WWE Reports 2013 Quarterly Earnings

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WWE reported results for 2013Q1. Effective tax rate was up 30%! The press release and link to audio of the conference call are below.

WWE Reports 2013 First Quarter Results

Conference Call Audio

STAMFORD, Conn.--(BUSINESS WIRE)-- WWE (NYSE:WWE) today announced financial results for its first quarter ended March 31, 2013. Revenues totaled $124.0 million as compared to $123.1 million in the prior year quarter. Operating income was $6.1 million as compared to $16.0 million in the prior year quarter. Net income was $3.0 million, or $0.04 per share, as compared to $15.3 million, or $0.20 per share, in the prior year quarter. Excluding items that impacted comparability on a year-over-year basis, Adjusted Operating income was $7.4 million as compared to $16.8 million in the prior year quarter, and Adjusted Net income was $3.9 million, or $0.05 per share, as compared to $11.7 million, or $0.16 per share, in the prior year quarter. On an "As Reported" basis, the performance of a recent movie release resulted in increased film impairment charges, which were a significant component of the decline in first quarter earnings. Excluding the impact of these charges and a net positive impact from the transition to a new video game licensee, the decline in Adjusted Operating income reflected investments in content production, including talent and staff costs, lower profits from Home Entertainment and lower sales of licensed products. The investments support the company's long-term growth objectives. "Adjusted" earnings also declined due to an increase in the effective tax-rate.

“In the first quarter, our performance reflected investments to enhance our brand strength, which we view as a critical determinant of our long-term growth,” stated Vince McMahon, Chairman and Chief Executive Officer. “Operating metrics such as pay-per-view buys and live event attendance, which are key leading indicators, continued to show improvement. Demonstrating the ongoing demand for WWE content, we successfully staged WrestleMania in April, which attracted more than 80,000 fans and is expected to deliver more than one million pay-per-view buys globally, ranking the event as the highest grossing and most profitable pay-per-view event in our history. Looking ahead, we are confident that we can leverage this demand to transform our business."

“Several anticipated factors contributed to the decline in our first quarter OIBDA results, which - while down - were essentially in-line with our guidance. These factors included investments in our content production and talent, lower profits from home entertainment and weakness in international licensing sales," added George Barrios, Chief Financial Officer. "Based on our assessment of these factors, we continue to believe that our results, excluding the impact of the film impairment associated with Dead Man Down, will fall within the range previously communicated, which was 'plus or minus 10 percent' from our 2012 OIBDA results."

Comparability of Results

During the three months ended March 31, 2013, we changed our measure of segment profit (loss) to operating income (loss) before depreciation and amortization ("OIBDA"). We believe the presentation of OIBDA is useful for investors because it allows them to view WWE's segment performance in the same manner as the primary method used by management to evaluate performance and to make decisions on the allocation of resources. The Company defines OIBDA as operating income (loss) before depreciation and amortization, excluding feature film amortization and film impairments. A portion of selling, general and administrative expenses is included in our reported segments. Unallocated SG&A, as shown herein, includes certain SG&A expenses that are not allocated to our reported segments, and corporate overhead. In describing WWE's overall results, the calculation of "OIBDA" generates the same results previously described by the Company's definition of "EBITDA." (Additional information on the definition and use of "OIBDA" can be found in our Form 10-Q filing with the SEC.)

Our OIBDA results for the first quarter 2013 included a $4.7 million film impairment charge and an approximate $3.4 million positive impact from the transition of our video game to a new licensee. Results for the prior year quarter included a $0.8 million film impairment charge and a $4.1 million benefit due to previously unrecognized tax benefits. In order to facilitate an analysis of our financial results on a more comparable basis, where noted, we have adjusted our results to exclude these items. (See Schedule of Adjustments in Supplemental Information). The operating results above also include network-related operating expenses of $2.6 million in the current year quarter and $2.1 million in the prior year quarter, which were not adjusted in the aforementioned schedules.

Three Months Ended March 31, 2013 - Results by Region and Business Segment

Revenues of $124.0 million were essentially flat to the prior year quarter as growth from North America was offset by declines across WWE's international markets. Revenues from North America increased 5% from the prior year quarter predominantly due to the licensing of new television programs and digital content, the strong performance of our Pay-Per-View operations, and an increase in the number of domestic live events, which more than offset lower revenues from our movie business. Revenues from outside North America declined 13% primarily due to an anticipated reduction in the number of live events, lower revenue from home entertainment, as well as weaker sales of licensed products.

Live and Televised Entertainment

Revenues from our Live and Televised Entertainment businesses increased 6% to $79.9 million primarily due to the expansion of rights fees from the production and licensing of our television programs and, to a lesser extent, from an increase in Pay-Per-View revenue as described below.

Live Event revenues declined 5% to $21.0 million reflecting the timing of our Fan Axxess events, which are held annually in conjunction with WrestleMania (Fan Axxess events occurred primarily in the first quarter 2012 vs. the second quarter 2013). Excluding the impact of Fan Axxess, Live Event revenues increased slightly as an increase in the number of events in North America was nearly offset by a reduction in the number of international events and relatively weaker performance from those events.

There were 80 total events, including 77 events in North America and 3 events in international markets, in the current quarter as compared to 75 events, including 69 events in North America and 6 events in international markets in the prior year quarter.
North American events generated revenues of $20.0 million as compared to $18.9 million in the prior year quarter. The revenue growth of $1.1 million reflected the scheduling of 8 additional events in the period, partially offset by the timing of Fan Axxess, which added $1.6 million in revenue to the prior year quarter. In addition, average attendance increased 3% to approximately 6,400 and average ticket prices increased 2% to $39.40.
International events generated revenues of $1.0 million as compared to $3.3 million in the prior year quarter, reflecting a 50% decline in the number of events, with 3 fewer events in the period. In addition, average ticket prices declined 34% to $82.51 and average attendance declined 26% to approximately 2,500 from 3,400 in the prior year quarter. The declines in average ticket price and average attendance were due to weak performance in Turkey and Qatar, which are emerging WWE markets, as compared to the prior year quarter, which included an especially strong three-event tour in Abu-Dhabi.
Pay-Per-View revenues increased 12% to $15.1 million as compared to $13.5 million in the prior year quarter reflecting the performance of our Royal Rumble and Elimination Chamber pay-per-views. Buys for these events increased 17% from the prior year quarter, demonstrating their creative strength and audience appeal. Additionally, the average revenue per buy increased 5% from the prior year quarter due, in part, to an increased proportion of buys to view our events in high definition, which generally attracts higher retail prices. Increases in the number of buys and revenue per buy, however, were partially offset by lower buys for events in prior periods.

Television revenues increased 15% to $37.5 million from $32.5 million in the prior year quarter primarily due to the production and licensing of new programs. During the latter half of 2012, an additional hour of Raw was licensed to the USA Network, a new original series, the WWE Main Event, was licensed to ION Television, and a Saturday morning kids' show, WWE Saturday Morning Slam, was introduced on The CW Network. Growth also reflected, to a lesser degree, contractual increases for our existing programs both domestically and internationally.
Venue Merchandise revenues of $5.1 million were essentially flat to the prior year quarter. Increased sales of merchandise at our domestic events were offset by the impact of our Fan Axxess activities in the prior year quarter. Total domestic paid attendance increased 21% while per capita merchandise sales at those events increased 6% to $10.29 in the current year quarter.

Consumer Products

Revenues from our Consumer Products businesses decreased 6% to $33.2 million from $35.5 million in the prior year quarter, primarily due to declines in our Home Entertainment business as described below.

