With World Wrestling Entertainment (NYSE:WWE) currently shopping for what is expected to be a lucrative new TV deal, the company has been subject to a variety of rumors about its potential new TV home. One of the most far-fetched -- and perhaps most intriguing -- is that WWE would not only bring its programming to AMC Networks (NASDAQ:AMCX) but that the two companies would merge.
In response to a request for comment from the Fool, WWE public relations shared a statement its CFO, George Barrios, made last week.
"The company, controlled by founder and Chief Executive Officer Vince McMahon through Class B shares with added voting rights, isn't in merger talks," Barrios said.
AMC did not immediately answer a request for comment.
Why a WWE-AMC deal makes sense for WWE
As unlikely as an AMC-WWE merger seems, the move would make some sense for WWE. The company has always struggled to monetize its TV ratings and that has led to trouble keeping some of its shows on the air.
"Even though Raw is consistently among the highest rated shows on USA, it garners the lowest ad rates per viewer on the station," according to The Wrestling Observer, the leading newsletter covering the industry .
Those lower ad rates have made finding lucrative TV deals a challenge for the company. Now, with the value of live sports at an all-time high due to the perception that they are DVR-proof, WWE expects to increase its current U.S. rights fees from around $100 million to $280 million or more with its next deal, the Observer reported. It may get what it wants this time, but there is no guarantee the market will be as accepting the next time the deal comes up.
The WWE has been unable to make deals for it shows in the past. In recent years Saturday Morning Slam was left without a home (and cancelled) after the CW Network dropped it. Similarly -- though WWE is not treating it as a cancellation -- the company moved its Main Event show to its own streaming network when a deal with ION television was not renewed.
AMC itself could air the main WWE programs RAW and Smackdown (and maybe make them seem a little more acceptable in the process). Though the shows are not a logical fit with the network's high-brow offerings, WWE fans will find them no matter where they air. The reality series Total Divas, which currently airs on E! would be a perfect fit for AMC's WE tv channel and would instantly become one of its flagship shows.
One reason the deal may happen is a reason many in the industry think it never will -- the mind-set of WWE owner Vince McMahon.
"If Vince has the opinion that nobody besides him, [daughter] Stephanie, and [son-in-law] Triple H knows how to run a wrestling promotion, then he might view selling as a no-lose situation," said Ben Miller, a contributor to the Observer in an email to the Fool. "If the company failed under AMC, he (or his offspring) could either start up a new promotion or buy back WWE for far less money."
Miller also believes that McMahon, who had to purchase the company from his father, might not simply want to hand it over to his daughter and her husband. McMahon, he added, may simply not be as attached to the company as people assume he would be and might be willing to get out for the right offer.
"Vince is known as a relatively unsentimental person so the fact that he won the Monday Night Wars [as the competition with WCW, which was owned by Time Warner (NYSE:TWX), was known] and built the company for this long may mean less to him than our instincts would think," Miller told the Fool.
A WWE-AMC deal makes sense for AMC too
AMC airs prestigious, highly rated shows including Mad Men and Walking Dead (if a show about the zombie apocalypse can be considered prestigious). But while those two programs are ratings leaders and garner a lot of attention, the network also features Kevin Smith's Comic Book Men, a reality show about a comic book store, another reality show on arm wrestling, and reruns of Rawhide, The Rifleman, and The Three Stooges -- all male-friendly shows that might attract the older end of the WWE audience.
WWE's shows may bring in less ad revenue than shows with comparable ratings but they are among cable's most popular shows. If AMC aired RAW and Smackdown it would have two nights of programming taken care of with built-in, large audiences. The network would also move up in the total ratings where in 2013 it ranked 10th among cable networks with an average of 1.38 million primetime viewers, according to Deadline.com.
"RAW is a huge ratings generator for USA Network in the weekly ratings; without RAW on its schedule, the network would drop from first place to as low as No. 4 among basic entertainment channels," Variety reported . Smackdown is not as big a hit for SyFy but the show has raised viewership by 35% for the network, Variety reported.
Put the two shows on AMC and it's possible the station would rise to number one, which would bring added cache and ad dollars.
Why a WWE-AMC deal will never happen
An eventual WWE-AMC deal makes sense for both companies, but it likely won't happen now because McMahon and the WWE appear headed for a time of unprecedented growth. Not only is the company likely to score a huge increase in rights fees for its TV shows, it's also poised to cash in with its new network.
In the article The WWE Network Will Succeed, I wrote that Barrios expected the network would attract as many as 3 million subscribers and that it could become a "major source of future earnings growth" with as much as $150 million a year in cash flow. Even at a third that many subscribers, the company will still likely exceed the $83.6 million in pay-per-view revenue the company brought in in 2012.
AMC isn't faring so badly itself as the network has two massively successful shows on the air (and just finished airing another one in Breaking Bad).
Neither company needs the other right now (though AMC can and should bid for rights to the WWE's shows). It might happen someday but people hoping that zombies will invade the wrestling ring in a RAW/Walking Dead crossover episode are going to be left waiting.
Despite AMC's recent success, the business landscape is changing. You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.
Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends AMC Networks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.