World Wrestling Entertainment, Inc.
Q4 2014 Earnings Call Transcript

Published: 12 Feb 2015

[Operator:]

Please stand by, we are about to begin. Hello, and welcome to the webcast entitled WWE Fourth Quarter Earnings. We have just a few announcements before we begin. If you are logged into the webcast, please note that the slides will not advance during the presentation. You will only see the title slide. Please download the full slide presentation via the download presentation button at the bottom of the webcast screen. Also at the bottom of your screen you will find a help icon for technical assistance, an enlarged slide button, and you may ask a question at any time by typing your question into the question box located on the web interface and clicking submit. [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 fourth quarter 2014 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 we posted the release, our earnings presentation, and other supporting materials on our Web site 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 from time to time 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 the notes this presentation which is available as I mentioned on our Web site at corporate.wwe.com. Finally, as a reminder, today's conference is being recorded and a replay will be available on our Web site later today. At this time, it's my privilege to turn the call over to Vince. Vince McMahon Thanks, Michael. Good morning everyone. Results for the quarter exceeded the latest guidance and the analyst expectations. The Network segment revenue increased by 64%, our key brand metrics remained strong. TV ratings for the year are up, 2% for Raw, 3% for SmackDown, which is pretty extraordinary. Social media reached 454 million followers as of January 31. That's up 85% from the previous quarter of the previous year. Our YouTube content reached 3.9 billion, that's a "B" as in billion, 3.9 billion video views or 80% over the prior year's quarter, and thus put us as the number one sports channel in all of YouTube surpassing the NBA and everyone else. Our WWE app has reached approximately 6.6 million downloads. Our Second Screen averages during Monday Night War is approximately 300,000. And all of that of course is in support of our network and every other initiative that we have. And speaking of the network, we surpassed the 1 million subscriber mark in January. Subscriber increase was about 37% with previous quarter. This is due to a November free for a new subscriber promotion, the launch in the United Kingdom and of course a successful Royal Rumble pay-per-view event. We're trying this again as far as a free to new subscribers in February, we would appreciate -- I would think something similar, perhaps a smaller in number than what we did in November, but nonetheless, it will be successful nonetheless. Along with the network, we continue the international distribution we launched in the United Kingdom and Ireland, as we stated we would in January 19. In Canada, Rogers leading the way here, just about as clearly the entire nation for -- no doubt by WrestleMania. And speaking to the hybrid form of what we have here in United States in terms of the WWE Network, Canada as you know is a premium linear channel, and we've reached a same agreement with OSN, which is in the Middle East, generally speaking. And that will be launching before WrestleMania as well. Our engagement in terms of our WWE Network audience remains very high at 90%, indicating they're satisfied or better. And we have new content of course always coming to the network, always monthly pay-per-views as well as specials and animation, talk shows et cetera; and no doubt the Network is our biggest long-term growth driver, of course supported by all of this extraordinary digital and social media following. And that's the name of the tune. George?

[George Barrios:]

