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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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Please standby by. Hello, and welcome to the WWE Third Quarter Earnings Webcast. [Operator Instructions] Just to reminder, that today's call is being recorded.
I'll now turn the call over to Michael Weitz, SVP, Financial Planning and Investor Relations. Michael?
Thank you, and good morning, everyone. Welcome to WWE's Third Quarter 2019 Earnings Conference Call. Leading today's discussion are George Barrios and Michelle Wilson, our Co-Presidents. Their remarks will be followed by a Q&A session.
Vince McMahon, our Chairman and CEO, is in Riyadh, Saudi Arabia for production of our event Jewel.
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 a replay will be available on our website later today. At this time, it's my privilege to turn the call over to George.
Thanks Michael. Good morning everyone. Thanks for joining us today for review of our third quarter business performance, our progress on key strategic initiatives and our outlook.
During the quarter, we achieved adjusted OIBDA of $25.4 million which exceeded our guidance primarily due to lower costs across our businesses. Despite this result, we are modifying our full year 2019 guidance to an adjusted OIBDA range of $180 million to $190 million, which would still be an all-time record.
The change is attributable to the delay in completing a previously contemplated agreement in the MENA region and the impact of accelerated investments to support the creation of our core In Ring content, while we continue to work towards the completion of MENA agreement no assurances can be given in this regard.
And in the third quarter we made important progress on key strategic initiatives, initiated the next phase of our WWE network service, develop new content and continue to strengthen our brands. It's included investing in our core In Ring content, launching NXT on USA and preparing for the successful debut of SmackDown on Fox Broadcast. As we focus on our content, our domestic TV ratings continue to improve.
Domestic TV ratings for Raw, which had declined 14% in the second quarter, improved to a year-over-year decline of 6% in the third quarter. Similarly domestic TV ratings for SmackDown, which declined 11% in second quarter, improved to a 4% decline in the third quarter. Importantly, ratings for both Raw and SmackDown surpass the aggregate performance on the Top 25 cable networks.
As we emphasized in the last quarter, we're very excited about the launch of SmackDown Live on Fox, makes WWE available live every two weeks a year in the premier broadcast platform.
Program's debut on October 4, celebrated SmackDown 20th anniversary on television, attracted 3.9 million average viewers making it one of Fox's highest rated Friday night programs over the past three years. Additionally, SmackDown averaged 3.1 million viewers to-date over its three shows on Fox broadcast, up more than 150% as compared to the same time slot over the prior four weeks on Fox.
On a year-over-year basis, Adjusted OIBDA declined approximately $10 million. It's on lower revenue from our Network and Live Events businesses and higher fixed cost, including some of the accelerated investment I mentioned. These factors were partially offset by $10.7 million reduction in accrued management incentive compensation associated with our lower expected full year performance.
To discuss our business performance in the quarter, let's turn to Page 3 of the presentation, shows the revenue operating income and adjusted OIBDA contribution by segment as compared to the prior year.
Looking at our Media segment, adjusted OIBDA declined $8.9 million due to the escalation of core content rights fees and higher results from our portfolio film releases were offset by a reduction in network subscription revenue and increased content related expenses.
WWE Network average paid subscribers decreased 9% to approximately 1.51 million for the third quarter, driven primarily by the impact of lower subscriber additions earlier in the year, which we have previously discussed. As we have projected a 10% decline for the fourth quarter that reflects the lower subscriber base at the start of the quarter. As we look ahead, our primary focus for WWE network is continued evolution.
As I mentioned in last quarter, our new platform provides subscribers with a better user experience. Chris Welch from the Verge commented that the network was completely overhauled, much better search capabilities, improved video quality, and now feels more consistent across platforms. It looks far better and easier to use. Mike Johnson from PWInsider said it's a huge leap forward into the future for WWE.
So as I said before, we remain really excited about the long-term opportunity for the network.
During the quarter, we made important progress on other strategic initiatives that extend the reach of our WWE brands and our Superstar talent. Specifically we prepared for the transition of SmackDown to Fox Broadcast, as George already mentioned. To promote the program success along with our support Fox launched a new ad campaign with the tagline; We're All Superstars, which has been highly visible across Fox’s array of Marquee Sports programming.
As you heard from George, SmackDown successfully transitioned to Fox as measured by overall viewership. Importantly in the show's first three weeks on Fox, SmackDown was the most viewed Friday night program on broadcast among the coveted adult 18 to 49 demo. While advancing SmackDown’s position, we also expanded our Wednesday night show, NXT, from one to two hours, and began to air the program live on USA Network, these changes further building the brand as a complement to our flagship programs, including the newly licensed NXT show, we now airs seven hours of live, In Ring content that span Monday, Wednesday and Friday every week, creating a prime time line-up that broadens our brand reach and deepens our fan engagement. While producing the two highest-rated programs on USA Network, Monday Night Raw and SmackDown Live, we continued to produce, develop and partner on new original content across programs.
