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Q2 2017 World Wrestling Entertainment Inc Earnings Call
STAMFORD Jul 29, 2017 (Thomson StreetEvents) -- Edited Transcript of World Wrestling Entertainment Inc earnings conference call or presentation Thursday, July 27, 2017 at 3:00:00pm GMT
TEXT version of Transcript
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Corporate Participants
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* George A. Barrios
World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer
* Michael Weitz
World Wrestling Entertainment, Inc. - SVP, IR & Financial Planning
* Michelle D. Wilson
World Wrestling Entertainment, Inc. - Chief Revenue & Marketing Officer
* Vincent K. McMahon
World Wrestling Entertainment, Inc. - Co-Founder, Chairman and CEO
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Conference Call Participants
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* Brandon A Ross
BTIG, LLC, Research Division - Associate Analyst
* Curry Michael Baker
Guggenheim Securities, LLC, Research Division - Analyst
* Daniel Joseph Moore
CJS Securities, Inc. - MD of Research
* Eric Katz
Wells Fargo Securities, LLC, Research Division - Senior Analyst
* Eric Owen Handler
MKM Partners LLC, Research Division - MD, Sector Head, & Senior Analyst
* Evan Todd Wingren
KeyBanc Capital Markets Inc., Research Division - Research Analyst
* Jason B Bazinet
Citigroup Inc, Research Division - MD and U.S. Cable and Satellite Analyst
* Laura Anne Martin
Needham & Company, LLC, Research Division - Senior Analyst
* Michael Joseph Hickey
The Benchmark Company, LLC, Research Division - Research Analyst
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Presentation
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Operator [1]
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Hello, and welcome to the webcast entitled WWE Second Quarter Earnings. We have just a few announcements before we begin. (Operator Instructions) I'll now turn the call over to Michael Weitz, SVP, Financial Planning and Investor Relations. Please go ahead, Michael.
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Michael Weitz, World Wrestling Entertainment, Inc. - SVP, IR & Financial Planning [2]
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Thank you, and good morning, everyone. Welcome to WWE's Second Quarter 2017 Earnings Conference Call. Leading today's discussion are Vince McMahon, our Chairman and CEO; George Barrios, our Chief Strategy and Financial Officer; and Michelle Wilson, our Chief Revenue and Marketing Officer. We issued our earnings release earlier this morning and have posted the release, our earnings presentation and other supporting materials on our website, corporate.wwe.com/investors. Today's discussion will include forward-looking statements. These forward-looking statements reflect our current views, are based on various assumptions and are subject to risks and uncertainties disclosed in our SEC filings.
Actual results may differ materially, and undue reliance should not be placed on them. Additionally, the matters we will be discussing today may include non-GAAP financial measures. Reconciliation of non-GAAP to GAAP information is set forth in our earnings release and presentation, which are available on our website. Finally, as a reminder, today's conference call is being recorded and the replay will be available on our website later today.
At this time, it's my privilege to turn the call over to Vince.
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Vincent K. McMahon, World Wrestling Entertainment, Inc. - Co-Founder, Chairman and CEO [3]
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Good morning, everyone. We are pleased with execution of our strategy to optimize our long-term value of our content. As you know, revenue increased 8% to a quarterly record of $215 million. And we delivered our earnings results pretty much essentially in line with our guidance. Live event revenue increased to quarterly record of $53 million, which I think is notable. We are reaching 85 million year-to-date with our global attendance up about 100,000. The Network segment reached a quarterly record of $55 million as our WWE network paid subscribers increased 8%. Similar interesting things that we've got on as well is -- there's something called the Mae Young Classic named after one of our more extraordinary female performers of the past. It's one of things that Paul Levesque is putting together for us as he did the Cruiserweight and, of course, all the young individuals who are scheduled to one-day compete for us down at the Performance Center. The Mae Young Classic is really an opportunity to bring up young female performers, which is very -- is vital actually to our overall product, many of the quarter hours you see in television reflect our women superstars. So this is an opportunity, obviously, to grow that base, which we haven't done all that well in the past. Overall, one of the things that I look at as one of my barometers is the overall interest in the product. And for the first 6 months of the year, our digital video views reached 9.1 billion, which is pretty much extraordinary. It's up 18%. Our social media followers continue -- certainly surpassed the 800 million, which again I think is a tremendous indication in the overall interest in our product. That's always been one of my big barometers. Global sponsorship looked pretty good. Its revenue grew up -- grew about 25%. Some of the more blue-chip advertisers have joined us, KFC, Nestlé, AT&T and some gaming partners as well. We have selected Lagardère in terms of our best-in-class marketing agency to help us develop our global sponsorship business. Other notable things going on, we have a live event in Shenzhen over in China on September 17, which is going well and just part of our strategy in China, which looks good to-date. And we localized some of our weekly television shows, which is working out well for us in India and in the Middle East. We will probably continue to do more of that going forward in other markets. When we speak of other markets, we completed a multi-year agreement to televise Raw and SmackDown on SuperSport, which is definitely the way to go, that's Africa's premier sports broadcaster. Those are some of the things that we've got going on among others.