Thanks Vince. There are several topics which I'd like to review today. It includes management discussion of our financial performance, the progress on key strategic initiatives, and our business outlook. For the fourth quarter, our financial results surpassed our guidance as well as analyst consensus earnings as we accelerated many of our cost saving initiatives. We achieved adjusted OIBDA of $5.1 million with an average of 721,000 WWE Network subscribers. This compares to our guidance, which implied an adjusted OIBDA loss at that level of average subscribers. The quarter was highlighted by the performance of our Network segment, where revenues increased 64% from the prior year quarter, reflecting our belief in the broad appeal of WWE Network content. We introduced a simplified price plan at $9.99 per month with no commitment, and migrated current subscribers to the plan in December. The Network which features our premium live pay-per-view programming continued to add original content, increase it's video on demand library to more than 2700 hours and rolled out new resume play and watch list features across all our platforms. During the quarter, WWE Network added 85,000 subscribers representing a 12% increase from September 30, and reached 816,000 subscribers at year end. Subscriber growth reflected the acquisition of 336,000 subscribers, which was 17% above the gross subscriber additions in the preceding quarter. Our November free promotion contributed to that growth, attracting approximately 242,000 trial subscribers with approximately 70% of those active in January. The performance underscore the impact sampling can have on subscriber growth. As Vince mentioned, we're very pleased that the network surpassed million subscribers in January, representing a 37% increase from the end of the third quarter. That growth was driven primarily by the conversion of November trial subscribers to paying subscribers, the launch of WWE Network in the U.K., and the attraction of our Royal Rumble event. Through the January 27 announcement of this milestone achievement, WWE Network had attracted more than 1.4 million unique subscribers with 71% of these subscribers active at that date. During the quarter, the Network live and original programming continued to drive audience engagement. Viewer data shows that an average over 2014 close to 90% of the subscribers access WWE Network at least once per week. And that 90% of subscribers are satisfied or very satisfied with the Network. Regarding future subscriber growth, we continue to expect a gradual ramp up over time as consumer awareness grows and consumers changed behavior and adapt new technology. As we said before, we're executing a five-part strategy that includes implementing high impact customer acquisition in marketing programs, making the network available in new geographies, creating new content, expanding distribution platforms, and developing new features. As part of that strategy, we continue to broaden our global distribution WWE Network beginning January 19; we made the network available in the U.K. and Ireland which almost overnight became our second largest market globally. We're also expanding WWE Network distribution in Canada, the Middle East, and North Africa. Rogers Communications, our exclusive network distribution partner in Canada has reached agreements with Cogeco Cable in Canada, Eastlink, Shaw and Shaw Direct, TELUS Optik TV and TELUS Satellite, and Videotron, ensuring WWE Network will be available nationally in Canada before WrestleMania on March 29. Additionally, we reached an agreement with OSN, the leading pay-tv network in the Middle East and North Africa to distribute WWE Network in the region as a premium linear channel, also launching before WrestleMania. This means that within about one year, we will have reached distribution in all markets, except for India, China, Germany, Japan, Italy, Thailand, and Malaysia. Plan for these markets will be communicated at a later date. Based on the successful execution of the network's free trial offering in November, all new subscribers who register for the network in February will receive the Network for free including the opportunity to watch WWE Fast Lane live on Sunday, February 22. Of course, we continue to be excited about our ability to create new and original contents for the network. During the quarter our NXT Live program which features WWE's emerging talents attracted increased viewership and fueled social media activity. The production of two network specials with Stone Cold Steve Austin have been among the most watched programs on the network. We're really excited about the new programs that we're developing for the coming year. We expect to expand our original programming with more exclusive live specials with sought after interviewees, talk shows, animation, short-form content' just to name a few. Overall, we believe our strategy for attracting subscribers will facilitate the expansion of WWE Network and provide a global platform for driving long-term growth. To review our performance in the quarter let's turn to Page 6 of our presentation which was the revenue and adjusted OIBDA contribution by business as compared to the prior year quarter. Our adjusted OIBDA growth as shown was driven by the escalation of television rights fees as well as increased profits from home entertainment. Network revenues which include revenue generated by WWE Network and pay-per-view increased 64% to $27.2 million, driven by the ramp up of network subscribers. WWE Network generated $23.3 million in subscription revenue based on an average of approximately 721,000 paid subscribers. Pay-per-view contributed $3.9 million in revenue with 271,000 bites as three events were produced during the quarter. For the full year of 2014, Network segment revenues reached $115 million, representing their highest levels in the past ten years, and a 33% increase from 2013. Moreover, the Network segment generated near breakeven OIBDA for the year. We believe these results demonstrate an important progress in the execution of our network strategy. Given the Network's significant long-term potential, we continue to invest in app development, programming, marketing, and customer service costs. Reflecting the increases in revenue and expense, Network segment OIBDA was essentially unchanged from the prior year quarter. Revenue from the licensing of television content increased 20% or $8.4 million from the prior year quarter, due to the renegotiation of a key distribution agreement which became effective in the fourth quarter. Additionally, the growth and revenue reflected contractual increases in existing international distribution agreements. Home entertainment revenues increased $2.7 million to $7.8 million predominantly due to the recognition of $2.1 million in contractual guarantees related to our 2014 sales. Notably, the contractual guarantees recognized during the quarter was the most significant source of home entertainment OIBDA growth from the prior year quarter. Corporate and other expenses increased $3.3 million to $38.2 million. As a reminder, corporate and other expense includes corporate G&A costs as well as sales, marketing, talent development cost that cannot be allocated to specific lines of business. The $3.3 million increase primarily supported the enhancement of our international and talent development infrastructure. Results