Sunday, August 07, 2016

In which Mookie adapts an email into a blog post...

I think both Michelle Wilson & George Barrios are smart, savvy and sophisticated leaders in WWE. They have access to all the numbers and all the behind-the-scenes conversations while obviously the rest of us are just putting the puzzle pieces together.
1. Who oversees the Network? Who is qualified to oversee the Network? How profitable is the Network?

Obviously, WWE doesn't want to answer this question anymore beyond just saying that Vince is in charge and George & Michelle are his direct reports. I imagine if one asked them what makes you qualified" (George did work for HBO at one point, but obviously it wasn't in the era of the HBO GO OTT model) they'd answer just by saying "we're #4 or #5 in terms of OTT subs". I've noted before that WWE ran through a series of people (Matthew Singerman, Perkins Miller, Lisa Fox Lee, Lou Schwartz) during the first two years of the WWE Network which really surprised me. I'm in a benevolent mood today, so I will say maybe they're right -- if they have success today, perhaps they don't have to go out and purchase talent away from the bigger OTT players. I was surprised to see that the president of WWE International Gerrit Meier left the company in June (he had come from Spotify and iHeartRadio), but this just seems to be the WWE environment. Now that line of reporting seems to funnel through Ed Welles and up to George (I think). I think Michelle and George especially are consolidating the non-McMahon Corporate power in the WWE. 

They've been doing some heavy hiring on the WWE Network analytics front in 2016 with Pamela Murrin (SVP, Data Strategy) reporting to Tandy O'Donoghue (EVP Strategy & Analytics). I am very happy to see WWE really spending some resources and time to try and understand the mountain of data that can potentially capture through the WWE Network usage, and what I'm hearing from the investment community is that some analysts feel that a lot of new programming (like the Cruiserweight Classic series on the WWE Network) is the result of the company trying to broaden their appeal to more segments of their subscriber base.

The WWE Network is profitable. I really don't think it was ever a question on whether the company could make money with the OTT service. They absolutely could. They could always ratchet back on what they were spending on the Network to cut costs (and should one recall, they had to announce cost cutting in July 2014 and rush the WWE Global roll-out when the WWE Network wasn't taking off as quickly as expected. The challenge with WWE is that the company is still working back to being as profitable as it was in the pre-WWE Network/modern-PPV era. As they always say, if they hit 3 million to 4 million subscribers, that's great news and they'll be pulling in major OIBDA. However, we're still building back to where they were before they started investing in the WWE Network platform. And they certainly didn't not hit t he lofty goals they had originally set out and declared they thought they could for how their domestic TV rights renewal went.

George is good at his speeches - the three types of content on different platforms, the international growth in digital/social media and how that should help international growth, etc.

2. Did the WWE Network hurt the TV rights renewal?

This one is really easy. Not only was there the shareholder lawsuits (which WWE consolidated and ended up winning in April) over whether WWE (specifically Vince, Stephanie, George, Michelle) made any statements of material facts that they knew to be untrue during the lead-up to the renewal, but Vince McMahon himself said that launching the WWE Network hurt the TV rights renewal. 

“We were a little disappointed with our NBCU deal,” McMahon said during his first conference call with analysts to discuss the deal on Monday. “Whether we failed or not, I’m not certain.”...McMahon added that the launch of the WWE Network in February “definitely had a negative impact” on its negotiations with NBCU and other potential TV partners on its programming. He wasn’t sure just how much, however. “That was part of a lighter number in terms of television rights. That’s a fair thing to say.”

It's straight from the WWE Chairman's mouth on a recorded Conference Call. There's no denying any of that. I will say that some international deals were signed prior to the WWE Network launch. Some international deals have been signed since. So it certainly didn't destroy everything - they're making more money on guaranteed TV rights than any point in the company's history. However, the real question is what happens during the next renewal cycle. It will be especially interesting what happens in the international markets like UK and India (WWE's #2 and #3 TV contract). Those were places were the WWE Network launch was seriously delayed - in the case of the UK it was definitely due to tension with BSkyB and in India, WWE agreed to not put the WWE PPVs live on the Network until 24 hours after they air for the first year - because of tensions with the existing exclusive television programming rights. When it comes to 2019, will those services have any interest in paying the big bucks to WWE considering that they consider WWE to be essentially competing with them via the WWE Network? WWE is always going to say - "No, no, no - you've got that wrong! It's different content! It's different platforms! It's serving different people." but that's a head fake. It's a serious issue, both domestically (will the live sports bubble burst? can WWE really survive without the major television exposure? what will the OTT landscape look like at that point?) and internationally (like George said, the international market doesn't have the penetration of these OTT services so there's a big question whether you want to upset the TV rights holders).

3. What are the demographics? What is churn?

 Does WWE have a younger fanbase than the pure-TV demographics reveal? Absolutely. There's a lot of users of the WWE Network and consumers of the online content who skew younger than the TV ratings demonstrate. However, the fact WWE can't (and won't) prove it publicly, demonstrates the opacity that the company continually gives to shareholders, analysts, writers, bloggers, journalists, fans - they move the metrics goalposts from time-to-time to best suit the narrative they are using. George loves to mention churn model definitions but immediately say "I wouldn't want to bore you..." because he loves to pretend that the business is too complex to explain to people because it's a company's main prerogative to insist that everything is too hard for laypeople to understand which is why they need experts and highly-paid management teams. 

With that said, I thought the latest Churn numbers were a really good sign for WWE. It was in line with previous quarters rather than exploding.
Honestly, the $100,000 question (which WWE has not answered and is worth a hell of a lot more than $100,000) is what percentage of the people who you were able to convert from the #FreeWrestleMania promotion and how long will you be able to retain them? There was 281,000 domestic free trials at WM32 and by 6/30/16 that number was done to the "normal" 36,000 domestic free trials (not the same people in theory). Instead of domestic WWE Network subs dropping (it went down by 184,000 domestic subscribers between WM31 and 6/30/15), the number of domestic WWE Network grew by 21,000 accounts. The value of keeping 200k domestic accounts for a quarter is only $6M in revenue. It's about keeping these accounts around until the end of the year. I know when Dave Meltzer crunched the numbers he told me that "To equal the growth last year and balance out the lack of first quarter growth by offering Mania for free, the 6/30 benchmarks were 1,297,000 in the U.S. and 1,661,000 worldwide. Actuals were 1,166,000 and 1,511,000. So this year's Mania did not help them as much as last year's Mania even with expanding into new markets. It's still growth, just slower growth."  I generally agree -- the promotion did not fail, but it is far too early and easy to simply say it was a huge success. Ultimately, it's in line with what WWE has been doing which is trying to grow the WWE Network by smaller actions rather than developing a single panacea which will cure any churn or lapsed fan or untapped market woes.

The Brand Extension (which was partially a reaction to the sub-standard TV ratings, especially after SmackDown moved to USA) is a good tool for keeping the WWE Network relevant and interesting for the second half of 2016. Yet, I think it'll be a gimmick whose novelty will wear off by next year. There's only so much content that one can expect one's fans to consume and once you start doubling up the PPVs (two in a month) PLUS 3 hours of live RAW PLUS 2 hours of live SMACKDOWN, that's eight hours over three days TWICE a MONTH (we use CAPITALS TO SCREAM TO CONVEY THE ABSURDITY) which just might sap energy from the fans that aren't the most hardcore of the hardcores. Perhaps it'll bifurcate the audience into fans of Raw and fans of Smackdown, but that really remains to be seen whether they can create identities and brands that are distinct enough to engender specific fan allegiances. 

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