The WWE Network Will Succeed

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As surely as a Hulk Hogan legdrop will be followed by the referee counting one-two-three, the WWE  (NYSE: WWE  )  Network will not only succeed, it will change the television business.

The network launched last week with some technical problems, questions about whether enough people would sign up, and two publicly angry satellite television providers. Those problems will prove to be bumps on the road for a product that will be as significant for cable and television as the launch of Napster was in music (and it will actually be legal).

The WWE is ahead of the curve
By offering all its pay-per-view content over the network, the WWE essentially cut its cable and satellite TV partners out of the equation. Dish Network (NASDAQ: DISH  ) and DirecTV (NASDAQ: DTV  ) immediately showed their anger over the planned inclusion of PPV -- including Wrestlemania which greatly outdraws the rest of the content -- by threatening to not offer any future WWE PPV content to people who want to buy it in the traditional manner.

Cable companies are probably just as angry about the plan, but they can't be as vocal about it because the rights for WWE's television shows are now being negotiated and Comcast (NASDAQ: CMCSK  ) and maybe Time Warner (NYSE: TWX  ) are likely to be bidding.

The satellite companies are mad because they are losing a revenue stream. Previously they got half the PPV revenue for doing essentially nothing. That's a pretty good deal that anyone would scream about losing, but they should be happy that a scam that good lasted that long.

The WWE -- like musicians and authors before it -- has learned that you can charge your customers less (and make more money) if you cut out the middleman. The WWE Network allows WWE to deliver PPV content to the people that it wants to keep happy (its customers) and the decision only hurts the companies that were taking a huge undeserved piece of the pie.

To make matters worse for cable and satellite companies, the WWE is showing that if you have a loyal enough audience, you don't need them. The WWE Network customers will pay much less ($9.99 a month) for content that would have cost over $700 under the old model and you have to assume that every boxing organization, the UFC, and anyone else in the PPV business is taking notice.

Much like Napster heralded a huge shift in the music business, the WWE Network means that content owners have put cable and satellite companies on notice that their business is about to change.

How many people does WWE need?
WWE CFO George Barrios told analysts last week that the network could attract as many as 3 million subscribers and it could become a "major source of future earnings growth" with as much as $150 million a year in cash flow, reported. However, the company does not need 3 million subscribers to break even or make money with the network.

According to WWE's most recent annual report, the company took $83.6 million in PPV revenue in 2012. The amount the WWE brings in for each network subscriber varies because if customers sign up through an outside service -- like a Roku player or a Microsoft Xbox -- those companies get a cut (usually around 30%). So if we assume WWE averages $7.50 per customer per month then every 100,000 customers brings the company $750,000 a month and $9 million a year. At 1 million customers the company will take in $90 million a year -- more than it currently gets from PPV.

The WWE agrees with the idea that it will break even at 1 million subscribers.

"Our goal is to get 1 million subscribers this year, and if we get 2 to 4 million, it'll just be transformative to our business," Perkins Miller, executive vice president of digital media for WWE, told AdWeek. "That 1 million number enables us to break even, and we think the 2 million number is very reasonable."

Will the WWE make money?
Currently the WWE Network is only available in the United States and the first PPV it will offer is Wrestlemania -- the biggest show of the year. Last year, Wrestlemania was purchased by 650,000 North American buyers (the company doesn't separate U.S. and Canadian buys in its reporting). You would have to assume that the vast majority of people who are willing to spend $59.99 or so on one PPV broadcast will be willing to spend the same for six (along with all the other network goodies).

Of course, as my colleague Jake Mann will point out in his counterpoint in our about-wrestling match, some of those people won't own the technology required to stream the network to their TV, but most will see the obvious value in the offer. In addition -- because the network is such a great deal -- people who did not buy Wrestlemania due to to the price tag but who wanted to will be likely to subscribe. Because the subscription lasts for a mandatory six months (to avoid people watching Wrestlemania then canceling) these people won't be able to leave.

To give you a small idea of the potential audience, WWE's @WWE Twitter account has 4.1 million followers and the company's Facebook page has over 16 million likes. Those figures just include the people who follow the brand and do not include the millions who follow individual wrestlers. The WWE also said on its corporate website that "WWE programming reaches nearly 15 million viewers in the U.S. each week."

Not all of those people will subscribe to the WWE Network, but at $9.99 a month essentially anyone who has interest in the brand will consider signing up.

The winner and new WWE World Heavyweight champion
WWE PPV broadcasts -- because of their high cost -- are often ordered at one home by a group of friends who watch the broadcast together and share the cost. The network takes price out of the equation. People may still gather to watch PPV broadcasts together but anyone who would have pitched in before is now likely to become a network subscriber.

WWE will likely reach the break-even point just through U.S. subscribers who want to watch Wrestlemania. When the network is offered to the rest of the world the 2 million to 3 million number seems plausible if not likely. The numbers will also grow as more people buy Smart TVs or other devices that make viewing the network on a big screen easier.

