WWE Should Exit the Movie Business

World Wrestling Entertainment (NYSE: WWE  ) has been a tremendous success in the wrestling business and a failure everywhere else. WWE's efforts to enter the movie business have not been as bad as the company's failed bodybuilding federation, its Times Square restaurant, or its disastrous attempt to compete with the NFL. Hhowever, the WWE film division distracts from the company's main business, it has little upside, and the company has no reason to keep it going.

A history of WWE Studios
WWE Studios oversees the company's participation in the production and global distribution of movies for theatrical release as well as its Blu-ray and DVD releases. Most of the projects have some involvement with the company's "Superstars" (wrestlers in common speak), but not all of them do. The company's biggest theatrical success, The Call, starred Halle Berry with WWE's David Otunga playing a supporting part. The division has tried various business models, included financing its own films, and it settled on a new one in 2012.

Under the new model the company focuses on making strategic partnerships to mitigate its financial risk. In these deals WWE will have less upside and less risk as it's laying out less cash, but it has to split any proceeds with more partners. In these deals, instead of just putting up money WWE uses its marketing and content platforms (its websites and its television shows) to market and support the projects.

The latest project under that model, Oculus, opened to $12 million, according to Box Office Mojo. The film only had a $5 million budget, according to Variety, but with its marketing costs (even with WWE's help, the film still needs advertising) it's not likely to make any significant money for WWE and its partners.

A lot of work for very little money
According to WWE's annual report, WWE Studios "represents 2%, 2%, and 4% of our net revenues in 2013, 2012, and 2011, respectively.

Projects released in 2013 included two joint products with Fox  (NASDAQ: FOX  ) , which were the direct-to-DVD installments of previous franchises: The Marine 3: Homefront starring WWE's "The Miz," and 12 Rounds 2: Reloaded starring WWE's Randy Orton. The company also released Christmas Bounty, a made-for-television movie, which aired on ABC Family (owned by Disney). 

The 2014 slate includes two animated films that WWE co-produced with Warner Bros. Animation (owned by Time Warner) -- a Scooby Doo feature and a Flintstones feature. 

WWE Studios' net revenues were $10.8 million in 2013, $7.9 million in 2012, and $20.9 million in 2011, according to the company's annual report.

The division has consistently lost money for the company.

"During the years ended December 31, 2013, 2012, and 2011, we recorded aggregate impairment charges of $11.7 million, $1.2 million, and $23.4 million, respectively, relating to feature films," the company wrote in its annual report.

"WWE Studios has been a consistent money loser for the company, and it's hard to see how it has helped their core business," Ben Miller of leading industry newsletter The Wrestling Observer told the Fool. "The division has morphed twice already, and it looks like a long shot that their current strategy — leveraging their young, diverse fan base by attaching themselves as producers to films aimed at that demographic — will lead to success. The fundamental problem appears to be that WWE fans like movies, but they don't seem to care whether a movie is produced by WWE or features a WWE star."

At best WWE Studios gives the WWE brand some exposure outside of its traditional fan base. The company can theoretically make its wrestlers appear more like actual stars by casting them in various projects. However, putting HHH in a straight-to-DVD movie or having John Cena star in a film with a brief, limited theatrical run does not make these current stars anything close to former WWE superstar and current A-list box office champ Duane "The Rock" Johnson.

Realistically WWE would lose a lot less money if it just had a good deal with a talent agency that worked to find the right outside projects for its wrestlers. Of course that's a risk as well because once a person can make a good living without being beaten on in a wrestling ring, that person tends to leave wrestling at least mostly behind.

WWE has better prospects elsewhere
The idea of succeeding in another business has intrigued WWE Chairman Vince McMahon for years. Never mind that he took a small regional wrestling business run by his father and turned it into a successful near-monopoly worth in excess of $1 billion -- that second hit has seemingly been an obsession for WWE's leader. Ideas like the ill-fated World Bodybuilding Federation, The World restaurant in New York's Times Square, and the silly, unnecessary, and unwatched XFL football league have only diverted resources from what the company does well -- making money off of the quasi-sport of professional wrestling.

Continuing to fiddle with movies and DVDs while the company has a chance to transform the television world with its streaming network is a waste of time and resources. Perhaps the company could justify those continued expenditures if the WWE Network was an unqualified hit, but the first released numbers show that it hasn't clearly succeeded or failed. If WWE can make its network a hit the company will have transformed its business, solidified its revenues, and made itself less vulnerable to changes in the TV climate. A successful WWE Network is a major hedge against a day when traditional cable networks no longer want to pay the price for WWE programming. (That may be unthinkable now as the company looks at major rights increases as it negotiates its next deal, but that was the reality only a few years ago when WWE had to take less money to get back on USA after its negotiations with Spike fell apart.) 

That may not be the type of second success that McMahon had been looking for, but it's still pretty impressive and it will have ramifications far outside of the wrestling world.

Playing in the movie business may not majorly harm the company, but it's not helping and the division looks unlikely to ever make enough of a difference on the bottom line for it to be worth keeping. 

 

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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 April 16, 2014, at 12:06 AM, esxokm wrote:

    Perhaps WWE Studios should look to its own writing staff that takes care of the wrestling scripts and ask them to come up with horror films that could be lensed for about a million dollars or two, sort of along the lines of a "Saw."

    If the budgets are kept low, WWE could justify funding them and thus take on more risk to capture more upside.

    It just seems a shame that WWE should give up on trying to make more money from its core demographic that likes movies as well as wrestling. Still, great article, and a compelling argument.

  • Report this Comment On April 17, 2014, at 2:41 PM, JoeLemon wrote:

    Oculus made almost 3 times what it cost to make week 1 in the US alone. After TV rights, DVD sales, over sees, etc this movie will probably make 4 times what they spent on it.

    If I made an investment and got 400% back I would consider that pretty good. I would have just loved 10%.

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