Why WWE Network's Weak Subscriber Numbers Are a Problem for the Future of Wrestling

Sometimes a wrestler can win a match with a quick move out of nowhere. Other times, it takes slowly grinding down an opponent. World Wrestling Entertainment's  (NYSE: WWE  )  over-the-top digital streaming service, WWE Network, looks poised to follow that second road to victory ... if it wins at all. 

The company won't update the network's subscriber numbers until August, but there are signs WWE is not on track to reach its goals. WWE spent last week aggressively pushing a free one-week preview of the network that does not require registering a credit card. Previous free trials required a card and forced subscribers to actively cancel when the free period was up.

More concerning is that the company has been slashing expenses. This has involved everything from cutting a number of less-used wrestlers to delaying production of some original content for the network.

"A few different sources have pegged that Vince McMahon was ordering major cuts throughout the company," according to The Wrestling Observer, the leading newsletter covering the industry. "The number being bandied about is cuts that would total $20 million."

The company is also looking at making changes on everything from when executives must fly coach to slowing down spending on its new facility created to train performers. The goal of the cuts is to lower the projected fiscal-year loss of $45 million-$53 million, the newsletter reported.

Making cuts to offset losses makes sense, especially if WWE believes it won't hit the 1.3 million-1.4 million subscribers it needs to break even quickly. The big question is whether adoption will be slower than expected, but still hit the desired numbers, or whether the number of wrestling fans willing to pay $9.99 a month for the service is smaller than forecast.

What is the WWE Network?
WWE Network is essentially Netflix  (NASDAQ: NFLX  ) for wrestling fans. Though the main weekly WWE shows -- "Raw" and "Smackdown" -- remain on Comcast's  (NASDAQ: CMCSA  ) USA and SyFy, respectively, the network hosts tons of other shows. These include original programs, reality shows, and thousands of hours of archival footage. Most important, the network offers fans live access to what used to be pay-per-view, or PPV, events.

Under the PPV model, WWE charged $39.99-$69.99 for a fan to watch its monthly special events. These shows were heavily built up on the regular television programs so fans would be willing to pay up to see what happens. This model worked for years, but there was a huge negative for the content creators, as revenue was split roughly 50/50 with the cable companies that put the show up for sale to their customers.

That's a very good deal for the cable providers and satellite companies, which basically got to sit back and collect their hefty cut. For WWE, the model was flawed in two ways. It took all the risk for only half of the reward, and the PPV revenues were hard to predict.

A major show like Wrestlemania could easily top 1 million buys globally, while a lesser show would struggle to 175,000. Add a major attraction to a show -- perhaps a return of a former star like Dwayne "The Rock" Johnson -- and the numbers could vary by hundreds of thousands over previous years.

It's very hard to budget for a business with a wildly fluctuating and tough-to-predict major revenue stream. In creating the network, WWE sought to remove that volatility. Fans would pay $9.99 a month and get every PPV. That's essentially six for the price of one, plus access to the tremendous amount of content offered on the network.

In exchange, WWE would get guaranteed six-month subscriptions and a much steadier stream of revenue on a month-to-month basis. The company would also be able to mostly cut out the middlemen and keep a much larger share of revenue.

On the surface, it seemed like a no-brainer. Over the course of a year, more than a million American homes shell out for a WWE PPV. Why wouldn't those same people spend the same amount of money to get much more from the network? Add in the hundreds of thousands -- if not millions -- of people who had done the same globally, and the 1.3 million to 1.4 million subscribers needed to offset the lost PPV revenue should be relatively easy to obtain. 

In reality, WWE has had trouble selling its fans on the concept.

Why is the company having problems?
WWE did a bad job explaining the network to its fans and waited too long to correct course. The original ads for the service pushed content and access to PPVs without really explaining how it worked. That left many fans thinking the service was computer-based and not viewable on a TV.

Eventually, the company started comparing the network to Netflix, which most people know can be watched on TVs without too much trouble.

Subscribing to the network and bringing it to your TV might scare the non-tech savvy away. Those concerns should lessen as more TVs become connected devices and the idea of watching an over-the-top network becomes as common as using a DVR. The recent addition of Amazon's  (NASDAQ: AMZN  ) Fire TV should also open up millions of new users.

