World Wrestling Entertainment Inc

LSE:0M1G

Earnings Call Transcript 2017-Q4

[Operator]

Hello and welcome to the webcast entitled WWE Fourth Quarter Earnings. This call is being recorded. [Operator Instructions]

I will now turn the call over to Michael Weitz, Senior Vice President of Financial Planning and Investor Relations. Please go ahead, sir.

[Michael Weitz, SVP, IR & Financial Planning]

Thank you, and good morning, everyone. Welcome to WWE's fourth quarter 2017 earnings conference call. Leading today's discussion are Vince McMahon, our Chairman and CEO; as well as George Barrios, and Michelle Wilson, our Co-President. Earlier today this morning, we issued our earnings release and the release covering some financial reporting changes that will affective with the communication of our first quarter 2018 results. These releases, our earnings presentation and other supporting materials have been posted on our website at 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 discussing today will 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, 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.

[Vince McMahon, Chairman and CEO]

Good morning, everyone. As you know, for the year, we achieved record revenue of $801 million and record adjusted OIBDA of 112 million, which is more or less at the high end of our guidance.

For the year, WWE networks averaged paid subs increased to 1.53, which is representing about an 8% increase. On our social and digital platforms, which is extremely important WWE content reached a record of 28 billion video views, which is by the way, up about 32% from 2016, so we continue to grow that, which is extremely important for landgrab, as well as social media engagements are about 1.2 billion.

W YouTube's channel remained the number 1 most viewed sports channel, and actually the number 2 most viewed channel in all of YouTube. We formed partnerships at the launch and create content across multiple platforms and we continue along that way.

There's a television show, we got Mixed Match Challenge, it’s a live in-ring series that is launched on Facebook, launched and reserve – launched around January 16 and doing very well. There's a new reality show coming out in USA Network, called Miz & Mrs. [indiscernible] and his wife Mariz [ph]. We've as well launched some content as it relates to virtual reality experiences, the most everyone's doing that we are partnering with.

NextVR to produce content with some special events, as well many of you know this January we celebrate our 25th anniversary of Raw which is a pretty good milestone, but it's just a milestone of many more to come.

In addition to that, we recently held our first Women's Royal Rumble match, which was highlighted by the appearance of Ronda Rousey. Kudos to Stephanie and Paul for contracting Ronda Rousey and continuing especially on with the women's evolution, which has been so strong for us in opening so many doors and so valuable to our consumers.

And we're pleased generally with performance, looking forward to 2018, and we expect again to achieve record revenue. That's about all I have to say. Over to George.

[George Barrios, Chief Strategy and Financial Officer]

Thanks, Vince. There are several key topics, which Michelle and I’d like to cover today. It includes our discussion of performance, progress on key strategic initiatives and our business outlook.

Looking back, as we entered 2017, we communicated an overarching objective to drive growth by increasing monetization of content across all our platforms. And supporting that objective, we focused on creating compelling original content, Vince just described, leveraging our large, digital and social footprint to drive engagement, and utilizing data across the enterprise.

For the year, all of this generated revenue of more than $800 million, and adjusted OIBDA of $112 million. This represents the highest annual revenue and profit in the company's history, and exceeded the objectives that we've established at the start of 2017.

The successful execution of our content strategy also contributed to our strong operating and financial performance in the fourth quarter. For that period, we generated adjusted OIBDA of nearly $35 million based on a 9% increase in revenue.

Demonstrating the effectiveness of our content strategy our media division, includes our Television, Network and Digital Media segments, with a predominant source of our revenue and adjusted OIBDA growth.

As shown on Page 6 of the presentation, we realized increased revenue and profits from our television segment, OIBDA from the licensing of content to Pay TV and providers increased $8.4 million comprising higher rights fees in our key distribution agreements.

Network segment OIBDA increased $5.5 million primarily due to the growth in network subscription revenue and as anticipated, lower expenses from the timing of our pay-per-view events with 1 fewer events in the recent quarter.

WWE Network averaged over 1.48 million paid subscribers during the quarter, it was in line with our guidance and represents a 6% increase for the fourth quarter last year.

On digital platforms, an incredibly important part of our content ecosystem, we saw marked increase in video consumption. OIBDA from the sale of advertising across these platforms reflected in our Digital Media segment increased $4 million, in part due to the increase in consumption. In fact, in the quarter, over 211 million hours of consumption occurred across these digital platforms, our highest total ever and an 84% increase over the prior year.

Our Film Entertainment business, WWE Studios, also contributed to the growth in profits. Adjusted OIBDA from this business increased nearly $3 million based on the timing of releases, including the delivery of Fighting With My Family.

These are films produced in partnership with Dwayne "The Rock" Johnson. Partially offsetting the growth in adjusted OIBDA, corporate and other expenses increased $5.1 million, reflecting an increase in stock compensation due in part to the increase in WWE stock price. In terms of WWE's overall performance, changes in other business segments didn't have a material impact on the consolidated results.

Net income as reported on a GAAP basis and excluding any adjustments, declined to $4.8 million from $8 million in the prior-year quarter. Our recent fourth quarter results were reduced by onetime non-cash charges totalling $11.3 million that rose from the enactment of the new tax law, primarily due to the re-measurement of our deferred tax assets.

The re-measurement was due to the reduction of the corporate tax rate from 35% to 21%. Produced [ph] to future benefit, the company would have realized with these assets.

Excluding the impact of these charges, net income would have increased to $16.1 million. Later in my remarks, I will address the overall positive impact of the recent tax law changes.

Page 9 of the presentation shows selected elements of our capital structure. December 31, 2017, WWE had nearly $300 million in cash and short-term investments, and approximately $100 million in debt capacity under the company's revolving credit facility. We believe this capital structure and is our ability to execute our long-term growth strategy. Finally, for the year, our free cash flow increased approximately $40 million, driven by improved operating performance.

Now let me turn the call over to Michelle to provide some additional perspective.

[Michelle Wilson]

Thanks, George, and good morning, everyone. Our fourth quarter reflected meaningful progress of initiatives that enhanced our ability to engage our fans and optimize the value of our content across all platforms.

What really sets WWE apart from other media companies is our unique ability to create new content and ways that reflects the evolving preferences of our fans, particularly as it relates to mobile consumption and social interaction.

As Vince mentioned, during the fourth quarter we announced a new In-Ring series, Mixed Match Challenge, that premiered live on Facebook Watch this past January. The [indiscernible] series enables fans to directly influence and interact with the In-Ring action, follow story lines in between the episodes and connect with one another on as the drama unfolds.

As a result, our WWE Superstars can now connect with our massive fan base on Facebook in ways that they never could before. Over the 4 weeks since the debut of the Mixed Match Challenge, the show has produced over 6 million views and 12 million minutes watched on Facebook.

Providing another means for our fans to connect with our Superstars, we recently announced a new docu series, Miz & Mrs. The series will air on USA Network and will chronicle the lives of our Superstars, Miz and Mariz, as they become parents for the first time ever.

Another front we marked a new milestone and as Vince mentioned, in WWE's women's evolution just 2 weeks ago was our first-ever women's Royal Rumble match. It included a surprise appearance of Ronda Rousey.

Our previous innovation, together with our proven ability to craft intriguing stories about real [ph] characters, is what makes WWE a media powerhouse, one that continues to deliver strong viewership across all platforms.

On television, Ron Macdonald [ph] maintained their dominant positions as the number 1 and number 2 ranked programs on USA Network. And again as Vince mentioned in January, we celebrated the 25th anniversary of Raw. The event attracted the best ratings in 3 years. At the same time, we also completed our seventh successful season of Total Divas and continued production of the third season of Total Bellas in partnership with E! network.

On a seperate note, WWE Network continues to be a leader in the direct-to-consumer video services. In 2017, our network ranked as number 2 - as the number 2 branded service behind only MLB.TV. Beyond the other direct-to-consumer business consumption of WWE content increased 32% to a record 20 billion video views across YouTube, Facebook and WWE.com.

Importantly, our global sponsorship revenue increased across all platforms to 30% in 2017. Our pursuit of innovation extended toward WWE. We strengthened our talent base, launched new mobile games, delivered the number 1 selling action figure in the U.S. ahead of Transformers and Marvel Avengers, and applied data and analytics to enhance our marketing.

These accomplishments and operating metrics provide proof points on how we are capitalizing on our brand strength to bringing unique content and products to drive our long-term growth.

I'll turn the call back over to George.

[George Barrios, Chief Strategy and Financial Officer]

Thanks, Michelle. Looking at the future, as you know, over the past several years, WWE has undergone a strategic transformation, pivoting to a multiplatform strategy with a growing digital, social and direct-to-consumer capabilities.

As part of that process, we've evaluated the way we analyze our results and allocate resources. Therefore, beginning with the communication of our first quarter 2018 results, we're planning to make two changes in how we report our performance.

The first change is to revise our reported segment structure and the second change involves modifying our definition of adjusted OIBDA. This revised approach is intended to make our business performance easier to evaluate and analyze, make our financial statements more informative, and present results in a more consistent manner to our peers.

I'll take the change in business segment reporting first and then involve three key components. First, a streamlined organizational structure. Shown on Page 12 of the presentation, the revised organization is comprised of 3 operating segments: Media, Live Events and Consumer Products. We believe this presents an improvement compared to our current 10 segment approach.

Second, we're also developing plan to allocate certain clause [ph] that were previously aggregated in our corporate and other segment, which we referred to as business support costs. We will allocate those at the revised segments. The remainder of our corporate and other expenses will be labeled corporate and will be treated as a reconciling item rather than as a reportable segment.

Third, with the implementation of this revised reporting structure, we expect to provide greater visibility into secular revenue streams. So shown on Page 15, these include entertainment right fees, the advertising and sponsorship revenue that Michelle mentioned.

As part of the process, we'll also be revising our disclosure the operating metrics. As I said before, we believe that the revised presentation of the results will be more informative to users of our financial statements, and that this revised approach will be more consistent with that of our immediate peers.

The second change is the definition of adjusted OIBDA. To further facilitate analysis of our operating performance, we are planning to change our primary measure performance, an SEC term, from OIBDA to adjusted OIBDA, and to modify our definition of adjusted OIBDA to exclude stock-based compensation expense, a non-cash expense that may vary from period to period with limited correlation to underlying operating performance in the period. We'll also continue to exclude certain impairment charges and other non-recurring items as these items also impact the comparability of results between peers.

