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JPMorgan Fireside Chat 5/15/18 George Barrios w/ JPMorgan Analyst David Karnovsky George Barrios at 46th Annual JP Morgan Global Technology, Media and Communications Conference May 15, 2018
TRANSCRIPT George Barrios co-president of World Wrestling Entertainment
Wanting start things off sure so just we're about some context
give an overview of where we are in the business today so last year we had record revenues of 800 million dollars also record profitability record
revenues from outside the US - we're about 30 percent of the revenues now come from when you think of WWE about two-thirds of that revenue is media and I'll talk about that a little bit more detail
about 20 percent is selling tickets to events and about 15% is monetizing through consumer products the other prism into the revenue as I mentioned before is by geography
about 70% of the revenue inside the US and about 30% outside the US
when you look at the media we we talk a lot about kind of our the way we think about the media ecosystem and we create about 1,500 hours of content and put it on three different platforms and we don't put the same content on multiple platforms who really are very very focused on tiering the content
the three platforms are: paid television ad supported video on-demand primarily through the third party platforms like YouTube and Facebook our own direct to consumer network
PAY TV on the paid TV side we put our core in-ring weekly content It's the most important content we create it's five hours of live event content 52 weeks a year
so unlike the sports leagues there is no off season
in the United States you'd see Raw and SmackDown on USA It's they're the number one and number two shows on the number one cable network
and the United's in the United States we're also one of the most watched pieces of live content in the u.s. In fact second last year behind the the NFL
ON DEMAND then you have AVOD work platforms we create about 600 hours just for that it's clips of some of the long-form but also a lot of original content
for example we have a gaming channel up up down down that will create about 200 hours of content just for that we have a total diva channel and obviously the core WWE channel on YouTube which has about 25 million subscribers well
a lot of people don't know WWE is the number two channel in the history of YouTube so number one is T series which is a Bollywood focused movie channel on YouTube but we're the number 2 channel as measured by YouTube in the history of YouTube
we're also the number one sports channel in the history of YouTube so last year across all the AVOD platforms we did about 22 billion video views so that's the second platform
WWE NETWORK
the third platform if you think of Raw and SmackDown as the regular season that sits in the paid TV bundle our direct-to-consumer service $9.99 a month available around the world will have our playoffs no 12 to 14 special live events including our Superbowl (WrestleMania) that happened a few weeks ago in New Orleans will create new content for our biggest fans
it could be documentaries it could be animation using our IP we've done reality series again for our biggest fans you're also able to view the next generation of WWE Superstars so we have a training facility Performance Center in Orlando with about a hundred talent training to be the next generation of WWE stars
they put on events we capture those events and we provide them on the direct-to-consumer and then we also use it as a place to bring the entirety of our library including what resides on the other two platforms eventually we window and
I mentioned that we tier the content but eventually all the content ends up on the direct-to-consumer so it is the one place for everything WWE
$9.99 a month were the second largest sports AVOD service in the world behind MLB baseball with around 2 million subscribers which we announced recently so that's the media series
really live event content pay TV
engage next generation fans 24/7
storytelling on the AVOD platforms and then for our most ardent fans and that's important it's not for every fan because it's an additional price
we're asking you to pay but for our most passionate fans of the direct-to-consumer service on the live event side obviously incredibly important because it creates the media that I just monetize so
we do about almost 600 events around the world including our Developmental League we create media from about 130 or 140 of those events and again that forms the core asset that we monetize in the media segments that I talked about
and then as I mentioned also in consumer products the primary categories being apparel toys and video game
interesting fact: last year WWE was the number one action figure in the United States so more than Marvel more than Star Wars
as we look to the future we tell people we feel really good about all our businesses but we really think the growth comes in the media business
so whether it's continuing to monetize the core content Raw and SmackDown continuing to grow or direct the consumer service and also then continuing to deepen our position on the avod platforms
both third party and our owned and operated that's where we see the growth
I mentioned the monetization that 30% of the revenue comes from outside the US 70 percent of all the video consumption I talked about when you add up all those platforms 70% of all the time spent on WWE video happens outside the US
30 percent monetization 70 percent engagement
We think over the time that gap closes as because a lot of where that consumption is happening is in countries like India or Southeast Asia or the Middle East and so as those economies evolve GDP grows grows advertising tends to follow that
subscription revenue tends to follow that and the whole M&E sector in the marketplace grows and if we can keep doing what we do which is entertaining people and engaging them we should do well