Will it ultimately succeed?
When WWE announced the network had 667,287 subscribers 42 days after launch, the numbers seemed better than they were. That period included "WrestleMania," the biggest-drawing show of the year. There are other big shows and there are always new people buying the technology needed to get the network. But the biggest fans should see the value of spending roughly the cost of buying "WrestleMania" for five additional PPVs, plus all sorts of other content.

The next hurdle for WWE comes in August, when the company announces how many subscribers it has. If the number is not above 850,000, reaching 1 million by the end of the year may be a challenge, especially when some of the original subscribers will not renew after six months. The number of non-renewals, however, may be low. WWE this week was touting a survey on "Raw" that showed the network had a 90% satisfaction rating from subscribers.

WWE has enough fans globally to make this work, and the confusion as to how the network works should fade with time. Reaching break-even seems likely, and eventually hitting 2 million subscribers seems possible.

It just appears those goals are going to take longer to reach. Problems with people understanding what the network is and how to bring it to a television screen will correct themselves in time, and WWE should be able to grind out a victory.

WWE is at the head of a trend that has your cable company scared
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. 

 


Read/Post Comments (6) | Recommend This Article (4)

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 July 14, 2014, at 8:51 PM, IcedTea wrote:

    The WWE Network has a fatal flaw, and WWE as a whole has a fatal flaw. The Network's fatal flaw is that it is strictly wrestling content and wrestling related content. Now you don't like wrestling, why would you have any interest in a network that has nothing but wrestling? WWE's fatal flaw is that a lot of their fan base are children. I don't think parents are going to spend ten bucks a month for their child to disregard chores, school work and other, more important, activities. Sure, you get every pay per view on the network, but roughly 280,000 or so buy the pay per views outside of Wrestlemania and the Royal Rumble. This thing was doomed to fail.

  • Report this Comment On July 14, 2014, at 9:39 PM, rdchili96 wrote:

    As usual, another moronic article.

  • Report this Comment On July 14, 2014, at 9:40 PM, rdchili96 wrote:

    IcedTea is just as much of a retard as the person who write this tripe.

  • Report this Comment On July 15, 2014, at 7:16 AM, Droppo wrote:

    There are plenty of adults who have been watching wrestling for decades and the Networks lets them (me) watch old pay per views that I could never have shelled out money for at the time. I subscribed on day one and I've been watching at least six hours of content every week without coming close to scratching the surface. Meanwhile, they keep adding new stuff... With so many lifelong fans out there like me, it doesn't make much sense to me why they aren't just paying the 9.99 a month to get all this PLUS new pay per views. If you have the interest, it's a steal. I know I sound like I must work for WWE, but I'm just honestly very pleased with what they are delivering for that price.

  • Report this Comment On July 15, 2014, at 1:31 PM, onecentx wrote:

    WWE made a HUGE mistake following the Netflix's template when they should of followed the Hulu's template. WWE should of offered two different version of the WWE Network. The first version is the version they have now. The second version should of been a free internet based version of the WWE Network just like what Hulu offers. A free version where you can watch their content with ads and offer people to order their pay-per-views for whatever pricing they come up with (guessing $10-$25 dollar range). They are losing valuable revenue by not offering a free version of the WWE Network with ads because at the end of the day, what's keeping me from ordering the WWE Network (and probably many others) is that I can always look up old matches on youtube and watch their PPVs on stream sites for free. Netflix built up a audience through their DVD rentals. Amazon is building up their Prime audience through the fact that millions use their site and that they offer more with Prime with their free shipping, free book rental, music streaming, etc. Hulu built up their audience with their FREE internet based streaming shows with ads and gave the option to people that if they like it enough to be able to watch Hulu on their Rukus, Playstations, Xboxs, Apple TVs that they had to subscribe to their Hulu Plus. WWE should of followed this formula and they still have time to do this formula. It's only a matter of time they will realize this miss opportunity.

  • Report this Comment On September 26, 2014, at 1:08 AM, tenthousand wrote:

    Personally, I feel like it could use something else. Maybe they should show raw and smack down live on there. I'm not always home and always miss the show. If they could make it to where we could watch raw and smack down live on the network that would definitely make me watch it more than I usually do. It's not worth paying 9.99 for if you don't get everything WWE. Oh, but they put Total Divas on there.

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