We believe that this by definition of adjusted OIBDA is relevant to investors because it provides a meaningful representation of operating cash flows generated by our business segment and as a primary measure used by media investors and analysts and peers for comparative purposes.

We began to expect - we expect to begin reporting actual results using this revised definition of adjusted OIBDA with the communication of our first quarter of 2018 earnings.

Separate from these changes, as you know, in May 2014, the FASB issued a new standard for revenue recognition, ASU number 2014-09, revenue from contracts with customers topic 606. We adopted this standard as a January 1, 2018.

As illustrated on Page 18 of our presentation, the adoption of the standard requires WWE to record revenue based on current period estimates rather than our prior approach, which is based on receipt of statements that would show actual results for the prior period.

The revised approach is expected to have the most significant impact on our consumer product licensing and our film and entertainment businesses, which is the timing of revenue recognition throughout the year. We do not expect a material impact on full year results. However, we do anticipate changes in the quarterly timing of revenue.

With these changes in mind, I'll now review our projected results for upcoming year. For the first quarter 2018, we estimate adjusted OIBDA of $23 million to $27 million where these figures exclude stock-based compensation expense.

As compared to the first quarter of 2017, this range represents higher profits from the increased monetization of content, offset by an $11 million to $13 million reduction licensing revenue due to the timing that I just explained.

To facilitate the year-over-year comparison, Page 19 of the presentation shows that the range of first quarter 2018 adjusted OIBDA represents growth of $8 million to $12 million from the first quarter 2017 on a pro forma basis.

For the first quarter 2018, we're also projecting average paid subscribers to WWE Network of approximately 1.53 [ph] million. In 2018, we expect to achieve another year of record revenue and previously target adjusted OIBDA of at least $115 million.

Based on revised definition, which excludes projected stock compensation expense, this equates to an approximate 2018 adjusted OIBDA target of at least $140 million, which would represent another all-time record.

We continue to believe there's a significant long-term growth opportunity for WWE, and the 2018 approach balances earnings growth in the short-term, as well as investment in key strategic areas.

In early 2017, you'll recall we've discussed the step up in capital expenditure expected in 2017 to retrofit our recently purchased facility. This project was delayed and will now begin in 2018. Therefore, expecting originally projected for '17 will occur in '18 and we anticipate capital expenditures of $50 million to $70 million in the year.

Although we don't provide specific guidance on net income, EPS or cash flow, we believe the new tax law will provide long-term benefits the WWE in all 3 areas. Prospectively, our effective tax rate is expected to decrease from approximately 36% to between 25% and 27% excluding discrete items.

The lower effective rate is the result of the reduced corporate tax rate under the law, offset by the elimination of certain adoptions including deductions for domestic production activity in certain executive compensation.

Additionally, due to the immediate expensing of certain capital expenditures under the new tax law and our capital plans of the next year, we expect that our cash taxes will be significantly reduced in the near term.

With that, investors should expect that some portion of dividends paid in the next year will likely be deemed a return of capital that reduces their cost basis but does not get taxed as dividend income.

In the coming year, our key initiatives include delivering a wide range of content across all our platforms, continuing to build-out our data and technology infrastructure and investing in global markets where we see great long-term opportunity.

Of course, the fundamental component of delivering content across platforms is to develop our featured distribution plans for our most important content, Raw and SmackDown, in key markets.

As a reminder, we expect to announce plans from future distribution in the U.S., sometime between May and September of this year, the U.K., by the end of this year, and India in the first half of 2019. We believe continued execution of our strategy will enable us to achieve record results and maximize long-term shareholder value.

That concludes the portion of the call and I'll turn it back to Michael.

[Michael Weitz, SVP, IR & Financial Planning]

Thank you, George. With all ready, please open the lines for questions.

[Operator]

Thank you, sir [Operator Instructions] We'll go to our first question from Brandon Ross with BTIG.

[Brandon Ross, BTIG]

Good morning. Thanks for taking the questions and congrats to both George and Michelle on your new titles. First, just a couple of questions on Facebook, Mixed Match challenge. Wanted to first understand what your goals were in creating that series with Facebook?

And have the results thus far given you confidence that Raw and SmackDown can be successful if they were to be distributed exclusively on a digital platform? And then any color on the economics of that Mixed Match Challenge? Thanks.

[George Barrios, Chief Strategy and Financial Officer]

Yes, Brandon, the show from our perspective has been great. Obviously, it's a new way of producing content, a new way for fans to engage in. We're learning every day on the production side. In terms of the engagement levels, there's not really a benchmark, but we're really happy and what we hear from our partners with Facebook, they're really happy.

Regarding your question around Raw and SmackDown, as you're aware, Raw and SmackDown today is available on YouTube in certain countries around the world and it has been for some time. So we've been monitoring the consumption of long content on digital platforms, not going to release any data, but more and more what we're seeing is people are comfortable watching long-form content as long as it's engaging. So we'll see what that means into the future, but it's something that I think our fans are becoming more comfortable every day on and the rest of the world quite frankly.

[Brandon Ross, BTIG]

And then just any color in the economics of that deal?

[George Barrios, Chief Strategy and Financial Officer]

Well, it's a 12th episode, 20 minutes. So you're essentially looking about 4 hours of content. I would say that on a per-hour basis, if you looked at it, it's certainly not Raw and SmackDown levels, but it significantly higher than what we see on a per-hour basis from the digital platforms prior to this.