On television, Fox developed WWE Backstage, which is a new weekly studio show to premier November 5th on FS1. Our direct-to-consumer network, we planned Crown Jewel, which will feature top boxing and UFC talent, Tyson Fury and Cain Velasquez. And for social and digital platforms, we developed After the Bell, which is our first weekly podcast series. We’re also excited to partner with Paramount on the animated feature film, Rumble, with expected to release in July 2020. WWE Superstars Becky Lynch and Roman Reigns together with the with the main cast will provide voices for the movie’s characters. By creating original content in this way, we can reach new audiences while providing our current fans with additional opportunities to engage with our superstar talent.
Now, turning to our live event business, as shown on Page 5 of our presentation. Adjusted OIBDA for our live events declined $3.1 million, primarily due to lower attendance at our events in North America. Although, we had 19 fewer events in the quarter, this change had limited impact on the adjusted OIBDA.
During the quarter, we continued to successfully stage large scale events for our fans. We performed SummerSlam in front of a sold-out crowd of nearly 17,000 fans in Toronto. We returned to China for the fourth straight year with WWE LIVE Shanghai at the Mercedes Benz Arena and in just a few hours, we will hold Crown Jewel in Riyadh, as our second event this year in Saudi Arabia. Over the coming months, we plan to hold live-event tours across Europe, Asia Pacific and Latin America.
In our consumer products segment, adjusted OIBDA declined slightly as $2.6 million reduction in revenue from the prior year quarter was offset by lower operating expenses. Finally, we continued the evolution of our franchise video game, with the launch of WWE 2K20 on October 22nd, which was developed by Take-Two Interactive. While the initial feedback on the release has been mixed, we believe in the ability of Take-Two Interactive to further develop the game engine, enabling new functionality and experiences over time that are critical to driving the game’s long-term growth.
Page 7 of our presentation shows selected elements of our capital structure. As of September 30th 2019, WWE held approximately $231 million in cash and short-term investments, and we estimate that WWE has approximately $200 million in debt capacity under our revolving credit facility. Free cash flow declined approximately $52 million from the prior year quarter, predominantly due to the unfavorable timing of working capital and lower operating performance. To a lesser extent, the change of free cash flow also reflected a $10.4 million increase in capital expenditures, the majority of which was related to the execution of our workplace plan.
Notably subsequent to quarter end, we received a $60 million payment for an outstanding receivable that would have resulted in year-over-year cash flow growth and positive free cash flow in the period and it’s been received during the quarter. Our previous full year guidance, which targeted adjusted OIBDA of at least $200 million, assumed continued improvement in our engagement metrics, second large scale event in the MENA region, and the completion of a media rights deal in the MENA region. Although, we are holding a second large-scale event today in Riyadh, Saudi Arabia, our previously contemplated agreement for the region has not yet been completed.
Additionally, we’ve also accelerated investments to support the creation of our core In Ring content, while reducing or delaying other expenses to lessen the impact of that spending. Given these developments, we have modified our full year guidance to an adjusted OIBDA range of $180 million to $190 million. Our full year guidance includes estimated fourth quarter 2019 adjusted OIBDA of approximately $108 million to $118 million. These fourth quarter results reflect substantial revenue growth from our new content distribution agreements in the U.S., which become effective at the start of the quarter.
Looking forward, we plan to provide in-depth perspective on our 2020 performance, long-term strategy and business model in mid-to-late February, following the announcement of our 2019 results. You should note that this timing attempts to balances three factors, communicating as soon as possible, minimizing the range of outcomes around our 2020 guidance and adhere to best practices for the communication of important strategic matters close to year-end.
As part of that disclosure, we expect to discuss the evolving media landscape, colors and trajectory of our growth, our approach to evaluating and managing anticipated investments and our capital allocation. Sitting here today, we anticipate that our core content rights will drive significant growth in revenue and adjusted OIBDA in 2020. As the media environment continues to evolve, we believe several important industry trends are likely. We expect the value of live sports, content will continue to rise.
We believe there’ll be strong growth in the media and entertainment sector in international markets, especially India and China. We think brands will continue to look for and sponsor properties that deliver reach and deepen fan engagement. And finally, the digitization will accelerate enabling companies to reach a larger share of the global population with their products and services.
