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WWE 2K license transition contributes to decline in Q1 net income

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World Wrestling Entertainment (WWE) reported a year-over-year decline in net income for the first quarter of 2014 yesterday, and attributed the drop partly to the transition of the WWE video game license from THQ to Take-Two Interactive.

In the quarter ending March 31, 2014, WWE reported a net loss of $8 million — an $11 million turnaround from the first quarter of 2013, when the company tallied net income of $3 million. In particular, WWE saw a year-over-year decline in licensing revenue from $24 million in Q1 2013 to $14 million in Q1 2014.

That decrease was "primarily driven by the transition to a new video game partner, Take-Two Interactive, and contractual changes in the company's licensing agreement," said WWE in an investor release today. According to WWE, there was effectively no difference in sales of 2012's WWE '13 and 2013's WWE 2K14, so the licensing situation was what caused the drop in revenue.

After THQ, the previous holder of the WWE license, filed for bankruptcy in December 2012, the two companies made a deal with Take-Two and developer Yuke's that transitioned the license to Take-Two's 2K Sports brand. WWE and Take-Two now have an exclusive five-year licensing agreement for WWE video games in the form of the publisher's WWE 2K series. In addition, the termination of WWE's agreement with THQ resulted in a $2 million payout for WWE in Q1 2013, which also contributed to the year-over-year gap.

In spite of the licensing costs, WWE did manage to outperform its financial guidance: The company had expected a net loss of $12 million to $15 million for the quarter.