WWE, Dish Network on Course for a Smackdown

When World Wrestling Entertainment (NYSE: WWE  ) announced it would make all of its pay-per-view specials available to subscribers to its new network, the company was essentially throwing its cable TV partners out of the ring.

The network, which is available online and on platforms including Sony's  Playstation, Microsoft's Xbox, Google's Chromecast, and Roku players, costs $9.99 a month. For that $9.99, subscribers not only get the monthly PPVs -- which cost between $55 and $70 each -- but original shows and a huge archive of older programs.

This move makes it so that anyone who buys two WWE PPVs a year would be better off subscribing to the network, essentially cutting WWE's cable partners out of the deal. PPV revenue is split 50/50 between WWE and the cable companies, but cable and satellite won't get a cut of network sales. So far, the major cable players have been quiet about this punch to the gut, but satellite companies Dish Network (NASDAQ: DISH  ) and DirecTV  (NASDAQ: DTV  ) are not.

Is WWE a bad partner?

Even after the network launches, WWE still plans to offer its PPVs through cable and satellite companies. Of course, while there might still be some viewers who buy them, the number is likely to plunge dramatically. For Dish and DirecTV, which made good money doing very little selling WWE PPVs, the WWE network takes cash out of their pockets.

To protest, both Dish and DirecTV are threatening to not carry Sunday's Elimination Chamber PPV, the last one before the network launches.

"Clearly we need to quickly reevaluate the economics and viability of their business with us, as it now appears the WWE feels they do not need their PPV distributors," DirecTV said in a statement, reported by the Los Angeles Times, adding that the audience for its events "has been steadily declining, and this new low-cost competitive offering will only accelerate this trend."

Will this be a trend?

Benjamin Miller, a writer for WrestlingObserver.com, the top newsletter for the pro wrestling industry, told the Fool that he expects the dispute will ultimately work out with concessions made by WWE.

"I believe that DirecTV will continue to air WWE PPVs. My reasoning is that they target sports fans. I expect the PPV price to drop at some point, however."

As for Dish, he wrote on the Wrestling Observer site, "WWE ain't gettin' on Dish unless the pay-per-view price drops to $9.99."

Miller also told the Fool that Comcast (NASDAQ: CMCSK  ) , which currently holds right to WWE's flagship TV programs, "may drop WWE PPVs or demand a price decrease if WWE TV programming leaves NBC/Universal networks. I expect smaller cable networks to continue to offer PPVs."

Dish, DirecTV not the risk for WWE

In announcing and launching the network, the WWE essentially told its fans that it was giving up on the traditional pay-per-view model. That move is risky since PPV revenues, according to the WWE's 2012 annual report, "were $83.6 million, $78.3 million, and $70.2 million, representing 17%, 16%, and 15% of total net revenues in 2012, 2011, and 2010.

Playing chicken with Elimination Chamber with Dish and DirecTV will cost WWE some money if the two satellite companies end up not airing the show and some if they drop future shows. But with its network, the clear goal of WWE is getting its fans to subscribe and watch the PPVs there. The risk of losing revenue for one PPV on two providers pales in comparison to the risk WWE is taking by spiking a key part of its revenue stream on the assumption it will do better using a new model.

A bad precedent for satellite

The real risk for Dish and DirecTV comes if other premium content providers decide to follow the WWE model. What would happen if a premium service like HBO decided to no longer require a cable/satellite subscription for people to access its HBOGo mobile service? Worse yet for satellite and cable, what if Time Warner's (NYSE: TWX  ) HBO decided to charge less for that service than cable/satellite companies do?

Dish, DirecTV, and the cable world should be concerned by the WWE network. If it works, then any premium TV content with a devoted fanbase might be more valuable sold a la carte rather than through a third party. With Netflix already helping millennials justify cutting the cord, the last thing cable and satellite companies need is HBO, ESPN, or the Disney Channel doing the same.

A  Wrestlemania moment

Ultimately, if Dish, DirecTV, and the cable companies drop WWE's, that will only matter if the company fails to get fans to buy its network. The WWE network essentially launches with Wrestlemania -- the company's biggest PPV, which on its own costs around $70.

Last Wrestlemania had, according to the WWE, over 1 million PPV buys. And while not all of those are domestic, $216 million of the company's $276 million in revenue during the second quarter in 2013 (which contained Wrestlemania) came from North America, so let's assume around 75% of them were.

If there is the same interest in the U.S. for this year's Wrestlemania, it makes no sense for any of those buyers to purchase the show through a cable company. If they purchase the network ($9.99 a month with a six-month minimum) they spend less and get five other PPVs plus the rest of the network programming.

