World Wrestling Entertainment, Inc.
Q3 2015 Earnings Call Transcript

Published: 29 Oct 2015

[Operator:]

Please stand by, we’re about to begin. Hello, everybody, and welcome to the webcast entitled WWE Third Quarter Earnings. We have just a few announcements before we begin. If you’re logged into the webcast, please note that the slides will not advance during the presentation. You will only see the title slides. 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, and Enlarge Slides 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, Senior Vice President, Financial Planning and Investor Relations. Please go ahead, Michael.

[Michael Weitz:]

Thank you and good morning, everyone. Welcome to our third quarter 2015 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 forward-looking 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. Finally, as a reminder, today’s conference is been 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:]

Good morning, everyone. As you would note, we had strong earnings growth, reflecting our strategy, realizing greater value from our content, had growth of about 23% to $493 million through the nine months of the year, significant international growth of which about 43%, which that really is coming from the television rights generally speaking and some network revenue as well. The network segment revenue reached a record $146 million over the past year, for obviously exceeding the range of our former annual pay-per-view revenue throughout our history. The network currently has about 1.3 million subscribers to quarter’s end, obviously a big increase from a year ago. On the network itself we had 85 hours of original content which is obviously something that our audience clamors for. Some of the things that we did in terms of content, Beast in the East, which was something from Japan, a live show, which aired hire, I think at 7 o’clock in the morning or something like that here in the east. As well as the NXT TakeOver, those NXT shows do extremely well for us. We did an event - did an event out of the Madison Square Garden, which was viewed very heavily and accepted very well by our audience. New content coming to the network actually Breaking Ground, is currently on the network now, a new reality series. NXT TakeOver another one that just went from London, coming up live, with a better timeslot basically for us over here as opposed to the prior one from Japan. We continue to do episodes of WWE 24 and things of that nature. Our global distribution of our network is about to take a pretty good leap here. We plan to launch the network in Germany and Japan in January, the Indian subcontinent on November 2 so some eminent opportunities for us as far as connections and network is concerned. Some other, I guess, maybe indications of brand strength over our SummerSlam weekend, Summer Slam, of course, was sold out, it was the Raw, the night after, and the day before SummerSlam, NXT which is obviously our developmental brand which has turned into a brand in and of itself, thanks to Paul Levesque, my son-in-law, talking nepotism here. And I think also of note, in general speaking is concerned we have 37 new advertisers secured for our programming with the NBCUniversal Upfront showing, obviously, a broader appeal of our brand to advertisers as well as sponsors. Also of note, is that WWE is the most viewed channel on YouTube, as is the most viewed channel on YouTube in August everywhere knocking out any of the sports channels, as well as BuzzFeed, Taylor Swift and things of that nature. That’s really important for us. As well as exceeding 660 million social media engagements, ranking considerably ahead of the NFL, NBA and other media properties as well, so to give you some idea of the flavor of our expansion and how we’re capitalizing on all of that. And with that, I’ll give it to George.

[George Barrios:]

Thanks, Vince. There are several key topics which I’d like to review today. These include management discussion of our financial performance, the progress of our strategic initiatives and our business outlook. As Vince said, our overarching objective is to distribute our content across multiple platforms and optimize the value of that content. In the third quarter, our business accomplishments and financial performance reflected the successful execution of that strategy. We believe we can continue to increase earnings from the growth of WWE Network, the escalation of TV rights fees and continued innovation throughout our businesses. For the quarter, our financial results reflected strong business performance. Specifically, we achieved OIBDA of $23.4 million, and year-over-year revenue growth of 38% with an average of 1,173,000 WWE Network paid subscribers. The quarter was highlighted by the performance of our network segment which now generates more revenue on an annual basis than our previous pay-per-view business and provides a comfortable level of profitability. The network segment generated OIBDA of $40 million on a trailing 12-month basis, which compares favorably to historic range of approximately $35 million to $40 million. The growth of WWE Network demonstrates our ability to transform our legacy pay-per-view business into a global subscription business with high growth potential. At quarter end, WWE Network had more than 1.3 million total subscribers which represented an increase of 79% from the third quarter 2014. Subscriber growth was driven by the appeal of our original programming including WrestleMania and SummerSlam, and our international expansion. During the quarter, we premiered 85 hours of original content on WWE Network, increased the network’s comprehensive on-demand library up to more than 3,700 hours, and continue to broaden its global distribution. In the quarter, the network was made available in Italy and Malaysia in July and at quarter-end WWE Network had approximately 243,000 paid international subscribers. Importantly, the network’s live and original content continue to drive viewer engagement. Among the 85 hours of content that debuted during the quarter, original programs, Beast in the East, NXT TakeOver

[Michael Weitz:]

Thank you, George. Dana, please open the line for questions.