in our other areas, such as licensing, live event, and WWE studios, we're impacted by timing, and did not have a material impact in aggregate on our results. Licensing profits increased $0.9 million from the prior year quarter, primarily due to a higher effective royalty rate for our franchise video game. Live events profits increased by $1 million primarily due to the staging of five additional events in North America. Regarding our films and entertainment, WWE Studios recognized revenue of $2.9 million as compared to $5 million in the prior year quarter. The decline was primarily due to the timing of results from our portfolio of movies. The fourth quarter reflected revenue from the animated features, Scooby Doo!, WrestleMania Mystery, which has surpassed our performance expectations. Additionally based on an evaluation of our film assets and impairment charge of $1.5 million was recognized in the quarter. In 2014, we invested approximately $16 million to develop our movie portfolio and we're targeting net films spending of 20-30 million in 2015, resulting in a three-year average of approximately $20 million. Adjusted OIBDA, which excludes the impact of film impairments increased $10.7 million from the prior year quarter, driven by the escalation of television rights, and to a lesser extend, the recognition of that contractual guarantee in our home entertainment business. Our adjusted net loss decreased $7.3 million, reflecting the increase in our adjusted OIBDA results. Our effective tax rate was 54% as compared to 34% in the prior year quarter, and the current quarter reflected a tax benefit associated with our operating loss in the period that increased our effective tax rates. For the full year, our adjusted net income declined $31 million as WWE Network continue to develop scale as we remain in investment to support key content and brand initiatives and due to our reduction in licensing profits stemming from the transition to our new video game partner. Page 15 of the presentation contains the balance sheet. As of December 31, 2014, the company held approximately $115 million in cash and short-term investments and currently estimates debt capacity under the company's revolving credit facility to be approximately to $170 million. Page 16 shows our free cash flow, which increased by $44 million from the prior year. The increase was driven by $15 million advance that was received in conjunction with a recently executed television distribution agreement. This advance is reflected in our fourth quarter financial statements, and will be recognized as revenue is earned over the term of the agreement. Looking back over the past year, we're more innovative than ever in seeking new ways to build our business. Of course, taking our video content direct to consumers with WWE Network ahead of major franchises like CBS and HBO is a testament to our entrepreneurial spirit. That achievement reflected major accomplishments in terms of contents, development, technology, and design. As we develop and introduce new programs to the network, such as the Monday Night War, WrestleMania Rewind, WWE Countdown, we also strengthen our other business at a pace that I would describe as unprecedented in WWE history. We premiered two new seasons to our programs, Total Divas, which continues to be among the most watched cable programs on E. We developed an animated web episode for kids, Slam City, which now airs on Nickelodeons Nicktoons TV network. We produced exiting new movies such as Scooby Doo!, WrestleMania Mystery, The Flintstones in WWE, Stone Age Smackdown. We developed new fantasy-based video games for mobile platforms, thereby extending our presence in the interacting gaming sector beyond the ring and beyond the console. This included the launch of WWE SuperCard, which was downloaded more than 1.5 million times during its first week of release. SuperCard has now been downloaded nearly 6 million times in 25 weeks of release. Additionally in January, we launched a new mobile game, WWE Immortals. The game was developed with Warner Brothers Interactive Entertainment in NetherRealm Studios, the creators of Mortal Combat, and features Superstar Battles in a fantastically re-imagined WWE world. Finally, we enhanced our talent development program in production capacity to increased use of the WWE Performance Center, utilizing that facility to produce content, such as our NXT program. These are just a few examples. Over the year, as we unveiled it [ph] across our businesses, our key brand metric remains strong. TV ratings for Raw and SmackDown increased 2% and 3% respectively. Consumption of WWE content on YouTube increase more than 80% to 3.9 billion video views. It has now made WWE the number 1 sports channel on YouTube, with more views than the NBA, MLB, and ESPN, among others. Our social medial presence grew more than 80%, and recently surpassed 450 million followers. Our app has reached nearly 17 million downloads, while our Second Screen app averages close to 300,000 users during Monday Night Raw. These are pretty amazing statistics. As we look ahead, we're working to leverage our entrepreneurial spirit and that brand strength to drive earnings growth. In 2015, we expect growth from almost all our businesses, with the most significant increases driven by the performance of WWE Network, the escalation of our television rights fees, as well as continued innovations. As stated previously, the level of network subscribers is a critical determinant of our financial performance. Given the lack of visibility regarding the rate of subscriber adoption, our presentation provides ranges of the Company's overall expected financial performance at different levels of subscribers for 2015. Ranges of financial performance are show on an adjusted basis, excluding non-recurring items which would be unknown at this time. Page 12 of our presentation provides ranges of adjusted OIBDA at different subscriber levels for the first quarter of 2015, as well as for the full year 2015. So as an example, if WWE Network would have averaged 900,000 subscribers for the first quarter of 2015, this would translate to an estimated range of adjusted first quarter OIBDA for the Company, and ranging from $2 million to $7 million. As shown, the expansion of WWE Network subscribers could significantly raise the Company's earnings profile. Regarding our global TV distribution, in 2014, we completed key television distribution agreements in the U.S., U.K., India, Canada, Mexico, UAE, and Thailand. These seven agreements [indiscernible] for television revenue that's expected to increase, from $130 million in 2014 to approximately $235 million in 2018. As such, over that four-year period these distribution deals provide over $100 million of contractual revenue growth, subject only to counterparty risk. Importantly, we believe we've reached a financial inflection point, with significant opportunities ahead. In 2015, we expect year-over-year adjusted OIBDA growth in every quarter. With growth driven by the factors that I just mentioned, the performance of WWE Network, escalation of TV rights, and continued innovation. We believe we're executing well, innovating faster than ever, and managing these key drivers have the potential to drive significant economic returns over the long term. That concludes this portion of the call. And now, I'll turn it back to Michael.