So I think it kind of shows people are out there everyone, traditional, new platforms looking for compelling content that can aggregate audiences. And I think you can do that on a live basis, all the better.

[Brandon Ross, BTIG]

Thanks very much.

[Operator]

And we'll take our next question from Eric Handler with MKM Partners.

[Eric Handler, MKM Partners]

Thanks. Thank you very much for taking my question. From accounting number questions for you, I guess, to George there. The first half of '17 saw a disproportionate share of the expenses. Wondered if you could talk about sort of maybe the cadence of your - how your expenses are going to be laid out in 2018? And then secondly, with the elevated CapEx in this year, in 2019, should that go back down to sort of like normalized levels?

[George Barrios, Chief Strategy and Financial Officer]

Sure. In the first half, we have a - on the timing of expenses and you see it in the network segments certainly, you see a little bit on the live event segment. The timing of WrestleMania was a higher level of production and programming expense in the second quarter, and you are always going to see that. On a year-over-year basis, you're probably seeing some favourable comps towards the back half of the year. But otherwise, it's really the timing of WrestleMania.

As far as CapEx, we're giving guidance for this year, Eric, not into '19 or beyond. As I've mentioned before, we purchased a facility in 2016 in the third quarter, we have to retrofit that for production capabilities. So we'll give the '18 guidance and we'll talk about '19 later on this year.

[Eric Handler, MKM Partners]

Okay. So just as a clarification, so absent WrestleMania, I think in '17, you guys pushed forward some spending on may be investment spending that occurred in the first half of the year. Is that more normalized this year? Is that - or will again be front-end loaded on those non-WrestleMania sort of investments?

[George Barrios, Chief Strategy and Financial Officer]

Eric, our approach is we don't give line item guidance for the full year. We've talked about OIBDA and we've talked about setting the record and revenue, but we're not going into line item guidance. And as far as different periods, we'll do the quarter-by-quarter. Frankly, we want to give ourselves the flexibility to manage the investments at different times of the year where we see we think we can make the most impact. So don't want to give a quarterly view.

[Eric Handler, MKM Partners]

Got it. Thank you, George.

[George Barrios, Chief Strategy and Financial Officer]

Yeah.

[Operator]

Our next question comes from Evan Wingren with KeyBanc Capital Markets.

[Evan Wingren, KeyBanc Capital Markets]

Thanks. So George, if I take a step back and look at the full year growth rate for TV, 12% this year versus 5% in the prior year. And I look at your historical phasing of revenue recognition from your major distributors, it essentially implies that the non-major distributor revenue accelerated to mid-teens year-over-year growth. And I know you guys have been renewing or creating a distribution partnership internationally.

But I guess, I'm curious, one, if I'm right. And can you speak to the level of economics you're getting in the - new distribution deals or the renewals relative to the prior deals or comparable geographies. Hopefully, that makes sense and you know, I'm going there?

[George Barrios, Chief Strategy and Financial Officer]

Yes. I think the best way to think about the escalation of the core content, which is the Raw and SmackDown, is to look at the information we provided by our top 7 deals, it's the predominant revenue around Raw and SmackDown. So you can see that average rates, we have escalators of 8% to 10% after the step up in the last renewal cycle. I think that's the best indicator.

Market-by-market, the reality is the deals on a percentage basis can vary quite a bit. But in absolute dollars, the top 7 deals makeup the vast majority. There's also an element period-over-period, we're depending on how many of these third-party productions we do like Bellas or Total Divas, it shifts the revenue. It does have a big impact, actually – almost no impact on profitability, but it can make the revenue comps a little bit difficult to see.

We put it in the disclosure in the Q, but it's a little bit difficult to see just on a basis of the financial statements, one of the reasons we got to revise segments, we’re going to isolate the Raw and SmackDown rights fees because we think it's important to hold those out, so that will be one of the kind of secular views into revenue that we provide consistently. But I would say if you really want to get a sense of the escalation in the deal, looking at what we put out of the top 7 deals, I think it's the easiest and cleanest way to do it.

[Evan Wingren, KeyBanc Capital Markets]

Okay. And so just to paraphrase, you're saying that the non-top 7 deals, you're still seeing comparable escalators to what you put out?

[George Barrios, Chief Strategy and Financial Officer]

We look at various market-by-market and then any one deal, you're talking much smaller levels than the rest - than those top 7. So you can have big percentages on small numbers, but we’ve certainly seen markets where we've done - we've had a great result on the renewal on a percentage basis, again a much smaller dollar, what we recently announced in Africa is an example of that.

[Evan Wingren, KeyBanc Capital Markets]

Okay. Thanks. And just one more. The Digital Media step up, I think it was in absolute dollars, the highest setup that we've seen may be ever for that segment, sort of the last few years. Is that mostly still coming from volume? Or are there CPM increases that also contributed to that? And if so, what is the driver of that? Is that platform mixed shift or is that just advertisers warming up to the content for lack of better term?

[Michelle Wilson]

I'll take that one. So to answer to your question is really a growth driven by both volume and CPM, which is obviously, good news. Couple of things on that front is you know, been across the platform. But certainly, as we see our video views continue to grow on YouTube, that's a major contributor.

