WOWOW INC. Q3 FY2025 earnings call

• Overall Consolidated Financial Performance
  • Total consolidated revenue: 56.444 billion yen, an 1.11 billion yen increase year-over-year. The increase was driven by growth in movie business, program sales, and higher group company revenue, which offset a decline in membership revenue from falling subscriber counts.
  • Consolidated ordinary profit: 2.201 billion yen, a 0.782 billion yen decrease year-over-year. The decrease was due to higher programming costs, even with growth in non-membership revenue. The quarter includes 0.419 billion yen in foreign exchange gains and 0.381 billion yen in gains from selling a listed investment security, partially offset by a 1.744 billion yen impairment loss recorded in Q2 from ending 4K broadcasting and canceling a content management system development. Net quarterly profit came to 0.689 billion yen, a 1.068 billion yen decrease year-over-year.
• Subscriber Performance
  • New subscriptions: 539,000, up 77,000 year-over-year, driven by strong performance from original drama Golden Kamuy, music content, and the new sports service WOWSPO that successfully attracted younger subscribers who previously did not join WOWOW.
  • Cancellations: 606,000, up 62,000 year-over-year, mostly due to post-program cancellations after popular limited-run content ended.
  • Net subscriber change: negative 66,000, an improvement of 15,000 compared to last year's net loss. Total cumulative paid subscribers reached 2,401,000. Soccer season passes for the UEFA Champions League, sold via pay-per-view and not counted in official subscriber numbers, saw higher sales than last year, expanding total unique viewers beyond the official subscriber count.
• Strategic Growth Initiatives
  • Multi-layered content expansion: A co-produced theatrical concert film with WEST. exceeded 0.5 billion yen in box office revenue, becoming a surprise hit. The company will continue this strategy with upcoming theatrical releases of YOASOBI and Kiyoshi Hikawa live concerts.
  • Sports service restructuring: WOWSPO, the new over-the-top sports service, launched on Prime Video following its successful debut on ABEMA, where it successfully acquired younger audiences that core WOWOW could not reach. The company also opened sales of UEFA Champions League and Europa League knockout stage pay-per-view passes, and expects strong sales following historical seasonal trends.
  • New Investment: The company committed capital to a Scrum Ventures fund focused on sports and entertainment, to develop industry partnerships and gain expertise to support long-term growth in sports content and membership business.
• Upcoming Key Content: The company will exclusively air the 67th Grammy Awards live, stream the 97th Academy Awards (featuring 3 nominated Japanese works), and debut new original dramas including Gold Sunset and The Day of the Jackal.

1. Media & Content Segment: Revenue increased 0.606 billion yen year-over-year, driven by growth in movie business, program sales, and increased external sales from consolidated subsidiaries, which offset a decline in membership revenue. Operating profit decreased 0.956 billion yen year-over-year due to lower membership revenue and increased programming costs. This segment accounts for the majority of total company revenue, primarily driven by subscriber membership fees.
2. Telemarketing Segment (operated by consolidated subsidiary WOWOW Communications): Revenue increased 0.351 billion yen year-over-year. The increase came from the addition of revenue from Frost International Corporation, which was acquired last fiscal year, offsetting a decline in external client telemarketing service sales. Operating profit increased 0.03 billion yen year-over-year due to the higher revenue base.

• All guidance remains unchanged from prior announcements, with no upward or downward revisions.
  • Full-year net subscriber guidance remains flat at +/- 0, for a total cumulative subscriber count of 2,467,000. Management expects Q4 subscriber growth from WOWSPO's Prime Video launch and the UEFA Champions League knockout stage to offset the Q3 net loss and hit the full-year target.
  • Full-year consolidated revenue guidance is maintained at 75.6 billion yen, with ordinary profit guidance maintained at 1.5 billion yen. While Q3 ordinary profit is already above full-year plan, management plans to invest in additional spending in Q4 to hit full-year targets and lay groundwork for next fiscal year's growth, focused on expanding non-membership revenue streams to offset subscriber declines.
  • Full-year dividend guidance is maintained at 30 yen per share. Management reaffirmed its commitment to stable dividends even amid lower profits, recognizing the importance of shareholder returns.

• WOWOW has recorded 5 consecutive years of net subscriber declines, and the company acknowledges it faces a challenging operating environment, with traditional broadcast-only subscriber acquisition increasingly difficult amid intense competition.
  • The competitive landscape has shifted dramatically from competing with domestic broadcasters to competing with large global OTT streaming platforms, forcing the company to pivot to build a unique market position based on original, differentiated content.
  • Persistent net subscriber declines continue to pressure core membership revenue, even as the rate of decline has slowed, and management does not assume that current subscriber counts represent a bottom for the trend.

Q: The current pace of subscriber decline appears challenging. What is your baseline outlook for subscriber counts next year and beyond, and can new policies reverse the trend? Is this year expected to be the bottom of the decline? / A: Management confirms WOWOW has faced 5 consecutive years of net subscriber declines, and agrees the situation is challenging. It notes that traditional broadcast-only subscriber growth is increasingly difficult, and will focus on multi-product offering including tiered packages and WOWSPO to stabilize subscriber counts. Management does not view the current level as a definite bottom, and will continue refining its multi-layered content and product strategy to win customer choice, while focusing on leveraging its existing content strength to maintain WOWOW's market value. Full future plans will be shared in the May annual business strategy announcement.

Q: What progress have you made as CEO after nearly one year in office, and what is your core strategic direction? / A: Management notes that after decades of selling only a single full-service package, WOWOW has rapidly diversified its product offerings over the past two years with the launch of season passes and WOWSPO. This structural reform of WOWOW's media service model, which brings products to where customers already aggregate online, has been successfully implemented, and the company is also building new multi-layered revenue streams for content such as theatrical releases of live music content. The biggest positive change is that employees have fully embraced the push for new multi-layered growth initiatives, and management will accelerate these efforts next fiscal year.

Q: How are you responding to changes in the media operating environment, particularly amid the disruption seen at other domestic broadcasters? / A: Management confirms the competitive environment has changed completely after COVID-19: the market is no longer a competition between domestic broadcasters, but a competition with large global OTT platforms. WOWOW recognizes this shift and is pivoting hard to develop unique original content and build a differentiated market position to survive. The company notes that the issues facing other domestic broadcasters are separate, but WOWOW, which has long operated a subscription business, is fully focused on adapting its survival strategy for the new global competitive landscape.

Q: What is the current progress against full-year company plans? You mentioned Q3 is above plan and you plan to increase spending in Q4—can you share more context on where you stand versus plan? / A: As of Q3, full-year ordinary profit is already above plan, driven by stronger than expected subscriber trends since October and higher revenue from multi-layered non-member services including the movie business. The company maintains its full-year flat subscriber target, and is planning increased Q4 spending to hit that goal, as well as fund development of new future services including e-commerce. These pre-launch R&D and development costs will bring full-year results in line with plan, and lay the groundwork for growth next fiscal year.