Importantly, we believe WWE is well positioned to take advantage of these industry trends and to drive strong growth into the future. Belief is based on several key factors, first WWE’s position in the U.S. live content ecosystem. Sponsorship business, that in our view under indexes the relative strength of our brand. Our strong global fan base, and finally, our strong focus on digitization to expand and further reach that global audience.
As we look ahead, we believe that the escalation of content rights fees will continue to drive a transformation in our business model. Over the last several years, we have seen an increasing share of revenue coming from contractual arrangements with third-parties. And we anticipate a significant share of 2020 revenue will be contractual in nature as well. We expect this trend to continue, providing a large growing stream of revenue with low volatility. By taking advantage of the industry trends that I just described, we can believe – we believe, we can transform our business, drive growth and maximize shareholder value.
Well, that concludes this portion of our call, and I’ll now turn it back to Michael.
Thank you, George. Laurie, please open the lines for questions
Certainly. [Operator Instructions] And we’ll go first to David Karnovsky at JP Morgan.
Hi. Thanks for taking the question. On the lower outlook for 2019, I think there’s been some confusion on the guide since you are holding the Crown Jewel event today. Can you bucket out the $10 million to $20 million between the Middle East deal, the performance of some areas that are more transactional and content investment? And then just on the pull forward of spend, can you just talk about where you’re investing more in content now? Thanks.
Yes. So we can’t bucket out within them. Giving a little bit more color, we had anticipated the deal would have been completed early in the quarter, it hasn’t. So that has an impact on the guide. And then as I mentioned, we brought forward some investments into our core In Ring content. As I said before, those investments really – or the production of that content really has three components. It has the creation of the storyline, second is attracting, developing and retaining the talent. And then the third is the production elements that go into what our fans experience at the event and also what they watch on video. And so we accelerated some investments across all three of those core In Ring content elements.
Okay. And then I was hoping you could provide some background on your decision to bring NXT to USA. How do you think that will impact the network subs over time? And do you see keeping NXT at full sale on a 52-week basis? Or does the show – or should show go on tour occasionally to be better positioned on Wednesdays? Thanks.
Sure. So as we mentioned before, David, around NXT, in the release when we announced this move to USA, the long-term strategy is the opportunity to create another core – a flagship property of live sports in the Pay TV ecosystem in the U.S. We – as we mentioned there at the end, we think the value of live content is going to continue to increase, especially in the U.S. We thought the opportunity to do that was worth some of the risk on the network. I think it’s also important to note that, as you’ve probably seen, the window, the turnaround between NXT debuting on USA, now getting two hours of nearly live content back on the network, is actually – we think it’s valuable to our network subscribers. But it was managing that tension between, as you mentioned, the network and just this opportunity to create another powerful live brand alongside Raw and SmackDown.
Okay. Thanks.
And we’ll move next to Eric Handler at MKM Partners.
Good morning, and thanks for the question. A couple of things for you, George. I wondered, you’ve clearly laid out the opportunities for revenue growth in 2020. And I’m curious on – and fully understanding that there’s still some variables in flux on the revenue side, has anything changed at all with regard to your expectation of expenses in 2020? And how that’s shaping up?
We’re still continuing to evaluate 2020, Eric, both the core costs going into the year as well as any additional investments. But I would say they’re not really a material change necessarily on the expense side for 2020, although we did accelerate, as I mentioned, some costs that we were expecting in 2020, into 2019.
So that means, actually, by accelerating those costs, those costs should actually subside in 2020?
The year-over-year impact on what’s accelerated would be minimized by definition. It doesn’t mean that there may not be additional investments or rises in our fixed costs. But obviously, if we brought them forward, the year-over-year impact would be mitigated.
Great. And then with regards to your international deals, you’ve got the MENA deal still ongoing in negotiations, and you’ve got India, supposedly not finished, you haven’t made any comments there, so we’ll assume that there’s still need to be done. Can you maybe talk about, are there any specific bottlenecks that you could point to that has caused these deals to go on longer than expected?
And then with India, their version of the FCC, seemed like they wanted to do some unbundling with sports rights deals. I don’t know where that necessarily is, but there was a Cricket deal done about a month ago, which is the first sports deal that I, at least, have seen in the last year. Does that mean at least maybe we could think about India at least – the wheels of progress are starting to churn a little bit more than they have in the past several quarters?
I don’t want to characterize the discussions we’re having. I’ll continue to stay on India. As we said before, we think we’ll have our distribution plan set by the end of the year – by the end of this year. And then we’ve never really talked about a time line on the MENA region so I’ll stay away from that. And as you mentioned before, the regulatory environment in India around Pay TV has been changing over the last several months. Again, I don’t want to characterize what that means for us. But like you, we also took notice of that recent announcement on the Cricket rights.