So again we're being effective both Google reserves selling it effectively, as well as our own digital team selling it. So I think we've - as we've built muscle around data analytics, we've also built muscle around selling those digital video views on ourselves directly to the marketplace. So we've got a great reception and had been successful doing that on our own as well. So those things are what's driving volume and CPM.

[Evan Wingren, KeyBanc Capital Markets]

Okay. That’s helpful. Thanks, George and Michelle.

[Operator]

And we'll take our next question from David Karnovsky with JPMorgan.

[David Karnovsky, JPMorgan]

Hi, thank you. Just a question for Vince. With the relaunch of the XFL, can you speak about how you see this impacting both your day-to-day and maybe your longer term role? And then in the context of the recent stock sale do you see the funding for XFL as currently sufficient?

[Vince McMahon, Chairman and CEO]

Well, I am going to speak XFL in terms of, obviously, going forward, it will take more than the original idea. But what we announced as far as investments, what I announced in terms of investments. As far as the management's concern my role won't change at all. We're going to have a separate management for XFL. And so I don't see any significant or if any changes in what I do on a day-to-day basis.

[David Karnovsky, JPMorgan]

Okay. And just a question on the network, can you just talk about how the cadence of that addition can potentially be impacted by a later WrestleMania this year? Thanks.

[George Barrios, Chief Strategy and Financial Officer]

Yes. In terms of cadence, because the one weak delay has a little bit of our ripple effect, which is why back half of the year, I see slightly higher growth rate than the implied growth rate for Q1 because of that since it's such a big aggregation of gross ads.

[David Karnovsky, JPMorgan]

Okay. Thank you.

[George Barrios, Chief Strategy and Financial Officer]

Yeah.

[Operator]

Our next question comes from Eric Katz with Wells Fargo.

[Eric Katz, Wells Fargo]

Thanks. Good morning, everyone. A couple of questions. First, in your last round of TV renewals, there's some concern that you're launching the network was too close to negotiating window and considering the media companies didn't know the network would affect their own ratings, may be there's some issues negotiating higher rates or funding demand for your content and some other players. Can you just discuss the differences this time around in the conversations and if you're seeing may be unexpected amount demand from other players both in traditional media and outside of traditional media?

[George Barrios, Chief Strategy and Financial Officer]

Yes, I'm not going to characterize any of the conversations. I think it's fair to say that we were pioneers on both the social and digital that Michelle and Vince talked about direct-to-consumer. You have to ask people how they felt about it. But certainly, there were folks who were public about their negative perception.

I think given that today, there's not a media company probably in the world that's not trying to create a social and digital and direct-to-consumer capability, as well as the data capability. You don't hear the negativity anymore in the press. You have to ask people about what that means in terms of their appetite or not for WWE.

[Eric Katz, Wells Fargo]

But would you say that your phones are ringing for more players this time around than the last time?

[George Barrios, Chief Strategy and Financial Officer]

You're kidding me, right?

[Eric Katz, Wells Fargo]

All right, I'll skip to the next one. So, one thing around the Facebook content, I'm sure you're able to easily add content for Facebook. What's your capacity to expand the amount of programme that you can provide for the other platforms? Do you have the ability to produce for Raw and SmackDown and then potentially many more hours of initial content for either Facebook or other players out there?

[Michelle Wilson]

I mean, we kind of, because of our business model we chose that and it's really an unknown [ph] ability to create content. And so when the opportunity for Facebook came and just to add to what George said about Mixed Match Challenge, it really provided us an opportunity to engage with our fan base. Its really test on what how consumption happens on a digital platform.

And so for us, it's been a great experience, a great learning experience not only how our fans are engaging, how our Superstars can engage. But also from production standpoint, how we shoot it, and what it looks like. So it's been a tremendous test experience for us. And as a George mentioned, the metrics are - we're happy, Facebook is happy.

So again I think we have the ability, we have the unique ability to create content. We felt strongly about coming up with a concept that's unique to Facebook. And for those of you who follow our content, the idea of Mixed Match, Mixed Tag teams competing and the brand competing, we've never done that anywhere before.

So the exclusive nature and our ability to continue to come up with ideas like that is truly unlimited. George and I felt necessarily why to create it, there's obviously, other people who is focus on that. But when an opportunity comes our way, it's really impressive how as a team we're able to come up with unique and ownable ideas specific for that platform. So really great start in learning of the digital space around building compelling content.

[George Barrios, Chief Strategy and Financial Officer]

And just to link into the discussion on the CapEx, I mean, the reason we're making the buildup that I talked about before is to support what Michelle just said, is to be able to create more content for pretty passionate and global fan base.

[Eric Katz, Wells Fargo]

Can I squeeze one more in, and just to make sure I understand the Q1 OIBDA guide. If there was no revenue recognition change, you essentially would have a Q1 OIBDA guide of $10 million higher or $33 million to $37 million, is that correct?

[George Barrios, Chief Strategy and Financial Officer]

That's right.

[Eric Katz, Wells Fargo]

Okay. Thank you.

[Operator]

We'll take our next question from Ben Swinburne with Morgan Stanley.

[Ben Swinburne, Morgan Stanley]

Thanks. Good morning. George, could you just talk a little bit about where you guys are investing incrementally in '18 versus '17? And I'm particularly interested in international investments around building the brand, Live Events, et cetera, where you might be trying to put some incremental capital to work to build outside the U.S.?