the last piece I'll touch on is kind of another prism to look into the business that I just talked about is this digital slow social and directed consumer transformation touching us
I'm talking about the media but just to put in context back in 2010 company did about 470 million dollars in revenue about 10% of that was on digital platforms and about 25% of that was direct to consumer
today a much bigger company 800 million in revenue roughly 40% is coming on digital platforms and just over 50% is direct to consumer so there's been a very pointed strategy to grow the digital social and direct-to-consumer businesses at WWE
Q&A
Q: OK, Great. I guess I'll start high-level and then. George the media world has changed pretty substantially since 2014 when you last renewed your major rights deals how do you think WWE in its place in the content ecosystem have changed since then
A: yeah I mean I think we we've continued to deliver and its market by market so it's hard to just give one answer to globally we have partners all around the world so we're on smackdown - that's available here with NBC Universal it's available in the UK with Sky, with Sony in India, Fox in Latin America, OSN and NBC in the Middle East so the answer depends geography by geography
in the US we tend to believe that people who can aggregate live eyeballs are valuable as you mentioned we've announced that we expect to and we've said we expect to announce our u.s. distribution strategy sometime between May and September so time will tell it's a small market with a small number of buyers and so we'll see where that goes
Q: your current contract with NBC Universal domestically distributes Raw and SmackDown for a five-year period and I think it includes digital rights you know looking ahead do you see the need for a similar structure meaning could WWE do a longer-term deal or could you even see splitting the TV and digital rights
A: yeah the time obviously is inexorably linked with the economics the length of the deal as well as how you view the kind of the ecosystem changing so we're we're flexible within certain time frames We wouldn't do probably a 20-year deal but we would be comfortable doing longer than five And as far as the the structure of the rights ultimately David the market is the one that determines whether you can do that or not I think  the the live content that does it to the greatest degree is the NFL and it's because it's by far the single largest by far single largest SAR aggregator live eyeballs in the US so they're able to do that others less so so in essence you have to let the market and obviously from a Content owner the more you can slice the rights the more economically beneficial although we are we take great care in tiering the content in a way that kind of rises all boats so we're really cognizant about this why I mentioned that before early on that we try to be really strategic about what content is in pay TV what's on a boat and what's direct-to-consumer because in our view with our IP if we were just to put everything everywhere we're not sure that's healthy for the ecosystem So we've got to be thoughtful about that when you think about the rights but ultimately the market determines whether you're able to do that just to follow on
Q:  I mean the you mentioned the NFL you know the NFL and other sports leagues  part of the reason they've been able to get higher rights views as they sell their content to multiple partners  could WWE conceivably split Raw and SmackDown between different companies and and what are the challenges to doing something like that I know you've you've had it on SyFi and USA in the past but that was all on the NBC umbrella yeah I mean again
market determines it on that opportunity from our end if if the question were or do you guys think that's an issue to split it right yeah we don't and we have done it before we think we're pretty good at promoting and moving our viewers kind of from one platform to another seven or eight years ago it was only from one network to another network which changed dramatically I mean it's a sea change it can we can't overemphasize it is the nature of social and digital and helping do that so we've been able to do it before we would feel even more comfortable doing it today just because we we have a direct connection with all our fans which we did not have seven or eight years ago so our ability to do that with its we think it would be if it made sense economically if their partners interested if we comfortable with the partners in question kind of operationally we don't see an issue doing that it we recently saw UFC sign a deal with ESPN plus which is a platform that did not exist even a few months ago it's only part of the UFC package but what read through if any do you see for WWE again I'm not gonna talk about any specific partners I think the interesting thing is like you mentioned the he said before the ecosystem is changing dramatically just said here's a platform that didn't increase a few months ago didn't exist a few months ago obviously Disney's been very vocal about their focus now on direct-to-consumer so this in essence would be their first major for a so as a rights holder an IP owner it's I think makes sense to everyone the more outlets there are generally the better for you so we wish them success obviously as a direct-to-consumer someone who's been doing direct-to-consumer now video for four years were well versed in that business so we're also looking at ESPN Plus specifically as a product just to learn from it we think the Disney is incredibly smart everything they do tends to be done well so and I think that I'm a subscriber to the ESPN Plus product I think it's great so just internally operationally we're seeing what we can learn from it got it that deal I guess when you think