[Michael Weitz:]

Thank you, George. Now, we're ready. Now, please open the lines for questions.

[Operator:]

Thank you. [Operator Instructions] We'll take our first question from Daniel Moore with CJS Securities.

[Daniel Moore:]

Good morning, and thanks for taking the questions.

[George Barrios:]

Good morning, Dan.

[Daniel Moore:]

Obviously, I saw a very nice boost in subscribers from the rollout in U.K. and Ireland a couple of weeks back. And looking forward at markets like Germany, China, India, what are the markets that have the biggest potential for an uplift, and how would you compare those to the U.K., obviously, it's one of your larger opportunities?

[George Barrios:]

You know what Dan, I'm going to stay away from making projections. Obviously, those are important markets for us. But I'll tell you internally we were even surprised at how quickly the adoption happened in the U.K. So we'll stay away from making projections, but we're excited, we're developing plans for those markets, and we'll be excited to launch there.

[Daniel Moore:]

Okay. And after the success in November, and given the trials that you're running in February, do you plan to make one-month free trials an ongoing part of the plan? And just out of curiosity, how do you monitor to ensure that customers that may have disconnected previously aren't signing up again for the free trial?

[George Barrios:]

Yes. So on the first part of your question, we're not ready to make a commitment one way or the other, we're going to continue evaluating both, as Vince said, how they work in the month, and also what the retention looks like afterwards. But the underscore in November was incredibly successful, and we expect February to be as well. As far as monitoring, there are some tools we use today, and we'll continue to rollout more tools to strengthen that. But I don't want to get into the specifics of how we do it.

[Daniel Moore:]

I'll sneak one more in, if you don't mind. Other than the satellite providers, last year that had dropped, do you expect most major cable operators to continue to carry pay-per-view through this WrestleMania? And any thoughts for pricing on pay-per-view, I know it's declining in importance, but any thoughts for pricing given you can get WrestleMania now on the network as well?

[George Barrios:]

Yes, so now right now we expect to be on all the platforms we're currently on, which includes -- obviously, the cable platform being the most significant. As far as pricing, we don't set the pricing. The pricing is set by the cable operators.

[Daniel Moore:]

Okay, I'll jump back in queue. Thank you again.

[George Barrios:]

All right, thanks, Dan.

[Operator:]

We'll take our next question from Laura Martin with Needham.

[Laura Martin:]

I'll just follow-up on Dan's last question. I think what he was asking is are you going to put WrestleMania in the $10-a-month, which would then -- subscribers more likely would pay that than go into the $60 price points for their cable guys.

[George Barrios:]

I'm not sure if that was the question or not, Laura. Yes, but obviously WrestleMania is part of the WWE Network, and is part of the $9.99 month it was last year, and it will continue to be.