George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [4]
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Thanks, Vince. There are several key topics, which Michelle and I'd like to review today. These include our discussion of our financial performance, the progress of key strategic initiatives and our business outlook. For the second quarter, we generated an 8% increase in revenue to a record $215 million, and our adjusted OIBDA of $18.1 million was essentially in line with our guidance of $13 million to $17 million. Our revenue and earnings growth reflected the increased monetization of content across our 3 core platforms, pay-television, direct-to-consumer and social and digital. Supporting the successful execution of our strategy, our key operating brand metric continued to grow during the quarter. WWE Network averaged over 1.63 million paid subscribers over the quarter, in line with guidance and represented an 8% increase from the second quarter last year. In the quarter, WrestleMania reached a record 1.95 million global households on WWE Network alone, yielding more than 5 million interactions on Facebook and Twitter, making it the most watched and most social WrestleMania in our history.
Through the first 6 months of the year, consumption of WWE content increased 18% to 9.1 billion video views across YouTube, Facebook, wwe.com, and our social media followers increased 19%, now exceed 800 million.
These outcomes continue to demonstrate the ongoing strength of the brand and our potential to capitalize on this strength to drive continued growth. Referencing our presentation, I'd like to highlight the performance of our media division, including our Network and Television segments, which were the primary drivers of adjusted OIBDA growth during the quarter. As shown on Page 6, Network segment OIBDA increased $8.7 million, primarily due to the growth in network subscription revenue and its anticipated lower programming expenses. Network subscription revenue increased $3.2 million based on the 8% increase in average paid subscribers. Program expenses declined approximately $6 million reflecting the timing of the original programming. As we've said before, we continue to expect that the network's programming expense will be essentially flat to 2016.
OIBDA from the Licensing and Television content increased $4.6 million, reflecting higher rights fees in our key distribution agreements. Partially offsetting these increases was the performance of our Live Events segment. As shown on Page 7, OIBDA from our Live Events declined $1.8 million, primarily due to an increase in event production and advertising cost. Increased revenue from the staging of 11 additional events was mostly offset by the change in venue for WrestleMania. As anticipated, lower attendance capacity at this year's site resulted in lower attendance, ticket and merchandise sales.
In terms of WWE's overall performance, changes in other business segments were largely offsetting and as such didn't have a material impact on consolidated results. Page 9 of our presentation shows selected elements of the capital structure. As of June 30, 2017, we held approximately $260 million in cash and short-term investments, and had approximately $100 million in debt capacity under the company's revolving credit facility.
We believe this capital structure enhances our ability to execute our long-term growth strategy. Year-to-date free cash flow increased approximately $14 million. Favorable changes in our working capital requirements and capital expenditures offset lower operating performance. I would like to turn the call over to Michelle, who will provide some additional perspective on some of our operating achievements
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Michelle D. Wilson, World Wrestling Entertainment, Inc. - Chief Revenue & Marketing Officer [5]
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Great, thanks, George. Our second quarter reflected important progress on our efforts to optimize the value of our content. Progress on this objective is evidenced by our year-over-year growth of WWE Network and the increased monetization of our content across all our ad-supported platforms with blue-chip partners. During the quarter, we developed compelling new content for our network, pay television as well as visual and social platforms. For WWE Network, we produced more than 75 hours of original content, including our popular weekly series 205 Live. Recognizing the appeal of live, in-ring content, we produced a U.K. championship special that featured local talent from our January tournament. And lastly, we developed our very first action-packed women's tournament, the Mae Young Classic, which will premiere on the network in August and will culminate with the live finale this September. To increase our engagement with our global audience, as Vince mentioned, we launched localized weekly TV shows for India and the Middle East. WWE Sunday Dhamaal produced in Hindi with Sony Pictures network and WWE Wal3ooha produced in Arabic with OSN. Supporting this demand for localized content, we also held talent tryouts in Dubai that drew over 40 male and female participants from the Middle East and India. On the digital and social platforms, our newest YouTube channel, the Bella Twins, exceeded 750,000 subscribers, which is up more than 50% from the last quarter. And after producing our first Snapchat show during WrestleMania, which attracted more than 5 million unique views, we've developed plans to coproduce a Snapchat series in partnership with NBCU that will start later this year. Notably, the power of our brands to reach a broad global audience on multiple platforms has attracted an increasing level of new sponsors. We have new deals with blue-chip companies such as KFC, Nestlé and AT&T, and with gaming partners such as Psyonix, Square Enix and Activision. Those partners contributed to a 25% increase in our global sponsorship revenue in the first half of the year.