1,2,3 pinfall for WWE

The match is already over for DirecTV, Dish, and the cable companies. If the network fails, WWE has likely devalued its PPV product to the point that it won't be able to bring it back to cable at the old prices. If the network succeeds, then the audience for buying PPVs the traditional way will be small enough that it likely won't be worth carrying them.

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Read/Post Comments (13) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 19, 2014, at 3:28 PM, Matt84 wrote:

    This will certainly set a precdent for other companies to go this route.

  • Report this Comment On February 19, 2014, at 4:26 PM, SugarBear wrote:

    It's past time for WWE to make it's product more affordable. Cable and satellite companies have been making money hand over fist for years. I couldn't care less if they lose money. **grumpy cat voice** Good!

  • Report this Comment On February 19, 2014, at 4:40 PM, richczelaz wrote:

    can anyone tell me exactly what gaming systems I would need to watch the wwe network on television?

    is there any other way to watch on tv besides a gaming system?

    thank you

  • Report this Comment On February 19, 2014, at 5:06 PM, SuntanIronMan wrote:

    @richzelaz

    When the network launches, you can watch it in your PC/Mac, iPhone, iPad, Apple TV (I believe they mentioned somewhere that the Apple TV was a launch device), Android devices, Amazon Kindle Fire, Roku, PS3, PS4, and Xbox 360.

    Soon after the launch, you'll also be able to watch the network on certain smart TVs, the Xbox One, and other devices.

    http://www.wwe.com/devices

  • Report this Comment On February 19, 2014, at 5:16 PM, kauer426 wrote:

    this is the smartest thing WWE has ever done.to go with there new tag line WHATS GOOD FOR BUSINESS.you would have to crazy not to sign up your getting $600.00 worth of PPV for only $120.00 split in 2 payments,plus all the old content of wwe,wcw,ecw and they have a bunch of new shows as well.AS there movie making gets bigger bet they ad those as well for your 9.99 a month.

  • Report this Comment On February 19, 2014, at 6:13 PM, MrValentine118 wrote:

    man i love being the voice that points out the obvious lol. well were in the era that doesnt need tv anymore because

    1: its easyer to get all the good movies and shows online

    2: most of the younger people 16 - early 30's dont watch tv anymore they are on computers throughout the day

    3: plus companies like wwe making their own network with all their stuff online would make more money then the traditional tv dish or ppv way

    i dont see this stopping anytime soon

  • Report this Comment On February 19, 2014, at 6:55 PM, EindVanDagen wrote:

    I think this is great for the WWE. As a long time wrestling fan, I can tell you that, at best, I was buying 2-3 PPVs a year. While that may add up to be $180-ish a year, WWE was only seeing $90 of that. However, for each PPV, I had a group of friends over to watch, so the company was getting maybe $30 a year per viewer in my household. Now, all of us have stated we're signing up for the WWE Network. That's $120 a year per viewer in my household.

    If this works, I would love to see more channels go this route. I have cable now, but only watch a handful of stations. If I could just pick the channels I wanted and pay a monthly fee for them, that would be amazing.

  • Report this Comment On February 19, 2014, at 8:18 PM, bluegrass10 wrote:

    the cable companies will respond with data caps on broadband internet. No more unlimited internet no more wwe network

  • Report this Comment On February 19, 2014, at 8:21 PM, bluegrass10 wrote:

    data caps are coming. Bet your ass cable will try to dismantle unlimited internet because it fuels things the wwe network etc..

  • Report this Comment On February 20, 2014, at 8:52 PM, bobc74 wrote:

    Also sounds like a great time for those fans who are obsessed with this "sport" to find a new hobby. Just think of all the money they'll be saving!

  • Report this Comment On February 20, 2014, at 10:16 PM, rhadagast wrote:

    Uhuh. What kind of neanderthals watch the WWE anyway? And why should it matter. Let them go the way of the do-do.

  • Report this Comment On February 21, 2014, at 12:16 PM, awyckoff wrote:

    If these companies (Dish, DirecTV, Comcast) were serious about maintaining their end of profits from WWE, the common sense approach would be to try to find a way to offer the WWE Network to their customers.

  • Report this Comment On February 23, 2014, at 7:13 PM, brittokj wrote:

    Lets be honest here. Cable companies are not going to go against the WWE. Thats too dangerous of a risk. In order to be able to watch not just WWE; but HBOGO, and HULU... you need to have your internet bandwidth upgraded to a bigger package. Think about how many WWE Network subscribers are going to end up paying at least 130.00 a month for streaming channels. On Hughes net; you can only watch 2 hours of streaming TV with the middle package for 99.99. WWE is going to turn away customers to their products buy not offering a discounted rate to other customers.

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