[Laura Martin:]

Okay. So then my question is, when we think about cancellations, when you guys calculate the average subs, like in a quarter like November, is the average -- the ending subs is it a zero number for November, or do you just take first day of the quarter, last day of the quarter, and average them, even though nobody paid in the November month because it was free?

[George Barrios:]

No, people paid, Laura, because remember we're only -- the free month is only for the additions that came in, in the month. So there's always a base here that's paying.

[Laura Martin:]

Okay.

[George Barrios:]

And then to your other question, if you look at Page 10 in the presentation there's a table below the bar chart that shows the averages for the quarter. So Q4, the average -- yes, Q4 the average paid subscribers, including November, was 721. If you wanted to see the average total subscribers, including promotional subs, it's off to the right, that's the 762. So 721 was the average paid. And the average you asked about, it's not a simple average of first day of the month last day of the month; it's a weighted average by day.

[Laura Martin:]

Oh, okay, great. And it seems like pretty much all of your subs will be on month-to-month by the time WrestleMania comes, right? So then we'll be able to look at real churns -- so on a same store churn ratios month-to-month after that, don't you think?

[George Barrios:]

All of them are all just about on it right now.

[Laura Martin:]

Okay, great, perfect. Thanks.

[Operator:]

We'll take our next question from Mike Hickey with Benchmark.

[Mike Hickey:]

Hey, guys. Great quarter, congratulations.

[George Barrios:]

Thank you.

[Mike Hickey:]

I'm really curios what measures you're taking to reduce network subscriber churn, particularly post-WrestleMania? And then as it relates to your average tier 1 subscriber range, it seems [indiscernible] maybe more cautious than you would have expected, given that you already were plus one million subs, and 1.4 million [indiscernible] and of course I think WrestleMania in March this year. And then I'll follow-up. Thank you.

[George Barrios:]

Sure. And Mike, I missed the first part. Did you say the measures we're taking to manage churn? Did I hear you right?

[Mike Hickey:]

Yes, and in particular post-WrestleMania. 8

[George Barrios:]

Yes, look, I think we've got to do what every subscription business needs to do to manage churn. We've got to deliver incredible value in the content; the experience has to be great. And so that's what we're working really hard on. We think if we deliver great content, it starts with our pay-per-view events, our live events. But as I mentioned in the script, and as Vince mentioned, we're working on a lot of new content that we're excited to talk about, and will be soon. But that's the way we'll keep subscribers over the long-term.

[Mike Hickey:]

Okay.

[George Barrios:]

On the second one, one on the guidance table for the quarter. The first thing I'll say is, and obviously I mentioned in the script, at this point we know a lot more than we knew 11 months ago, but I'd still say we're learning so much everyday that predicting the adoption rate is really, really difficult for us. I will say, on the average for the quarter, it's some of the things we've just been talking about that impact the average. So because it's a daily weighted average, for example, even though January we hit a million, a lot of those came towards the end of the month, because of when the U.K. launch and when the pay-per-view actually occur, when Royal Rumble occurred. So the weighted average in the month is not as -- it's not a simple average. Similarly, in answering Laura's question, in November, for February we have our base subscribers that are coming out of January we'll lose some churn and there won't be gross paying ads coming into February. We'll get that when we convert the free into March. So I don't want to get too much into the mechanics, because I think it loses the broader point of just grow subscribers, and the average takes care of itself. But that's kind of the bridge between ending subscribers and averages.

[Mike Hickey:]

Thanks, George. It's helpful. We're also kind of wondering here, and I know you've given some insight or maybe some additional non pay-per-view related content for your network. So the most active interest of you will often your subscriber base maybe more specifically how NXT has taken shape as it relates to subscriber interest. It seems at least the entertainment sort of elevated excitement from WWE fans online from hiding to…

[George Barrios:]

Yes. So look, when you do something live as you'd expect, I mean we see that in a general TV ecosystem, it resonates. And so that's been very successful on the network. It's amazing that NXT which domestically is only on WWE Network trends on Twitter pretty regularly especially when it's live. So yes, your point I think it's become a favorite of our fans. It does very, very well on the network. The other finding that we have is that the -- as we know video on demand allows people to program based on their own likes and viewing habits. So we just see a big utilization of the video on demand library. It's one of our -- we think it's a real strategic importance to the network. We have 100,000 hours of video library. We moved about 2700 on to the network. The value of the network will keep growing as that video on demand library grows. So we think that's pretty special.

