Of the $106mm that WWE announced came from the US in 2013, we estimate that NBC (which owns both USA Network
represents approximately $85mm annually (ie, 80%). The new 5-year contract term begins on 10/1/14 and, under the terms of the current contract, NBC has the right to match any third-party bid so long as that amount is less
than about triple (our estimate of WWE’s initial offer) its 2013
payment level. WWE has promised to disclose approximate increases under its new TV contracts during 2Q14. The balance of the US TV Rights Fees come from ION Media (airs
at $14mm and E (airs
at $7mm, by our estimate.
How Big Could it Be?
According to WWE, under its current US TV license deals, its content is priced at $0.50 per GRP (gross rating point) compared with MLB Baseball at $5.30, NASCAR at $3.90, NHL at $2.10 and NBA basketball at $1.80. This suggests to us that US license fees could double or
triple with the contract that begins on 10/1/14. According to WWE, “average
variable margins for this revenue stream are 78%, before fixed cost allocations
. WWE has guided to FY15 OIBDA of $125mm-$190mm. Our FY15 estimate for OIBDA is $182mm, which assumes a 50% increase in FY15 (plus another 50% increase in FY16)
TV license fee revenue.
Hidden Asset Value
. At the end of every airing, all content rights revert to
library. Some of the episodes air on Hulu after original viewing, but at the end of every license period, all rights revert to WWE. This creates a deep library from which WWE can choose on-demand product for its new OTT Network. In total, WWE has 130,000 hours of content in its library. This represents an important source of hidden asset value, in our view.
Visible Revenue Stream #2: Live Events
In 2013, WWE reported $508mm of total revenue, of which $112mm came from live event ticket sales plus $19mm for merchandise sold AT these live events. Therefore, we calculate that total revenue associated with live events was $131mm in 2013, representing approximately 26% of total WWE revenue. Globally, WWE produced approximately 320 events globally in 2013, often lasting for 2-4 hours each. WWE has 30 years of weekly live event datapoints, suggesting that DCF modeling can accurately capture best case vs worst case scenarios. This deep well of data makes this revenue stream relat
ively predictable and therefore “visible”
, in our view. (Please see Figure 7 for our Annual Projections.)
Upside Potential: OTT Network
On February 24, 2014 WWE launched the first 24-hour per day OTT scripted (or serialized) sports network in the world. It is distributed only over the Internet. On April 7 (about 6 weeks later) WWE announced that this OTT Network had reached 667,000 subscribers, despite being the first of its kind. Currently, this OTT Network is available only in the US, but WWE has announced plans to expand into the UK, Canada, Australia, New Zealand, Singapore, Hong Kong and the Nordic countries by 1Q15. All of these launches will be in English. Although
Network is distributed over the Internet, rather than on the TV, it has a linear channel playing at all times when you enter the site (like TV), plus it has an enormous library of episodes available on-demand (1,500 hours of programming). Cleverly, although WWE owns a total of 130,000 hours of library content, only 1,500 hours are currently available online because WWE plans to refresh its on-demand library and stagger it over time
so that subscribers don’t tire of the
The OTT Network’s
user interface is easy to use and intuitive, we believe.
Needham & Company, LLC
April 15, 2014
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