Wednesday, April 16, 2014

Estimating 2014 Profitability for WWE PPV w/ WWE Network

Yesterday, WWE reported 400,000 US homes purchased Wrestlemania XXX via traditional PPV means.  With internal expectactions running at about 250,000, this number was considered a large sucess for the WWE since domestic buys were only at about 66% of last year's level.

I was joined by David Bixenspan (@davidbix) to discuss these numbers on a quick 15 minute podcast which was a great follow-up to my one-hour broadcast with Bix last week  discussing the relevance of the 667,287 subscriber numbers (a story that many media reports completely missed).

The challenge was: With the latest data, can we determine what the revenue & profit impact of the WWE Network looks like for 2014?

Here's my take....

KNOWN DATA

Here is PPV Revenue 2011-2013 by Quarter (see trending schedules 2011-2013 from corporate.wwe.com)


YEAR: Q1 / Q2 / Q3 /Q4
2011: 13.5 / 34.4 / 15.8 / 14.6
2012: 13.5 / 40.8 / 16.3 / 13.0
2013: 15.1 / 37.1 / 14.6 / 15.7

From the latest annual report:
Pay-per-view net revenues were $82.5 million, $83.6 million and $78.3 million, representing 16%, 17% and 16% of total net revenues in 2013, 2012 and 2011, respectively, of which $66.9 million, $66.4 million, and $61.3 million were generated domestically.

2011
Royal Rumble 2011 (1/30/2011): 281k North American buys + 195k other buys outside North America {Q1}
Elimination Chamber 2011 (2/20/2011): 145k North American buys + 67k other buys outside North America {Q1}
WrestleMania XXVII (4/3/2011): 679k North American buys + 445k other buys outside North America {Q2}
Extreme Rules 2011 (5/1/2011): 108k North American buys + 108k other buys outside North America {Q2}
Over the Limit 2011 (5/22/2011): 72k North American buys + 73k other buys outside North America {Q2}
Capitol Punishment 2011 (6/19/2011): 85k North American buys + 91k other buys outside North America {Q2}
Money in the Bank 2011 (7/17/2011): 146k North American buys + 59k other buys outside North America {Q3}
SummerSlam 2011 (8/14/2011): 180k North American buys + 131k other buys outside North America {Q3}
Night of Champions 2011 (9/18/2011): 109k North American buys + 60k other buys outside North America {Q3}
Hell in a Cell 2011 (10/2/2011): 98k North American buys + 84k other buys outside North America {Q4}
Vengeance 2011 (10/23/2011): 65k North American buys + 56k other buys outside North America {Q4}
Survivor Series 2011 (11/20/2011): 179k North American buys + 133k other buys outside North America {Q4}
TLC 2011 (12/18/2011): 98k North American buys + 81k other buys outside North America {Q4}

2012
Royal Rumble 2012 (1/29/2012): 299k North American buys + 184k other buys outside North America {Q1}
Elimination Chamber 2012 (2/19/2012): 138k North American buys + 56k other buys outside North America {Q1}
WrestleMania XXXVIII (4/1/2012): 715k North American buys + 504k other buys outside North America {Q2}
Extreme Rules 2012 (4/29/2012): 159k North American buys + 112k other buys outside North America {Q2}
Over the Limit 2012 (5/20/2012): 124k North American buys + 48k other buys outside North America {Q2}
No Way Out 2012 (6/17/2012): 110k North American buys + 90k other buys outside North America {Q2}
Money in the Bank 2012 (7/15/2012): 114k North American buys + 92k other buys outside North America {Q3}
SummerSlam 2012 (8/19/2012): 296k North American buys + 96k other buys outside North America {Q3}
Night of Champions 2012 (9/16/2012): 112k North American buys + 95k other buys outside North America {Q3}
Hell in a Cell 2012 (10/28/2012): 157k North American buys + 50k other buys outside North America {Q4}
Survivor Series 2012 (11/18/2012): 125k North American buys + 91k other buys outside North America {Q4}
TLC 2012 (12/16/2012): 75k North American buys + 106k other buys outside North America {Q4}