Home Entertainment net revenues were $7.0 million as compared to $9.2 million in the prior year quarter. The 24% decline reflected a reduction in revenue from our international licensing activities and adjustments to prior period sell through estimates. Revenue from our international licensing activities declined by approximately $1.3 million due to the recognition of greater minimum guarantees in the prior year quarter. Domestic home entertainment revenue fell approximately $0.9 million, or 13%, as a 47% increase in shipments to over 1.2 million units was more than offset by a net $3.3 million impact from prior period sell through adjustments. The quarter included an unfavorable adjustment for lower than anticipated sales of prior period releases compared to a positive adjustment in the prior year quarter. The average price per unit of $9.52 remained essentially unchanged from the prior year quarter.
Licensing revenues of $24.0 million were essentially unchanged from the prior year quarter. Revenue in the quarter reflected a $2.1 million positive impact associated with the bankruptcy of our former video game licensee, THQ, and the transition to a new video game licensee, Take-Two Interactive. This positive impact was offset by lower revenue from video game, toys and other products, with the aggregate decline coming from our international markets. Excluding the impact of the video game transition, estimated sales of our video game declined approximately 12% with a corresponding reduction in average retail prices, and royalties from the sale of toy products declined approximately 6%, or $0.4 million, from the prior year quarter. In aggregate, excluding the impact of the video game transition, royalties from the sale of licensed products declined approximately 23%, or $2.2 million, in international markets.

As a result of THQ's bankruptcy, WWE did not collect or recognize a portion of anticipated royalties due in the first quarter. Therefore, despite the positive impact of the transition of our video game license on revenue and income in the first quarter, WWE incurred an estimated economic loss of approximately $3.0 million stemming from foregone video game receipts.

Magazine publishing net revenues increased 14% to $1.6 million predominantly from higher newsstand sales as well as higher advertising sales than in the prior year quarter.

Digital Media

Revenues from our Digital Media related businesses were $9.0 million as compared to $7.1 million in the prior year quarter, representing a 27% increase.

WWE.com revenues increased 41% to $5.5 million in the quarter due to higher sales of online advertising, including integrated cross-platform sales, as well as increased rights fees associated with the licensing of certain WWE content to Hulu Plus. The related programming agreement with Hulu commenced in September 2012.
WWEShop revenues increased 9% to $3.5 million in the quarter, primarily due to an 11% increase in the number of online merchandise sales to approximately 73,200 orders. The average revenue per order of $47.97 was essentially unchanged from the prior year quarter.

WWE Studios

WWE Studios recognized revenue of $1.9 million as compared to $4.8 million in the prior year quarter, reflecting differences in revenue recognition between the various distribution models of our movies. Although there were three feature films released in the current quarter (Dead Man Down, The Call and The Marine 3: Homefront), revenues for these movies will be recognized on a net basis as participation statements are received rather than upon release as was the case with our self-distributed movie, Bending the Rules, in the prior year quarter. In addition, the decline reflected the timing of results generated by our overall portfolio of movies. During the quarter, Dead Man Down generated lower domestic box office receipts than anticipated, resulting in a revised ultimate profit projection for that movie and a $4.7 million impairment charge. As a result, WWE Studios generated a loss of $5.0 million compared to a loss of $1.3 million in the prior year quarter, which included a $0.8 million film impairment charge. Excluding the impact of film impairment charges, the WWE Studios' movie portfolio generated a loss of $0.3 million compared to an adjusted loss of $0.5 million in the prior year quarter.

Unallocated SG&A

Unallocated SG&A expense was $30.6 million for the current year quarter as compared to $30.0 million in the prior year quarter. Increases in staff-related and consulting expenses primarily to support our network and content related initiatives were nearly offset by a reduction in bad debt expense. Network-related costs included in unallocated SG&A reached approximately $2.6 million compared to $2.1 million in the prior year quarter.

Operating Income Before Depreciation and Amortization (OIBDA)

OIBDA was $11.3 million in the quarter as compared to $20.0 million in the prior year quarter. The decline in OIBDA was primarily due to three anticipated factors: additional investment in content production, including guest talent and staff costs, lower profits from Home Entertainment and lower profits from international Licensing. Increases in our content-related expenses more than offset increased rights fees from the licensing of new television programs and digital content. The results of our Television and Digital Media businesses were essentially flat to the prior year quarter while the results of our Pay-Per-View business declined $1.3 million from the prior year quarter. The $3.9 million impact of film impairment charges ($4.7 million vs. $0.8 million in the prior year quarter) was nearly offset by an approximate $3.4 million positive impact to OIBDA associated with the termination of our video game license with THQ and the transition to a new video game licensee. The OIBDA margin was 9% in the quarter as compared to 16% in the prior year quarter. Excluding the impact of film impairments and video game transition, Adjusted OIBDA was $12.6 million in the quarter as compared to $20.8 million in the prior year quarter. The adjusted OIBDA margin was 10% in the current quarter as compared to 17% in the prior year quarter. (See Schedules of Adjustments in Supplemental information).

Depreciation and amortization

Depreciation and amortization expense totaled $5.2 million for the current year quarter as compared to $4.0 million in the prior year quarter. The increase in depreciation and amortization expense derives from our investment in assets to support our efforts to launch a potential network.

Investment and Other (Expense) Income

Investment income, interest and other expense, net, yielded expense of $1.3 million compared to income of $0.5 million in the prior year quarter, reflecting incremental expenses associated with other non-income taxes and realized foreign exchange losses as compared to gains in the prior year quarter.

Effective tax rate

In the current quarter, the effective tax rate was 37% as compared to 7% in the prior year quarter. The 7% rate in the prior year quarter was primarily due to the recognition of a $4.1 million benefit related to previously unrecognized tax benefits.

Cash Flows

Net cash used in operating activities was $5.9 million for the three months ended March 31, 2013 as compared to $32.4 million generated by operating activities in the prior year quarter. This $38.3 million decrease was driven by an approximate $12.3 million reduction in operating performance, an $11.0 million increase in the annual payout of management incentive compensation (with the return to a more normalized level of management compensation in 2012), an $8.0 million impact due to the recognition of an advance associated with the termination of our video game license with THQ, and a $5.3 million increase in net tax payments. Additionally, changes in working capital associated with our international live event tours and pay-per-view events contributed to the decline in net cash flow provided by operating activities compared to the prior year quarter.

Purchases of property and equipment and other assets declined by $8.4 million from the prior year period, primarily due to lower investment in assets to support our efforts to create and distribute new content, including through a potential network.

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In their latest 10-Q filing, WWE revealed that they will be acquiring a new corporate jet, a 2006 Bombardier Global 5000. Total price after all costs is projected to be $32 million.

Bombardier Global 5000 Specs

2006 Bombardier Global 5000

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WWE recently released their earnings statement for 2013Q2. This is historically the company's best performing quarter (largely because of Wrestlemania). While revenue was up, net profits was down. This was due to a combination of infrastructure spending and other categories regressing. When profit margins are below dividend payments, and cash on hand is trending down, something has to give.

The full report can be read here.

Audio: 2013Q2 Conference Call

Transcript below.

Executives

Michael Weitz – SVP, IR and Financial Planning

Vince McMahon – Chairman and CEO

George Barrios – CFO

World Wrestling Entertainment, Inc. (WWE) Q2 2013 Earnings Call August 1, 2013 11:00 AM ET

Michael Weitz

Thank you and welcome everyone. Welcome you to today’s Second Quarter 2013 Earnings Conference Call. Joining me for today’s discussion are Vince McMahon, our Chairman and CEO; and George Barrios, our CFO. We have issued our earnings release earlier this morning and posted our release and the earnings presentation on our website for your reference corporate.wwe.com.

For any non-GAAP financial measures discussed on this call, reconciliations to GAAP measures can be found in our earnings release and in our website presentation. In today’s discussion to the extent that we make any forward-looking statements. These statements are based on management estimates. Actual results may differ due to numerous factors, as described in the presentation and in our filings with the SEC.

At this time I’d like to turn the call over to Vince.
Vince McMahon

No sense in dwelling although obviously it’s of extreme importance, no sense in dwelling on our performance that is lack of it in terms of the Q2 OIBDA were down 9.5 which was a little bit more than what we said originally that it could be. Pay-per-view was one of the reasons why we’re down a little bit, but the mixed metrics really in terms of our build to the future and you guys have heard that before, but it is exact, we do know what we’re doing by the way. WrestleMania was a highest-grossing pay-per-view we’ve had, it was the second most profitable event, other achievements which garnered here thus far as we have begun producing an first installment of the Total Divas show which is (somewhere a departure) for us, it’s a reality show and its growing our audience because its only E! Network which is predominantly women which is key to us in terms of the gatekeepers of the entrée for young people and again from women from that standpoint as well looking at our brands in a totally different way.