about it while lucrative on a on a per fight basis probably the flip side is that you have seen might be distributing potentially to a smaller audience at least relative to TV you know when you think about your own content how do you balance potentially lucrative fees from digital against things like audience reach and engagement yeah we talked about that whole issue of what's the purpose of a piece of content and where does it go it's kind of this delicate balance it's probably the most difficult strategic question that we're always wrestling with internally so when we create miz and maurice or total divas what should that go on direct the consumer should that be on the avon platform should it be on paid TV and ultimately you're making that decision by looking at four things number one in terms of what's the content main goal is it to bring in new fans so fans you don't have today is it to deepen engagement with your current fans is it to help monetize other parts of your business so promotion or is it direct monetization all right so those are the four things you're always thinking through so when you ask the question about the trade-off of for ESPN plus you know they're early days you're gonna be trading off distribution the economics at least from what I what we saw you know and again we only saw what was public seen pretty good so I'm sure UFC is thinking through those trade-offs it's what we do so long-winded way of saying would we consider making trade-offs like that one versus the other yeah we do that all the time and so but it's got to work in the hole so if you're going to in one example lose distribution to gain more economics you have to have a strategy around how am I gonna engage fans that I may not be engaging now that again that's why the social and digital for us is so important six seven eight years ago the answer would have been don't know how I'm going to do that today that today we know how to do that so that's why it's really important it gives you more flexibility just sticking with social and digital you you recently wrapped up the mix match challenge on Facebook now how'd this series fare relative your expectation and do you see potential for producing new shows for the watch tab or could you even utilize some of your you know existing network programming that had that spot after Smackdown like 2 or 5 live yeah so yeah it's funny cuz everybody asks and it's a natural question so how'd it do versus your expectations and of course you're doing something for the first time ever so it's hard to have any expectations around it and I think that goes for Facebook thing if you ask them because we did what what would make this successful for you guys because obviously that that's a really important thing for us and I think they're still determining what success is we know what the metric is it's time so it's how many people are you reaching and how much time are they spending I mean that's easy that's what we measure and we're kind of super intense about measuring time and making sure we have our arms around that so having said that we've taken Facebook's lead and they seem to be really happy with with how mix-matched challenge was or how it performs so in in turn we are - we learned we learned some things we learned some things around the scheduling we learned some things around the promotion both within Facebook and externally and we still kind of the the viewership get impacted by different different things we're trying I think we're in early days I remember someone in early meeting with Facebook around mix-matched challenge said look we our goal is to reinvent TV great TV which means the viewership experience so I don't think we've done that with mix-matched challenge I think we did some interesting things on how we embedded the social feed and in its own but I think there's a real opportunity to kind of push the envelope over time and do things and if facebook we're interested in the future we would we like those guys and girls so I think it was reported that there there might have been a revenue share element to the deal do kind of what the ad load was that Facebook ended up showing against the content I think it was after the first few matches yeah it was so it was more structured as a rights deal right not a not a rev share so we don't have a ton of visibility into the ad load kind of similar with YouTube you can get some understanding but again our understanding from the Facebook team was that they were happy with how things went okay outside the US you know you're set to renew deals in the UK in India for domestic investors who are less familiar with those markets kind of the same as my first question how do you see WWE programming is position to the last time you renewed those deals in 2014 yeah it's you they're different markets so UK a little bit more similar to the US and that it's it's going through this transformation around multiple platforms and kind of the incumbent platforms are dealing with that transformation now maybe not to the extent that you you talk about it in the US but there's still elements of that historically we've been with Sky for about 25 years so they're a long time partner a great partner we're fairly tiered up in the sky platform so the consumers actually got has to pay quite a bit to get Raw and SmackDown it's probably the place in the world will them were the most tiered obviously one of the things that's happened over the last 12 months or so is that Amazon has started bidding for and has acquired exclusive rights and not just digital rights but actually exclusive rights to the content that's something new in the media sector and they've done it I think now they've three different packages from were correct in the UK specifically so that'll that's it's kind of an interesting dynamic so similar to we're not going to talk about what we're expecting on