[Mike Hickey:]

Thank you. That's helpful. And the last question from me; this is a bit on a franchise I suppose, but curious nonetheless, we are still hopeful you could compare and contrast your fan base with that of the MMA, I guess. And if you strategically looked to build the bridge between the two, as you think about the growth of your network, and then maybe -- and more specifically if you think about finding new talent from the MMA world or the vehicle to further engage MMA fans with WWE-related entertainment. Thank you, guys.

[George Barrios:]

Yes, I think I'll answer to the first one on the demographics. We talked about it before in -- I know you've been to a show. So you've seen it live. It's one thing to talk about the data, but when you go to a show you see it live. And if you went to a MMA event you see the distinction. We're about multi-generational family viewing. That's what you see at the event. That's what you see in our TV ratings. I think that's fundamentally different than MMA.

[Mike Hickey:]

Thank you.

[Operator:]

We'll take our next question from Brad Safalow with PAA Research.

[Brad Safalow:]

Thanks for taking my questions. Can you just reiterate what your budget will be for 2015 for feature films and then new content for the network?

[George Barrios:]

Yes, we didn't talk about the budget for the content for the network. For feature films, we said the net spend we expect is 20 to 30 million for '15, and in'14 we did 16 million, in '13 we did 9. So if we kind of average that out during that 20 million range which has been essentially about our historic rate, a little lumpy because if we don't find film that we think are worth doing in the year, we won't do them. But that 20 million is our standard run rate on average. And we haven't gotten -- we didn't give any guidance on what the programming expense for the network is.

[Brad Safalow:]

It directionally is going to be same level, higher, lower…

[George Barrios:]

Yes, I think if you look at the [indiscernible] cost overall for the network, they are probably be right around the same range. Some of the cost area is a little bit higher, some lower. I think on the programming side, probably pretty similar.

[Brad Safalow:]

Okay. And then, you said that I think the number was 70% of the people who sign up for the free month in November wound up being paying less in January. Is that correct?

[George Barrios:]

That's right.

[Brad Safalow:]

So let me reconcile this because you did give us some of these stats. If I look, you had 772,000 domestic subs up to 872,000 or so as of January 27, you had 44,000 international subs at the end of the fourth quarter, going about 128,000. We know that U.K. came out and that's the big mover in the international subs, but the free promotion seems 70% attachment that would be 172,000 subs, something about those numbers doesn't make sense to me.

[George Barrios:]

Yes, I think all you're missing is just the churn that you have in a month.

[Brad Safalow:]

Okay, understood. So 70%, okay, understood, so we're missing what happened in between. Okay. And then just help me understand when I look at the network contribution margin, which obviously I think was better than anyone expected and you're back to kind where you were a year ago and higher than you were two years ago. I'm trying to understand why you had such a large sequential increase in profitability for that segment, what was like a 1 million change in revenues quarter-to-quarter?

[George Barrios:]

The big for us is the kind of what the pay-per-view performance. So that's a little bit different sequentially in the quarter.

[Brad Safalow:]

Okay. That was a big mover?

[George Barrios:]

That on advertising and promotion, we treat that a little bit as we're learning. So there's a field.

[Brad Safalow:]

Okay. And what were network advertising revenues in the quarter?

[George Barrios:]

We haven't published them. And at this point, they're de minimis.

[Brad Safalow:]

Okay. And then -- I have asked this before, but in light of what you guys are trying to achieve internationally with the network, can you give us any sense as to what your viewership is in your top three or four markets of Canada, U.K., I don't know what would be next in terms of viewership weekly basis for Raw or SmackDown? Do you guys have a sense of where you are?

[George Barrios:]

Yes, the number, Brad, that we look at -- I guess the viewership will depend on what the type of distribution that we have in the country. So in the U.K., we're actually on a sports tier, but you can't lose sight of that almost 4 billion video views on YouTube, because our distribution -- we're kind of trying to think about video viewing traditionally -- traditional TV. The world's changed dramatically. So the data that we think reflects the opportunity is surveys we've done in market to try to understand the size of the WWE band base and the affinity. And as we've mentioned before the top 16 markets we think there's about a 100 million broadband homes with at least one act of WWE fan in them. About 30 or so, we describe or characterize as passionate; about 70 or so as casual. That to us is the available opportunity.