Thank you.
Our next question is from Laura Martin at Needham.
Hi, there guys. So thanks for the commentary on the industry, I found it really interesting, George. I’d love your insight now. We saw no price war going on in the general entertainment ecosystem of streaming between like Disney and Apple, lowballing each other and the new HBO MAX is essentially, free to anybody with an AT&T device or already paying $15 a month for HBO. So my question is, are you guys rethinking at all the $10 price point in the U.S. for your streaming service, given how many services are now going to be $3, $5, $7 a month? That’s my first question.
So I think, we’ve mentioned this before, we think there’s a fundamental difference between general – broad, general and entertainment offerings. Again, whether that’s in traditional Pay TV or DTC as opposed to our offering, which is really targeted at a relatively small portion of our overall fan base, but our most passionate fans. So we think there’s a fundamental difference there. We think there’s a fundamental different value proposition around that. So we’re not – we don’t really think the pricing you mentioned for those different services, really has that kind of a direct correlation to our service.
Okay. And then could you remind me now that NXT has moved to USA, what are the original – how many hours of original programming are on the network? I assume that NXT is now a 30-day delay, the way the other ones are. So what’s the original on the network now that people are paying for when they get this $10 a month payment bill every month?
Well, so first of all, the window for NXT is actually about 24 hours. So – and it’s also more live In Ring content. So before, on the network, you would get about an hour a week as well as our takeovers three or four times a year. Now you’re going to get next day, 100 hours of that live content available as well as those specials that I mentioned, which were – and we anticipate increasing in 2020. I think there’s actually added benefit. And then when you step back, Laura, to your question, look at the entire value proposition for the network, obviously, the pay-per-views and WrestleMania still are the most premium content we have. It’s the big driver of the value proposition.
We’re still – in addition to those, we’re still doing roughly 200 hours of original content on the network in addition to the pay-per-view. So we still feel great about the value proposition. And then when you add that the product itself, so just talking about the content but the product itself, we feel really excited about. And our fans are excited about what we’ve been able to give them. We talked about some of the elements and what third-parties are saying about it. So yes, we still feel really good about the value proposition of the network.
And as we move forward, our ability, as I’ve said before, to be able to create tiers, both the premium tier that we think will bring additional value to a subset of our subscribers, free tier to make the content more available to more people. For the first time ever, you’ll eventually be able to watch WWE content on the big screen without having to rely on casting and so on because that free tier will be available on the connected devices. So we think that’s a big thing. We think the localization of the content over time is a big deal.
And so all of that together, we feel good about the future. Obviously, I mentioned in the last quarter, just the way the math works on any subscription service, but in our – because WrestleMania is such a big part of the gross ad, that once we were down year-over-year, that was going to have a ripple effect throughout the year. We’re seeing that. When we look over the next several years, for the reasons I just mentioned, we’re still really excited about the opportunity there.
Okay. And my last thing is a modeling question. We’ve now – since we’ve done a deal with Saudi Arabia, we’ve done two events a year. Can we just model those in going forward, George, to a year? Is that the right modeling answer?
Yes, I can’t talk to that right now, Laura, especially around 2020. We said for the reasons I mentioned, we want to talk about 2020 once we’ve lock down several elements that are still open. So I really can’t answer the question.
Okay. All right, that’s fine. That’s all. Thanks very much for the questions. Thank you.
And we’ll move next to Eric Katz at Wolfe Research.
Hey, thanks. Good morning, everyone. I wanted to maybe stick with a few on the MENA deal first, knowing you can’t say too much. But one clarification upfront, does the Q4 guide include the second Saudi event? Or is that looped into the larger MENA region TV deal?
So now, what we had said originally, as we looked into Q4, that the guide – our previous guidance is based on improved engagement. The second event and the MENA rights deal so all three individually. As Michelle mentioned in her remarks, here in the next hour or two, that event will be going live. So that part of the guide has been consistent with what we thought.
Okay. And then, I know it was mentioned in the release and you kind of said it upfront on the call regarding the deal that no assurances can be given, and I know you can’t guarantee a deal, but I guess the last line about insurances didn’t necessarily need to be in there. So it sounds like to us, there’s a scenario where a deal might not get done, even though there’s an agreement in principal. So I guess maybe just trying to be clear on what are the sticking points that could potentially cause a deal to die, even though you just have a 10-year partnership with the Kingdom?
I think it’s like any other discussion you’re having with a partner, you’re trying to find a common ground that works for you. three months ago, we expected that deal to be finalized. I characterized it now as discussions are ongoing. So I’ll leave it at that. I’m not sure there’s much more I can add than that. But I would say it’s similar to all discussions, you’re just trying to find common ground.