As Vince also mentioned, we recently announced the selection of Lagardère Sports, which is a best-in-class sports marketing agency to further develop our WWE sponsorship business outside of the U.S. As I indicated last quarter, the development of new content and its increasing value to advertisers represent a critical strategic initiative for WWE. Importantly, our operating achievements also include continuing innovation across our other lines of business. For example, we recently completed agreements to develop new mobile games with GLU Mobile, which is the maker of the successful Racing Rivals and Kim Kardashian Hollywood and also with SEGA. SEGA's WWE TapMania game was just launched last Thursday and within the past week the game has been featured on the iTune's App Store and Google Play in 44 countries. And so far over 1 billion matches have been played on the mobile game thus far. All of this activity clearly demonstrates how we are developing unique content and diverse products that capitalize on our brand strength to drive long-term growth. I'll turn the call back over to George to discuss our growth expectations
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [6]
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Looking back over the quarter, our financial and operating results continued to reflect how we're driving innovation and transforming our business. For the third quarter, we project average paid subscribers to WWE Network of 1.54 million plus or minus 2%. We also estimate third quarter 2017 adjusted OIBDA of approximately $31 million to $35 million. This range represents an expected year-over-year increase, primarily due to the contractual escalation of our television rights fees and continued growth of WWE Network subscribers. For the full year 2017, we continue to target record adjusted OIBDA of $100 million, given that we generated adjusted OIBDA of $36.7 million in the first half of 2017 and projected adjusted OIBDA of $31 million to $35 million in the third quarter, reaching our full year target implies a range of fourth quarter results of at least $28 million to $32 million.
Our third quarter and fourth quarter projections represent significant year-over-year adjusted OIBDA growth. It's based on sustained revenue growth and more favorable year-over-year comparisons in our fixed cost base. Over the remainder of the year, we'll continue to remain focused on creating new content across all platforms, strengthening our engagement with the broadening audience. As we continue our digital and direct-to-consumer transformation, we expect to achieve record revenue, record adjusted OIBDA and record subscriber levels. That concludes this portion of the call, and I'll now turn it back to Michael.
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Michael Weitz, World Wrestling Entertainment, Inc. - SVP, IR & Financial Planning [7]
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Thank you, George. Michelle, we are ready now. Please open the lines for questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Our first question comes from Dan Moore, CJS Securities.
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Daniel Joseph Moore, CJS Securities, Inc. - MD of Research [2]
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Taking a step back over the last couple of years clearly ramps your investment spend materially and is paying dividends in both the network and international. At this stage, are there any projects where you may or may not be seeing the returns you had hoped. I guess, the question is there pockets of opportunity to either reduce cost or shift cost over to other areas or growth initiatives as we look out to 2018 and beyond? And I have one quick follow-up.
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [3]
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Yes, Dan. So we're always looking at the return. You've got to remember lot of these investments. We expect the returns to come over a longer period of time. But we look at what's working and if it's working, we go a little bit deeper. And if it's not working, we shift it. But we certainly aren't looking to take cost out. As we sit here, we probably have more areas to invest in than not. So really the tension we're managing is let's keep driving growth, let's keep reinvesting to drive even greater future growth, but let's deliver growth to OIBDA as well. So that's the tension we're managing. But we're not at a loss for opportunities to invest.
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Daniel Joseph Moore, CJS Securities, Inc. - MD of Research [4]
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Very helpful. The Q3 guide, just shifting gears, implies a modest sequential tick down in average paid subs, probably as expected, may be a bit of acceleration in net sub churn. Any reason that might be the case, timing of more key events or is that generally in line with your expectations?