And then for you and/or Michelle on the Facebook side, could you tell us a little bit about Watch Time? I've heard that ahead of watch talk about sort of 17 minutes for a long form, average watch time for a long-form piece of content. But I think you said 12 million minutes and 6 million views, which could be a lot shorter than interpreting those about data set incorrectly.

But can you give us a little more sense of how much people are - first time in their spending when they sit down to engage with the product on Facebook?

[George Barrios, Chief Strategy and Financial Officer]

Yes. In terms of the investment, Ben, it really - it's the same 3 areas for us. It's more content, more on the consumer technology and data side, and then local markets. And specifically your question on the local markets, a lot of it is localization of content, so more languages even in countries where we have multiple languages already.

A country like India where we do it in couple of language in English, we're going to do more. And then a lot on the social and digital engagement front. So not just on video, but on the marketing and engagement front.

So that's what where we continue to build-out. And again as we said before, we're trying to balance continue to grow the bottom line but making investments that we know will pay off in the long term.

Look, on the watch time, it's a different - obviously, when you're talking to the head of Facebook Watch, they have data that we don't have. So I like to stay out of the comparison. I will say what we've seen because we can see content how it does on YouTube, Facebook and other platforms.

I would say we've seen number good improvement in the watch tab for WWE content, the time spent viewing versus pre-watched tab. Obviously, we want continue to see that grow, but I would not want to make any comparisons just because we don't have access to that information.

[Ben Swinburne, Morgan Stanley]

Got it. If I could just ask one follow-up on current taxes. So I think you said minimal cash taxes going forward. I just wanted to go back and see to clarify or quantify exactly your point there?

[George Barrios, Chief Strategy and Financial Officer]

Yes. I mean, when you look at the impact on the rate side, there is a benefit to cash flow. And then because of the accelerated depreciation that's part of the new tax law and given our step up in the CapEx, that's right, minimal cash taxes here in the future, into '18.

[Ben Swinburne, Morgan Stanley]

Okay. Thank you.

[Operator]

Our next question comes from Dan Moore with CJS Securities.

[Pete Luca, CJS Securities]

Hey, good morning. It's Pete Lucas for Dan. Just regarding network guidance - regarding the network. Guidance for Q1 seems to imply 2% to 3% year-over-year growth in average paid subs. Just wondered, is that the right way to think about growth in subscribers for '18? And also any update on plans for timing around tiering?

[George Barrios, Chief Strategy and Financial Officer]

Yes. So I'll answer the question on guidance for a second. One thing to keep in mind, Pete, is what we – how we think about the network today. So as we currently sit here, it's our second largest business. It's got the second highest OIBDA generation for WWE, it's got 30% today OIBDA margins. And it had great unit economics because of our low-cost to acquire subscribers or incremental subscribers really is profitable and the business is growing.

And as Michelle mentioned, today it’s the second largest branded service out there behind MLB.TV. So kind of how you look at the just of phenomenology business in the portfolio. Longer term, as we've talked about, we think localizing the network, doing different things on tiering, both on the high side on the lower side to expand the consumption and engagement we think is a real opportunity kind of bend of the growth curve. And moreover, the network because its video will serve as the whole come [ph] to the overall direct-to-consumer strategy. So long term, it's got significant benefits as well.

Now to your specific question in the short-term, you're right, the guidance implies 3% year-over-year in Q1. As I was talking to on the prior question, because of the cadence and the timing of WrestleMania, you actually will see if our assumptions on gross ads are correct, you should see some year-over-year improvement in the back half of the year versus the first quarter.

[Pete Luca, CJS Securities]

Very helpful. Thank you. And then you touched on in the call, but can you tell us any more about the agreement with USA for Miz & Mrs in terms of timing, how many episodes?

[Michelle Wilson]

Yes. We are looking probably to premiere that sometime in the summer. And right now, it's a 6-episode season and economics, we don't disclose that.

[Pete Luca, CJS Securities]

Great. Thank you very much.

[Operator]

Our next question comes from Jason Bazinet with Citi.

[Jason Bazinet, Citi]

Yeah. I just have a question on Slide 15 of your deck, maybe I'm misinterpreting this. But it's expected to provide enhanced visibility of revenue, such as rights, advertising and sponsorship. But on the left-hand side, there's sort of 10 numbers that you're going to give going forward and then - or in the past. And am I right in the future, you're giving 3 revenue numbers? So essentially clubbing, TV rights and network subscriptions together, is that right?

[George Barrios, Chief Strategy and Financial Officer]

No, no, we won't. We'll continue to give subscription revenue, we'll continue to give [indiscernible] or pay-per-view revenue. We will show different rights numbers, so you'll see kind of the core rights numbers for Raw and SmackDown. And we'll pull out and show rights for things like Miz & Mrs or our Total Diva.

So you'll see an increase in the media right side. So the media side will have about 5 secular line items. The Live Events will have 4, and the Consumer Products will have 3. So there will be increased visibility and especially on the media side, which we think will be helpful.

[Jason Bazinet, Citi]

Understood. Okay. Thank you very much.

[Operator]

[Operator Instructions] Our next question goes to Laura Martin with Needham and Company.