Okay. And then, maybe just one more on the Crown Jewel event, particularly. Is this expected to be as profitable as some of the prior events, considering you brought in Tyson Fury and Cain Velasquez? I’m just wondering if it’s more expensive event than before, and potentially that’s impacting the guide.
Yes, I’m not going to talk specifically about any one event. But as I mentioned, we definitely accelerated some investments into our core In Ring content.
Okay. And I guess, just the last one, if I could squeeze it in. On that particular comment there, is there any way to quantify or just if you had a certain amount of investment spend expected for 2020? A percentage maybe that was pulled forward into 2019?
Yes. No. I couldn’t answer that.
Okay. Worth a shot. Thanks guys.
We’ll go next to Vasily Karasyov at Cannonball Research.
All right, thank you. George, can I ask you about the guidance change? Can you quantify for us what percentage of it is from the top line revision? And what percentage – or what proportion is due to higher costs? And then I have one other.
No, I can’t break that out, sorry, Vasily..
Okay. And in terms of India, the fact that your outlook for 2020 will now be provided in February. I just wanted to make sure that does not mean that you expect the deal on India not to be closed this year? It is still the old expectations, is that correct? And then if can you remind us what happens in a theoretical case, if you don’t have a deal on January 1? Does it go off the air and you don’t get any fees? Or is there an extension? What are the possibilities here?
Yes. Like I said before, we still expect our distribution plans for India to be settled by the end of the year. I don’t want to talk specifically about hypotheticals, so our expectation is that deal gets done by the end of the year.
And about the film that you called out in the release and prepared remarks, do you expect it to have any material or noticeable economic impact in 2020? Is that why you’re bringing it up? And if so, can you tell us approximately what the economics looks like there? Is it the participation? Is it the onetime fee? Or anything like that?
Yes. No. It’s not material facility. There was – it had an impact on the quarter, but I wouldn’t think about that as a material part of the business moving forward. From an economic –strategically it’s incredibly important. We’ve said it before, it broadens our reach, we’ve de-risked the model fairly significantly. So we like the business, we like the role it plays. But as far as financial impact, I wouldn’t expect it to be material either way.
Thank you.
And next, we will hear from John Belton at Evercore.
Thanks. Shifting gears a little bit. I was wondering if you could talk a little bit about your sponsorship business and how you think about that opportunity. And whether adding Fox as a broadcast partner has impacted this effort. Has this increased distribution? Opened up conversations with new brands? Or just how you think about that opportunity going forward would be helpful. Thank you.
As I mentioned in my comments, obviously, transitioning to Fox has had a tremendous impact on our brand in terms of the pure marketing power that they brought to the table. If you were watching any sports on Fox in the last couple of months, I’m sure you saw the promotion of WWE Friday Night SmackDown multiple times, so the benefit to our brand and being aligned with marquee properties like the NFL or NASCAR or the World Series. In fact, we were promoted in the World Series. The benefit to the world of the sponsorship community that looks for those types of brand affiliation really has been a great asset to us.
So what I will say is both NBCU and Fox had very successful upfronts around WWE, Fox, in particular, because they are packaging our advertising with their other sports properties, we saw significant uplift in CPMs. We’ve seen new advertisers coming to the roster, such as Amazon Prime. We’ve had Coles, Taco Bell, advertisers that we haven’t done business with before. So to your question, yes, we do believe that, that affiliation with Fox will open doors for WWE to have sponsorship discussions. And again, we’re putting a lot of work into identifying who we’ll go after and what the asset package will look like, but we feel good about that opportunity, as George mentioned in his comments.
Thank you.
We’ll next hear from Ben Swinburne at Morgan Stanley.
Thanks. Good morning. George, as you know, one of the things you listed around the guidance change back last quarter and this quarter is engagement. How would you guys assess engagement trends at this point? I mean, obviously, we’ve seen the ratings, that you’ve moved to Fox. One of the things that was interesting is you highlighted hour – digital hours grow – growth of 14% year-on-year. But your AVOD hours, I think are flat, which would suggest hours are growing faster and beyond the network. Could you just sort of, high level, tell us how you see the engagement trends for the business today?
And whether they’re at a point where you felt a need to accelerate investment, which obviously, took the guidance down sort of beyond what – that was not one of the three from last quarter. So as a management team, you’ve decided to sort of step on the gas on the investment front. Is there a relationship between some of these engagement trends you’re seeing and the investment back in the business?
