Tuesday, December 01, 2015

Will the WWE exist in ten years?

Someone on the F4W/WON message board asked,
"Will the WWE Exist in Ten Years Based on Their Current Product?"
Here was my response:

WWE has set themselves up for a strong revenue generation from TV rights through 2018. They've rolled out their OTT network and keeping up with that element of the evolution of media consumption. They're dedicating themselves to having a strong social media presence and trying to "own" that space. I review their financials as closely as anyone and while I'm still largely pessimistic that they're under delivering what they could have, they're a long ways away from showing signs of the bottom falling out.

What are the five "trouble-spots" that I would see on the horizon? (This is not talking about the more general, "make new stars" advice.)

#1 - TV rights fees dry up and new markets don't emerge. CTH in Thailand was just a small deal, but WWE trumpeted the hell out of it when they signed in January 2014. It was seen as a harbinger of the massive fees WWE was going to get with their NBCU deal. Instead, the NBCU deal came in much lower than WWE had hinted it would and CTH has thus far not paid a cent of their 2014 or 2015 rights fees. While the TV rights money is "guaranteed" in theory, there's always the risk that people just don't pay and when it comes to getting money from companies based internationally, that can be a difficult battle. Likewise, if WWE pisses off marketplaces like India (where they just launched a stripped-down version of the WWE Network), they could endanger the renewal of their 3rd largest TV deal. When it comes to 2018, everyone can speculate but no one really knows what the landscape will look like. It's expensive running the WWE train and without TV rights fees and the corresponding global exposure, the ability of WWE to survive at its current size would be endangered. If WWE lost television coverage, that would obviously be an enormous blow.

#2 - WWE Network never takes off and instead subscription levels stagnate. After a year, having a million steady-state subscribers isn't an insignificant feat. However, after five years, WWE had better hope they can move far beyond that. Will fans grow weary of the back catalogue and disinterested in the current product? Will WWE manage to launch in a marketplace such as China? Will WWE Network subscriptions move beyond the 80/20 split (Domestic/Intl) to 50-50? WWE could always sell the Network operations to a third-party and instead just collect a licensing fee, so it's not like the WWE Network subscription stagnation (as a stand-alone product) instantly equals WWE doom. The service could be bundled with other offerings to make it a viable offering. Yet, that would require WWE to give up some control and this is their baby.

#3 - Leadership chaos post-VKM. Stephanie McMahon is gaining seasoning and experience as a corporate ambassador/executive. It's most likely that Wall Street would be happiest with a McMahon family at the helm into the next era. Shane might even come back if WWE decides to buy his company (You on Demand) for the purposes of securing Chinese Media Marketplace distribution. In many ways, George Barrios is truly the face of the WWE to the investors and analysts. It's clear he's angling for as much power & control over corporate strategy. Paul Levesque might understand how to run talent relations or creative, but he's still got a ways to go before he'd be a suitable head of the company. That said, he & Stephanie joined the WWE board of directors this year, so he's moving up the ranks and charming the right people.

#4 - Wacky Entertainment Projects break the bank. The WWE Films division has been mostly a money-losing venture with the occasional break-even project (like Miz's made-for-TV movies, Scooby Doo films) and a single hit (The Marine). Obviously, there's the cautionary tales of the WBF, The World Restaurant and XFL. Stubbornness can cloud judgment and expenses can balloon. Things such as the Performance Center are great (in theory), especially if they produce a new line of future superstars. However, there can be a significant cost associated, and eventually it comes time to reconcile your exploding "Corporate & Other" expense line with your diminishing profits.

#5 - WWE loses lawsuits. If WWE were to lose their shareholder TV rights lawsuit (which name many prominent executives in WWE as individual defendants) or the concussion lawsuit (or end up having to pay hefty fees to patent trolls), there could be a material financial impact on the WWE. Would it cripple the company? Unlikely. However, for a company as litigious and trial-adverse as WWE, it would be a significant blow and could really muddy the waters.

In almost every scenario, I don't see the development as a death-blow, but possible a severe wound. WWE could survive by taking on more partners and giving up some of their absolute control. The company needs to be careful they're not too reliant on borrowing money (for corporate aircraft, for WWE films division) when they're barely covering their dividend and spending so much on content production.

Yes, they'll exist. I don't see them dying in the next decade.

-Chris Harrington

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