[Operator:]

Thank you. [Operator Instruction] And we’ll take our first question from Eric Katz with Wells Fargo.

[Eric Katz:]

Hey, thank you. So I think it’s a bit surprising after the Q3 sub speed that you’re guiding the flat in Q4 despite launching in India, and having the Survivor Series in November. Just curious with the rationale there is. And also, I think there is some confusion around the flat Q4 sub guide and then the mention of potentially strong sub growth in the neighborhood of 20% or 25% like Netflix, granted that would be strong. Is there a reason for putting that growth figure out there after a flat Q4 guide?

[George Barrios:]

Sure. So first on - I’ll take the last part first. Eric, as we’ve talked about before that the growth of WWE Network could happen sequentially, or it could happen seasonally. And certainly, we saw the seasonal pattern manifest itself this year, where significant growth at WrestleMania are believed going to hold those subscribers throughout the year, which then grow year-over-year growth through the remainder of the year. We saw something similar at SummerSlam although at a slightly - at a much more scale than WrestleMania. So, the concept, and we’ve said this before, you should think about year-over-year growth as a more important barometer than necessarily sequential growth. To your question then on Q4 specifically, as I mentioned, SummerSlam had a little bit of that, a kind of a mini-WrestleMania effect where it’s a super successful event, not only creatively, but from attracting network subscribers. Then therefore, it becomes as the attrition on those subscribers manifest themselves filling that in with new gross-adds, we think flat is probably the right number to expect for Q4 2014. But the 20% to 25%, if we’re able to achieve that, and again that wasn’t the guidance that was just an example using Netflix’s data, but if you’re able to achieve that, one way to get there would be through that kind of seasonal growth that we mentioned where we would see growth year-over-year next year of that amount.

[Eric Katz:]

Okay. And then, just trying to get a gauge on how we should model OIBDA for 2016 based on your comments around investments. So what would dictate your investment spend for 2016? Are these investments that would happen regardless of the subscriber growth rates or are there certain benchmarks you like to hit before spending that money? And also, do you think this is necessary for subscribers?

[George Barrios:]

Yes. I mean, this is kind of high-level. If you look at trailing 12-month revenue, we’re around $633 million, just to use kind of some basic math, 5% to 10%. Let’s say, that’s $50 million of revenue growth. As you know, we’ve got really terrific unit economics, because we have high operating leverage. So, our unit profit on that $50 million would probably somewhere around $35 million or $40 million. That leaves to big fixed cost base that we have, which is in probably around $430 million - $440 million. You have small growth there. That takes about $10 million, $12 million off of the profitability. So, you’re left then with about $25 million, maybe $30 million of incremental OIBDA and that’s how we could get to $90 million to $100 million with the revenue growth I mentioned. What we’re trying to balance is how much of that growth flows down to earning and we expect to deliver that and then how much do we invest in technology, in emerging markets like China and India in new content that we think then drives future revenue and profit growth. So, that’s the balance. As far as when the investment happens, it’s a good question. Obviously, we’re not going to know about the subscriber growth until we get through the year and in some cases we’ll make those investments earlier than the beginning of the year. So, it will be a balance as far as timing.

[Eric Katz:]

And just to be clear and then the final question here is are these investments necessary for growth on subscribers or is this sort of a long-term game you’re playing because now you have confidence in the trends? Thank you.

[George Barrios:]

Yes. It’s not just in the network, but the answer is more for long-term. If you said to me, do I think I could still grow subscribers without making the investments I mentioned, probably. But what we found is, for example, investments in content aren’t just beneficial in the current year we believe, we believe it creates an asset, because we see the consumption as a VOD on WWE network. So that has a long tail in terms of value creation, which is why we would do it. So, do we think we need to make those investments for 2016; no, we don’t think we need to. But we think by making them they help with 2017 and beyond.