Yes, I think like you highlighted, Ben, we’ve seen some improvements. We’re especially happy with Raw and SmackDown improving, the year-over-year numbers improving sequentially. But I think it’s fair to say that it’s not where we want it to be. And so we continue to be super focused on the core of In Ring content, especially those three areas I mentioned, the storytelling, the creation of that, the attracting, developing and retaining the talent, and then the production elements themselves of the content. We’re really focused on that. And yes, I do think it’s fair to say that we brought some of that investment forward for that reason. So the headline is, we feel better this quarter than we did last quarter, it’s still not where want it to be, it’s going to get better.
Okay. And I don’t know if you’ll answer this, but is NXT a material – a contributor to EBITDA? Or a material contributor EBITDA? A material impact to EBITDA in the fourth quarter, either good or bad?
Yes, we haven’t talked about the economics of NXT. I think if you remember the release when we announced it, we said that we were doing this for the long-term.
Okay. And then maybe just lastly, wrapping up on and sticking with expenses. I mean, if I look at last year, I think you grew total of OpEx around 10%, a little higher. It looks like this year is going to be about 10% again. Are you guys – I know you're going to articulate a longer-term vision in February, but how should we think about your balancing of top line and investment back in the business? You guys seemed to be willing to sacrifice some short term, even relative to your sort of public guidance to try to maximize the long term. Is that – am I interpreting these moves the right way? Any color on that? I know 2020 is still a moving target, but just want to understand the philosophy.
Yes. And I think, we've mentioned it before, Ben, that we're trying to manage along these kind of different time frames. Number one, we're very focused on 2020 as we are in 2019. We're very focused on the value of that live content in 2020 – 2024, 2025 in the U.S., especially. Intervening years between 2020 and 2025 are really important for us. Michelle talked about sponsorship. We think over that – during that time period, that will be a driver of growth. I talked about the network and our plans for it, we think that will be a driver of growth between those.
And then frankly, we think beyond 2025, especially in some of these international markets, some of these opportunities will take time to develop. But I'd like to say they're not public, so it's hard to track. But when you look at the NBA's success in China, that happened over 25 years of investment. And my guess is, can't prove it, some of those early years, there were losses.
But I guess, they're happy with the relative performance of that business over time. So I think for us, we're trying to think across those time frames, and we're trying to balance the question you asked, between investments in the short-term, return in the long term. But clearly, we're also – we are focused on the 2019 and 2020 as well. It's not just the long term, we're trying to just make the right tradeoffs.
Right. And does the fact that 2020 is still a little bit in flux or maybe a lot in flux impact your buyback appetite even though the stock, obviously, continues to be under pressure?
I don't really want to get into describing the rationale around the buyback. We've talked about it before, there's multiple input that go into that. Obviously, our new intrinsic value, other cash flow considerations as well as any statutory issues. So we – those are the things we look at and inform the buybacks of we want to go much beyond that.
Okay, thank you.
And we’ll go next to next to next to Brandon Ross at LightShed.
Hi, how are you doing? Just – Bischoff was installed as the SmackDown Executive Director earlier in the year. And then he was pretty quickly given the hook. Can you tell us what happened there? And then I guess related, is Heyman fully integrated into the creative process at this point for Raw?
And then I have one more, which is that the ARPU for the network appears to have been down this quarter. Could you give any reason for that?
So on the first one, and I think Vince has mentioned it before on the call, that one of the internal projects we've had is just like every part of the organization. And it's how you continually strengthen the structure and the process to accomplish the goal of that particular function? In the case of the writing, there's a lot of work done early in the year around that.
One of the manifestations of that was the – the creation of these roles, Executive Directors of each of the brands. And as Vince mentioned, it allowed him to be more targeted and how he involved himself in the creative process. So we're really, really happy about the structure and continue to invest in that and strengthen it internally. I'm not going to talk about one – a particular individual. Ultimately, the structure, the process, the KPI/feedback loops you create around that, if you do that really, really well, over time, we try to recruit the best talent possible to put into the roles, and that's what we do everywhere.
So the creative writing process is not really different, but obviously, I'm not going to talk specifically about any individual, either Eric or Paul. But we feel really good about the changes we made to the structure in process. On the ARPU element, as a reminder, Brandon, they're – in addition to the pure DTC that's available primarily at $9.99 around the world, although it's also available in euros in the U.K. and Ireland. In addition to that, we have some license partners.
And therefore, as those subscribers move overall, the amount attributable for the license partner could shift to kind of impact the ARPU to some degree. So it's just the mechanics of that, of the composition. We're not public on that composition, but it would be that. We haven't really made any price changes anywhere other than that.
Thank you.
Next, we'll go to Steven Cahall at Wells Fargo.