2013
Royal Rumble 2013 (1/27/2013): 364k North American buys + 215k other buys outside North America {Q1}
Elimination Chamber 2013 (2/17/2013): 181k North American buys + 60k other buys outside North America {Q1}
WrestleMania 29 (4/7/2013): 662k North American buys + 442k other buys outside North America {Q2}
Extreme Rules 2013 (5/19/2013): 137k North American buys + 108k other buys outside North America {Q2}
Payback 2013 (6/16/2013): 108k North American buys + 90k other buys outside North America {Q2}
Money in the Bank 2013 (7/14/2013): 169k North American buys + 54k other buys outside North America {Q3}
SummerSlam 2013 (8/18/2013): 207k North American buys + 125k other buys outside North America {Q3}
Night of Champions 2013 (9/15/2013): 103k North American buys + 93k other buys outside North America {Q3}
Battleground 2013 (10/6/2013): 81k North American buys + 33k other buys outside North America {Q4}
Hell in a Cell 2013 (10/27/2013): 130k North American buys + 98k other buys outside North America {Q4}
Survivor Series 2013 (11/24/2013): 94k North American buys + 83k other buys outside North America {Q4}
TLC 2013 (12/15/2013): 140k North American buys + 41k other buys outside North America {Q4}


REGRESSION (Buys -> Revenue)

We can estimate buys for 2014, but we want to compare revenue. We can run a regression where our inputs are Quarterly North American Buys x PPV Price & Quarterly Outside North American Buys x PPV Price and our output is Actual Quarterly PPV Revenue.


(x-axis is total PPV revenue from NA before splits, y-axis is total PPV revenue from INTL before splits - assumes same PPV price; size of bubble if actual WWE PPV revenue)

Inputs: x = NA buys, y = Buys from Outside NA, z = Price of PPV
Quarterly PPV Revenue generated during non-WM qtr = sum of QTRly {z*(x*.505 + y*.353)}
Quarterly PPV Revenue generated during WM qtr = sum of QTRly {z*(x*.632 + y*.125)}

With this formula, we can estimate how much revenue will be generated.

So, for Q1 2014:
Royal Rumble 2014 (1/26/2014) - 285k NA buys, 160k outside NA buys
Elimination Chamber 2014 (2/23/2014) - 156k NA buys, 47k outside NA buys
I'll assume PPV price of $44.95 (consistent with what was assumed for 2011/2012/2013. (While there is a greater percentage of folks buying PPV in HD, this is a decent proxy since our regression is handling the buys to revenue conversion -- I'm applying the same percentage as last year so it should be in the ballpark.)

Q1 2014 revenue estimate: (441,000*.505+207,000*.353)*44.95 = $13.3M (a drop from 2013 since Rock wasn't wrestling, in line with 2011/2012).

ESTIMATE BUYS FOR REST OF 2014


This is, of course, the great unknown. What do we assume for baseline for WWE PPVs? How much should we adjust?

Here's how I handled it:
a. Take the average of 2011/2012/2013 buys (split into NA and non-NA)
b. Assume 60% retention for NA buys
c. Assume 95% retention for non-NA buys

Q2 2014
WrestleMania XXX (4/6/2014): 400,000 US homes + 66,000 Canadian homes + 440,483 non-NA homes
Extreme Rules 2014 (5/4/2014): 81,000 NA homes + 104,000 non-NA homes
Payback 2014 (6/1/2014): 58,000 NA homes + 80,000 non-NA homes
Money in the Bank 2014 (6/29/2014 ): 73,000 NA homes + 75,000 non-NA homes
Estimated Q2 revenue: $28.4M

Q3 2014
Battleground 2014 (7/20/2014): 86,000 NA homes + 65,000 non-NA homes
SummerSlam 2014 (8/17/2014 ): 137,000 NA homes + 111,000 non-NA homes
Night of Champions 2014 (9/21/2014): 65,000 NA homes + 79,000 non-NA homes
Estimated Q3 revenue: $10.6M

Q4 2014
Hell in a Cell 2014 (10/26/2014): 77,000 NA homes + 73,000 non-NA homes
Survivor Series 2014 (11/23/2014): 80,000 NA homes + 97,000 non-NA homes
TLC 2014 (12/14/2014): 63,000 NA homes + 72,000 non-NA homes
Estimated Q4 revenue: $8.8M

Total estimate 2014 PPV Revenue was: $13.3M+$28.4M+$10.6M+$8.8M = $61.1M (about $45.8M domestic PPV revenue)

ESTIMATE OTT REVENUE FOR 2014


* I assumed that there's about 2% growth for the rest of year. That would end the year around 800,000 subscribers.