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [5]
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Yes, it's generally in line. We don't get too caught up in one quarter, the direct-to-consumer transformation, which the tip of the spear is the network. But there are other elements of it -- our shop business, for example. We think it's a long tail strategic play. So we don't get really too excited one way or the other with 1 quarter.
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Daniel Joseph Moore, CJS Securities, Inc. - MD of Research [6]
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Got it. Lastly, clearly seeing an uptick in sponsorship revenue. Maybe just talk globally about the increased comfort level from more traditional blue-chip customer, blue-chip corporations in tying their brand to the WWE brand?
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [7]
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So first, as you know, we don't give -- we don't report sponsorship, the secular advertising revenues. It's not a public number, but Michelle can definitely give you some color on the opportunity.
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Michelle D. Wilson, World Wrestling Entertainment, Inc. - Chief Revenue & Marketing Officer [8]
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So, obviously, I'll talk first domestically and then kind of the global opportunity. So domestically we, as most of you know, we have been hard at work around educating the marketplace, if you will, and key decision-makers around the WWE. Not only the scale and the reach of our brand, which obviously is clear to indicate that to partners, but also about the brand itself and the family friendly nature of our product. Really the marketplace was not as educated about that as we had hoped. So we've been working hard at that. We've seen, obviously, a lot of blue-chip partners now understand our brand. And if you look at across television, in general, Prime Time television, most of that product is kind of TV 14 and even TV MA. We remain one of the few opportunities that is TV PG. So that has resonated really well, particularly, as brand safety has become a conversation in the marketplace. So really great success for us, and we're really proud of the roster of advertisers and sponsors that we're bringing on board. So we feel very good about that. We will continue to push on that front. Separate and apart, internationally, we've talked quite extensively about the amount of video content that's consumed outside of the U.S. for WWE, and we see that as an opportunity as we really not been able to secure as many sponsors globally as we would like and feel really good about bringing Lagardère on board. They are very well known internationally for the ability to bring opportunities to the table. So we're feeling good about going after the ability to monetize outside of the U.S. on that front as well.
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Operator [9]
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Our next question comes from Evan Wingren of KeyBanc Capital Markets.
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Evan Todd Wingren, KeyBanc Capital Markets Inc., Research Division - Research Analyst [10]
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Can you just give us maybe some anecdotal updates on how the localization efforts are going internationally and how your fans are responding to those?
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [11]
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Anecdotally, I mean, Sunday Dhamaal, which is our show with our partner in India, Sony. We had a version with our previous partner, as you probably know, Zee TV sold Ten Sports to Sony. But on a, kind of hourly basis, it's our most watched show. It's a 1-hour show in both English and Hindi at different times. It's terrific. And Vince mentioned that we're -- our plans are to do more of those. We have one in the Middle East. We're working on a different one with another partner. So we just think that these really localized versions of the shows help drive to the core shows and just helps broaden the audience. So it's been a real big win for us.
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Evan Todd Wingren, KeyBanc Capital Markets Inc., Research Division - Research Analyst [12]
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And then, I guess, just more broadly, average paid subs, the growth of them have generally been decelerating throughout the year. What levers, I guess, do you think that you guys still have to pull to reaccelerate growth?
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [13]
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I mean, I think, for us it's always going to be the same levers. It's the content, both new content that we're creating as well as the excitement around the core storyline in Raw and SmackDown that then drives to our pay-per-view special. That's always going to be big. So we're going to keep investing in the core features of the products and make it more fun to use and easier to use. And then third, we get smarter about communicating to our subscribers current, inactive as well as new potential subscribers. So we keep working on that. Those are the main levers. We've got a lot of ideas. But as I mentioned before, I think to Dan's question, we don't really worry about 1 quarter's number. It's really more about driving consistent growth over the long term, and we think the entire direct-to-consumer opportunity, which includes more than just video because we're a multi-product and service business, and we think direct-to-consumer over the next 10 years is a real big opportunity. So -- and we're excited about that.
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Operator [14]
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The next question comes from Brandon Ross of BTIG.