Yes, thank you. So maybe first, just on the strategy and financial perspective, the 2020 and beyond comment. You've mentioned in here in mid-to-late February. And you mentioned some of the things that balances that communication. I just wanted to kind of hear unequivocally. If it turns out that either the MENA agreement or the India agreement aren't done by February, do you still go ahead with that? Maybe with a little bit bigger range? Is that kind of a come hell or high water event? Or do you think that you need to get those done in order to hold that event?
And then a quick follow-up on the events. I know they're down year-to-date in North America. What do you think is the right number or trend on a go-forward basis? And do you think if you do a few less events, that will give you more pricing power in the events that you do have? Thank you.
Yes. So at this point, as I mentioned in the prepared remarks, our plan is to post earnings, come out with both the 2020 perspective and a longer-term perspective. So we're going to – our plan is to stick to that. As far as the live event number, Michelle mentioned fewer events in the quarter and she also mentioned, it didn't really impact the profitability in the quarter, so you get a sense of the scale of each event's profitability because of that.
As we shift that composition or think about the composition, one thing to keep in that mind is that the average attendance overall is a blend of both our televised events, the Raw and SmackDown that you see Monday and Friday nights, which has higher average attendance, and the non-televised events which are happening around those events but have lower average attendance. So we can shift the composition and just the composition changes the average. As opposed to the pricing power, I don't think fewer non-televised events has necessarily – has a direct impact on pricing of the televised event, I think those two things are separate.
I will say that I think we feel pretty good about the pricing on the event, kind of lending the value we're providing. But also giving people an opportunity, all income levels, an opportunity to enjoy what we do. So we actually feel pretty good about that.
Thank you.
And our next question is from Jason Bazinet at Citi.
I hate to beat a dead horse, but I know that this is a question we're getting from investors. I think what everyone is struggling with is sort of the very modest reduction in your EBITDA guidance with the outsized move in the equity. And I guess, my question is, that sentence that you put in there regarding sort of accelerated investments, is it fair to say that you're just trying to get the buy side and the sell-side to tamper down their out-year EBITDA estimates in anticipation of the February event? Or is that a bridge too far? Because clearly, the buy side is sort of – taken that one line in your release and sort of extrapolated the sort of worst possible outcome. So is that intentional? Or would you describe that as not intentional on your part?
Well, what was intended and to be clear about what drove the pull down of the guide, which was what I talked about, was bringing some cost forward and also just investing in the core In Ring content, at least a combination of that. But yes, there was no desire in our part to link any further than any other in 2020 or so on. It was just to talk about the quarter.
Okay, thank you.
We'll next go to Bernie McTernan at Rosenblatt Securities.
Hi, thanks for the question. I know it's early and only been about a month, but have you observed any indirect benefits of being on Fox broadcast thus far? Whether it be network engagement or live events?
I think it's too early to tell, Bernie. I mean, we've said it before, we think there's a halo to the rest of the business over time. But yes, given that we're only four weeks into it, we do think it's a little early to tell.
Got it. And just one follow-up. With 2020 guidance expected in February, will we get an update or at least the nod that the international renewals are complete if they're signed ahead of time?
Look, in the past, what we've done is when a deal gets completed, we usually issue a release or a joint release with the partner of the deal. So we've done that this year. Obviously, with China, we did it with Latin America, we did in the U.K. So that's been our normal practice. I would anticipate that would continue.
Got it. Thank you.
Moving next to Alan Gould at Loop Capital.
Thank you. I have got two questions. First, George in your closing comments in the prepared remarks, you highlighted the international markets and you spoke especially about India and China. Can you flush that out a little bit further?
Yes, just the information we look at. And again, looking out into the future over the next five to 10 years, when you look at the global media and entertainment sector and the total growth in that sector and where it's going to come from, roughly, we think 70% of the total growth over the next several years come from outside the U.S., U.S. still by far, the largest market. And then within that 70%, it's expected that India and China can be big drivers of that growth.
So the point being is it's something we look at and informs them our thinking about how we should think about what to do today, to be able to take advantage of that opportunity, whether it's three years from now, five years from now and so on.
Okay. And then one sort of boring accounting question. You had higher D&A and interest expense this quarter? I assume they were both due to the commencement of your new headquarter lease on July 1. Are the Q3 numbers good run rate numbers for those line items?
Directionally. That's right. And you hit on it for those people who aren't as low versus you, as we put the asset on, and you're taking the present value of the lease payments, which inform the assets. The liability is that plus the tenant improvement cost, you then begin to see that through D&A and through interest expense. So that should be a pretty good estimate of the run rate.
Okay, thank you.