[Eric Katz:]

Thank you.

[Operator:]

And we’ll go next to John Blackledge with Cowen and Company.

[John Blackledge:]

Great. Three questions. First, could you discuss the churn characteristics of the network and perhaps how rising new original content and additional library content on the network could reduce churn overtime? And then, for the network could you also talk about potentially different price tiers; is that a possibility down the road? And last question is, we heard Netflix talk about credit card chip transition issues impacting sub-growth in the third quarter. Just wanted to get your thought in 3Q or if you’re seeing it in 4Q. Thank you.

[George Barrios:]

Yes. The chip card, we can’t - obviously, the data doesn’t get to that granular level. But certainly, we didn’t see anything in the churn numbers that we would say look abnormal given our more recent performance. So, short answer to the chip question is, no, we don’t think that that had any impact. In terms of churn characteristics, one of the things we talked about obviously is we’re changing two behaviors in our audience. For people who use to buy pay-per-views, we’re changing the behavior of coming in and out, and selecting which pay-per-views they wanted to watch, because of the high price point. And for those members of our audience, even really passionate fans, the non-pay-per-view buyers is getting them into the habit of now feeling like they can enjoy our best content as well a whole lot more for really great price of $9.99. So, those are the two key behaviors that we hope to change over time. We mentioned before look over the quarter average churn was around 10%, we want to lower that number, is anybody with the subscription business always want to lower the churn number. And as you mentioned, our thesis is that over the longer term as we continue to add content to WWE Network that will be one of the drivers that bring to churn down. So that’s why we’re doing, what we’re doing there and we do think is the long term play, because that’s the content has a long tail of value, it’s not just in the current year. And then on the price tiers, we like the simplify $9.99 price. We think that’s easy to message. It’s easy to understand. I think if you look at, like for example Netflix, when they first started they kind of stayed with one price. Obviously, as five years in now, they have a few price points. So if you said is it possible that ultimately we’ll have different versions of the network, with different pricing tiers, it could be. But as of right now, our plans are really focused on that one price point, simple message. We think it’s the best value in entertainment around the world.

[John Blackledge:]

Thanks, George.

[Operator:]

And we’ll take our next question from Laura Martin with Needham.

[Laura Martin:]

Hi. Can you hear me? Okay. Hello?

[Vincent McMahon:]

Yes. We can hear you.

[Laura Martin:]

Great. So Vince, one of the things that you guys have knowledge really great data about what your consumers are watching on the over-the-top network. And our channel checks would suggest that the big surprises is that 75% of viewing is the library, and then other 15% is sort of your event, so only 10% of the 85 hours of new programming. So the question I have in your mind is return on investor capital, because you probably can do it for less than $100,000 and you guys are high quality producers. So I guess them are between $10 million and $20 million, we spent on that 85 hours in the quarter. And if only 10% of the viewing is there, is there some point in your mind, what you say, what’s cutback on this original content, because it’s really not garnering the viewing that we had hope for. Could you think about return on capital? It’s my first question.

[Vincent McMahon:]

We always looking our data, we’re getting more and more data as we progressed in-time actually through the network. I think, as George just mentioned, there is a long tail with a lot of our programming. So when you look at percentages, it’s sort of misleading in that, you need to be able to drive viewers and subscribers in terms of our current live event, it brings more and more of subscribers to the network. Once you’re in it. It’s so deep that, yes, once you’re in it, you go into all sort of VoD stuff. So, again, it’s important to continue that extraordinary live event current programming, which garners all these other numbers as well. But you need to have all of that in a reason, why there is, why it come to the network and subscribe and again the new live event programming provides that.

[George Barrios:]

Laura, just on the $10 million to $20 million, you mentioned, just obviously looking at the numbers, the network segment had about $23 million in total expenses, so it’s impossible for us to have spent $10 million to $20 million, anywhere near that $20 million number, obviously, on just programming.

