World Wrestling Entertainment (NYSE:WWE) locked up with Wall Street in a steel-cage earnings match yesterday. Was the company victorious?

For the second quarter, WWE reported an 8% increase in revenues, coming in at $96.2 million. Operating income dropped 38% to $11.7 million on higher costs and expenses. Income from continuing operations dived to $10.4 million ($0.15 per share) versus $11.7 million ($0.17 per share) in last year's comparable time frame. There were legal settlement benefits in last year's comparable quarter, to the tune of $3.4 million, so the earnings weakness must be seen in that context. WWE beat earnings expectations by two pennies; this sent the stock higher yesterday by more than 5%.

Since both the operating and net lines showed nothing but declines, CEO Linda McMahon had no choice but to focus on the growth in the top line, saying that the company was "very pleased" with the expansion in sales revenue. We're all suspicious of platitudinous phrases from chief executives, but in this case, I think the revenue growth is something to remark upon. Not only is WWE still dealing with the elimination of domestic cable advertising revenues because of a different arrangement with USA Network, but it is also waiting for its audience to become fully acclimated to the recent price hike on its pay-per-view products. The price of these events has gone up by $5 to $39.95. Even so, revenue from this segment only saw a modest decline, dropping $0.2 million to $18.6 million.

WWE's digital media segment saw a nice revenue gain of more than 50% during the quarter, driven by good business on the company's e-commerce site. The home video segment was up, thanks in part to a Hulk Hogan Anthology DVD set that sold over 200,000 units, proving that the legends of the business still have value after all these years. Licensing revenues and publishing sales increased as well. An interesting highlight can be found in WWE's subscription video-on-demand product, WWE 24/7. Although the transition period (the company is changing its fiscal year end) makes for a confusing comparison, you can see that this segment's revenues for the six months most recently ended are still higher than the full 2006 fiscal year ended in April. Every content concern, from Disney (NYSE:DIS) to Viacom (NYSE:VIA), is high on the notion of monetizing valuable film libraries -- WWE is certainly no exception, and it seems to be having success in delivering this initiative to the market.

One area that shareholders have yet to see tangible success from is WWE's film division. Indeed, See No Evil and The Marine -- distributed by Lions Gate Entertainment (NYSE:LGF) and News Corp. (NYSE:NWS), respectively -- didn't exactly rock the box office. Plus, the company hasn't recognized any revenues yet, since certain distribution expenses must first be recouped by the distributing entities. See No Evil was recently released to the home video market, so hopefully some top-line contribution will be forthcoming. Personally, I think shareholders should remain patient regarding this division, as the company should eventually happen upon a celluloid hit or two.

Free cash flow dropped significantly for the past six months, coming in at $3.9 million (including the purchase of film library assets) versus $36 million in the comparable time frame. That's a little disconcerting, considering that dividend payments approached nearly $34 million in the six-month time frame. We'll have to wait and see how the full year's cash flow eventually fares, but it should be noted that the company still has a good amount of cash on its balance sheet and its debt/equity relationship remains attractive.

If you consider the overall picture drawn by these various statistics, I think it is fair to say that WWE is still performing well as an entertainment brand, and that it has a lot of potential for long-term growth via its home video and subscription video-on-demand initiatives. It will need to watch its costs and expenses to improve its margins, and it will hopefully see a better free-cash-flow scenario in the future, so that it can comfortably raise its dividend again. And, perhaps most importantly of all, let's wish the film division the very best in reaping some well-deserved revenue recognition down the line.

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Fool contributor Steven Mallas owns shares of Disney. As of this writing, he was ranked 1,807 out of 14,968 investors in the Motley Fool CAPS system. Don't know what CAPS is? Check it out. The Fool has a disclosure policy.