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Brandon A Ross, BTIG, LLC, Research Division - Associate Analyst [15]
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Couple of questions. The way we see it over the next few years, the larger rights renewals for Raw and SmackDown could have the most material impact on your growth. And the video distribution landscape is changing pretty rapidly. Do you see the possibility of moving rights off of television on to a digital platform, such as a Facebook, whether exclusively or non-exclusively, especially since you guys do so well on digital and social? And then second question on the network. As you take a step back over the next few years, what do you expect to be the biggest drivers of revenue growth? Is there a possibility of raising prices, segmenting or do you just think it's pure subscriber growth? Any color there would be great.
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [16]
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Yes. On the first part, I'll change a little bit of the premise of your question. Where you started, you said the rights renewal. I would agree that generally our monetization of our video content is the biggest opportunity for us to grow revenue. And when you look at our TV segment, what you're really talking about is the monetization of our most important content, which is Raw and SmackDown. And today that's licensed -- primarily licensed around the world, and it's our biggest revenue stream and it's our most profitable revenue stream. And so to answer your question, do we think Raw and SmackDown are a big opportunity. We do, the monetization. On the platform question. I think you look at it 2 ways. As a content IP owner, when we evaluate platforms, we think about several things. Are our fans on those platform? Are our fans willing to consume long-form content on those platforms? Is the monetization on those platform something that we think is appropriate given the value of the content? That's how we think about any platform, whether it's Pay TV, our owned and operated or third-party digital platform. Obviously, Vince has said it many times, 5, 6, probably 7 years ago, we thought it was really important for all the reasons I just mentioned to make sure we staked out both the social digital landscape position as well as direct-to-consumer, and we've done that. So now we have options. Do I think a digital player will become more realistic to kind of step-up into the level of rights fees that we see from traditional players? I think, eventually, couldn't tell you if that's tomorrow or if it's 5 years from now, but eventually and certainly over the last 2 years we've seen kind of a steady progression towards kind of what you're describing. But from our end, the reason we've invested so much and having proposition on these platforms is to take advantage of that eventuality. Yes, so it's a long-winded way of saying yes, could we see that happening? Absolutely. On the second one, on the Network. You've heard me answer how we view the Network in direct-to-consumer generally. If you said specifically on the video side. We think if we're able to design the product in a really fresh interesting way for our fans, we think there is an opportunity to both grow the engagement and potentially grow the economics by segmenting the product, and we'll continue to work on that. And if it's not that, then it will just be we believe time, continuing to add subscribers over time and retain a portion of them and grow the business. So either one of those ways.
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Michelle D. Wilson, World Wrestling Entertainment, Inc. - Chief Revenue & Marketing Officer [17]
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And just something to add on that Brandon. We've talked a little bit about the weekly shows we're doing localized, and I think one of the other opportunities internationally is to continue to look at localization as a growth opportunity. So to George's point, between content kind of features of the platform and leveraging the analytics to kind of segment the market, which we think all 3 of those things will drive overall revenue growth. I do think globalization is something that we're looking at, whether that's currency or content and personalization. I know you've heard a lot about that, but we think there is an opportunity to develop features that ultimately drive engagement if you know a subscriber is a fan of a certain superstar, how do we deliver personalized content to them, and both of those things strategically will also contribute to the long-term growth. So again those are buzzwords, but we take them seriously as it relates to localization and personalization towards long-term growth.
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Operator [18]
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The next question comes from Eric Handler, MKM Partners.
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Eric Owen Handler, MKM Partners LLC, Research Division - MD, Sector Head, & Senior Analyst [19]
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Few little things. First, can you give an update where you stand right now with the WWE U.K. brand? Are we any closer to maybe a weekly TV program of sorts or what type of, maybe, a touring event for the brand as well? And then secondly with Lagardère and your sponsorship deal there, I'm wondering what, maybe you could sort of frame how big of an opportunity Lagardère thinks there is and, obviously, what made you sign with them based on that? So maybe you could sort of frame how the sponsorship could eventually be internationally x-China? And then, I'll stop there, that's good enough.
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [20]
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Yes, look on the first one Eric, the U.K. brand. I mean it gets back to this localization of content. I mean, we've said all along, I guess to Dan's first question. Do you have places to invest and we do, and where are they? They're in creating new content, they're in creating that content globally, the localization element for international business. And then it's the third area, that Michelle touched on, which is data. Data and analytics, I think, 5 or 6 years from now, the way today we speak about it, Michelle said a lot of buzzwords -- it kind of looks like social 6 or 7 years ago, and now it is a massive driver for us of engagement and more and more of economics. So for the U.K. brand, specifically, yes, we think there is real opportunity there. It's a little bit different flavor than something like Sunday Dhamaal, and we'll take it as it goes. We're pretty good at trying things, learning from them and then kind of building them out organically, but we're excited, we have a big fan base in the U.K. They've shown an appetite for local talent. So, as Vince mentioned, we're going to continue to play around with that and build on it.
