Monday, January 06, 2014

WWE readies to spin the giant network roulette wheel!

On Wednesday, WWE chairman Vince McMahon along with a bevy of available superstars (John Cena, Shawn Michaels, Steve Austin and Triple H are all being advertised to appear) will make his "groundbreaking announcement". According to the WWE website, interested parties outside of Las Vegas will be able to watch a stream of the event:
Watch LIVE this Wednesday at 9:30 p.m. ET on, the WWE App, YouTube, Facebook, Twitter, Yahoo!, Google+, Pinterest and Pheed.
(Note: David Bixenspan noted that the Facebook invite said 9:00 pm EST in the text and 9:15 on the invite. Clear your schedule people!) 

The prevailing opinion still remains that this will be the latest (and hopefully final) announcement for a launch date for the rumored WWE Network.  We've been covering the evolution of the WWE Network here at this blog.  (Interested parties are encouraged to check out the free 40-page PDF we released on the subject.) Now, if rumors are to believed, the latest WWE Network model will take the form of a monthly subscription over-the-top video distribution service (similar to Netflix) with a backbone provided by MLB Advanced Media which would provide both daily streaming content (a "channel" with programming) along with an extensive on-demand library.

It's ludicrously appropriate that WWE would be making this announcement during CES 2014 in Las Vegas because launching the WWE Network does represents quite the gamble for the company. In particular, WWE is readying itself to fundamentally change how their viewers can access their library of old content and altering their distribution method for new "PPV" content.  (I did look at dissecting possible positive and negative revenue impacts from the Network last month.)

In my mind, there's two major revenue streams that WWE would endanger should they launch the WWE Network (at least, in the form as described above): Domestic Pay-Per-View Revenue and Home Entertainment/Consumer Products. I discussed why DVD sales would probably fall in the last post, let's focus on domestic PPV impact.


While WWE reports annual Pay-per-view Revenue numbers, they don't often break out domestic versus international PPV totals. However, with some creative estimates*, we can make an educated guess:

(*) Methodology: WWE PPV Buys from 2006-2013 (domestic/int'l split) were reported in the Wrestling Observer; these numbers were extracted from the monthly KPIs and quarterly SEC filings. These estimates were compared against individual PPV prices by quarter and the reported total PPV quarterly revenue. It was possible to run a regression and estimate the quarterly revenue split for each event. (This leads to an interesting result that while PPVs buys hover around 61% domestic, PPV revenue is estimated to be more like 76% domestic).  I did notice that Meltzer's estimates include "late buys" attributed to the original event, so there is some degree of incongruence between using periodic revenue numbers without backing out prior event buys.
Note: TLC 2013 was not available but a fair estimation was used to provide a complete 2013 fiscal year.

EDIT: My numbers are a little off.  WWE did publish 2006-2011 Domestic/International PPV splits which were several million dollars higher: (see my earlier post on this at

A few observations on the chart above:

  1. Domestically, back-to-back Cena vs Rock main event was strong enough (especially when coupled with HD orders) to deliver strongest domestic WM numbers with 2007's event (the battle of the Billionaires) nestling nicely into third place.
  2. Weakness in 2013's Summer Slam (the event that Vince McMahon called a "Swing and a miss") was evident as that event essentially tied for the weakest event in years.
  3. Contrary to popular sentiment, domestic PPV is not dead. In fact, the last two years have represented significant improvements over the 2009-2011 slump.
On that third point, consider that domestic Non-WM PPV revenue dropped from $52M-$54M annually (2006-2008) to $37M-$43M annually (2009-2013).  There are many factors involved, but certainly raising the domestic PPV price five dollars in a year where the unemployment rate shot up to the decade's pinnacle, played a significant role.  Obviously, some of this drop is due to cutting back on the number of PPVs (2006 has 16 while 2012 had only 12), but keep in mind that the revenue per PPV for the non-core events (the "Other PPVs" in blue) dropped 15% from $3.24M/event (2006-2008) to $2.75M/event (2009-2011).  That suggests that even if WWE had run a similar number of events, they'd still be down at about five million in domestic PPV revenue.  (This "domestic PPV revenue per other event" number has rebounded in recent years above the three-million dollar mark to about $3.13M).  As you can see, while a $5.0M SummerSlam number may pale in comparison to huge years (2008 with Undertaker/Edge in Hell in a Cell did particularly well with nearly $7.0M), it's still a much bigger event than your normal B-show.

What is remarkable is how the important the "big three" (Summer Slam, Royal Rumble and especially Wrestlemania) are to WWE.  It's telling that the last three years more than half of the annual income comes from those three events, and it appears to keep growing.  Seeing that writing on the wall, it makes sense that WWE's strategy for luring viewers to their new revenue stream (the WWE Network) would involve a hook that includes the big events.  Offering viewers the option of catching the next "Battleground" PPV simply will not due.

The next big question is how many people are going to order such a network. In an earlier post, I applied Netflix subscription statistics by age group to WWE Viewers (assuming a four million person base) and came up with about 415,000 annual subscribers.  (This assumes WWE offers a huge hook like Wrestlemania in exchange for an extended subscription guarantee).  Still, at this moment (and the much higher price point) there's only about 121,000 domestic PPV buys per non-major WWE PPV.

Assuming about a $10 price point, 415k annual subscribers would generate about $50 million in income, but would be less than half of what WWE has repeatedly stated would be their break-even point for the project.  Considering that annual domestic PPV is only estimated around $63M annually, the WWE Network (as projected) would not be a full substitute for current WWE Domestic PPV revenue.  (Yet, it might just cover all of the domestic PPV revenue sans Wrestlemania: ~$42M.)

So, the question remains - if (when?) WWE launches the Network, how many subscribers can we reasonable estimate will buy the network and moreover, how many people will continue to purchase PPVs?

One question asked about the prior analysis was why I chose "four million" as my base.  It's a fair point because WWE themselves claims 15 million weekly viewers.  I chose 4 million based on WWE's Flagship show ratings and the fact that WWE currently has both their big shows (Raw and Smackdown) on Cable television.  (When Smackdown was both brand-exclusive and broadcast on over-the-air channels, I believe they had a much bigger unique audience as compared to now. However, at this time I don't have any numbers to back up this assertion.)

But, for the sake of argument, if we took the WWE's claim of fifteen million weekly viewers seriously and applied out Netflix streaming calculations, that would give us a blended average of 1.5 million annual subscriptions.  (We'll use WWE's age distribution quoted in the 15M number and apply the Netflix streaming statistics from the Harris Interactive Poll and my "household adjustment" number to correct for households where one subscription supplies more than one person.)

  • (19% x 37% streaming [under 18] + 23% x 41% streaming [18-34] + 21% x 24% streaming [35-49] + 37% x 15% streaming [50+] ) x 15M x 35.6% household adjustment =  1.444M subscriptions
  • (23% x 41% streaming [18-34] + 21% x 24% streaming [35-49] + 37% x 15% streaming [50+]) x 15M x 52.2% household adjustment = 1.568M subscriptions
(Essentially, either model predicts about 10% of the "base" would be candidates for subscription.)

In this scenario, about 4 million people of the original 15 million weekly viewers would have access to the network.  (Note: this assumes that the subscription base for the WWE Network would be people included the current "15 million" number; there's still the whole matter of the lapsed/casual fans with a "strong affinity" to WWE Programming - a number that WWE has quoted as high as 57 million households.)  The question is whether a significant portion of the remaining 11 million weekly WWE viewers (over 70%) would continue to purchase PPVs.  Personally, I believe that the people with the greatest propensity to buy PPVs would be most attracted to the WWE Network service.  What a conundrum.

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