[Laura Martin, Needham and Company]

Hi. I guess, I'm last. Okay. Yes, so Vince, one your earlier comments with social and digital, 20 billion video views? And I'm interested in at 32%. And I'm interested in where that growth is coming from. Would you characterize most of the growth from more video views? And I think we're making about $20 million on that 20 billion views. I know you think of this as sort of a marketing channel. At some point, does this really become a revenue stream for you? Or is it always going to be sort of marketing channel for you?

And I guess, for George, as we go into the renewals with Comcast USA., Fox said last night on their call, you probably haven't seen the transcript, that they are pivoting their core Fox broadcast strategy to live sports. And so they just paid over $500million to 11 NFL games on Thursday nights, added at Sunday night lineup.

What I want to know from you is how you think about that exclusive negotiating period that NBC has? And does it make you more likely to try to expect that exclusive negotiating period and hope that there may be other bidders for your rights that would top a USA Network-NBC Comcast did.

And then, Michelle, international, you guys usually do a lot on international, actually specifically interested in December quarter, India and the U.K., whether you guys have done any events there? And whether there's any update on progress in those 2 countries? Thanks, guys.

[Vince McMahon, Chairman and CEO]

Generally speaking, Laura, its just – as far as the popularity and thing about the nature of the growth of YouTube and others, it's just good content really. You could look at that both as we do in terms of revenue and marketing, that's really the simple answer.

Just one thing I would say as far as rights and what have you concerned and George will take the rest of it, I'm sure you guys have done your homework. When you consider the percentage of total overall ratings that we deliver, as compared to the entire rating of the whole week of USA Network, we compare, I'll let you make that comparison.

And the deal aspect of that when you take those growth rating points and then apply them to other networks, then obviously, you do your homework there and see where we take those other networks, as well as - if they were not in USA. So there's a lot that you guys can do and I'm sure you read that in terms of ratings and percentages that we have on USA percentages that we would increase other networks. And the other aspect of it is we have proven many, many times that we are very good at audience migration. Our audience will follow us from one location to another very easily. So George, I'll let you answer that.

[George Barrios, Chief Strategy and Financial Officer]

Yes. First on Vince's first point, Laura, the way you characterize it's only $20 million, so we're not public with that number, but it's only $20 million, so it’s obviously marketing channel. We don't think about it that way. Seven or 8 years ago, it was only a marketing channel, today it's an incredibly powerful channel for us. And the monetization is coming. It's not where traditional TV is, but its coming.

I'll just remind you not to go back too much and too far at time. But at the advent of the cable TV all around the world, people said the same thing. Oh, yes, there's a lot of stuff out there, people are watching, but there's no money. And today it's the engine or it was the engine that drove the media business for a long time.

So there's a long history of dollars following eyeballs, we believe that into the future. And we're starting to see it. Is it where traditional TV is? No. Do we know where it will end up? No? Do we think it will continue to grow? We do. So first on that element.

On the renewals, you know, Vince touched on it, in the data he mentioned is public. So everyone can go through their own math and jump to their own perspective. As far as commenting on what that means and how other people are thinking about it, I'm not going to characterize that. You can go ask them and they may answer it. But the data that Vince mentioned is really public.

[Michelle Wilson]

Great. Laura, so on the international front, just before I specifically talk about India and the UK, just as a reminder, where George mentioned that international is area that we'll continue to invest whether it's localizing content for TV or localizing content in language for digital and social, that is an investment area for us.

And I think most of you have heard us state the day or before that, about 70% of our video consumption for WWE happens outside of the U.S. So we obviously, believe there's an opportunity to continue to build our monetization on that front and the investment is to go after that specifically.

As it relates to India and the U.K., I think you've know that those are 2 of our top layer television agreements. We, again, see opportunity on both of those markets in the U.K., as you know, the U.K. tournament the previous year, had a great response from our fan base on the network where Paul has done a great job on recruiting local talent in that market. And we continue to plan to create local content around our network, but also in partnership with Sky.

We continue to have discussions with them about highlight shows that have local announcers hosting. We believe in that market there's an opportunity to continue to build a fan base on that front. So more great content, more globalization to come in the U.K. and again all building out that fan base.

Not dissimilar in India, the same story. I think we launched – re-launched a localized show called [indiscernible]. It airs on Sony Match, that is general entertainment network. It continues to perform extremely well, hosted by 2 local talents and really telling what happened the previous week in WWE.

So again localizing that content, localizing digital and social, last week, acknowledged and recognized it and an Indian holiday, which we posted in 3 or 4 languages, tremendous response from our fan base there, acknowledging that we weren't just putting out hosting in Hindi and English that we were posting them in 3 or 4 other languages.

So again investments around that and making that scalable to market will allow us over time to monetize. As George said, we believe that the dollars will follow on that front. So again a lot of growth, we’re excited about both India and the U.K.

[Laura Martin, Needham and Company]

Thanks, guys.

[Operator]

And we'll take our final question from Mike Hickey with The Benchmark Company.

[Mike Hickey, The Benchmark Company]

Hey, Vince, George, Michelle, congrats on another great quarter. Just a couple of little questions from me. Just wanted to clarify, are you still guiding for subscriber growth in the network in '18? I know you see it specifically right out that you had before. And then on the new segmentation, the mid-construct, is there a way to preview your historicals there? I can just imagine, Q1 heavily is being very paralyzing, have you sort of rebuild that models. But any help there, I guess, paring us would be nice.