[Laura Martin:]

Okay. My other question - my next question is on YouTube. So we’re hearing the YouTube has forced every single one of its channels into Red, which is their subscription service. And you guys were just sort of throwing accolades at YouTube. Could you talk about strategically how you think of WWE, because it’s feel to me like it is in - it’s going to drive value of Red and give too much value to YouTube for the money you’re getting back for that. So could you talk about the transition to sort of channel pay over on YouTube?

[George Barrios:]

Yes. As you kind of rightly mentioned, what’s been in the media is that if you’re going to be on YouTube, you also have to be available on the pay tier, so publishers like WWE are going to either get compensated on a rev-share basis for the free product, and then on a rev-share basis for the subscription product, just the basis of the rev-share is different, one DAD [ph], the other ones are subscription revenue. Vince mentioned it before strategically, we viewed YouTube as a phenomenal asset globally, not unlike if you look at WWE history of using TV distribution early cable, for example, here in the U.S. to grow the point engage on this broadly distributed medium, that’s the way we viewed social media including YouTube, it’s a place where people go with consume content, especially millennial and trailing millennial. So we’re going to win there, we’re going to get our unfair share of that viewership. I think your point about - there is a balancing act of what content goes where. And again, we pioneered the concept of tiering content, when we created pay-per-view. We are going - we’re doing the same thing today. So if you look at YouTube and Facebook, primarily you see us as uploading short clips of our shows or short original content. And then, you see our fans creating their own content. Again, all of that create us what we think as the virtuous circle. Then you watch our core programming Raw and SmackDown live 52 weeks a year, today lives in the pay-TV ecosystem, because we think that’s the best place for it globally. And then, you got a global subscription network with our prime content, new content, and access to our vast video-on-demand library. So, I think the real question is that balancing act of which content goes where, as opposed to saying, I’m not going to put content out there. And that’s something that we’ll continue to evolve. It’s something we - it’s probably one of the biggest discussions we’re always having internally.

[Laura Martin:]

Can you talk last question on ad-share, can you talk about ad revenue over-the-top network, what’s going on with the advertising?

[George Barrios:]

Yes. I mean, a great question. Obviously, in the roll to direct-to-consumer is still early days generally, and perhaps advertising even more so. So, we run advertising on the network. It’s got a really, really light touch and I know you’re a user of the network, so you’ve probably seen that. So, at this point, I would say, we’re experimenting. We think the brands who have chosen to avail themselves had found it really intriguing, but today it’s got a really light touch and we’ll learn as we go.

[Laura Martin:]

Thank you.

[Operator:]

And we’ll take our next question from Brandon Ross with BTIG.

[Brandon Ross:]

Hi, thanks for taking the question. When you gave your 2016 guidance, I know you didn’t give subscriber guidance, but using Netflix as a barometer to speak to sub growth of 20% to 25%. But back in 2012 and 2013, Netflix’s domestic subscribers grew 25% in 2012 and 23% in 2013. You’re also an international business and international seems to be growing a lot faster than domestic. So, why would you not think about higher than 20% to 25% growth for next year, especially with new markets to come internationally?

[George Barrios:]

Sure. So, the first point is, yes, the numbers we put for Netflix were only their domestic, because as we think that’s the best apples-to-apples, given that the way they launch internationally is they stagger their markets pretty significantly, as opposed to us, which essentially after six months we were broadly available. So, we think we have less of that kind of comp issue or same-store sale issue. So we think the right view is international versus domestic. To your point about the faster growth rate internationally, look, it’s early days. As I mentioned, we’re not ready to talk about 2016 subscriber levels. But what we have done is looked at just about every subscription business that exists, not just video, and looked at their early years and we think Netflix has done an amazing job. And if we can kind of be in that range we would consider it a home run for ourselves, even with some of the issues you mentioned about international distribution and so on so. And that’s the way we view the world today.

[Brandon Ross:]

Okay. And then on the short form and digital video, I mean, obviously, you’ve built a really significant presence on YouTube and Facebook. And that’s helping you to build and retain your audience of WWE fans. But how do you think about the possibility of incremental monetization from these channels over time? Do you think digital could be a real earnings contributor?

