The 2016 Annual Report
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TO OUR SHAREHOLDERS Several years ago, we began transforming WWE’s business to drive long-term growth by placing strategic emphasis on optimizing the value of our content, developing digital and technology platforms, and expanding our global presence. Our execution of these initiatives has been strong as we continue to leverage the three pillars of our content ecosystem: traditional television distribution, direct-to-consumer (WWE Network), and digital and social platforms. Our results in 2016, including record revenues and increased consumption of our content, demonstrate the successful ongoing transformation of our business model. Every day, as the media industry evolves, we become more digital and more global, with a greater emphasis on direct-to- consumer. We believe we are well positioned to drive long-term growth and create shareholder value. 2016 BREAKING RECORDS… BUILDING ON STRENGTH In 2016, WWE delivered the highest revenue in our Company’s history, $729 million – up 11% from 2015 and an impressive 44% from 2013, the year prior to the launch of WWE Network. These results included record revenue from our Network, Television, Live Events, Venue Merchandise and WWE Shop business segments. Growth from international markets continued to fuel our performance, reaching $189 million, up 11%. WWE’s strong, top-line growth translated into a 44% increase in operating income to $55.7 million. The market continued to reward this performance. Over the past twelve months, WWE stock provided shareholders with a 12% total return (including $37 million dividend payout).1 In addition, we issued $215 million of convertible note financing on favorable terms to support the execution of our long-term growth strategy.2 FORBES NAMED WRESTLEMANIA AS ONE OF THE TOP 5 MOST VALUABLE SPORTS EVENTS IN THE WORLD RECORD BRAND ENGAGEMENT We delivered these results because WWE is a one- of-a-kind brand with unmatched global engagement – a brand now able to directly reach any household with broadband access anywhere in the world. Our success reflects the power of our brand on a global basis, the content we create and own, and the way our brand resonates in pop culture. One of the clearest ways to measure our brand’s engagement and success is through powerful statistics and our THE BELLA TWINS BECAME WWE’S FIRST FEMALE-ORIENTED noteworthy achievements for 2016: LIFESTYLE CHANNEL ON YOUTUBE WrestleMania 32 achieved record-breaking attendance, ticket sales and viewership – with more than 101,000 in attendance, and a record 1.82 million total subscribers on WWE Network (as of April 4). In fact, Forbes named WrestleMania as one of the top five most valuable sports events for the second consecutive year, alongside the Super Bowl, Summer & Winter Olympics and FIFA World Cup.3 We remain a juggernaut across social and digital platforms. In fact, consumption of WWE content increased 56% to more than 15 billion video views across YouTube, Facebook and WWE.com. And, social media fan engagement measured across all platforms increased 45% to UNDERTAKER SHOWED UP ON THE TONIGHT SHOW STARRING JIMMY FALLON 1.1 billion. Enhancing our digital presence, new WWE verticals were launched on ESPN.com, FOXSports.com and SportingNews.com. 15.1 BILLION VIDEO VIEWS ACROSS ALL PLATFORMS WWE continued to be an integral part of pop culture. John Cena hosted popular shows from NBC’s 1.1 BILLION SOCIAL Saturday Night Live to ESPN’s award show, The MEDIA ENGAGEMENTS ESPYS to the Fox Teen Choice Awards. Sheamus was a mutant rhinoceros in Paramount’s Teenage Mutant Ninja Turtles 2 and Undertaker showed up on The Tonight Show Starring Jimmy Fallon. OUR WINNING FORMULA FOR GROWTH: WWE NETWORK Just three years ago, we launched WWE Network. We knew this bold move would transform our pay-per-view business as we built a more direct connection with our most passionate fans. In 2016, WWE Network was recognized as the fifth-largest streaming video-on-demand service in the United States, alongside Netflix, Hulu, Amazon and MLB.TV, with the second-highest net promoter score (behind only Netflix).4 Supporting the continued growth of WWE Network, we added more than 300 hours of original programming to WWE Network and more than 2,500 hours of archival content, resulting in an on-demand library of more than 7,000 hours. To super-serve our most ardent fans with live in-ring content, we capitalized on the increasing depth of our roster by creating new platforms for our talent. Building upon the emergence of our developmental system, NXT, as a recognized brand, we created epic events around our immensely popular NXT TakeOver programs. Based on the success of our Cruiserweight Division, we launched a new weekly series, 205 Live and, in January of 2017, held a United Kingdom Championship Tournament that featured a roster of local talent. Other programming highlights included the production of an engaging short-form series, WWE Story Time, the comedic reality series, Holy