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Michelle D. Wilson, World Wrestling Entertainment, Inc. - Chief Revenue & Marketing Officer [21]
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On the international sponsorship, obviously, not going to get into since we don't report a specifically the sponsorship segment, not going get into specifics around the opportunity. What I will say, again, as I mentioned earlier, that looking at the amount of content, our video content in particular, that gets consumed outside of the U.S. and knowing that, that number is sizeable and looking at the opportunities that we have, Lagardère has great experience outside of the U.S. And with blue-chip partners that are already doing business with us in the U.S., so that's where we're really saw the fit is. They're already having conversations with those companies in those respective markets. So with a natural fit to us and a great -- their understanding and the research that they did on our brand they certainly see the opportunity as well. So we feel good about that and, again, we won't get into specifics, but the roster we're looking at are essentially the advertisers and sponsors that we have here domestically that we know are global. That will be the low-hanging fruit, if you will, and Lagardère's got great relationships there.
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Operator [22]
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Our next question comes from Eric Katz, Wells Fargo.
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Eric Katz, Wells Fargo Securities, LLC, Research Division - Senior Analyst [23]
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So looking at the network margin, it's significantly better than last year. And I understand there was difference in programming cost due to timing, but's it sounds like you guys added a lot this year with 75 hours. Can you give us a little more color on that dynamic and does the timing comment mean there is a shift of more content in Q3, is there more content this year, but it's cheaper? I guess, any help in understanding that would be helpful?
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [24]
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Yes, Eric. We produce about roughly 300 hours of original content for the Network, including our pay-per-view special, NXT, Main Event or some of the more scripted shows that we do. And that number has been relatively stable since we've launched. The expenses frankly on an annual basis are also relatively stable. Having said that, some hours are more expensive to produce than others. And so how we set up the schedule for the year kind of will shift the dollars from quarter-to-quarter. But from a full year basis, as I mentioned in the prepared remarks, in essence flat, it's been around the same amount since we launched.
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Eric Katz, Wells Fargo Securities, LLC, Research Division - Senior Analyst [25]
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Okay. And then just wanted to come back to the churn around WrestleMania. That just seems to be particularly important because that's where you attract the most eyeballs. I was wondering if you could, I guess, talk to what you saw this year versus prior years? How are the stickiness of some of the free signups going into WrestleMania this year?
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [26]
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We don't get into that. Obviously, we put out a lot of public data both growth adds and net adds as well as by extension churn. But we don't get into the different cohort. What I won't say is we still think in terms of getting the upper part of the funnel filled that having that promotional period is still a great tool for us. So we're going to continue to do that.
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Eric Katz, Wells Fargo Securities, LLC, Research Division - Senior Analyst [27]
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Okay. Maybe just a broader question. There has been quite a bit of disruption in the traditional ecosystem and we are seeing some rumors of more consolidation on the content side in the last week really. I'm just wondering if your phone been ringing a bit more and are you entertaining those calls more this time?
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [28]
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I wouldn't say more or less, I'll quote my esteemed boss who said a couple of quarters ago we're open for business, and we've always been that way. And we certainly talk, we are aware of what's going on. We have a pretty strong perspective on the value of the brand. We think there is an opportunity for us to do an even better job monetizing that brand over the next few years. But we are always open to listening to creative ideas.
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Operator [29]
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The next question comes from Laura Martin of Needham & Company.
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Laura Anne Martin, Needham & Company, LLC, Research Division - Senior Analyst [30]
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I'm really fascinated by the new.. I'd really like to talk about these new revenue streams and the business models around them. So we have the YouTube Channel, Bella Twins, with 750 million subs, up 50% year-over-year. We have Snap where you're co-producing something with CNBC? So let's start with those 2. Is the business model there just rev share on the advertising or is like Snap and Facebook -- they're like paying people for content. Are you getting paid for content? Could you just talk through these new business models that you guys are experimenting with on the digital platforms?