[George Barrios:]

Yes. It’s a super great question. Obviously, if you look at what we do on YouTube today, it’s gone from low-six figures a few years ago to mid-seven figures today. So, still significantly below the monetization on traditional pay-TV or WWE Network, but a ten-X increase over the last few years. We don’t know what the world - the media and entertainment ecosystem is changing rapidly. And every day and, Brandon, you know this better than any, you have people in the ecosystem with completely different views of the world, where they should put content, who they should partner with. So, our view is we’re not smart enough to guess where all of this is going, but if we own all the platforms and if we’re winning on YouTube and if we’re winning on Facebook and if we’re winning in pay-TV…

[Brandon Ross:]

Right.

[George Barrios:]

…and if we’re winning on direct-to-consumer then we’ll be able to choose depending on how those ecosystems develop and where the money goes. I will say, historically, wherever the eye-balls have gone the money has eventually followed. And there is no doubt there are a lot of eye-balls on social media, especially if you’re under 35. So, that’s the way we look at it.

[Brandon Ross:]

Great. And then one more on the rating side for RAW and SmackDown, ratings are down year-over-year. We saw that for Q3. Do you think this is secular? Do you think it’s a content issue, a mixture? And what steps are you taking in that area to improve ratings?

[George Barrios:]

It’s tied back to your other question. When we think about our brand, we don’t about one metric in isolation like ratings. We think about all of them together. So that’s why we talk about social media engagements, not just followers, YouTube video views, TV ratings. So we feel when you put all that together we’re bigger and more engaging with our audience globally than ever before. But, you’re right, we don’t like to be down anywhere. We’re down year-to-date. But back to your question is it cyclical or secular, hard to tell. We certainly think the content is great, and our fans are enjoying it. But we do look at the totality of all those metrics of as opposed to just one, because I think it just reflects the reality of the way people are consuming content. Now, like I said before, we want to win in each ecosystem we play. So we don’t like being down. We’re working like hell to change that, but it’s important to us that we’re beating everybody else. And we feel like, we’re doing really, really well in the domestic pay-TV ecosystem compared to everyone else.

[Brandon Ross:]

And how do your ratings compared to USA’s overall ratings?

[George Barrios:]

Our ratings are significantly - the rating performance for WWE programming is significantly better than the overall USA ratings and also SyFy ratings for SmackDown.

[Brandon Ross:]

Great. Thank you.

[Operator:]

And we’ll take our next question from Daniel Moore with CJS Securities.

[Daniel Moore:]

Thank you and good morning.

[George Barrios:]

Hey, Dan.

[Daniel Moore:]

George, how many international paid subs, do you expect to have at year-end in that $1.2 million figure or 1.2 million figure?

[George Barrios:]

Yes. We’re not going to give guidance on individual elements of the subscriber level, Dan. I mean, I think you should be happy we’re giving you quarterly guidance. So at this point we’re going to stay away from kind of trying to segment that any further. But as you know, we’ve been around 19% or 20% of total subs within international.

[Daniel Moore:]

MNM [ph] still take them out. And just wanted to circle back the discussion on churn, network’s been up through 18 months now. What insights can you elaborate or expand on that you’ve gained in terms of steps, tangible steps that you are taking or considering taking to try and mitigate churn as we go forward?

[George Barrios:]

Yes. Like I said, I think a lot of it is time. And I know some people don’t like that answer, because they feel like it’s uncontrolled. But I think there is an element of time of changing that behavior. We had built the behavior for 30 years, that we need to change in both groups, both the non-pay-per-view box-bands [ph] and the pay-per-view box-bands, I think that’s time. And then if you said to me, all right, well, the things you can control, it’s what we always talk about. We want to make the content great, the pay-per-views, as well as the new content. We want to increase the amount of VOD, because we know that our fans enjoy exploring kind of WWE history. We want to keep making the service better from a UX, UI and functionality standpoint. So we continue to invest there. So for me that’s - our ability to reduce that over the long term is going to be the content and the experience.

[Daniel Moore:]

Very good. And lastly, you provided a ton of color on this call, and it’s appreciated. Any more you’re willing to share with regard to the invest - incremental investments, be it in talent, be it in content, in new shows, just anymore granularity on the potential incremental investment in 2016 will be appreciated?