And it’s been to quote all the network executives at E! was a homerun. So we’re looking forward to continue to be in that business of the reality show business because we think we do it well and we think now no doubt that we have something on (indiscernible) that we do it well. So that broadens our opportunity to do more things like this and other programming as well which are natural spin-offs, what we do with our corporate running of Raw and SmackDown. And speaking of Raw and SmackDown those television ratings are about the same although we’ve increased our television audience by about 10% overall, which is a strong indication of growth. We’ve a couple of things as well. We’re going to be doing Warner Bros. Animation, we had another project and this is one with the Flintstones Yabadabadoo and we’ve announced as well a partnership with Bridge Direct which is one of the things we’ve been lacking in terms of CPG is a construction, which is a huge portion of that business and we’re very happy to now finally be working in partnership with the Bridge Direct.

Also as well other aspects you should know is our partnership with Kmart, we are launching a John Cena Line and Clothing this fall. We think that’s going to be very profitable for us. We’ve renewed our Post Fruity Pebbles, Fruity Pebbles partnership and once it’s just sort of a on in and out itself a real big deal but it really does in terms of somewhat of a Housekeeping Seal of Approval. And speaking of that our sponsorship is really opening up for us because everyone is understanding now the WWE is a safe environment to be associated with. When our PG programming although obviously does a bit of an edge and should be, but it’s a safe environment and I think mentioned before that Kraft was joining us and Doritos is going to be a presenting sponsor of SummerSlam and there are other things we’re going to be announcing shortly did indicate again that a good Housekeeping Seal of Approval and everyone understanding that it is a safe environment to be associated with WWE.

From an attendance standpoint which is one of my key indicators. It’s about the same as last quarter. We are in Australia right now or just finishing up the Doritos rightly which went very well. And not withstanding live events from a social media standpoint once again it is a key metric for us we have 176 million social media followers which is of course the combination of a lot of things. That’s up 74% from last year. One of the things that just one of the things we have a lot of one day called products coming out as well and we’re leading not just cutting-edge, we’re really leading so much of what social media means in terms of programming and the interaction. And when we say the WWE app is the new way of watching television and we lead it because when you sit in front of your television and almost everyone has – there is smartphone next to them. And when you’re using the WWE app which more is a free app and we’re about close to 7 million downloads now.

And you’re watching television; it’s not just okay here are the stats and things of that nature which other networks try to do. And if we’re doing so much interaction, the term commercial breaks and things of that nature to make sure no one changes the channel and they stay with the network that were on, there is programming there, sometimes it’s a continuation of a match, other times if programming it is compatible that you won’t see on television and there is so much odd, but so many things we can do our WWE app and again I know we’re trying to teach the television audience how to watch television all over again, but we’re making progress. It is something that other networks and others shows more attempt to do but no one can do it likely again.

From a strategic standpoint we’re continuing to work with and evaluate our situation with global markets. We mentioned before about the UK market in terms of re-negotiation of our contract India as well it would be very, very big as well as back here in the U.S. everyone understands in the past that we have a bit undervalued and that will no longer be the case going forward. We have also just to make sure we have continued our success and guaranteed the flow of our raw material which is talent and we are opening a real world-class training facility down in Orlando, we had it once before but not quite anywhere near to the extent of this and the educational process and the ability to attract so many more individuals from all over the world in terms of the athletes participating in this.

So it really bodes well from a talent standpoint going forward not today, we are dealing with the talent we have today, but we have called up any number of talents over the last year at WrestleMania that we have so five or six brand new talents maybe even more that have never appeared at WrestleMania before and it takes a while of course for talent to quote as we stay in our business and get over in terms of popularity and things of that nature, but we have a plethora of really good talent in our developmental system that we hope to continue to develop and bring up to the main show of Raw and SmackDown. So those are some of the metrics. I really what I consider not withstanding a lousy quarter from a monetary standpoint, those are some of the metrics that really I believe should be considered moreover, more than anything else, its fixed to the brand strength and some of these other deals coming up speaks their transformation of our business in an ongoing upward way. Those are pretty much my remarks, George, you want to take it.
George Barrios

Thanks, Vince. The several key topics which I’d like to review today. These include management perspective on our financial performance, some additional detail regarding our second quarter results and a discussion of our business outlook for the remainder of the year. For the second quarter our financial results is measured by OIBDA declined approximately $9.5 million from the prior year. The decline reflected several factors that will reference is part of our first quarter 2013 earnings call. These factors included additional investment to produce and market our content as well as the timing of one less pay-per-view event in the quarter. The investments in content production were made to enhance our brand strength. Demonstrating their efficacy our premiere event WrestleMania became the highest-grossing event and the second most profitable event in the company’s history.

Our television audience reached 4.6 million viewers and 8.6 million homes in the U.S. representing increases of 10% and 12% respectively from a year ago. And our total social media followers including Facebook, Twitter and YouTube among others increased 14% over the quarter and now exceed 176 million. Achieving more than 30% growth on these platforms since year end had significantly elevated our presence in social media. Building the strength of our brands is evidenced in these metrics and taking advantage of that strength is a critical component of our long-term strategy. To review the key drivers of our performance in the quarter let’s turn to page six of our presentation which list the revenue and OIBDA contribution by business as compared to the prior year quarter.

Revenue increased by about 8% or nearly $11 million. The growth was predominantly due to increased rights fees for our content and increased ticket revenue from WrestleMania. Revenues from our television business increased by 17% or $5.6 million with growth primarily from the production and licensing of new programming such as the third hour of RAW, WWE Main Event and WWE Saturday Morning Slam. These programs are launched during the latter half of 2012 on the USA network, ION television and the CW Network respectively.

Notably a few days ago, we began airing a new production Total Divas on E. The series, which explores life beyond the ring for seven WWE divas attracted 1.3 million viewers in its Sunday debut an increase of 63% over the programming that it replaced.

Revenue from our Live Events including merchandise sales at these events increased 15% or $6.2 million in the quarter primarily due to the strong performance of WrestleMania XXIX and the timing of our Fan Axxess events, which are held annually in conjunction with WrestleMania.

WrestleMania added $3.6 million in incremental ticket revenue to the current year quarter based on a 39% increase in average ticket price and our paid attendance that was on par with the prior year quarter. Fan Axxess events added $2.3 million in incremental revenue to the current year quarter as these events occurred in the second quarter 2013 and primarily the first quarter 2012. Excluding WrestleMania both average attendance and average ticket prices at our events in North America were essentially unchanged from the prior year quarter.

Revenue in North America increased from the scheduling of eight additional events in the current year quarter but this growth was largely offset by a corresponding decline from a fewer events in international markets. In these international markets, average ticket prices increased 7% to $68.16 and average attendance increased 6% to approximately 6,600 fans from the prior year quarter. These increases in average ticket price and average attendance were due to changes in territory mix as the prior year quarter included weak attendance at our events in Mexico and our first live event in Brazil, a market with long-term strategic importance to WWE.

Partially offsetting the growth from television licensing and live event ticket sales, revenue from our Pay-Per-View business declined $3.7 million or 9% primarily based on the timing of one less Pay-Per-View event in the quarter. Our Over, The Limit Pay-Per-View event, which aired in the second quarter 2012, is scheduled to air in October that is in the fourth quarter of 2013.

Revenue from the three events in the current quarter declined 3% from the prior year quarter as a combined 13% decline in buys was nearly offset by a 12% increase in the average revenue per buy. The shortfall in revenue from these events however was offset by an increase in buys for prior period events. The rise in revenue per buy was due to an approximate 9% increase in the domestic retail price charged for viewing WrestleMania and to a higher proportion of buys to view our events in high definition, which generally garner a higher retail price.

