Thursday, July 25, 2013

Estimating WWE PPV Buys at different price points by Chris Harrington

Question: Is it possible to estimate the number of buys that Wrestlemania would have it only cost $15?

Answer:  Yes, it's possible.  However, the better question is whether I can you accurately estimate that.

First, let's start with a clean dataset - say, WWE PPV events from Jan 2006 to May 2013.

1. PPV Buys listed are in thousands and worldwide
2. Information for PPV Buys came from SEC 8-K filings. "Prior Event Buys" were spread proportionally to all the events in the prior quarter using their original buy estimate for weighting.
3. This information is being used only in a directional sense some events are overstated and some events are understated; a comparison against the Final Buy Reconciliation Graph from the Key Performance Indicators monthly extract will surely look different.

We'll look at three major variables:
* What kind of PPV is it?  (There's three classes of PPV events for this exercise: Wrestlemania, Royal Rumble-Survivor Series-SummerSlam, All other Events)
* What was the domestic SD PPV price?
* What was the domestic unemployment rate?

I'm using the "domestic unemployment rate" essentially as a proxy for the passage of time. While it remains highly correlated with the outcome, I believe that's partially because the rate has grown from low (~5%) in 2006/2007 to high (~10%) in 2009/2010 to moderate (7-8%) in 2012/2013 as average PPV buy for a normal PPV has dropped from 244k (2006-2008) to 196k (2010-2012).

Additionally, certain stipulations (Hell in a Cell), certain wrestler (Brock Lesnar, The Rock), certain outside events (when UFC runs a major PPV) are very likely to be influencing the month-to-month PPV numbers along with harder-to-capture variables such as "quality of television build" and "product buzz".  For this exercise, we're going to ignore all of that fancy stuff and just stick with my basic three variables: type, price and rate.

I'm also assuming a logarithmic relationship between the PPV price and the number of worldwide buys.  (This implies that my pricing elasticity is not going to be static.)  In the past, WWE has considered itself to be relatively price inelastic - that as they continued to raise the price of PPV, the demand for the product remains strong enough that they have come away with a net revenue gain (relative to other PPV events in that same timeframe). Outside of the real peak in 2000, you can see how smooth the absolute PPV revenue numbers are even though PPV buys have fallen several million from the Attitude era.

According to the regression that I created, the estimate for worldwide number of buys in thousands (assuming unemployment rate of 7.5%) at a given SD domestic price point for the various types was:

 PRICE  AvgPPV RR/Surv/Summer Wrestlemania
 $         5      1,060                   2,032              6,209
 $       10         629                   1,205              3,683
 $       15         463                      888              2,713
 $       20         373                      715              2,184
 $       25         315                      604              1,846
 $       30         275                      527              1,609
 $       35         245                      469              1,433
 $       40         221                      424              1,296
 $       45         202                      388              1,186
 $       50         187                      358              1,095
 $       55         174                      334              1,019
 $       60         163                      312                 955
 $       65         153                      294                 899
 $       70         145                      278                 850
 $       75         138                      264                 807

The model also suggests that:
* At $45, a 1% improvement in the unemployment rate would correspond to about +6,400 more worldwide buys.
* The audience for the Big 3 PPVs (Royal Rumble, Summer Slam, Survivor Series) is about 92% larger than a normal PPV.
* If Wrestlemania were only $15, it would garner about 2.7 million buys. This is an interesting number because it might serve as a good comparison for what the universe for the WWE Network could be - one would imagine their target audience is essentially "the people who care enough about the WWE that they would consider spending $15 in order to get a dedicated channel". 

Analysis and Commentary by Chris Harrington (
Follow me @mookieghana for #ProWrestlingAnalytics
Also, see more information at:

Special thanks to David Parker (for the question and continued research/analysis of the WWE Network Launch) and Jason Campbell (for the helpful PPV spreadsheet available from ProWrestlingHistory).

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