the right side what we've said is we expect to announce an hour distribution strategy towards the end of this year so after the we think it'll we'll probably on sit after the US and then in India very very different market obviously and we've been in India over 20 years currently are with Sony has our rights I think the really interesting thing going on in India over the last 12 months as the price of broadband has plummeted so Reliance Geo mobile broadband provider is in essence disrupted that market with broadband pricing which that's now created this huge new consumption wave on mobile devices so you'll hear people in India we were just there talk about the next billion users in the country maybe closer to half a billion coming on those devices that had then has led Reliance Geo and some of the other mobile providers to begin acquiring content so that's new in that market place so that's an interesting dynamic for for us as a rights holder wrestling WWE is one of the most viewed content in India so IPL is by far the largest if you have if you're not familiar with India would be the analog would be the NFL here Kabaddi which is another sport does well and so but here over the last few years we've been we've either been the second or third most watched property in India so we we do well and gave me it's our largest country when I talk about those media platforms I mentioned time we'll do five to six billion hours of total time spent with our content our largest market not per capita but in total is India so it's an important market for us we've done well so far and we'll say we expect to announce the distribution plans there somewhere in the first half of next year and does that broadband dynamic in India lower pricing open up guys like Facebook or Amazon or even hot star to kind of come in and and be more aggressive with content also yeah look we think so I think if you look at Facebook's activity in terms of trying to acquire live writes the most aggressive bid that I'm aware of was in India so and it was for digital rights it wasn't for exclusive rights but they bid I think six hundred and fifty million over five years for the IPL rights and two months the best of my knowledge we had never seen that large a bid for any type of content from Facebook so it seemed to show that they were serious but you mentioned some of the other big players they're like hot star which an indigenous player and YouTube of course so it it seems like these new entrants are becoming more aggressive in competing it's just sticking with international I want to ask you about the the Saudi deal and maybe you could provide some history for us how did you first kind of develop a presence in that market and then how do you grow that to the point where you're staging a tremendous production like like the greatest Royal Rumble yeah it's interesting because everything without context seems like a one-off seven or eight years ago we were talking a lot about our focus on the social and digital platforms and at the time because we were in the middle of our transformation people say well you're talking a lot about it because you want to distract people from how the business is doing because we're going through this pretty big transformation we said no not really we're talking a lot about it because it's the most important thing we're working on internally and I think the story I'll tell is I do remember the day that Vince kind of brought his top team into small conference room adjacent to his office and he said hey starting this Friday every week I need everyone in this room to write me a one-page summary of what you did this week to drive social and digital engagement and in every function in the business and it was this notion that this was going to be transformational we couldn't dabble in it we could just spend some time working on it or delegate it to someone had to be the absolute mission of everyone in the company so you fast forward seven or eight years later in case you don't know Saudi Arabia is the number one country per capita for YouTube consumption so it is a heavy user of YouTube it's something we've been looking at and watching for multiple years we have a great partner in the Middle East a paid TV partner osm a great partner but we don't have great free-to-air distribution in the Middle East so broad distribution so our vehicle to build and engage the fan base in the Middle East at the biggest scale has been YouTube and Facebook so then you fast forward and vision 2030 MBS is vision for Saudi Arabia comes about a nap there entertaining as part of that vision sports as part of that vision so as they're looking around and saying well who are the biggest sports properties in Saudi Arabia guess who rises to the top it's WWE and then in essence that leads to a discussion which then leads to a 10-year partnership which then leads to doing the first time we've ever done a WrestleMania scale production anywhere other than WrestleMania let alone outside the US let alone in a place with who has never done that type of production so it was incredible we in essence brought every piece of equipment and every piece of talent to operate that equipment into the country because it had never been done before they've done large event soccer events and so on but it don't have doesn't have the production value that you'd have as at a WrestleMania scale and I always tell people at least for us I still get chills when you if you go on to our network app that's where the greatest Royal Rumble is available outside the Middle East and you see it's a sold-out King Abdullah Stadium so 40-plus thousand people kind of having what seems like the time of their life enjoying WWE content and to be able to put smiles on people's faces in these different parts of the world with different cultural mores and is you know it's we don't take that for granted so it was