In our Consumer Products segment, our home entertainment revenue declined 9% or $0.7 million reflecting a reduction in estimated sell-through rates and lower revenue from our international licensing activities. Domestic home entertainment revenue fell approximately $0.4 million or 6%, as a 15% increase in shipments to nearly 1 million units was more than offset by a 13% decline in the average price per unit to $10.59 and a rise in estimated returns to 41% versus 39% of gross revenue. The change in projected returns derived from an increase in catalog shipments over the last 12 months, which historically have been characterized by lower sell-through rates. Revenue from our international home entertainment licensing activities declined by approximately $0.3 million due to the transition to a new licensee in the EMEA region.

Revenue from the licensing of consumer products was essentially unchanged from the prior year quarter. Royalties from the sale of toy products increased approximately 15%, or $0.5 million led by higher sales of action figures in the U.S. with strong domestic retail support. Increased sales of toy products, however, were offset by a comparable reduction in video game revenue. With the transition to a new video game licensee, shipments of our annual franchise video game declined 65% in the quarter to 77,000 units. Based on available industry data however, global video game retail sales today have essentially matched prior year sales.

In our Digital Media segment, revenue increased 18% or $1.4 million to $9.2 million driven by higher advertising sales across various digital platforms. Supporting this growth in advertising sales key digital metrics such as unique visitors to the company’s website and mobile app, average monthly page views and CPM increased from the prior year quarter.

Our movie business also contributed $1.5 million to the company’s revenue growth. During the quarter WWE Studios recognized revenue of $2.1 million as compared to $0.6 million in the prior year quarter reflecting the impact of a current quarter release No One Lives and the timing of results generated by our overall portfolio movies including the impact of the Marine and the Marine 2 which were released in prior periods. Although five movies have been released to-date in 2013 including two movies in the current quarter and the successful release of the call in the first quarter revenues for these movies will be recognized on a net basis as participation statements are received from our distribution partners rather than upon release as was the case with our self-distributed movies.

In general we do not expect to begin recognizing revenues until four to six months after a film is released. As such the recognition of revenue related to the call is not expected until the second half of 2013. While not impacting our second quarter results, the release of the call is expected to generate domestic box office receipts of $52 million and yields an ultimate profit to WWE of $5.9 million on an equity investment of $1 million. Currently the movies produced from 2013 under our revised approach to filmed entertainment are expected to generate an internal rate of return of approximately 15%, which exceeds our cost of capital. The level of our future movie investments will be predicated on the evaluation of our portfolio rather than on any single film at the end of 2013.

Unallocated SG&A expenses increased to $32.2 million from $26.4 million in the prior year quarter. As defined these expenses include sales, marketing and talent development cost which have not been allocated to specific lines of business. The rise in unallocated SG&A during the quarter was driven by increases in compensation and benefit expense of $2.4 million, talent development cost of $1 million, marketing expenses of $1 million as well as higher consulting and professional fees. The increases in these expenses were primarily to support our content related initiatives including the potential launch of a WWE Network.

Operating income before depreciation and amortization or OIBDA declined $9.5 million from the prior year quarter. As mentioned earlier the decline in our results was predominantly from several factors. Additional investment to produce and market our content including staff related cost, the timing of pay-per-view events and lower profits from WrestleMania. As shown on page six of our presentation these factors resulted in a $9.7 million reduction in pay-per-view profits from the prior year quarter that more than offset both the expansion in the rights fees from the licensing of new television programs and the increase in live event ticket sales.

Net income declined $6.7 million to $5.2 million reflecting the decline in our OIBDA results, increased depreciation and higher effective tax rate. The change in depreciation derived from our investment in assets to support the creation and distribution of new content including through potential network. Our effective tax rate was 38% compared to 36% in the prior year quarter.

Page 13 of the presentation contains our balance sheet which remains strong. On June 30 we held more than $120 million in cash and investments with no long-term debt. Page 16 shows our free cash flow. Through the first six months of the year we used approximately $7 million in free cash flow compared to generating about $27 million in the prior year period. The $34 million decline was driven by an approximate $19 million reduction in operating performance and an $11 million increase in the annual pay-out of management incentive compensation with the return to a more normalized level of management compensation in 2012 and changes in working capital associated with our international live events and pay-per-view events.

Partially offsetting that decline capital expenditures decreased by approximately $4 million from a higher level of investment spending in the prior year quarter to support our content initiatives. We continue to believe that these content investments will yield significant returns. Given the duration and magnitude of investments that we’re making in our business we believe it’s important to reiterate our rational for these investments. As indicated in our last earnings call and in our published business outlook we believe we have the potential to double or triple our 2012 OIBDA results by 2015.

The primary drivers of this growth includes the potential launch of a WWE Network, the re-negotiation of our four largest content agreements in the U.S. and international markets and the execution of our digital strategy developing digital products such as gamification and mobile gaming. Regarding our potential network in the U.S. our market research and analysis indicate the potential for a meaningful subscriber base and the significant economic opportunity. As in the U.S. we believe that a network and other distribution models also represent a sizable opportunity in international markets. The renewal of key content agreements is another primary source of future earnings growth. Over the next 18 months we expect to renegotiate our four largest television agreements in the U.S., the UK and India.

Benchmarking our rights fees to the fees paid for other original scripted series and to the fees paid for sports programming indicates that our license agreement has significant upside potential. Recently announced content agreements only strengthen our view. These recent deals such as NASCAR with NBC Sports, the Rose Bowl, and U.S. Open with ESPN, the NFL with Verizon and (indiscernible) with Netflix reinforce our view that the proliferation of distribution alternatives is driving up the value of content especially compelling content with broad appeal.

Our confidence that we can realize much greater value from our intellectual property through a network and the renewal of these content agreements is baked on the tremendous global appeal of our brands and the rising value of content. In order to achieve our targeted growth it’s critical that we maintain investments in key areas of talent development, content creation and marketing. Based on our earnings performance over the first half of the year, we have refined our 2013 guidance. We expect our full year 2013 OIBDA performance excluding any film impairment charges will fall within the lower end of the range previously communicated, which was plus or minus 10% from our 2012 OIBDA results of $63 million. In addition as shown on Page 10 of our website presentation we’ve refined our outlook for net income. As we execute on our growth strategy we’ll measure our performance against several key milestones over the next 18 months. This include making progress on our TV rights renewals, completing a network distribution agreement, developing digital products and improving the performance of our movie portfolio. While our results in the near term maybe challenged we are committed to establishing a firm platform for meaningful unprecedented earnings growth.

That concludes this portion of our call and I will turn it back to (Michael).
Michael Weitz

Thank you, George. John we are ready now, you can open the lines for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Daniel Moore from CJS Securities. Please go ahead.
Daniel Moore - CJS Securities

Good morning. Could you estimate the – if you said this in your prepared remarks, George I apologize, but you are – the OIBDA impact during the quarter of the shift and timing from over the limit from Q2 to Q4 this year?
George Barrios

It’s about $3 million revenue impact and about $2 million OIBDA impact.
Daniel Moore - CJS Securities

Perfect. And mentioned obviously cuts on the potential WWE Network, maybe update us on your thinking about going that the route with traditional carriers, cable satellite carriers versus perhaps going over the top and how that’s evolving?
Vince McMahon

All these options were open to us, that’s really a nice situation to be in. Again we talk about the rights fees coming up that could very well be tied to a WWE Network in a durational sense. In addition to that of course there is over-the-top and other options as well, so we report it no matter which way we go in a very, very good fashion.
Daniel Moore - CJS Securities

Kind of share one more and then jump back in queue. So taking out or adjusting for WrestleMania and not withstanding this quarter. Average ticket prices continue to increase attendance down a little bit over the last several quarters or years. Maybe just walk us through the decision process on pricing and do you think you may run risk of pricing certain number of fans out of the marketed if ticket price inflation continues?
George Barrios

Yeah I mean we’re essentially flat year-to-date on the attendance (indiscernible) we’re up a little bit on the average yield and I think that’s a concept, its average yield that we’re getting per ticket, so if you actually drill down and looked at the ticket pricing at the events themselves and where the seats are, what you find is that our lower price seats have remained essentially unchanged, which is driving the higher ticket prices is actually at the premium seating level and there we have had no impact on sell-through. So we don’t think it’s any elasticity issue on the price versus the attendance.
Daniel Moore - CJS Securities

Very helpful. I’ll jump back in queue.

