering last year, correct?

[George Barrios:]

Yes, the free doesn’t – doesn’t impact were paid by definition. So last year in Q1 we did free in February. But the WrestleMania element of it Eric, wouldn’t have impacted either quarter all that much.

[Eric Katz:]

Okay. And on international subs, it’s look like a gym nicely after WrestleMania, would we able to is not quantitatively or qualitatively talked to how much came from the recent launches in the oversees markets.

[George Barrios:]

Yes, we don’t breakdown the international at this specific market, but it was a combination of growth -- organic growth in the markets that were there last year and then obviously growth in the new market, so we don’t get into breaking them out.

[Eric Katz:]

Okay, and then I just one final one would you able to speak to how much the videogame royalties contributed in Q1 and how should think about the rest of the year as far as lumpiness?

[George Barrios:]

Yes, well the CBG business generally of the licensing business within that because our revenue recognition is one our statement to receive then there is a lack, you always see the biggest performance in light for the licensing business in Q1 because it has the Q4 holiday season. So it’s always lumpy and you’ll see – it should be fundamentally different other than the videogame portion of that, which will even now by the third quarter. So we saw over performance in Q1 as I mentioned the year-over-year decline in Q2 because the royalty rate slips, once you get towards the back half of the year the average rate for 2015 and 2-16 to start evening out.

[Eric Katz:]

Thank you.

[Operator:]

And we’ll take a follow-up from Laura Martin with Needham & Company.

[Laura Martin:]

Yes, I’m always fascinated with the economics type of social and so if I think I – maybe I miss understood you George, but I think you were just said an answer to the Mike’s question before the last question. You said U.S. International subs look at social and digital data writ large 70% to 80% of that is some outside the U.S. on social media. So my question is if all the money still being made in the U.S. I think for the over the top network and all of the payments from like NBC Universal and 80% of my social is offshore, and I know we don’t make a lot of money maybe $10 million a year from all the social media like revenue your share. Then, again, I’m going to go back to this question I always grapple with, like, why do we care about social media if it’s not turning, if it actually doesn’t drive, if that 80% of offshore social media isn’t driving higher adoption offshore and higher economics, I can’t figure out why I care about social media economically?

[Vincent McMahon:]

I’ll explain it to you again the next time I see you, but…

[Laura Martin:]

Okay.

[Vincent McMahon:]

I’ll try on the call.

[Laura Martin:]

Okay.

[George Barrios:]

The ability to have 4 billion video views and have people consume 150 hours of your content you would be able to entertain them 24/7 as opposed to just the five hours when you have them in front of the TV the morphing from five to 24/7, we think is huge in terms of driving all elements of the business. And when we look at the – take the network specifically a pretty big part of the awareness of the network and therefore the resulting ability to acquire subscribers has come from those assets. And you said, hey, there’s – the growth in the network is domestic. We have 300,000 average paying subs in Q1. So over simplifying, say, the ARPU on that is $10, it’s not exactly $10, some of it is licensed partners. But if you annualize that you’re talking about $36 million of revenue. So it’s not directly tied to social. There are kind of steps along the way, because it’s about the engagement, it’s about the awareness, it’s about connecting the story lines all the time around the world. All joking aside I mean, I struggle when people don’t get that, that people don’t get how powerful that is, because at the end of the day, our entire business is about mind share and time. And the ability to drive more mind share and more time is to me a part of the economic moat that we’ve got. So it’s huge for us, I mean, strategically it’s huge.

[Laura Martin:]

Okay. Thank you.

[Operator:]

And we’ll go back to Brandon Ross with BTIG Financial.

[Brandon Ross:]

Just a follow-up on the last question there. I think the way I would ask the question is, it’s 80% of your engagement on social media and 80% of your engagement in longer form content is a broad, why isn’t the network eventually 80% international? Thanks.

[George Barrios:]

Yes, I think the – that’s a great question. I think the answer to that question is about time. Right now, we’ll take a country like India incredible consumption for us across every platform traditional Pay TV and as well as social and digital great consumption. The network right now is not a great proposition in India because of the price point A because of bandwidth availability for video, which is low, and then for the cost of what availability exists in terms of video capable broadband. So we know the network is not going to be as big in India as Pay TV and digital social are today. And then the answer to your question about why is it 70 to 80, because I think that’s time. We can’t look that far ahead, but the number we’ve got is more and the foreseeable future what we mentioned the 20% to 30% whether that’s five, six, seven years. But if you went way beyond that, I think that opportunity as economies grow around the world, I think that’s why we do this. I mean, we’re pretty – we want to drive results in the short-term, but we’re pretty focused on the long-term and the long-term for us is not next year beyond that.

[Brandon Ross:]

So the eventual Camp could be 80% in the last quarter?

[George Barrios:]

Yes. I mean, look, I’m not going to say that. I’ll just say all the math that we’ve done is 20% to 30%. But to your point, as I look about and it’s not just the network, it’s consumer products. It’s the licensing of Pay TV. As these economies grow, our ability to engage them on all these platform, we think drives revenue growth. But I’m not going to say what you said at this point.

[Brandon Ross:]

Thank you.

[Operator:]

And with no questions in queue at this time, Mr. Vince, I’ll turn it to you for closing remarks.

[Vincent McMahon:]

Thank you, everyone, and we appreciate you listening to the call today. And, of course, if you have any questions do not hesitate to contact us. Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation. This does conclude today’s conference.