2014-05-02

Co.Labs

Is the WWE Network Taking Pay-Per-View To The Top Rope?

Like many media companies, WWE is tuning up its digital distribution efforts, leaving its legacy businesses in question.



Long known for its pricey premium TV events, the WWE is changing course, moving away from pay-per-view events toward Internet distribution. The upside: Having its own network means connecting directly with consumers, eschewing the cable and satellite companies who act as gatekeepers. But there's a huge risk to this strategy, too—that viewers won't move networks with them.

Sure, the potential upside is huge—hundreds of millions of dollars in found revenue. But the WWE could also alienate approximately 42 million of its 50 million fans: "casual" wrestling viewers for whom wrestling and PPV were synonymous. If the league ditches PPV, how will it call viewers to action and get them downloading WWE video over the web? And for the 8-10 million fans that WWE says are "passionate," there's no guarantee they'll follow wrestling to digital, either.

How does a company in a shifting landscape calculate the risk here? We sat down with the WWE to learn how they think about digital.

The Number Crunch: Digital vs. Analog

First, the basics: The new WWE Network provides unlimited, 24/7 access to the first exclusive web-delivered network with both a linear stream of live and original content. “Our pay-per-views used to cost 60 or 70 bucks a month for one three or four-hour show," says George Barrios, chief strategy & financial officer for WWE. "You now get all of them, you get all that new content, you get that nice VOD (Video On Demand) library for $9.99 a month, and you access it just like you would access Netflix.”

For decades, WWE and pay-per-view have gone hand-in-hand—but these PPV events averaged somewhere around $50 a pop, with about one per month. A lot of that cash goes to the cable and dish network operators, who aren't happy with this digital competition.

If relations with the networks sour, and the WWE forgoes all of its pay-per-view profits, that's $82.5 million in missed revenue, if you go by 2013 numbers. That shouldn't be too hard to replace with digital content sales—the new WWE web network needs only one million subscribers for the company to break even—but it's still a big risk.

“We've been out public and said, even if you assume the entire pay-per-view business domestic is cannibalized and you don't have additional costs to run this network, we need to get to about a million subscribers," says Barrios. "That gets us somewhere between 80 and a 120 million in revenue. That breaks even.”

In fact, in conjunction with already-existing pay-per-view partnerships, WWE needs only about 400,000 digital subscribers to make money. Which means, at roughly 495,000 subscribers reported in Q1 2014, WWE Network is already turning a profit.

Informing the Digital Split Decision

The WWE listens to its fans. Over the last four years, it's designated huge resources to watch what's happening in their industry, validating data and collecting analytics, all while keeping an eye on Netflix. In that time, WWE found that more and more of its fans, especially in the U.S., were consuming more and more long-form video through set-top boxes like the Apple TV, also know as "over the top" content.

“The last data we saw, at this time last year, the average person in the U.S. was doing about five hours of long-form video a week over the top. Our [biggest] fans were doing about 13, over-indexing,” says Barrios.

All this research is how the WWE knows it has 50 million U.S. fans. According to the league's research, about half of American homes have some history with wrestling and, in 30 million of them, at least one fan who is up to date. The audience—with regards to their affinity for the sport—is divided into three categories: Lapsed, Casual, and Passionate.

“Lapsed means you were a fan, but you haven't watched in the last year, and there's about 22 million,” explains Barrios. “Casual fans are current fans, but they may not consume as much as our passionate fans. There's about roughly 20 million of those homes in the U.S. Passionate fans are our most intense viewers. In the U.S. about 10 million homes have a passionate fan or more in them."

Defending Tag-Team Champions

Today, the most popular device on which to view services like Netflix is PS3, and WWE knows it. Game consoles, ranging from PS3 and PS4—and, as of Wednesday, Xboxes One and 360—are carrying WWE Network. But why stop there? “We launched on Kindle Fire, Apple TV, on Roku, iOS, and Android,” says Barrios. “We'll do things like get on Fire TV, Amazon's new box. We'll do Chromecast, we'll do smart TV.”

So will WWE be missed by the cable networks? Definitely, says Barrios. “When you look at the numbers that we deliver, we average about 3 and a half million viewers across our prime time hours, which is more than NASCAR averages on their national contract, or the NBA or Major League Baseball. It's an important piece of programming to our partners. I find it hard to believe that anybody would go away from that.”

Barrios even goes so far as to cite research suggesting WWE's potential value add to standard television service providers. “Especially if they move it up a tier,” he says. “If it's not on the most basic tier, but if they move it up one. There's enough demand that people who sit on the lower tier would upgrade their subscription package to move up and there's a value add to the provider."

As WWE remains a product and not a channel, it's currently engaged in drawn-out negotiations for its network television deals. The idea of their own television network has long since been abandoned.

“Signing carriage agreements, whether for a dual revenue stream network with an affiliate fee or for an a la carte network. Those are difficult conversations. MVPDs generally, over the last few years, have been pretty vocal about saying the last thing they need on their platform is another network," Barrios says.

Parts Unknown: The Future Of WWE Distribution

When it comes to pay-per-view, WWE intends to let the fans decide how they want to consume their wrestling. But they've done the analysis necessary to determine what happens if PPV goes away.

“We're going to keep giving people the choice,” says Barrios. “If people continue to buy pay-per-view and are subscribing to the network, great. That's a good business for us.”

On the programming side of things, however, pay-per-views still reign supreme—these events may stick around as a flagship series. There's one every month and WWE considers them its best content. Says Barrios, “It's something that in and of itself used to sell for 60 to 70 bucks a month and now it's part of that $9.99 package.”

Again, that's not all. WWE is launching an entire line of original programming aimed to capture its audience's attention at all times of the day. The network launched a new reality series, Legends House, for instance, and produced a documentary series chronicling the war for wrestling between Ted Turner (WCW) and Vince McMahon (then WWF) in the early 2000s called Monday Night War. They also own WCW's catalog.

“When we do Monday Night War,” reveals Barrios, “we'll also bring to the VOD library every episode of Nitro, which was WCW's number one show. We've got so much.”

That legacy library of 1,500 hours, by the way, includes every pay-per-view event WWE has ever produced. WWE's library? 130,000 hours. And that may be the steel chair across the back of professional wrestling pay-per-view's skull.

[Image: Flickr user Simon Q]




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