And then, I guess, my real question is just around Ronda Rousey. Obviously, I think, it's easy to get caught up in the importance of maybe one particular talent. But she's a star power, so that's remarkable. Just curious, any measure from your fan base or the reception of her and how active you expect her to be, whether she would sort of be a part-time like Rock or more of an ambassador like The Rock? Or how do you plan to use her in the future?

[George Barrios, Chief Strategy and Financial Officer]

Yes. So on the subscriber growth, as I mentioned, Mike, that's one of the previous questions. Firstly, we do expect year-over-year average - growth in the average daily pay, which the metric we usually use. 3% we've guided to in Q1, we expect that to be higher in the back half of the year.

On the segments, I think there is a way to start previewing given that we've laid out how the segments are going to change. In fact, if you look at our media division today, a large part of the way we characterize that, unlike the new segment moving forward, as well as business support clause, we called out in the K, you can see how much the allocation.

So there is public data on being able to restart a preliminary view and certainly the IR team is standing by to kind of help kind of guide you towards that public data. But yes, there will be. And we’ll also, as we start reporting, provide a bridge between the 2 different models, so people have some guide person.

[Vince McMahon, Chairman and CEO]

You're right about no one individual is like the [indiscernible] of our talent, things of that nature. But as far as Ronda's concerned, I'll let Paul answer where we are with Ronda.

[Paul Levesque]

So we're finalizing the details of the deal now, to [indiscernible] eyes. Just to be clear, it's a multiyear deal. We are number 1 focus in goal. We're in first position on everything with her. And as she has stated, she wants to be ingrained in the fabric of WWE.

This is not a journey into something quick where she wants to come in and do a few events. This is her life now and she wants to be here, wants to be ingrained in it and wants to be with us for a long time. And we look forward to that opportunity as she is a massive global star that can do amazing things in this industry.

[Vince McMahon, Chairman and CEO]

And to what we're doing, and I'll let Stephanie answer that, all of that works in general.

[Stephanie McMahon Levesque, Chief Brand Officer and Director]

So the women's evolution has certainly been a huge driver in our business. And we've seen our female talent go from being secondary or tertiary type characters to actually being the main event in a number of our different programming.

Now we saw the first ever women [indiscernible] match, Money in the Bank match. And then as Vince mentioned, the first-ever women's Royal Rumble match. We also had the first-ever women match for WWE in Abu Dhabi where the audience actually started chanting, this is hope. And men and women in that entire arena is chanting, this is hope. And it's a huge movement in our business and it is bigger than just one person. And it's something that we're really proud of and look forward to continuing.

[Michelle Wilson]

And I would just add, from a response standpoint, I think your question was what was our fan response. Our social media, essentially blew up at Royal Rumble. But not just about Ronda, it was really around the entire women's Royal Rumble match. So what's great as Vince said, it's no one start. I think that our fan response continues to build around the women in general.

So social media feedback was incredibly positive, the engagement level around our women's Royal Rumble match was incredible. And again, we see even in our linear TV ratings that when we have women, our matches on for the women that those are some of our highest rated segment. So when you look at the actual data around it, it continues to be a great story for us.

[Vince McMahon, Chairman and CEO]

It's not just – it relates to matches and things of that nature, but its part of an overall aspect of what the women's evolution really means to us.

[Stephanie McMahon Levesque, Chief Brand Officer and Director]

And it certainly helps grow interest from a number of different business partners, whether that's the sales and sponsorship, whether that's media partners. Everyone is really interested in this women's evolution in our business. And it is actually something that our fans really helped organically start with a hash tag that trended worldwide for 3 days.

They are as much a part of this movement, it's not something that we're doing for the movement sake, it's something that's happening because our fans and our audience demanded it. And our women are rising to the occasion and taking advantage of every opportunity.

[George Barrios, Chief Strategy and Financial Officer]

And the truth is because of what we have started with the women's evolution over the last few years and the increased popularity of it and everything that we've accomplished is the reason why somebody like Ronda wants to be involved in this. She sees this opportunity as a platform for her globally as well, to create social change around the world for women not just within WWE, but globally around the world on so many levels. So what we have already started and accomplished is now attracting people, like Ronda, and around the world, women who to want to be involved with WWE to a much higher level.

[Mike Hickey, The Benchmark Company]

That’s awesome, guy. Fantastic. Congratulations. And one little quick follow-up, I guess, people want to compare the negotiation fees, your right fees '14 back in the day to where you are today. And I would imagine everything that's happening, the growth of the women's revolution and your brand and sports in general is pretty positive developments that stay in negotiations?

[George Barrios, Chief Strategy and Financial Officer]

We'll find out soon enough.

[Mike Hickey, The Benchmark Company]

Thanks, guys. Good luck.

[George Barrios, Chief Strategy and Financial Officer]

Nicole, do we have anybody else in queue?

[Operator]

We do not have anybody else in your queue at this time. I would like to turn the call back over to our speakers for any closing remarks.

[George Barrios, Chief Strategy and Financial Officer]

Thank you, everyone. We truly appreciate you listening to the call today. If you have any questions please do not hesitate to call - contact us. Thank you.

[Operator]

And once again ladies and gentlemen, that concludes today's conference. We appreciate your participation today.