[George Barrios:]

Sure. First of all, it will probably manifest itself in multiple segments, on the content side, probably primarily in the network segment. As you know, international and a lot of our analytics and technology fall on the kind of corporate and other, so I’d call that, not traditional corporate function but more of the forward-leaning corporate function. So you see some manifest there. So it will be throughout the segments, but I think those two especially. And, look, I’ll just reiterate what I said in the answering, I think it was Eric’s question earlier. The reason we are investing in emerging market is because we have a great business in India, and we think there is a super long tailwind there for us, and we want to again get our unfair share of attention in India. And, more and more because of what’s happening in China that has gotten a significant amount of attention from us over the last six months. So we’re really excited there. We’re going to invest in China in 2016. On the technology standpoint, lot of questions from different people today on the data and your viewership data, on advertising. At the end of the day, direct-to-consumer, we want to be able to avail ourselves not only in subscription, but there is an ad-supported model as well, as well as continue to learn more what our consumers are doing across all our platforms. So, we’re going to investing on the technology stack side more than we’ve ever done at WWE. So, we’re excited about that. So, that’s why we’re doing it. And like I said in the prepared remarks, every dollar of investment we’re expecting has a multiple on the revenue side and because of our high operating leverage, therefore a significant return on investment. We are really, really thoughtful about where we put our investments, why we’re doing it and what we think the long-term opportunity is.

[Daniel Moore:]

Very good. Now, you give a ton of color and appreciate the additional insight in sort of getting ahead of the curve for 2016. So, thank you and good luck.

[George Barrios:]

Thanks, Dan.

[Operator:]

We’ll go next to Jamie Clement with Macquarie.

[Jamie Clement:]

Good morning. George, I’m trying understand your unit economics a little bit better with respect to growth in 2016 from 2015, which obviously should be a function of contractual escalations in TV rights and an increase in subs. So, given the Netflix example that you used and I think you actually said a number of about $50 million in incremental revenue, and then that call it $35 million to $40 million in incremental OIBDA, to me 70% to 80% incremental margin on that kind of revenue that actually seems low to me. Am I missing something?

[George Barrios:]

No, and it’s a great question. So, when I use the 70% or 80%, obviously, we have a portfolio of businesses and some of them have - they all have different unit economics, for the most all pretty high. But to your point the escalation on the TV right fees are closer to 95%. The network actually sits in that 70% to 80% unit economic level. But the $50 million in revenue was across the portfolio of businesses. So, that’s where you get that.

[Jamie Clement:]

Okay. And then changing to potential spending that you may see next year, that gets you from that theoretical of $90 million to $100 million of OIBDA down to 70% to 85%. Considering that new content is obviously an emphasis here and that’s by and large capitalized, I’m having a hard time getting my arms around that big an incremental number. And I guess the question B there is, is how, I mean, presumably, like the useful life of new content that you’re putting on the network is virtually infinite. So, how are you - over what time period are you expensing that?

[George Barrios:]

Yes. Really good question. You’re right to get capitalized, but for the most part it gets expensed pretty quickly. So, the only time you’d have something on the balance sheet is usually around year-end where you’re producing something that’s going to air in the next period, which is the following year. So, it doesn’t sit on the balance sheet for long, as opposed to, for example our film business, where there can be a long delay between the production and the release. On the TV side - on the network side it usually happens pretty quickly. And then, our recognition of the expense is we’re not building ultimates for the content Jamie to your point about a long lived asset. So we’re in essence expensing it on first air. So if we create a series and it costs $1 million dollars and there is 10 episodes, there is a hundred thousand episode, as each episode airs we expense the full 100,000.

[Jamie Clement:]

Okay. I think that’s an important point of differentiation between how you all are recognizing costs and expenses versus how some other people might be that are out there. I mean it seems like what you are doing is actually the most conservative way of doing it.

[George Barrios:]

It is the most conservative. It’s why to your point, the balance sheet reflects that, because you don’t see a big liability on the content side of it.

[Jamie Clement:]

And then last question, if I may, any update on the Tapout brands and some expectations for 2016 in terms of the kinds of products we might be seeing out there?

[George Barrios:]

It sounds like you’re a fan of the Tapout brand. So, yes, we’re not going to make any news today. We’re really excited about that. I think it’s a great opportunity. And stay tuned, and I’ll tell you what, I’ll save you a couple items, just for you.

[Jamie Clement:]

Double XL, please.

[George Barrios:]

I was…

[Jamie Clement:]

Thanks very much.