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [31]
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Yes, I mean, if you look over the last 5 years or so on the digital platforms, we've done -- primarily we've done rev shares, we've done deals where we received license fees. I don't want to get into specific deal terms on the ones you mentioned. But I would think predominantly for the type of content that you specifically referenced, it tends to be more towards the rev share. I think the license fees and so on, like I said, we've done those previously, but it kind of dovetails into Brandon's comment of are these platforms, will they ever be ready to pay the types of license fees that the Pay TV ecosystem has? The trend line seems to indicate eventually yes, but we will see how that develops over time.
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Michelle D. Wilson, World Wrestling Entertainment, Inc. - Chief Revenue & Marketing Officer [32]
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And just to add to that Laura. As George mentioned, the models are predominantly rev share. What I will tell you that we're seeing Laura, having great success in the marketplace is that advertisers are not looking just for 30-second TV ads, they're looking for cross platform opportunities. So while that piece will be a rev share model. What we're finding is it's bringing other business to the table for us across our other platforms. So we don't think about just that revenue share in isolation, we look at it as part of a broader partnership with the companies like KFC and Cricket and these gaming companies that are looking for cross-platform. So again depending on what aspect they're working with on us, that particular model is rev share, but the others are more a direct revenue to WWE. So, again, it's a piece of the overall pie.
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Laura Anne Martin, Needham & Company, LLC, Research Division - Senior Analyst [33]
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That's super fascinating. And then let's stay with this notion of you use this word sponsorship rather than the word advertising. Is the reason you're using that word sponsorship, because these are like heavily negotiated, heavily hands-on deals like you say across platform? Is that why you're using that word, specifically?
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Michelle D. Wilson, World Wrestling Entertainment, Inc. - Chief Revenue & Marketing Officer [34]
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I think the term could be interchangeable. I mean, we debated how we want to label it. I'll say they're -- they are companies that want to have exposure and access to the views that we can deliver across platforms. So I don't know that there is any magic to the word sponsorship. They're essentially getting access to the WWE fan base.
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Laura Anne Martin, Needham & Company, LLC, Research Division - Senior Analyst [35]
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Okay. And you're working -- that goes through NBCU, it includes the TV platform, I guess, is what you are saying?
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Michelle D. Wilson, World Wrestling Entertainment, Inc. - Chief Revenue & Marketing Officer [36]
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We do both. Some are co-selling, some are solely WWE. So it's both.
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Laura Anne Martin, Needham & Company, LLC, Research Division - Senior Analyst [37]
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And then on the game's front. Can you also talk about the rev share there. Is that a licensing deal or is there some kind of rev share with the units sold or with the mobile end game purchases?
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [38]
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Yes, I mean, it's a traditional licensing deal. It's fundamentally not dis -- I mean, the terms are different, but it's not dissimilar than the console deals we do.
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Michelle D. Wilson, World Wrestling Entertainment, Inc. - Chief Revenue & Marketing Officer [39]
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On the mobile games. But when they come on board as a partner or sponsor, where we referenced a Square Enix or Psyonix, that's a more traditional advertising sponsorship relationship. What George is mentioning is when we're launching a game like say TapMania, that's a licensing agreement.
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Operator [40]
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Our next question comes from Jason Bazinet of Citi.
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Jason B Bazinet, Citigroup Inc, Research Division - MD and U.S. Cable and Satellite Analyst [41]
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Looking at that, I think, it is around $260 million of cash and investments that you have post the convert last year. Should we sort of anticipate a material step-up in the uses of cash for more TV production as you localize? Is that sort of -- because it seems like it's about $100 million above, what you guys would normally carry? So is that the right way to model it or is there some other investment that you guys anticipate outside of the local content creation?
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [42]
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Let me -- couple of points on that. First as we announced, when we did the convert, the reason was general corporate purposes as well as we feel having a visibly strong balance sheet that shows the flexibility that we have helps us when we're negotiating. And most of the times with companies much larger than ourselves. So we like having that in it. It does get into the renewal discussions that Brandon brought up. So that's number one. Number two is as far as uses of cash, as we mentioned last year, we bought a new facility in the third quarter of last year and we've talked about that we would ramp up CapEx to build that facility -- it's a production facility here in Stanford, Connecticut. So we expect to start seeing that in the second half of this year, and it will be a 12- to 18-month project here into the future. So we'll continue to build out that capacity. So it is related to your point on localization, but it's a little bit broader than that. It's really expanding our overall production capacity.