Operator

Our next question comes from Richard Ingrassia from ROTH Capital Partners. Please go ahead.
Richard Ingrassia - ROTH Capital Partners

Guys, good morning everybody and congrats in finally ending the drought there in future films with the call, obviously the change of the model was the way to go, but I really don’t want to ask about that, I think I’d rather ask Vince to may be step back for a moment and talk about what the company has learned in general over the past few years in terms of selecting such projects investing and then marketing them?
Vince McMahon

As relates to film?
Richard Ingrassia - ROTH Capital Partners

Yes.
Vince McMahon

Well we’ve tried a number of models and we finally on the correct model and it’s a model in which we were engaging in partnerships whereby a risk is a lot less. It’s also (indiscernible) to change the management as (indiscernible) who has extensive background in terms of film, its heading this up, it’s a far more selective process and one in which again we’re partnering with major distributors in studios, the selection process is one that best fits what we do and our audience to bring that audience to these films as a basis and not that it’s just WWE fans coming to the theater, it’s not. Again we need to broaden our footprint in everything we do, so it’s making money for us now in addition to that it’s broadening the WWE brand and a far fast more way than we have in the past.
Richard Ingrassia - ROTH Capital Partners

And as far as applying talent I mean clearly as a headliner Cena has worked but really it appears better to have talent more in secondary roles supporting roles?
Vince McMahon

It does at the moment and that’s the idea although John always looking carry a future film and in a smaller way, some of our other talents that have well, Miz, Randy Orton things of that nature. So on a smaller scale in terms of direct to DVD some of our talents can star, be the star. In terms of larger theatrical releases its important that can we have a supporting role hopefully a very large supporting role as our talents develop the skills that are necessary to headline a major theatrical release.
Richard Ingrassia - ROTH Capital Partners

Okay, thanks Vince. And then a question on TV, if the USA and the Sci-Fi contracts are at the end of next year, when do you expect to begin negotiating those nuance and given all of the cash disputes these days and some of the ridiculous rates being paid for some pretty low rate at live sports. How do you possibly come away from those deals with anything less than double what you’re getting paid today?
Vince McMahon

I don’t know I think you answered the question, I have no idea if we told of them but again I think our content is far more compelling to any one particular sport really that is available because there is nothing available. This the last great franchise if you look at it from a sports family and I think that sports networks will look at WWE in terms of the entertainment value then it brings to their sports networks, you can’t deny the numbers my god they’re huge. So to have that in terms of the sports folio different than what we’ve had in the past it opens up far greater revenue opportunities for us. So, you’re right in terms of lesser sports getting a huge rights fee we’re poised more than anything more than any shows that’s out there certainly from a conglomerate standpoint to garner what we would hope to be double or who knows.
Richard Ingrassia - ROTH Capital Partners

Okay, thanks. A quick question for George too, just obviously attendance in the sales were very strong at WrestleMania, but where exactly if you can be a more specific of where are the incremental costs when that drove profits out of there?
George Barrios

At WrestleMania specifically, Rich?
Richard Ingrassia - ROTH Capital Partners

Yes, yes.
George Barrios

Production cost in New York were significantly higher than we’ve seen before on the talent side, we invested a little bit more, those are the big drivers a little bit on the marketing.
Richard Ingrassia - ROTH Capital Partners

So the venue and then I mean was it paying The Rock or more than that?
George Barrios

We don’t want to get into specifics on who or what on the talent side, but we invested more on the talent side, the production cost because it’s New York and more than New York Metropolitan area, so it’s a little bit more expensive. And just to be clear because it can get a little bit confusing. WrestleMania is a total event all-in pay-per-view Live Event song was down about $1 million, second most profitable ever, so we’re really happy with the profitability. When you start parsing out the profitability of the pay-per-view versus the Live Events which frankly is some level of allocation that we make using our best judgment. The pay-per-view is down pretty significantly and the Liver Event is up pretty significantly, which is why you saw within the pay-per-view segment the profitability take a big hit, but the event overall which is the way we manage it was about $1 million down year-over-year, so we did about 79 we did about 19 last year.
Richard Ingrassia - ROTH Capital Partners

Got it, okay. Thanks.

Operator

Our next question comes from Jamie Clement from Sidoti. Please go ahead.
Jamie Clement - Sidoti

Gentlemen, thanks for taking my call. Good morning. With respect to video games with the change in licensee, would you expect shipments to return to more normal levels in the coming quarters?
George Barrios

We’re really excited about the partnership with Take-Two both from a technical standpoint on the gaming side, on a creative stand point passion for the brand. So we’re excited.
Jamie Clement - Sidoti

Do we have to wait for a new version of the game or will there be I mean I’m just curious as what your expectation sort of for the third and fourth quarter are?
George Barrios

Well certainly over the next 12 months the input will increase from Take-Two but they’ve had their hands on this game and we’re excited about what we’re saying and next year should be even better and the year after that even better.
Jamie Clement - Sidoti

Okay. And George to clarify your guidance, it’s obviously excluding film impairments but you should be getting a film gain from the call as you mentioned right so is the positive included in your guidance there?
George Barrios

Yes.
Jamie Clement - Sidoti

That is okay. And then last question and Vince maybe I don’t know if this question may be should be direct towards you or I noticed that the spending creeped up a little bit more than this quarter than perhaps we have seen the trend to be. Does that signal in anyway then perhaps you could be closer perhaps to an announcement or if the announcement could become soon or rather than later and if that spending isn’t perhaps a evidence of that from my totally off base there?
Vince McMahon

No, there is only off base I mean I think every quarter we have user in this call, we get closer and closer. So we’re making investments that are necessary to bring that to fruition as soon as possible.
Jamie Clement - Sidoti

Fair enough. And just the last question, a follow up to one of the previous questions. How tied are the Raw and SmackDown negotiations through the discussions around the potential network like in other words are those decisions that could be made in separate rooms or are those decisions that have to be made in the same room and if so why?
George Barrios

They’re separate discussions, Jamie.
Jamie Clement - Sidoti

Okay, okay, very good. Thank you.

Operator

Our next question comes from Brad Safalow from PAA Research. Please go ahead.
Brad Safalow - PAA Research

Thanks for taking my questions. Just first going back to the allocation products between Live Events and pay-per-view even if I combine the two for the quarter I think it was down about $6 million. I’m just trying to figure out what is kind of a recurring cost versus what was unique about WrestleMania being in New York some things you do with talent. Can you help us to segregate the decline in pay-per-view profitability and maybe a little bit more?
George Barrios

The pay-per-view segment at WrestleMania specifically?
Brad Safalow - PAA Research

Well the pay-per-view segment obviously you had a drop out of one event and…
George Barrios

Yeah so that’s basically had I mean we had WrestleMania, the WrestleMania pay-per-view was down primarily for the reasons I mentioned, the production cost, our investment on the talent side and then we moved the one event, so that in essence was the decline in pay-per-view profits that you saw in the quarter. When you look at WrestleMania overall and take all its components and we mentioned fan access, the Live Event, the pay-per-view WrestleMania as in all-in event was down about $1 million.
Brad Safalow - PAA Research

Okay. And so for next year with the event in New Orleans presumably you’ll have some benefit in terms of production costs?
George Barrios

Yeah I mean I think remember the average ticket price in New York which drove the big ticket sales number were up about 40% year-over-year because its New York I don’t think New Orleans is New York. So I don’t want to start talking about WrestleMania 30 profitability but I think there will be puts and takes.
Brad Safalow - PAA Research

Okay. And then on the OIBDA wwe.com I mean structurally inherently that should have been very high incremental margin business. Can you explain what’s going on there?
George Barrios

I’m not sure I understood the question, Brad.
Brad Safalow - PAA Research

Well if you have, you had nice growth in terms of revenue at wwe.com, which I understand also includes some of these other digital distribution arrangements, but your EBITDA was actually or excuse me OIBDA was actually down year-over-year, so…
George Barrios

