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   September 01, 2014



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Mat Matters: Why the WWE Network is a gamble
By MATTHEW BYER - SLAM! Wrestling


Announced to great fanfare a month ago, the WWE Network has been touted as the first-ever 24/7 streaming network that will change the viewing experience when it launches in the United States on Monday, February 24th. One of the big features that will be part of the WWE Network package is the inclusion of all 12 WWE live pay-per-view events.

Yet, as glorious and innovative as this sounds it does come with some significant risk for WWE as a company; some of which the management and executives may be downplaying at the moment.

First off, WWE has been claiming they only need 800,000 to a million subscribers to break even. A 200,000 range is a pretty large discrepancy and may be an indication that all of the start-up costs for WWE Network are not known yet, even with only a few weeks until it launches. If that is the case, having such a major endeavor such is this, and not knowing what the total costs will be is worrisome.

The second area of concern is the implied expectations that the WWE Network will be able to acquire the 800,000 to one million subscribers and at least reach that breakeven point. At $9.99 per month that would mean revenue between $95,904,000 and $119,880,000, and anything above that mark would be profit for the company. Are there one million plus subscribers out there? It would seem a high probability based on the regular RAW ratings between three and five million viewers so on this front the WWE is likely in good shape provided their estimate of the start-up costs for the network are accurate; and there are no problems with the launch such as bandwidth and IT servers being able to handle that many subscribers.

Yet, when looking at a company initiative it is necessary to conduct a full risk assessment to get a sense as to how it could affect other revenue streams. According to the Financial Supplement which the WWE filed back on September 30, 2013, in 2012 Live & TV Entertainment brought in revenue of $353.8 million dollars (73.1%), Consumer Products revenue was $87.8 million dollars (18.1%), Digital Media revenue was $34.5 million dollars (7.1%), and WWE Studios revenue was $7.9 million dollars (1.6%).


If a further drilldown is done of the Live & TV Entertainment revenue in 2012 it is found that the Live Events revenue was $103.7 million dollars, the Venue Merchandise revenue was $18.8 million dollars, pay-per-view revenue was $83.6 million dollars, the Television Rights Fees revenue was $139.5 million dollars, the Television Advertising was $1.4 million dollars, and the Other revenue (such as Classics on Demand) was $6.8 million dollars.

While it's unlikely that the Live Events revenue and the Venue Merchandise revenue will be negatively impacted by the launch of the WWE Network the other Live & TV Entertainment could be, particularly the pay-per-view revenue. Historically, the pay-per-view revenue was a lynchpin in the WWE's rise to dominance in the wrestling world, and one which even during the direst of times, such as when the company was losing the Monday Night War to WCW, they were able to depend on. Yet, a major selling feature of the WWE Network is that as part of the subscription fee access to all 12 of the WWE pay-per-views will be provided. It is almost a certainty that this revenue stream is going to take a hit.

So far for the first nine months of 2013 WWE has reported pay-per-view revenue of $66.8 million dollars, which might indicate that management do expect 2013 revenues for pay-per-view to be down compared to 2012. As a result, that may have been part of the business case for launching the WWE Network in the first place. Still, if the number of subscribers doesn't move the company into an area of profitability past the one million mark, and revenues for pay-per-view decline significantly to the point where they are no longer profitable, the company may be in serious trouble. It's difficult to say whether or not when the WWE conducted a risk assessment they did an estimate as to how much of a hit they might take on pay-per-view revenue as a result of the WWE Network, but if they didn't that should be a serious concern for shareholders.

Pay-Per-View revenue isn't the only potential revenue stream that could be affected. The Television Rights Fees is another that could be impacted -- for the first nine months of 2013 Television Rights Fees revenue was $119.6 million dollars. While the revenue for this stream will be steady until the television contracts expire, when they do come up for renewal there could be a significant risk. When it comes time for renewal, television networks could feel that the intrinsic value of RAW and Smackdown have been reduced due to the increased saturation of WWE programming offered through the WWE Network.

Live episodes of RAW and Smackdown won't be featured on the WWE Network, but past ones such as the encore editions and ones from the height of the Monday Night War with WCW will be. Also, one of the WWE's recent television ratings hit WWE Total Divas will be shown on the WWE Network. New episodes will still be available on the E! Television Network, but will executives at that company be all that thrilled that for the repeat episodes they will be on WWE Network? All of these will be factors when it comes time to renew the television contracts during the next several years, and WWE could see revenue dip from this area.

Lastly, the other major revenue stream that will likely be impacted by the WWE Network's launch will be Home Entertainment revenue, which is part of the Consumer Products revenue stream. For 2012, Home Entertainment revenue was $33 million dollars, and for the first nine months of 2013 it was $19.2 million dollars. Fundamentally, Home Entertainment revenue is where the sales of WWE DVD and Blu-Rays fall under, and with the WWE Network offering programming such as the Monday Night War, and access to every single WWE, WCW, and ECW pay-per-view ever filmed, this revenue stream is almost certainly going to take a huge hit. How much is difficult to determine, but it may even exceed in pure percentage terms what the decline will be for pay-per-view-revenue.

Ultimately, for the WWE Network to be a success it will need to make a profit out-of-the-gate, and for that it will need to exceed 1 million subscribers by a good margin in order to offset the losses from the other revenue streams which the company has grown to depend on.

RELATED LINKS

  • Previous Mat Matters Editorial columns

    Be sure to check out Matthew's first fictional novel Finding My Way Through Life's Follies along with a free preview here and also Matthew's first collection of poetry Mustard Marinade Poetry along with a free preview here.