Thursday, November 21, 2013

WWE Network to feature Wrestlemania?

In the latest issue of the Wrestling Observer (11/25/2013), Dave Meltzer details one scenario for the WWE Network Launch would include a "free" Wrestlemania as an initial enticement in order to swell WWE Network subscriber ranks immediately.

It's a bold strategy which puts a lot their entire pot of Domestic PPV revenue into play while offering a very hefty incentive to potential subscribers to sign up for their premium Channel. This of course is predicated on the notion that there will be full provider coverage (i.e. you'll be able to order this channel from your Cable and Satellite provider) which remains a significant hurdle.

First, let's look at the number of monthly subscribers that WWE would need in order to gross the same amount of Revenue as they currently do on domestic PPVs (originally I composed this part as part of a discussion over at the ProWrestlingOnly message board)

For a few years, WWE would break out their PPV revenue into both Domestic & International amounts: (see page 30 )
2006: $74.1 (domestic) + $19.5M (int'l) = 21% int'l
2007: $76.6 (domestic) + $17.7M (int'l) = 19% int'l
2008: $73.6 (domestic) + $17.8M (int'l) = 19% int'l
2009: $65.0 (domestic) + $15.0M (int'l) = 19% int'l
2010: $58.5 (domestic) + $11.7M (int'l) = 17% int'l
2011: $65.8 (domestic) + $12.5M (int'l) = 16% int'l
I couldn't find a 2012 number quickly; let's assume it's around the 16.3%. 
2012 estimated: $70.0M (domestic) + $13.6M (int'l)
I'll take the last four quarters as a proxy for 2013...
2013 estimated: $66.8M (domestic) +$13.0M (int'l) 
So, all together, I think we'll be looking at about $65M to $70M in Domestic PPV income that would potentially be "in danger" with a WWE Network launch that includes Wrestlemania. 
 Can we translate that into subscribers?
Full year revenue per buy in 2012 was $20.60 (up from $19.94 in 2011). (source: 2012 10-K)
The Q3 2013 10-Q statement has revenue per buy at $19.35. Let's split the difference and assume $20. 
So, from a revenue standpoint.... 
$70M in 12 months = 12 months x $5.83M/month = 292k domestic monthly buyers x $20/buy x 12 months $65M in 12 months = 12 months x $5.42M/month = 270k domestic monthly buyers x $20/buy x 12 months (This is a number which smooths out the peaks for Wrestlemania/Rumble/SummerSlam with the B-shows.) 
WWE revenue depends on two numbers: their split with provider and the Network Price.
  So, to keep revenue flat for WWE (without covering new costs)- they'd be looking at somewhere in the neighborhood of 800,000 (low-end) to 1.5 million (middle) monthly subscribers depending on the Network Price Point and the provider split.
Keep in mind that the big dogs, like HBO, barely break $7/subscriber.  I cannot fathom them being able to even get 50% split with providers for their brand new channel.
Assuming full coverage (big IF), I think they can definitely hit a million subscribers for Wrestlemania provided they do a media blitz. If they are launching with WM, I don't see any reason they would not launch at $15/month. If anything, they can come down off that to $10 if they REALLY have to following the PPV. In fact, I'd almost prefer they launched at $15 for  Y1 and for Y2 they did something goofy like dropped to $10 but returned Wrestlemania to PPV-only.  This does NOT take into account the cost of starting up the network (which is a $30M to $50M bogey), but at least shows how's it's possible for them to keep a flat domestic PPV revenue.
It's been an eventful week for WWE Network rumors. On Tuesday, WWE announced the appointment of Matthew Singerman as Executive Vice President of Programming reporting directly to Vince McMahon. His responsibilities would include "strategic development of content, including original, unscripted and scripted shows, scheduling of all programming and operations across all distribution platforms, including a potential WWE Network."  Also, this week Cable providers began contacting WWE Classics of Demand subscribers with a message that the service was being discontinued in early 2014; this is presumed to be part of the prelude to the WWE Network launch.  Let the rumors fly!

1 comment:

David said...

Unfortunately, trying to figure out the WWE Network's potential subscriber fee by looking at other networks is pretty difficult. Whenever the amount per subscriber is reported, it's combined with the premium channel's sister network (Cinemax with HBO, Encore with Starz, etc.). However, I think it's possible to figure out a general range for Starz (the weakest of the top three premium channels), as of the end of the third quarter.

Looking at Starz Inc.'s most recent 10-Q ( Starz Networks (which consists of Starz, Encore, and MoviePlex), $319.857 million in revenue during the third quarter. Using the beginning and ending figures for the third quarter, Starz's average number of subscribers is 21.4 million, and Encore's average is 34.65 million.

If we assume Starz and Encore make the same amount of money per subscriber, the average amount per subscriber is $319.857/(21.4+34.65)/3 months = $1.90 per month.

If we assume Encore generates no money, the average amount per subscriber is $319.857/21.4/3 months = $4.98 per month.

Therefore, Starz's subscriber fee is somewhere between $1.90 and $4.98 per month. I would assume it's in the upper range.

To be fair, this isn't the best example to use. More than half of the subscribers for both Encore and Starz come from fixed-rate deals (where Starz Inc. receives a flat fee from the provider for all potential subscribers), as opposed to consignment deals (where Starz receives an amount per subscriber). As a result, the providers may offer Starz for a low price, bringing in more subscribers but driving down the average. If the WWE Network deals are consignment deals (and I suspect they will be), that's not going to happen.

Nevertheless, it's the best example we have of what to expect (unless EPIX is a better example, and I'm not sure that it is, since some providers offer it as part of a tier and not a standalone channel).