[Brad Safalow:]

Okay. So to me, I can look at the -- you have 5 million YouTube subs, I mean is that important number because again we're all trying to look at this, these surveys are still vast and you know obviously the pool is big, but directionally it hasn't been necessarily an indicator of your subscriber at least not in you know in the near-future; maybe it will be over a five-year period. But would it -- is that a good data point or do you have like a data point where you know if I look at international market you could tell me, of the 17 million app downloads, here is how many are unique, and here is how many overseas, is there anything else you can share on that front?

[George Barrios:]

Yes, I mean I think no one metric gets to the -- there's no one simple metric which is why personally we can decide what we want to choose. I go more with the in-field work we've done because that to me is the best way to normalize, but what we mentioned we do is important so the 4 billion view is important, the 450 million social touch points review is important, and the U.S. where the viewership data is easier to quantify the 12 to 14 million viewers that we have with some WWE program every week is important. So all of that topped the scale, including the 5 million subs that you mentioned in this, I think we have more handling the more video views that any sports channel and news. I think we have the most subscribers so more than NBA, more than MLB, so all of that is what supports the thinking on the scale of the opportunity.

[Brad Safalow:]

Okay, I'll get back in queue.

[George Barrios:]

Thanks.

[Operator:]

[Operator Instructions] We will take our next question from James Clement with Macquarie.

[James Clement:]

Good morning.

[George Barrios:]

Hey, Jamie.

[James Clement:]

Hey, George, I'm serious, I don't know of you have data on this, but in the absence of data maybe just a gut feeling on your part but for subscribers that maybe joined in December for example we're not subscribers in March did any sense about how much of that growth may have come from A) Their understanding of what an OTT network was, and B) Maybe going out and buying a device that actually gave me opportunity to watch that. So in other words, looking forward to the extent that people are more brokers and that sort of things, how much growth you might expect just from that?

[George Barrios:]

Yes, look, I think over the last three years or so there was obviously a tipping point on not just the penetration smart devices, but the usage of those, and you saw that primarily in networks as subscriber growth. So I think there's more room there. I still think there's more but I think it's clearly well penetrated in the U.S. Relative to your first question, one of the things we're in the field on right now is awareness of the network that's something we've served, also asked about intend to buy over the next 12 months. I'll say the last time we did it a couple of months ago, you know as you would imagine it takes time for complete awareness of what anything is including the network. And when I say complete awareness I mean what's on it, what's the price that you can cancel into time, all of that. So I think there's still momentum to be gained as the awareness increases.

[James Clement:]

Okay, that's fair. And then, George, last question, I haven't been able to find any really good data on this, but in terms of OSN and your addressable market as you see it in the Middle East that's going to be covered by this agreement, do you have a rough number?

[George Barrios:]

Yes, I mean it's a great question. The reason you don't see it is because there's not a ton of research or product data for that region. Our estimate says that there's 3 million to 4 million pay-TV homes. As Vince mentioned earlier on, this deal is more similar in kind to the Rogers deal and it will be less driven by actual subscribers and it essentially looks more like a license deal for the content.

[James Clement:]

Okay.

[George Barrios:]

It's a different deal.

[James Clement:]

Fair enough. Okay, thank you all for your time.

[Operator:]

We'll take our next question from Laura Martin with Needham.

[Laura Martin:]

Yes, if Vince is still there, I'm interested in this Twitter controversy and whether you thought the Royal Rumble controversy was who won, that started hat Twitter about cancel WWE Network, is that good for you because it alerts a bunch of people in your demo that WWE Network exists or is it bad for you because people actually listen to these super fans and they disconnect WWE for a week or two until WrestleMania shows up? I'm curious. A - Vince McMahon No. Thanks for the question. That's good for a WWE. It created controversy and it really was a gesture by some of local minority in terms of not liking the creative. Santa Claus didn't come for that pay-per-view. And so that's really what that was for them, but it's like someone who watches our television show thinks about nature and the many faces does not win and they say, "I'm never going to watch this ever again." Well, I know that person is going to be glued to the television next week. It's the same here. We saw no decline whatsoever in any of that. It created controversy and that was really good for us.

[Laura Martin:]

Very helpful, Vince. Thank you.

[Operator:]

We'll take our next question from Robert Routh with FBN Securities Incorporated.