Estimate WWE Network Revenue in 2014
Q1: $4.15M
Q2: $19.99M (ends 700k subscribers)
Q3: $22.06M (ends 750k subscribers)
Q4: $23.41M (ends 800k subscribers)

Combined Revenue Streams and Examine Profitability


PPV = Pay-per-view; OTT = Over-the-top (WWE Network)

2014 PPV + OTT
Q1 = $13.3M (PPV) + $4.1M (OTT) = $17,446,000
Q2 = $28.4M (PPV) + $20.0M (OTT) = $48,408,000
Q3 = $10.6M (PPV) + $22.1M (OTT) = $32,628,000
Q4 = $8.8M (PPV) + $23.4M (OTT) = $32,243,000
TOTAL: $61.11M (PPV) + $69.61M (OTT) = $130,725,000

Estimate Expenses:
PPV
2011 PPV OBIDA = $39.8M from $78.3M revenue (51%)
2012 PPV OBIDA = $44.9M from $83.6M revenue (54%)
2013 PPV OBIDA = $34.1M from $82.5M revenue (41%)
Average: 49%

We'll assume median PPV cost of $38.7M

Estimated 2014 PPV OBIDA = $61.M - $38.7M = $22.4M

OTT

2014 OTT Expenses (prior to cannibalization) was $55M in the original WWE presentation for levels under 1 million subscribers.

Estimate 2014 OTT OBIDA = $69.61M - $55.00M = $14.61M

Combined OBIDA (prior to other cannibalization): $14.6M (OTT) + $22.4M (PPV)  = $37M (28%)

HOME ENTERTAINMENT

I haven't included any estimate for what this will do the Home Entertainment Business, which is another source of revenue cannibalization.
Last year, Home Entertainment Revenue was $24.3M and OBIDA on that segment was $8.8M (36%).

Conclusion

Ultimately, with these assumptions (I left out international WWE Network launch because that adds both more expenses and drops buys), we end up with OBIDA for PPV+OTT basically between 2011/2013 levels. Revenue is up a lot, but so are costs. And I'm not sure if the $55M costs that WWE listed really will include the full burden for launch/start-up/marketing elements. So, at this point, it appears to be a wash, but I've got a lot of assumptions that B-level PPVs continue at 60% of the baseline, which seems very high to me.  If you want to apply ridiculous growth rates to WWE Network, you can make it look great. If you want to assume b-level PPV dropoff is much more severe than I assumed (60% of previous baseline), then it's going to look weaker.
-Chris Harrington (@mookieghana)

Other important reads:

* My analysis of Needham's report: Grossly Overestimating future Revenues.

As always, feel free to talk to me at chris.harrington@gmail.com

1 comment:

Mookie said...

For an alternative take, you can read the Needham Research Paper on WWE. I gave my take (I think they're inflating revenue streams) here.

They estimated:
Quote:
Q1: $16M PPV + $3M (OTT)
Q2: $15M PPV +$20M (OTT)
Q3: $10M PV + $24M (OTT)
Q4: $5M PPV + $28M (OTT)
TOTAL: $46M (PPV) + $75M (OTT)


I estimated:
Quote:
Q1 = $13.3M (PPV) + $4.1M (OTT) = $17,446,000
Q2 = $28.4M (PPV) + $20.0M (OTT) = $48,408,000
Q3 = $10.6M (PPV) + $22.1M (OTT) = $32,628,000
Q4 = $8.8M (PPV) + $23.4M (OTT) = $32,243,000
TOTAL: $61.11M (PPV) + $69.61M (OTT) = $130,725,000


They clearly forgot to factor in the Q2 Wrestlemania bump. They released their paper after the 667,287 was known but before the 400k WM US homes number came out.

That company believes that the WWE Network will generate $216M in 2015 and $336M in 2016 as PPV drops from $83M (2013) to $46M (2014) to $20M (2015) to $15M (2016). I think their OTT 2016 number is loco, but that's me.