Yeah it does no, I got it. It’s a similar theme as when we talked about television production if you think of our operation we have a significant investment to produce television video in terms of graphics works, production creative also in the Digital Media we have similar investments. So you’ve seen a big growth there on the social media, on the app development side, on the business development side, so that’s the growth that you’re seeing on the staffing there that’s compressing the OIBDA.
Brad Safalow - PAA Research

Are you at a point now where incremental margin, actually incremental revenues here will be a kind of a 50%, 60% incremental margin which is more consistent with Digital Media businesses generally?
George Barrios

Well I think when Digital Media you’re really looking at a few different things, you’re looking at the advertising which has really high variable margins, you’re looking at the licensing of the content which has a pretty high variable margin depending on how much we’re increasing our cost to produce that content so for example for Yahoo or YouTube or the original content we give them. And then the third business you have in there is the eCommerce business which obviously has more traditional retail margin. So you can combine them all you get a margin for Digital Media but you have to look at each of them separately. The variable margins as we signed license deals and song will be high similarly in the advertising but we have a pretty, we’ve increased the fixed cost on the staffing pretty significantly over the last 12 months for the company as a whole and Digital Media specifically.
Brad Safalow - PAA Research

Okay. That’s helpful. And then can you talk about what the spend was in the quarter from both an OpEx and CapEx perspective on the performance center and then what will be kind of the run rate spend their I’ve heard that you guys are considering having 80 to 100 individuals in terms of talent development at any given time down there. Can you help us explain what that will be perceptively?
George Barrios

Yeah I mean we don’t go into individual CapEx projects but it was obviously in the spending happen predominantly in the first half of the year for the performance center. And the OpEx is up a bit but not materially to our financials from where we’ve been actually by moving locations we moved from the Tampa area to the Orlando area even though we have more square footage the cost per square foot is actually significantly lower, so it mitigated the extra space. So I wouldn’t describe them as kind of material impacts to the financials and we have traditionally had anywhere between 50 to 100 development talent which obviously are the pipeline for the future but again that the shift in those numbers or the range in those numbers aren’t material to the financial statements.
Brad Safalow - PAA Research

Okay. And then the last question I had was on some of the comments Vince that you made about television rights fees and what you feel would be an appropriate mark-to-market as far as at least doubling. I just want to be clear that you guys are going to be held to that standard I mean that’s based on the contracts in play here we’re talking about $75 million to $100 million of incremental EBITDA if you did in fact double your television rights fees. So I just want to make sure that I understand what you’re saying is that’s what you’re playing for here.
Vince McMahon

I’ll allow you to put a hammerlock on me if we don’t.
Brad Safalow - PAA Research

Fair enough. I’ll turn it over.

Operator

Our next question comes from Daniel Moore from CJS Securities. Please go ahead.
Daniel Moore - CJS Securities

I’m enjoying the hammerlock comment. The corporate unallocated expense it was up to a little over $32 million, is that a reasonable run rate to think about going forward or there may be some one-times in there?
George Barrios

There is probably few one-times I think 30 plus or minus is a good expectation.
Daniel Moore - CJS Securities

Got it. And I know you’ve kind of stop breaking this out but could you give us a sense for how much investment spend for the network was in the quarter?
George Barrios

At this point we describe is spend on content related initiatives but our OpEx right now if you were back to the kind of network-centric definition let’s say about roughly $3 million a quarter we’ve been there for a bit.
Daniel Moore - CJS Securities

Got it. And lastly just housekeeping, tax rate was up a little bit what are your expectations what should we think about for the remainder of the year?
George Barrios

Discrete items in FIN 48 releases are hard to gauge but my and we put it in the guidance page in the presentation, but 34% to 37% is probably a good range.
Daniel Moore - CJS Securities

Well I will refer to that. Thank you.
George Barrios

You got it. Okay. Go ahead, John.

Operator

(Operator Instructions)
Michael Weitz

Okay. Thank you everyone. We appreciate you listening to the call today if you have any questions please don’t hesitate to contact us. Thank you.

[LWPD]

WWE recently reported their P&L for 2013Q3. While overall revenue was slightly up, a sizable impairment was recognized, largely driven by prior losses from the movie division. Now more so than ever, television rights fees are the name of the game. Never again can it be said pro wres ladies in America don't draw serious money as Vince is now pocketing close to $750k per episode of Total Divas!

Full transcript and Q&A below.

WWE 2013 Q3 Report

Webcast Audio: WWE 2013 Q3 Conference Call

Courtesy of Seeking Alpha

Executives

Michael Weitz – Senior Vice President-Investor Relations

Vincent K. McMahon – Chairman and Chief Executive Officer

George A. Barrios – Chief Financial Officer

Analysts

Daniel Moore – CJS Securities

World Wrestling Entertainment, Inc. (WWE) Q3 2013 Earnings Conference Call October 31, 2013 11:00 AM ET

Operator

Welcome to the WWE 2013 Third Quarter Earnings Call. My name is Adrian, and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

I’ll now turn the call over to Michael Weitz. Michael Weitz, you may begin?
Michael Weitz - Senior Vice President-Investor Relations

Thank you, and good morning everyone. Joining me for today’s discussion are Vince McMahon, our Chairman and CEO; and George Barrios, our CFO.

We issued our earnings release earlier this morning and have posted to release our earnings presentation and other supporting materials on our website at corporate.wwe.com. For any non-GAAP financial measures discussed on this call, reconciliations to GAAP measures can be found in our earnings release and in our website presentation.

In today’s discussion, we’ll make several forward-looking statements. These statements are based on management’s estimates. Actual results may differ due to numerous factors as described in our presentation and in our filings with the SEC.

At this time, it’s my privilege to turn the call over to Vince.
Vincent K. McMahon - Chairman and Chief Executive Officer

Good morning everyone, our current movies the slated movies are expected to generate about a 13% rate of return, not bad. However, we did take a $7 million impairment off the Mike Pavone slate of movies in the past.

So excluding the impairment, we have increased about $6 million that’s due to television rights fees and third hour of RAW, Total Divas and on the television show. So that more than offset the weak performance of SummerSlam and SummerSlam pay-per-view rather and lower video game sales.

And that’s just our pretty mixed; lot of events increased about 6% in North America and over the quarter television audience increased a lumpy 30% to 15.1 million viewers on a weekly average.

Social media followers increased 28% to 219 million. Pay-per-view buys were down 9% with SummerSlam being the biggest one of them, they didn’t buy the attraction as you know these pay-per-view events attraction driven.

And from an achievement standpoint, Total Divas is the reality show, as many of you know on the E! Network, maintain a strong performance averaging about 1.8 million viewers since July. Their views is really good for that network in that genre.

From a pay-per-view distribution in the console of platforms, that increased extraordinary amount, although it’s 17,300 views, it did a 160% increase, but still 17,300 views in the launch of PS3 as well, it does indicate that some of these other forms of distribution are growing.

Other achievements, we launched the John Cena Apparel Line at Kmart, we have marketing partnerships, we announced that marketing partnerships with Kraft and General Mills, and of course, we continue to expand our television coverage in China and Japan as well.

From a strategic initiative standpoint, we continue developing our network, looking at growth traditional and non-traditional means of distribution. In addition to that, from a content licensing agreement standpoint, we feel pretty bullish on all of this in terms of realigning our television properties and the rights that they should be garnering; like in WWE more to – to more of NASCAR than anything else, because of the wide nature of our audience, and the overall viewership as well and gross rating points which is is higher than NASCAR in general.

So we – all these properties, television properties are coterminous, they’re all available at the same time. We’re looking forward to our discussions with NBCU, and our potential other distributors after that. We are currently in discussions, many of you know that our largest television agreements – do not only just here in the States, but also in the United Kingdom, and we currently are in the negotiating window with BSkyB, our distributor over the United Kingdom, which is a very big partner of ours. India is coming up shortly thereafter, so a lot of these are becoming due and we’re actively doing all of them going forward.