[Operator:]

[Operator Instructions] we’ll go next to Mike Hickey with The Benchmark Company.

[Michael Hickey:]

Hey, guys. Thanks for getting my questions on and congratulations on another very strong quarter. I guess, briefly, if you could provide some insight on your audience, WWE audience, India, Japan and Germany, that would be helpful. And any timing framework around a possible network launch for China and your audience there? George, I believe you just noted that you plan to invest in the region in 2016. So I don’t know if that is sort of a signpost for a possible launch or not.

[George Barrios:]

Yes, Germany specifically as you know, Mike, we’re probably about 18 months now that we have been in partnership with both ProSieben and TELE 5. So I think those partnerships are growing, are doing great. And we’re really excited about what that means for the audience, because it’s the first time in a long time that we’ve been broadly distributed in Germany. We were on a pretty narrowly distributed pay-TV platform up until those agreements. And the reason for that, you may or may not know, the German pay-TV market is somewhat of an anomaly compared to other developed western economies. Obviously, Germany is the largest economy in Europe. But the ARPU in pay-TV is significantly lower than what you see for example in the UK or the U.S. Probably it’s about, I mean, 20% or 25% of the corresponding ARPU in the UK and the U.S. So, in short, German audiences don’t pay for TV content. So as far as the network and direct-to-consumer we’ll see, that’s also fairly nascent. And so, we’re really excited to launch it, to make it available in January. Obviously, not going to give any numbers there, but we’re really happy about what the partnerships with TELE 5 and ProSieben have made in Germany - for us in Germany. As far as China, again, you guys know, we’ve been in China since 2007. As we’ve said before, we took a strategy that we thought was the right one at the time of distributing our content on local TV stations primarily to build up the audience. Obviously, China is a dynamic market. The most recent five-year plan in China has a specific focus on sports and entertainment generally, in other words, the country investing in those areas. And then you see, if you’re watching the marketplace there for media and entertainment, you’ve seen a tremendous amount of activity over the last 12 months. There’s probably - we were a - few of us were recently there, and there more than once. There are probably been more changes in the media and entertainment ecosystem over the last 12 months than in the previous 20 years, and a lot of it being driven by the large digital players. Because the facts on the ground are changing, our stance is going to change. We’ve had an office in Shanghai for some time. We’re going to increase the level of investment or the number of people we have on the ground in China, and we’re going to take it from there.

[Michael Hickey:]

Thank you. Last question, I’m sort of wondering why you believe NXT has become so successful. And sort of what opportunities as you think is sort of developed a sort of sub-brand there, maybe even challenges or perhaps you don’t want to talk about that, but what opportunities it can sort of provide to your main programming? And I would imagine there’s sort of the balance there between generating too much excitement for NXT and attention that is versus sort of what you’re doing on the main stage, but any help there would be appreciated. Thank you.

[George Barrios:]

Yes, look, we talked a lot. There’ve been lot of questions today about how we think about YouTube and Facebook. I think NXT is a great example of the power of those platforms, and more importantly, our ability to engage our fans on those platforms. More than being there you got to be able to engage them. And we attribute a lot of the growth of NXT and its vibrancy to social media. So the fact that it’s available in the States on a subscription video-on-demand network that has 1.3 million subscribers but you can still sell out an arena like the Barclays Center to us that just - that is the power of social media. So we’re really excited about that. As far as competing with Raw or SmackDown, that doesn’t ever enter our mind at all. There is an endless appetite to be entertained in the world. And different people like different things. So I think if you went to a NXT show you’d have the answer to your own question. It’s got a different vibe, different feel. The audience is a little bit different. So, yes, we’re not worried at all about the, “competition.”

[Michael Hickey:]

Thanks, guys. Best of luck.

[George Barrios:]

Thank you.

[Operator:]

And that does conclude our question-and-answer session. Gentlemen, I’ll turn the call back to you for any additional or closing remarks.

[Michael Weitz:]

Thank you, everyone. We do appreciate you listening to the call today. If you got any questions, please don’t hesitate to contact me, Michael Weitz, Laura Kiernan, 203-352-8600. Thank you.

[Operator:]

Thank you. And that does conclude today’s conference. Thank you for participation.