really exciting so that was the the context really was something that we can seven or eight years ago and this is just one manifestation of that social and digital strategy there fruit and do you see an opportunity to kind of run that digital in social PlayBook and other markets like China potentially yeah we're doing that today yeah China China is interesting it's probably one of my personal biggest regrets is that we didn't we weren't as aggressive on the indigenous social and digital platforms in China seven or eight years ago as we were on the global platforms and part of that was just you had to make trade-offs it wasn't that we didn't think about it it's just you're making trade-offs and making choices we've now for about the last four three or four years ever since we signed the our exclusive deal with pptv in the market had really been building up the social digital art social digital talent in the market to try and grow the same kind of scale as we've done elsewhere so we're early days in some ways relatively speaking in China but yet we're but other other than that were it's a little bit earlier the social digital playbook is being played out around the world today what we've said is as we can what we will continue to do is invest in those so and that means more content to creating more hours and it also means being more aggressive and localizing the content more languages and so on so we will continue to do that I think you said that once you have clarity and your TV deals or your major TV deals you'll update investors on your long term financial outlook when you look ahead what are the key areas of investment for WWE and how your cost growth be impacted by the renewals I mean I that will determine kind of our investment levels based on finalizing our distribution plans for on Smackdown globally and we should have a pretty good idea about idea around the vast majority of that distribution by the middle sometime in the middle of next year once the once our plans in India are solidified but we we anticipate that it's going to we're going to invest in three areas and they overlap one is data and technology as we become more digital social direct-to-consumer kind of that data stack becomes incredibly important it is today already second is in creating more content more video you know again we're all fighting for time we stole the line from Reed Hastings we can Pete with everybody and everything including sleep so that really res with us internally so we're shameless stealers of good ideas so we're gonna keep creating more content and then we're gonna localize its this 70% of consumption happened outside the US we think there's just a real opportunity to go even deeper so you'll see investments in those three areas and things work come together so people have asked us you guys have started dabbling with local content so we did a UK championship last year that we put on tubby W Network so that was all UK talent not not the talented you see on Raw and SmackDown and we ran a tournament in market and people have said is that is that part of a bigger idea and it is it's it's again it's not a one-off we're testing we're learning but the opportunity we think again because you again seven or eight years ago if you had a new piece of video you had to find another party to put it on a invent on a constrained platform about 24 linear television platform that was the only way today and I can't emphasize this enough we create a piece of video we can put in any broadband enable home in the world so the opportunity to do more video has grown exponentially so when you see us do something like the UK championship it's not the one-off of the UK championship it's that's really learning about the opportunity to create localized content maybe with local stars and we like what we saw last year so when you when we talk about investments things like that yeah I want ask you in the network it's it's now in its fifth year your distributed I think in almost every market in the world it seems like the next big step up and growth may come from personalization localization or tearing of the market of the network what opportunities do you see both at the high end and the low end of the market and what are some of the risk to be aware of when you you're gonna be adjusting the product potentially yeah yeah and you mentioned when you talk about investment and you focus specifically on then on the network on the data tech side it is about personalization so we think there's a real opportunity there and again it's not that's not a new thought it's just we're you asked what the companies trying to achieve financially is we're trying to invest for the long term while continuing to grow and expand in the short-term profitability so you have to make choices but we think on the data and technology and products I personalization is a big opportunity in the network you mentioned localization today the network's available everywhere in the world but it's a u.s. product it's in English US currency we feel pretty strongly that localizing it gives us opportunities in the markets where it's already available to go deeper and grow the network another level and then finally I mentioned the the company's overall business is ticket it's video product that's the way in essence that we touch all our fans and and we think there's a way to bring all of those things together in one place so we've talked about the the notion of tearing the content of tearing the network having maybe a premium tier where you can bring a lot together and make it easier for our fans to interact with us who are our most ardent fans we also think there's an opportunity on a lower price or free tier as well just giving people a place to engage with more content that helps grow the over overall service so yeah we're excited over the next couple years and you mentioned all that change