So we pretty much think that all these initiatives are, if all the stars line up, and we believe that, that they will and we’re working hard to make sure that happens, and our business is going to be transformed as we know it now. So, George?
George A. Barrios - Chief Financial Officer

Yeah, thanks, Vince. There are several key topics, which I’d like to review today; these includes management discussion of our third quarter financial performance, our revised business outlook and the progress of our key strategic initiatives.

For the third quarter, our financial result is measured by OIBDA decline $0.6 million or 6% from the prior year with impairments in our film business. On an adjusted basis, excluding the impact of the film impairments, our OIBDA results increased approximately $6 million, as a meaningful increase in rights fees from the licensing of television content was partially offset by the performance of our SummerSlam pay-per-view and lower video game sales.

Overall, our earnings were in line with our 2013 guidance that we communicated previously, and which I will discuss further momentarily. The current quarter’s evaluation of our film assets resulted in impairment charge of $7 million. The impairment charge primarily relates to movies released over the 2010 and 2012 period under our former distribution model.

Our remaining financial exposure to these films is limited. We believe our current revised approach to film entertainment is that it’s a critical ingredient for long-term success in this business. And it’s important to note that the movies released under this revised approach are projected to generate a 13% rate of return.

Our overall brand metrics remained strong. The launch of our original series Total Divas, the average weekly reach of our domestic television program has grown to $15.1 million homes, representing a 30% increase from the end of the second quarter this year, and a 16% increase from the third quarter last year.

Over the past 12 months, our programming surpassed the cumulative audience delivery of most sports and entertainment programs, including the national broadcast of Major League Baseball, NASCAR, the NHL and even The Walking Dead, and our total social media platform now reaches nearly 219 million followers, including more than 140 million Facebook likes and 70 million Twitter followers, representing a 28% increase from the end of the preceding quarter and a 92% increase from the end of the third quarter last year. Building the strength of our brand is evidenced in these metrics, and taking advantage of that strength is a critical component of our long-term strategy.

To review the key drivers of our performance in the quarter, let’s turn to Page 6 of our presentation, which lists the revenue and OIBDA contribution by business as compared to the prior year quarter.

Revenue increased by 9% or approximately $9 million. The growth was predominantly due to increased rights fees for our television content and to a lesser extent increased ticket revenue from our international events and higher sales of advertising and content on our digital platform.

Revenues from our television business increased by 30% or $10.1 million, primarily due to the production and monetization of new program including Total Divas and WWE Main Event, and to a somewhat lesser degree, contractual increases for existing programs both domestically and internationally.

Total Divas, a new original series, began airing on the E! Network in July. Since its debut, the program has averaged approximately 1.8 million viewers per week, representing an increase of more than 150% over the programming that it replaced.

WWE Main Event was licensed to and began airing on ION Television in the fourth quarter 2012. Revenue from our live events including merchandise sales at these events increased 6% or approximately $2 million in the quarter primarily due to a rise in the number and proportion of international events, which are typically characterized by higher average attendance and ticket prices than events in North America.

Specifically, there were seven additional international events in the quarter, partially offsetting the impacts of these events average international ticket prices decreased $26 to $72.30 and average attendance decreased 20% to approximately 6,700.

The decreases in average ticket price and attendance were due in part to changes in territory mix as the incremental events in the period were concentrated in South Africa, a region that has a high proportion of WWE fans, but that has experienced significant economic challenges.

In addition, changes in foreign exchange rates reduced average ticket prices by approximately 12%, and accounted for nearly half of the year-over-year decline in this metric.

In North America, changes in venue mix contributed to a 9% rise in ticket prices, and a 6% rise in average attendance to 5,500. However, these positive developments were offset by the staging of eight fewer events in the quarter.

Our digital media businesses also contributed $1.1 million to the company’s revenue growth. During the quarter, revenue increased 15% to $8.6 million driven by higher sales of advertising and digital content including our pay-per-view events, across various digital platforms.

Supporting the growth in advertising, key digital metrics such as unique visitors to the company’s website and mobile apps, average monthly page views, and CPMs increased from the prior year quarter.

We launched digital distribution of its pay-per-view events on the Microsoft Xbox Live platform in April and on the Sony PlayStation 3 platform in August. Revenue from our pay-per-view business declined $1.7 million or 10% primarily due to the performance of our SummerSlam event, which contributed to a 9% reduction in buys for the comparable events in the current and prior year quarter.

In our Consumer Product segment licensing revenue declined $1.4 million or 20% from the prior year quarter. The decrease was driven by 24% reduction in video game shipments that resulted in a $1.3 million decline in video game royalties.

Shipments of our annual franchise video game, WWE '13, which was the last release published by THQ, declined to 178,000 units as compared to 233,000 for the corresponding games in the prior year quarter.

Royalties from the sale of toy and apparel products were essentially unchanged from the prior year quarter, as modest growth in the U.S. was offset by lower sales in international markets. Additionally, a new installment of our video game, WWE 2K14, was released by Take-Two earlier this week.

Our Home Entertainment revenue declined 19% or $1.2 million primarily from a reduction – a 23% reduction in domestic shipments to approximately 720,000 units. With fewer releases in the quarter as the average price per unit increased 4%.

In addition, revenue from our International Home Entertainment licensing activities declined by about $0.4 million due to lower sales in Canada and the transition to a new licensee in the EMEA region.

Earlier this month Cinedigm acquired Gaiam Vivendi’s Home Entertainment brand including WWE, NFL, and Discovery. Cinedigm is the largest the aggregator and distributor of independent content, and the fourth the largest distributor of non-theatrical DVDs and Blu-ray Discs surpassing Sony, Fox, and Lions Gate among others.

We expect no material impact to our home entertainment results in the near-term. During the quarter WWE Studios recognized revenue of $1.8 million as compared to $1.9 million in the prior year quarter.

As mentioned earlier based on an evaluation work film assets we have recognized an impairment charge of $7 million in the quarter. The impairment charge primarily relates to our 2010 to 2012 slate of movies that released under our former distribution model. The impairment was driven by the performance of this slate over the past several months.

As a measure of the remaining financial exposure to these movies at the end of the third quarter this 2010, 2012 slate represented less than $1 million of a total $17.2 million in capitalized film assets on our balance sheet.

And just to reiterate the movies release under our current strategy beginning with re-release of No Holds Barred in late 2012 are projected to generate a 13% rate of return, which exceeds our cost of capital. The level of our future movie investments will be predicated on the evaluation of our portfolio rather than on any single film at the end of 2013.

Unallocated SG&A expenses declined nearly $1 million to $27.3 million from the prior year quarter. As defined, these expenses include sales, marketing and talent development costs, which have not been allocated to specific lines of business. The decrease in unallocated SG&A during the quarter was driven by $2.1 million year-over-year reduction in accrued management incentive compensation based on current expectations regarding the company’s 2013 financial performance, which were revised during the. This reduction in expense was partially offset by a $1.3 million increase in consulting and professional fees to support the company’s strategic initiatives.

Operating income before depreciation and amortization or OIBDA declined $0.6 million or 6%, primarily due to the impairments in our film business. Excluding these impairments, adjusted OIBDA increased $6.4 million or 62% as the increase in television rights fees, more than offset the performance of our SummerSlam pay-per-view and lower results from our video game business.

In addition, $3.4 million year-over-year reduction in accrued management incentive compensation, which was based on revised expectation for the company’s full year performance, mitigate the rise in compensation and other costs related to the development of our strategic content related initiatives.

Net income declined $1.1 million to $2.4 million, reflecting the decline in our OIBDA results. Excluding film impairments, adjusted net income increased approximately $4 million as the growth driven by higher TV profits was partially offset by an increase in depreciation.

The change in depreciation is derived from our investment in asset to support the creation and distribution of new content, including through a potential network. Our effective tax rate was 27%, compared to 30% in the prior year quarter. The rates in both periods benefited from the recognition of previously unrecognized tax benefits.

Page 14 of the presentation contains our balance sheet, which remains strong. As of September 30, the company held $115 million in cash and investments and estimated debt capacity under our revolving line of credit to be approximately $120 million.