Foley!, and the retrospective series, WWE 24. To further engage our global audience, we began delivering our pay-per-view events on WWE Network in a broader array of languages, which now include Spanish, German, Portuguese, Russian, Japanese and Mandarin. Importantly, the network’s pay-per-views, original series and specials continued to drive viewer engagement. Over the course of 2016, subscribers watched a total of 294 million hours of content, representing an incredible average of 194 hours per household. This placed WWE Network among the top cable and broadcast networks in terms of viewer hours per household – ranking behind only the broadcast networks: CBS, NBC and ABC. Our subscriber metrics demonstrate the successful execution of our content and marketing strategies. In 2016, average paid network subscribers increased by 24% to over 1.4 million, and average total subscribers increased by 25% to approximately 1.5 million. Most importantly, we believe our strategy for delivering compelling, original content will facilitate further expansion of WWE Network as a core pillar driving WWE’s growth. WWE’S SECOND-LARGEST AND FASTEST-GROWING BUSINESS GLOBAL TELEVISION RIGHTS FEES: A PILLAR OF LONG-TERM GROWTH Content distribution agreements represent another foundational element of our growth strategy. WWE’s largest TV deals provide contractual revenue growth of $105 million from 2014 to 2018, and we expect approximately $20 million of this revenue growth in 2017. During the past year, we produced new original content for television, such as Total Bellas on E! Network, and transitioned SmackDown to a live format on Tuesday nights. Since the launch of SmackDown Live on July 19, its ratings on USA have increased 17% on a year-over-year basis. The tremendous appeal of our content has garnered record interest from RAW AND SMACKDOWN LIVE ARE the advertising community. Over the past two years, NBCU (in partnership THE #1 AND #2 SHOWS ON USA with WWE) secured 50 new blue-chip advertisers for our flagship programs and on April 2, 2017, Snickers will serve as the presenting partner of WrestleMania for the second consecutive year. We also extended the global reach of our content, completing distribution agreements in Germany, Australia and Spain, among other countries. We estimate that our fans, in 2016, consumed more than 5 billion hours of WWE content across all our global television platforms. Our ability to create original content, featuring compelling stories about heroic characters, is what makes us a television powerhouse, enabling us to deliver significant first-run hours with consistent high viewership for our distribution and sponsorship partners. SNICKERS IS THE PRESENTING PARTNER INNOVATION ACROSS WWE OF WRESTLEMANIA FOR THE SECOND CONSECUTIVE YEAR Strengthening our ability to create compelling and localized content for our global viewers, we continued to further develop our talent pool, with approximately 40% of our new recruits coming from outside the U.S., including China, India, Japan, Australia, Ireland, Scotland and Poland. In 2016, more than 80% of our Raw, SmackDown and 205 Live rosters originated from our developmental system. Our talent performed more than 500 events in 24 countries spanning 5 continents. In China, we completed a multi-year distribution agreement with PPTV to deliver our flagship programs, Raw and SmackDown, live in Mandarin. In addition, we returned to Shanghai with a live event and signed our first-ever Chinese Superstar. Enhancing brand awareness, we produced approximately 500 hours of content for our social and digital platforms. This includes highlights and exclusive TAPOUT: THE OFFICIAL FITNESS AND content drawn from our weekly Raw and SmackDown programs, production TRAINING PARTNER OF WWE of engaging YouTube channels, such as the gaming vertical UpUpDownDown and WWE’s first female-oriented lifestyle channel, The Bella Twins, and continued support for other platforms. This content drives engagement and provides a critical basis for building other sources of revenue. Among our consumer products, we successfully relaunched the Tapout apparel brand as part of a joint venture with the American Brands Group (ABG). We maintained a dominant position with the second-highest- selling action figure property in the U.S. (behind only Star Wars).5 And, in January, we released a new mobile puzzle game produced by Scopely, WWE Champions, which upon its debut was the most downloaded mobile game in 54 countries. WWE CHAMPIONS DEBUTED AS THE MOST DOWNLOADED MOBILE GAME IN 54 COUNTRIES AD COUNCIL’S “WE ARE AMERICA” NATIONAL CAMPAIGN RAISED MORE THAN $1 MILLION TO FIGHT PEDIATRIC CANCER STARRING JOHN CENA MAKING A DIFFERENCE IN OUR GLOBAL COMMUNITY An integral part of WWE’s corporate culture is to leverage our brand strength to address important social issues, including diversity and inclusion, education, military support, and providing hope to those in need worldwide. Our commitment strengthens our brand and is a great source of pride for us all.