there's inherent operational and executional risk within that it's one of the reasons we've taken our time I know investors have asked for a long time when are you going to do these things and we've said it's coming and part of it is there's a business model model element to this you have to be smart when you tear because if you do it the wrong way it becomes cannibalistic as opposed to a creatives so there's the business model element but there's also the product user experience so we wanted to take our time and learn and we we've been doing a lot of that for last four years so here I think in the next year or two you'll see some changes that we think are going to be beneficial with your new reporting structure you you started breaking out a separate revenue line item for advertising and sponsorship which appears to be growing at a really healthy rate can you help us unpack what's in this segment both in terms of traditional sponsorship and then digital advertising and what sort of a growth driver among those did yeah so if you think about media the rights to the a lot of the advertising for our most valuable product which is R on Smackdown are given to our partners who pay us a license fee so that means the the assets that we're left with on sponsorship and advertising and you touched on them are primarily the digital and social assets as well as the overall sponsorship with the brand and both of those have been growing but there's no doubt that the the digital and social and and YouTube specifically have grown dramatically over the last six or seven years so that's been a big part of the growth try but all elements have including the sponsorship have shown some nice lifts so yeah when we reduce the number of segments we started getting a little bit more visibility into the secular revenue line I don't including that one and on the digital side is that growth coming from just more content we're at more places to sell ad units are you getting higher CPM s on that off yeah it's a little it's a little bit of all of it so you're driving more hours that we are putting out there more engagement is happening and CPMs are improving I always tell people when you think about our digital advertising because 75% of that consumption is happening outside the US you have different levels of CPM so the CPM is in India are very different than the CPM s in the US as are the sell-through rates so those are still kind of in lagging us metrics but we expect that to change over time again generally as the economies grow but you know you've seen growth kind of across all the key levers okay we have a few minutes left want to open it up to the room over here Giorgio's with Disney's recent acquisition of bamdeck does that change your guys thoughts on using BAM Tex platform for your OTT product no I mean it's it's an input into the decision-making but if you look out at our video supply chain we use multiple partners whether it's encompass or any tea an EP or BAM Tech fun we're on the mobile app side so we use multiple providers and bam Tex part of that video supply chain but I wouldn't describe it as a strategic part of it so we're always evaluating every vendor to try to improve the product so I wouldn't say it's a acquisition it's a huge part of our thinking but it goes into it any others in the room no just on the network I know I've asked you this in the past but some of the other media companies we talk to always talk about the benefit of district distributing their subscription services through an Amazon or Hulu I think domestically you're still all direct do you see the potential to distribute through a wholesale partner yeah I mean we we talked to people continuously actually around the world and what I always have said David is it's a combination of what the economic relationship is it's the user data as well as a consumption data so we've got to balance all that we're a little bit different than a general entertainment network who needs reach and needs to be available in multiple platforms I always mentioned that there are direct consumer service our for our most passionate fans it's I'm not trying to get someone who's a not a WWE fan to subscribe to WWE Network that's not going to happen what's going to happen is I may bring in a new fan who starts watching Raw and Smackdown on YouTube or sees it on on USA or sky they become a fan and they say boy I've got to get WrestleMania yeah I'm gonna get the WWE or so I the the value of having being on one of those platforms I think might be there may be some incremental value centralized billing and so on but not so much so that we're willing to make kind of significantly stood a significant trade some those other things economics the user information the consumption data I've got time for one more an interesting note in your 10 Q is that WWE sold the naming rights for the XFL to alpha entertainment and I think in exchange you got a minority equity interest in the new XFL I know there's no financial obligation for WWE to XFL but I level thoughts on the endeavor yeah look I mean I'm a huge football fan it is the 800-pound gorilla in terms of video consumption the United States it's it's the sport with the biggest offseason so you're there's no football college or pro between the Super Bowl and kind of September 1 so it looks like it's a really good opportunity I think the it will require cap of significant capital so when we WWE looked at it we said that's a pretty big level of investment at venture type risks and probably doesn't fit in a public company of our size Vince has the capital to do it on his own so that's how alpha was formed and and then we we struck a deal on the on the on the marks recently like you mentioned so well yeah we're we're I'm excited to see him so you have another big success with the XFL all right George thanks for coming all right thanks for having us