It would not include, Alan. Obviously, any other build out we do on top of that, that's just for the capital lease around the building. So we still will have elevated CapEx. As I mentioned before, over the next couple of years as we build out the facility. So those are two different things.
And we'll go next to The Benchmark Company and Mike Hickey.
Hey, George and Michelle, good morning guys. Thanks for taking my questions Obviously, pretty deep in the queue here. Thanks for taking it on. The – I guess, I'm curious, George or Michelle, your view of the emergence of AEW and maybe the impact you're seeing or potential impact, whether it's TV ratings or talent, the cost of town or how you sort of think about migration risk? Thank you. I have a follow-up.
I think we had it before, the live content ecosystem is competitive. So whether you're talking about the NFL, which kind of stands alone or that next tier of us, the NBA, Baseball, NASCAR and then you start kind of moving down and you get to third or fourth tier. So everybody is a competitor to some degree. Ultimately, what we try to do is drive as much engagement as we can on Monday and Friday nights, and we feel pretty good on our history in doing that. And then our ability to continue doing that in the future.
So they're a competitor, like there's a lot of competition for eyeballs. So – and we take them seriously. And our expectation is we win.
You said your investment in talent is going higher as part of sort of your accelerated spend. Is the cost of your talent on average, going higher? I mean, is AEW sort of challenging the normal sort of expense you would expect to put out there? And again, sort of curious on how you think about migration risk, whether – obviously, Jericho's made a pretty big statement in AEW. But do you worry about losing other wrestlers to that network?
And so just to clarify, what I said was that producing our core In Ring content, has three elements of cost. It's the creative side, we talked a little bit about the new model we put in place there. It's the talent, which is attracting, developing and retaining the talent, and third one is the actual production element. And we said that in all three cases, on a year-over-year basis, they're higher – the costs are higher. So it's us making investments into what we think is the most important thing that we do.
Don't want to really get into kind of external perspective on that and what may influence it. The only other thing I would say is that historically, as the company has done better, our talent has done better. And we think that's part of the win-win kind of virtuous cycle, and we think that's a good model, and it's one that we can – we've always expected to continue employing.
As far as individual talent-making choices, everyone's got a decision to make. I will say, we have a sizable wrestling platform by an order of magnitude, maybe two orders magnitude of anyone in the world. The amount of consumption we do in the United States, across the world on traditional Pay TV, the 35 billion video views that we do on an AVOD platform, the over 1 billion social media accounts that we have, being the large – second largest SVOD sports service in the world. So I would imagine, I'm not a talent myself. But I would imagine, as people are thinking about who to align with, that all those things are really, really important. We certainly think so.
All right, thanks guys. Best of luck.
We'll go next to Curry Baker at Guggenheim.
Thanks for the question guys. Just to be clear on the MENA guide. So that includes the Saudi event that's happening today and you being paid for that in the fourth quarter, correct?
When the payment happens is different. So that's obviously on the cash flow side. So we haven't guided – we don't guide the cash flow. But you're right, the economics of the event, we expect to get reflected in Q4.
Okay. And I guess, is there any reason you can't get more opportunistic on buyback front, if you want to, just given, again, the share price and your balance sheet?
Other than the reasons I mentioned, we're going to evaluate the value, we're going to going to evaluate other cash flow considerations. And obviously taking into consideration any statutory restraints. Within that, we'll make a decision. Obviously, we leaned into it a little bit more in Q3 than in Q2.
Okay. And then on the investment front for next year and over the next couple of years, I think I've heard you primarily focus on like three buckets, building out your data tech capabilities, which I believe is primarily personnel localization, which includes the performance centers, which we've kind of guessed is like $5 million to $6 million per performance center. And continuing to pay talent more, which is your peer have kind of accelerated already starting in the fourth quarter. Can you elaborate on sort of those buckets? And if there's maybe a bucket or an area of investment that we're maybe missing as we try and think about the investment picture next year and over the next couple of years?
The current portfolio of assets has been, that we have. We said, as you mentioned, it's around technology – digitization broadly, which is tech – consumer technology and data, so that's one. Second is content. And certainly, we invested in our core In Ring content, as I mentioned. And then the third is localization. And some of the initiatives, like a PC might hit multiple of those. It might hit the ability to create new content as well as drive our penetration in a particular market.
But yes, Curry, your question, as we sit here today, we think those are the three key areas for us.
Okay, thanks for the questions.
And with no additional questions at this time, I'll turn the program back over to the management group for any additional remarks.
Thanks, everyone. We appreciate you listening to the call today. If you have any questions, please don't hesitate to contact us. Thank you.
And once again, that does conclude today's conference. And again, I would like to thank everyone for joining us today.