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Jason B Bazinet, Citigroup Inc, Research Division - MD and U.S. Cable and Satellite Analyst [43]
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So if I add the step-up in production plus the facility plus the flexibility, those are the 3 main drivers?
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [44]
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Pretty much.
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Operator [45]
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The next question comes from Mike Hickey, Benchmark Company.
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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Research Analyst [46]
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Just a couple of little questions from me. George, you may have covered this already, but maybe not directly. The churn in the quarter for your network subs seem to be pretty elevated compared to last couple of years, if I did the math right, is that true and any thoughts there?
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [47]
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Yes, I mean. As we've seen since launch and although it seems like we've been doing this for eternity, it's only 3 years, I hate to draw too many conclusions, but the Q2 churn as a percentage tends to be higher because you're dealing with a significant influx of new subscribers because of WrestleMania. So that's been the math.
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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Research Analyst [48]
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Okay. And then, I guess, when you think about the subs for '18, I mean, obviously, you have some data here historically. Should we sort of be thinking sort of mid-to-low single digit tie it back to good growth across your domestic international base?
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [49]
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Yes, we're not ready to talk about '18 guidance in any context. But I think you saw what we're guiding to Q3. But we'll talk about '18 in the future, not today.
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Michael Joseph Hickey, The Benchmark Company, LLC, Research Division - Research Analyst [50]
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Okay, fair enough. You may have a short answer to my next question then. I think you said on cost control it doesn't sound like you're going to be pulling back on the investment side (inaudible) Sort of balance between revenue growth, cost control. How should we sort of think about the EBITDA growth. Is that primarily a function of revenue growth then George? Or maybe you won't answer that, but thoughts would be helpful.
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [51]
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Yes, look I think it is consistent with we've been saying for about 18 months now as the network kind of got to a level we felt comfortable with is that if we are successful, we believe we'll be able to drive top line growth. We have high operating leverage, which means we have a high fixed cost base, but we have high operating leverage, which is great as you're growing revenue. That will give us hopefully the opportunity to reinvest some of that Unit Economics back into new opportunities as well as drive year-over-year OIBDA growth. So the answer to your question is yes. We expect revenues to grow. We have good Unit Economics and that allows us to do 2 things hopefully. One, invest in the business for the future as well as drive the bottom line. So that's what we're trying to navigate.
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Operator [52]
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(Operator Instructions) Our next question comes from Curry Baker of Guggenheim Securities.
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Curry Michael Baker, Guggenheim Securities, LLC, Research Division - Analyst [53]
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You've recently made a lot of progress it seems in China with a multiyear streaming agreement for Raw and SmackDown and Mandarin signing more Chinese talent, also distributing WrestleMania Live for the first time. However it seems you're only doing about one live show per year there. I think, last year in Shanghai, and you've announced one in September in Shenzhen. Can you provide any update regarding the appetite for WWE content you're seeing in China as well as the demand potentially ramp up the number of Live Events there, each year kind of beyond the one-ish you're running at right now?
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George A. Barrios, World Wrestling Entertainment, Inc. - Chief Strategy and Financial Officer [54]
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Yes. We're not going to get into individual countries. I've always said China is in early days for us. I always contrast it to India, which obviously is not only a great country in terms of economics for us, but in terms of consumption. We've been their over 20 years. China, we're right around year 9 or 10. So it's in a different place. Having said that, it's moved from kind of a early developing market to us -- for us to one that -- you referenced the PPTV agreement was kind of a little bit of a step change for us in terms of both distribution and economics. So we're really excited there. We're putting more resources on the ground there. We think there is a long-term play for us in China. Your question about the event is somethings operationally we're always struggling with Curry. There's only -- we're working we have a special project to increase the number of days in the year, but it hasn't gotten off the ground. We're still at 365. So we always have to make tradeoffs about where we're playing. And it's the blessing and the curse. We're pretty popular on every country on earth. So we have to make choices. And so that's just one of -- a reflection of some of the choices.
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Operator [55]
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There are no further questions at this time. Please continue.
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Michael Weitz, World Wrestling Entertainment, Inc. - SVP, IR & Financial Planning [56]
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Thank you, everyone. We appreciate you listening to the call today. If you have any questions please don't hesitate to reach out to us.
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Operator [57]
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Ladies and gentlemen, this does conclude the conference call for today. You may now disconnect your line. And have a great day.