[Robert Routh:]

Yes, good morning. Thanks for taking my question and congratulations on the results.

[George Barrios:]

Thanks.

[Robert Routh:]

Couple of quick ones; first given how well you're doing obviously the WWE Network now and obviously you're expanding globally. I'm curious is there -- could you give us any sense as to geographical areas domestically where you're doing much better in terms of getting subscribers than in other areas because I would think there's probably certain pockets where you're just getting a lot more traction than others. and in the areas where you're not doing quite as well as you would hope to is there any possibility of you partnering or working with a distributor and co-marketing or doing something to start on a really local focus basis subscriptions to WWE network where it isn't quite doing you would hope -- any color -- it would be great.

[George Barrios:]

Yes, I mean first the border point on geography. I mean if you looked at our fans just broadly generally across the U.S there's not a real region where we over or under index significantly. We're everyone's home team, if you will. And as far as the Network it's the same issue I think that you see a slight over indexing based on broadband penetration in the region and what the average income is of a particular region but not the -- certainly nothing where we really think we need a lot of help. We're pretty good at reaching our customers directly.

[Robert Routh:]

Okay. Okay great. And another question is given the uniqueness content there's really nothing like what you guys have and the fact that it is replenishing it weekly, have you ever thought about doing something like a WWE radio show on serious or something that would be a subscription based model, because I would think that's something they would want you could get paid a lot of money to do given your roster of talent activity and also as a way to continue to pound into people's heads that the WWE Network on the over the top side, I'm curious are there other initiatives that in addition WWE import like that, that you may have in your back pocket that you're thinking about?

[George Barrios:]

Yes. On that point, there is about a hundred that we're thinking about. So it just becomes a choice of where we think is the juice for us to squeeze for us to go after, but that example you used is one that's been talking about.

[Robert Routh:]

Okay, great. Congratulations again, thank you very much.

[George Barrios:]

Thanks, Rob.

[Operator:]

We will take our next question from Daniel Moore with CJS Securities.

[Daniel Moore:]

Thank you again. Just looking at the films business, you have done a lot of work in the last couple of years to de-risk that, but still spending relatively aggressively 20 million to 30 million, and you have the 1.5 million impairment for Oculus; was that surprising to you or is that in a reasonable or acceptable level of risk as we think about films going forward?

[George Barrios:]

I think if you look at for the year, where we ended up, I think given the size of our investment, the total impairment charges for the year are somewhat what you'd expect. Obviously those are things that are hard to predict, it's lumpy, but it's not outside a reasonable range of expectation. I will say Oculus has done kind of what we expected on the revenue side, so the costs are coming a little bit higher than we expected. That was the rational for that. On the 20 million to 30 million, Dan, it's a bigger number sequentially, but again the way we look at it is over a three-year average, what are we investing in films and if you look at '13, '14 and '15, we were at the higher end of that scale. We've been averaging about $80 million over that three-year period. So that's the way we kind of think about that business.

[Daniel Moore:]

That's helpful, thank you. Lastly, just, George, tax rate for 2015 and CapEx?

[George Barrios:]

The tax rate is going to fluctuate pretty heavily with what the overall earnings are. Obviously -- I mean even when you see the tax rate in the quarter being what it was, that's just really driven by the size of the income, a few adjustments make a big difference. So, our natural tax rate, we expect is consistent with what's it's been; however, small adjustments can throw the reported rate pretty significantly. So longwinded way of saying, depending on where you think the average sub will be for the year and how much income for the year, that will drive the average tax rate, but if we had income consistent with previous years, we will be in that 35% to 40% range.

[Daniel Moore:]

And did you -- I apologize if I missed this, did you give you a CapEx projection for '15?

[George Barrios:]

We didn't, but as you know, our traditional CapEx has been around the 20 million range plus or minus, I think that's a fair expectation for '15.

[Daniel Moore:]

No major projects or changes in that?

[George Barrios:]

Perfect, thank you.

[Operator:]

And we have no further questions at this time. I would like to turn the call back over to today's presenters for any additional or closing remarks. Michael Weitz Thank you everyone. We appreciate you listening to the call today. Certainly, if you have any questions, please feel free to reach out to us, myself, Michael Weitz or Laura Keenan at 203-352-8600. Thank you.

[Operator:]

And this does conclude today's conference. Thank you for your participation.