The network will be a hit that will force other content providers to consider doing the same thing. To quote the current catchphrase of Paul "Triple H" Levesque (an on-screen performer and a behind-the-scenes executive vice president) it's "good for business."

To read Jake's reasons the WWE Network will fail, click here.

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Read/Post Comments (12) | Recommend This Article (1)

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 March 04, 2014, at 10:41 AM, adamcramer wrote:

    actually if someone has a tv that has a connection for a computer like ours, the tv is 5 years old and 52 inches all you have to do is basically use the tv as a monitor for the computer and there you go, wwe network on the tv :) it works for us. and i love the WWE network i have been watching almost non stop for 4 days now, it is awesome !! thank you WWE

  • Report this Comment On March 04, 2014, at 2:01 PM, warrior wrote:

    Mr.Kilne, After reading your article; I was wondering how WWE's cutting of the middleman is going to effect establishments like sports bars and restaurants that do carry WWE pay-per-views to draw in the loyal fans. Do you think that they may lose money or make the transition to keep drawing in the fans?

  • Report this Comment On March 04, 2014, at 3:26 PM, hasty1982 wrote:

    WWE has 4.1M followers on Twitter, which is a free service, it's laughable to believe the network, that is a pay service, could attract as many people as something that is totally free.

    I'd say 2M subscribers is optimistic and logic would tell you their isn't a snowball's chance in hell that they'll get 4M subscribers.

    WWE will lose all of their PPV revenues and people will just watch Wrestlemania at a buddies house that has the network, just like they did when it was on PPV.

    This will fly just about as well as the XFL or Linda McMahon's political career did.

  • Report this Comment On March 04, 2014, at 10:32 PM, disconnexions wrote:

    I'm a longtime fan, but haven't really paid for a PPV in at least 10 years. I ordered the WWE Network and am very happy with it for the most part. I can imagine there are lot more people like me that didn't want to spend $60 a month for PPV's but are still fans that would gladly spend $10 a month.

    As for the sports bars, If they're tech savvy enough to hook up their TV's to a Roku device they could show any of the PPV's or even archived shows in their venue. From what I remember the sports bars are charged a lot more for ordering pay per views by the cable companies. Cutting out the middle man seems to be in the business owner's favor.

  • Report this Comment On March 05, 2014, at 3:05 AM, JaredM80 wrote:

    10 dollars a month, 12 months, that is $120, do it just for pay-per-view events and they are basically free. don't get WWE Network, that is roughly $480 a year for payperview, and i'm low balling it. wwe network sounds like a pretty darn great deal.

  • Report this Comment On March 05, 2014, at 11:23 AM, DJ wrote:

    Didn't MF have an article just yesterday that said the WWE network would fail? Maybe that was someone else on Yahoo...

  • Report this Comment On March 05, 2014, at 3:12 PM, alinuxer wrote:

    I just hope they come to the UK pretty soon for now I have to use to watch WWE outside of the USA, I mean WWE does know that it has a global fan base, why not roll it out right away to all parts of the world, it is not like they dont own all royalties.

  • Report this Comment On March 05, 2014, at 5:25 PM, Loves2Splooge wrote:

    You literally had an article yesterday titled "Why the WWE Network won't succeed". Are you guys just flippin lazy? or stupid?

  • Report this Comment On March 20, 2014, at 6:48 AM, shaunstevin wrote:

    I heard that WWE has launched a 24/7 online Network but it stuck to me like a thunder that only US citizen can watch the greatest shows of WWE. I am very much disappointed and really had no hope left until, I got PureVPN. With PureVPN highly optimized sports streaming services, I supersede censorship and now I can watch all 12 PPV events live online on WWE Network.

  • Report this Comment On March 20, 2014, at 6:50 AM, shaunstevin wrote:
  • Report this Comment On March 28, 2014, at 9:16 PM, BullBrower3 wrote:

    All this padding of Vince's pocket. All on the backs of those he screwed over for many-a-year. He truly is the villain he portrays in his skits as a human talentless punching bag. The only good that will come of the WWE Network is the ability of seeing archive content. Welcome you X generation fans, finally you will be able to view the greats like Bruno Sammartino, Buddy Rodgers, Toru Tanaka, And Killer Kowalski. The WWE network showcases the former , WWWF, WWF, NWA, and AWA. The talent that made the WWE finally get the respect due to them. It was their blood, sweat, and tears that gave this company the corporate strength they wield today.

  • Report this Comment On May 07, 2014, at 1:41 PM, thiagorulez wrote:

    Of course it will! A quick survey of any sports bar will tell you that! The WWE Network has such a solid fan base, it has nowhere to go but up. I think that's going to be the continuing trend, too. Thiago |

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Daniel B. Kline

Daniel B. Kline is an accomplished writer and editor who has worked for the Microsoft's Finance app and The Boston Globe, where he wrote for the paper and ran the business desk. His latest book "Worst Ideas Ever" (Skyhorse) can be purchased at bookstores everywhere.

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