WWE Can't Grow on Wrestling Alone

WWE needs to aggressively diversify itself away from its current content paradigm.

Apr 12, 2014 at 10:47AM

The stock of World Wrestling Entertainment (NYSE:WWE) had a run-up recently, but it's now starting to fall back to a more sober reality. The grappling metaphors have been flying in the financial press: WWE pinned to the mat, WWE gets tombstoned, and similar headlines.

It's fun to read that stuff, but if you are a WWE shareholder – like I unfortunately am – then the joy is tempered by the red you see on your broker's portfolio screen. I admit, I bought the stock too high during the momentum frenzy, but I did it because I thought the story was a good one: a WWE network, where viewers can get all of the pay-per-views and a bunch of other content for a monthly subscription fee.

The initial number of subscribers – around 660,000 – disappointed the market, and me. Maybe I'm naïve, but I thought the company would be closer to a million subscribers based on the WWE Wrestlemania program and the $9.99-per-month subscription fee for a six-month commitment.

This got me thinking about WWE's future and the network in general. I bought the stock because of the network story, but is that enough of a thesis justification?

How compelling is wrestling to the public?
Let me pose the following question: Is wrestling as powerful of a media brand phenomenon as, say, NBC is? Will consumers be willing to shell out $9.99, or whatever price, for wrestling? Even if that $9.99 sticks around for a while, it's going to have to rise at some point if the company wants to fully leverage its new asset.

I'm just not certain about this. I do know the following, and so does WWE: except for the fan that will always follow the soap-opera storylines of the violent circle, many people watch for a while and then stop. Others come and go; WWE refers to them as lapsed fans. The company is always trying to get them to come back and sample the latest bookings and promos.

The problem might lie with wrestling itself. In all honesty, for those who have watched, is it possible to keep on watching? After a certain point, wrestling becomes a bit tedious, and it loses its luster faster than other forms of entertainment. Once you've seen Triple H battle every member of the WWE universe, utilizing the same opening and finishing moves, can you continue to consume the programming? It's difficult. With so many subscription choices out there, it's difficult to assume that a WWE network, especially one that isn't available through a Comcast-like platform, will convince millions of people to eventually sign up.

What's the solution?
This will sound counterintuitive, but I believe that WWE and its WWE Network needs to diversify away from its core wrestling business. I can hear the howls of the hardcore devotees now, but please keep in mind that I am only speaking as a stock investor.

The comparison I brought up earlier with NBC is fitting. WWE needs to think of itself as more of that kind of a media company as opposed to being a niche entity. WWE knows that if it wants to grow, it has to invest in other businesses.

Take movies, for instance. WWE invests in movies, as it should. The company is trying to create a cash-flow engine based on celluloid.

It hasn't been very successful so far, as anyone who has followed WWE Studios knows. In the fourth-quarter report released in February, management stated that WWE Studios, on an adjusted basis, lost $1 million in 2013. In the previous year, the division lost over $4 million.

If you ask me, WWE needs to spend as little as is feasible to make a film that contains as attractive a concept as possible to its main demographic, as opposed to simply acquiring them or partnering up with other Hollywood companies. To me, it's better to take on a higher amount of risk so that more of the upside can be enjoyed. WWE needs to think along the lines of Paranormal Activity, as an example. The upcoming Oculus horror feature is a good step, although again, there are other production companies involved.

Beyond movies, WWE should get into the non-wrestling television business as well. The company should immediately strive to find its own Breaking Bad, The Walking Dead, True Detective, or other breakout hits. Pick whatever quality programming you want, that's what it should strive to emulate.

What is the downside to diversification?

I have to concede a risk to my idea of straying from the wrestling business. In fact, there are two risks.

First, does WWE have a sufficient depth of managerial talent in place to process a move to content such as films and TV shows? That's a fair question because, as I just mentioned, the filmed entertainment segment hasn't fared too well. The company has said it's had to switch models for that business over the years and that it continues to learn the Hollywood ropes.

One may have thought that a concern based on programming original wrestling broadcasts for 52 weeks a year would have no problems in this arena. Hollywood, though, is a notoriously tough labyrinth to navigate, especially if the company were to do as I suggest and eschew too many co-financing partnerships.

Second, what would happen to the WWE image if it created, produced, and distributed something like The Big Bang Theory? Would that lead to complaints from wrestling fans that the core business was being neglected? 

It could, because fans often dislike the focus on being on anything other than the wrestling. For me, that was never a problem. I always enjoyed the comedic shenanigans and skits that WWE put on, especially the era that dealt with the battle between Mr. McMahon and Steve Austin; that was indeed like a perfect marriage between sitcom devices and soap-operatic melodrama.

Like the complaint about MTV no longer being about music, fans might balk at non-wrestling product showing up on WWE Network, especially if the wrestling product was suddenly seeming stale. That's no small concern, since, like a comic-book superhero flick, a media company has to balance the perceived needs of both the casual and the fanboy audiences; without the fanboy demo supporting and driving the success of the project, the casual audience might not be willing to partake.

WWE must move forward

Even with the aforementioned risks defined, I'd say that WWE should evaluate the rewards hypothetically available to shareholders from investments in more different forms of content. Like a Time Warner, WWE already has a corporate presence in merchandising, social media, reality shows, films, video games, etc.  

The company will have a hard go of it, because as many have stated in the past, it's hard sometimes to take WWE as a serious contender as an integrated media company well on its way to effective vertical integration … it's just wrestling, after all, and the CEO is a guy who has had a sock put in his mouth on occasion by a creature known as Mankind.

If WWE can break away from its reputation, taking increased risks in the process in a financially prudent fashion, it may be able to support a higher premium for its stock in the future.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Steven Mallas owns shares of World Wrestling Entertainment. The Motley Fool has no position in any of the stocks mentioned. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers