WWE Scores a SmackDown

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Jefferies & Co. cable analyst Robert Routh reiterated a “buy” rating and $20 price target on World Wrestling Entertainment stock after the programmer reached a DVD-distribution deal with a company headed by Hollywood moguls Harvey and Bob Weinstein.

WWE cut an exclusive DVD-distribution deal with Genius Products, majority-owned by The Weinstein Co. The Weinsteins, co-founders of Miramax studios, are co-chairmen of the Weinstein Co. The deal, which takes effect Nov. 1, is exclusive for three years and involves WWE’s entire DVD library including SmackDown and WrestleMania.

It also includes co-production and co-financing arrangements which should help it mitigate risk, according to Routh’s report.

The deal also has built-in incentives that should encourage Genius to overperform, “which would be more than good for both parties,” Routh wrote.

According to the deal, Genius plans to release a minimum of 25 new WWE titles in 2007 and to exploit more than 100 titles in the company’s catalog.

Routh noted that WWE’s home-video distribution is one of the highest in the sports category and the Genius Products deal should boost WWE’s already strong brand awareness and should help drive both new and catalog home video sales.

Routh estimated that DVD sales contribute about 10% to WWE’s total revenues and “we think this deal should boost contributions from this segment going forward materially,” Routh wrote.