During the quarter, we completed the purchase of a corporate aircraft and in conjunction with this transaction and related aircraft improvements, utilized step financing of approximately $30 million, which is reflected in long-term debt on our balance sheet.

Page 17 shows our free cash flow from the first nine months of the year we used approximately $6 million in free cash flow, compared to generating about $14 million in the prior year period. This $20 million decrease was primarily driven by changes in working capital, including an $11 million increase in the annual payout of management incentive compensation related to the company’s previous year performance, increases in spending on television production, including content for the network and timing differences in the collection of receivables that negatively impacted current year cash flow, as compared to the prior year.

Partially offsetting that decline, capital expenditures, excluding the purchase of the corporate aircraft, decreased by approximately $8 million from a higher level investment spending in the prior year quarter to support our content initiatives. We continue to believe that these content investments will yield significant returns.

Recently we announced a revised financial outlook for 2013; reflecting a modest 5% change in projected revenue. To understand the resulting change in our guidance, it’s important to remember several key facts regarding our operations. First, WWE utilizes third-parties to distribute our products across multiple businesses including consumer products, while we gather expensive primary market data; we have reduced visibility of our sales performance in these areas. This is an excuse of fact regarding how we conduct our business. Secondly, WWE’s business model reflects high operating leverage with variable margins in a range of 70% to 80%.

In addition, over the past year, we’ve increased spending to support key areas of talent development, content creation and marketing. This means that modest changes in revenue, not only translate the OIBDA, but also reflects a greater share of earnings with the latter compressed by investment.

Based on a 5% reduction in projected second half revenue from several businesses, inclusive of the performance of our pay-per-view and consumer products businesses as discussed today, and the company’s high operating leverage, we revised our 2013 OIBDA guidance to a range of $40 million to $50 million excluding film impairments. This revised outlook is shown on page 11 of our website presentation.

Even though we’ve earned more than $47 million in OIBDA excluding impairments through the first three quarters of the year, hitting the midrange of our guidance imply essentially break-even OIBDA results in the upcoming fourth quarter.

The sequential decline in performance from the third quarter reflects several factors, including a reduction in television profit associated with the timing of our content rights and as well as investments, and also rise in unallocated SG&A costs associated with the timing of several marketing expenses. Fourth quarter SG&A costs are projected to exceed the level of our third quarter results, but fall in line with – of our second quarter.

Now looking ahead, we believe the investments we’re making in our brand in content will maximize WWE’s future earnings. We are confident that the rising values content in the marketplace and a potential launch of the WWE network will keep us on track to double or triple our 2012 OIBDA results by 2015.

We are unable to execute our strategic initiatives and the way that places us on the pack to achieve these goals. The management will undertake some form of restructuring to increase profitability. Over the coming months we expect to re-negotiate our fourth largest television agreements in the U.S., the UK and India. Moreover, we expect to negotiate our key domestic agreements by the end of next April.

Benchmarking our right fees to the fees paid per sports programming and other original scripted series indicates that our license agreement has significant upside potential. Recent deals such as NASCAR with NBC Sports reinforce our view that the proliferation of distribution alternatives is driving up the value of content, especially compelling content with broad appeal. WWE shares a key determinants of value that are attributed to live sports.

Significant first run hours and the associated gross rating points, a passionate and loyal fan base and 90% live for same day viewership, which makes WWE content like sports TVR. The potential launch of a WWE network is another major source of future earnings growth. Our market research and analysis indicate that potential for a meaningful subscriber base and a significant economic opportunity. This opportunity is comparable whether the network is distributed through traditional cable, satellite and telco partners’ or through over the top digital distribution.

As we execute on our growth strategy we will measure our performance against several key milestones over the next six to nine months, it is include making profits on TV rights renewals and completing network distribution agreements, as well as developing digital products and continued improvement of our movie portfolio. While our results in the near-term maybe challenged we are committed to establishing a firm platform for meaningful unprecedented earnings growth.

Based on the execution of our strategy, which takes advantages of this rising value of content, we are confident that we can generate economic returns that better reflect WWE’s tremendous global appeal and brand strength.

That concludes this portion of our call. And I’ll now turn it back to Michael.
Michael Weitz - Senior Vice President-Investor Relations

Thank you, George. Adrian, we are ready now. Please open the lines for question.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session (Operator Instructions). And we have Daniel Moore from CJS Securities online with a question. Please go ahead.
Daniel Moore - CJS Securities

Good morning. Thanks for taking the question.
Michael Weitz - Senior Vice President-Investor Relations

Good morning Dan.
Daniel Moore - CJS Securities

First up in the press release, you stated that you expect to negotiate the domestic television carriage agreements by end of the April of next year given those – don’t expire until later in Q4 what gives you the confidence that you get it done by April. And secondly, based on where we are today, are you more likely to re-sign with the current carriers or should we be looking for Raw and SmackDown on another channel as we get out to 2015?
Vincent K. McMahon - Chairman and Chief Executive Officer

The negotiating period with our current carriers with NBCU, there’s a certain window there and it’s first of the year if we make a deal with those current carriers, great. If not, then we go outside that window and everyone is keenly aware of the properties we have, television properties, when they become due and what the value is. So I would imagine the deal would be struck very shortly thereafter.
Michael Weitz - Senior Vice President-Investor Relations

And I’ll add to Vince’s commentary and say it’s pretty typical that these content deals get done before the timing of the actual show is being on the air. So that’s pretty typical.
Daniel Moore - CJS Securities

Very helpful. George, I am intrigued by the comments you made in the prepared remarks saying that, if for whatever reasons, unable to execute on the plan, you’d undertake a restructuring, is there kind of a sliding scale of what you would consider success in other words if you were to not quite double OIBDA by 2015 based on the renegotiation would you try to cut costs to get those numbers, maybe you can just elaborate on those comments?
George A. Barrios - Chief Financial Officer

Yeah, I don’t want get too specific, Dan, but I think if you look at our current business model over our history, you’d probably the peak-to-trough of the business is $50 million to $100 million with a midpoint in that $70 million to $80 million and when things were going real well internally up in the 90s, either you have some headwinds or making investments in the 50 range and so we think that’s the natural peak-to-trough of the current business model. So we probably target kind of getting back to that level in that range.
Vincent K. McMahon - Chairman and Chief Executive Officer

Basically statement reducing cost. It’s not anything that we think is going to happen, but obviously, if the worst happened, that’s what we will go back to.
Daniel Moore - CJS Securities

That’s helpful color and I’ll ask one more and jump back in queue. Pay-per-view continues to be in a little of pressure in terms of buys in revenue, are there leverage you might pull in the interim to try and stabilize or regrow or is the current plan really to sort of let the network play out and that be the driver of improved performance in that area.
Michael Weitz - Senior Vice President-Investor Relations

No pay-per-views are attraction driven, so simply giving the right attraction, the right promotion to go with it, and that’s – SummerSlam was not the right attraction. You don’t knock it out of the park every time you get up to bat, and that was wondering when they resist swing and a miss. But they’re all attraction driven and you look each one that way, given the promotion that you have with it. So it really doesn’t have anything to do with like anything other than that.
George A. Barrios - Chief Financial Officer

And Dan, look while we’re talking about the network and the rights agreements and our four largest markets and improving the movie portfolio and monetizing the digital audience, those are big, big levers that we – there’s a lot of energy again. But we have a lot of other businesses and we’re doing a lot of other initiatives around those. So we – our expectation is that all our business have growth potential and we’re working hard across the board.
Daniel Moore - CJS Securities

Very helpful. I will jump back in queue with this. Thank you.
George A. Barrios - Chief Financial Officer

Thanks, Dan.

Operator

(Operator Instructions)
Vincent K. McMahon - Chairman and Chief Executive Officer

Have a good day everyone. The future looks bright.
Michael Weitz - Senior Vice President-Investor Relations

Thanks, everyone. We appreciate you participating. If you have any questions, don’t hesitate to contact us at WWE. Thank you.

Operator

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating, you may now disconnect.