How the WWE Network Can Achieve Its 1.4 Million Subscribers Goal

Key metrics are called that for a reason. They're considered to be the numbers that drive a business. For World Wrestling Entertainment (NYSE: WWE  ) , there's only one number that really matters.

In February, the WWE launched its own network. For $9.99 per month, you get access to a massive library of wrestling content. If professional wrestling is your thing, it's a great deal.

That $120 per year also buys you every single pay-per-view, or PPV, event the company produces, and also some original programming. And there's the rub. The WWE is cannibalizing its pay-per-view business by giving these shows away with its network. It's a bold move. 

Folks like myself used to dish out $30-$50 per month for this content. Now I get it for $10 bucks. I don't know of any reasonable fan who thinks this price is too steep. In a time when your cable is bill is pushing $100, the WWE might be helping you cut that cord.

Where it's at
Right now, the WWE Network has around 670,000 subscribers. To offset the cannibalization of its PPV business, management has stated it needs 1.3 million-1.4 million subscribers. CEO Vince McMahon has a stated goal of 1 million by the end of this year. 

CEO Vince McMahon. Source: Wikipedia.

That seems doable. At the end of its first quarter, 400,000 domestic homes bought the WrestleMania 30 PPV. That's in addition to those who already subscribed. Obviously, those fans would be better served by just buying the network. Add those 400,000 to its existing base, and the WWE Network would have right around 1 million.

WWE vs. the 'Flix
For comparison, I like to use Netflix (NASDAQ: NFLX  ) . Its platform is similar to the WWE Network in that its streaming product is similarly priced. Last quarter, Netflix added 4 million subs to its massive 48 million subscriber base. That works out to around 8%.

The cost per subscriber for Netflix works out to about $24 per quarter. For WWE, that metric is eight times higher, at $198 per quarter. Obviously, the WWE makes money from TV deals, live events, and merchandise, whereas the only source of income for Netflix is its subscriber base. But the point is, the WWE must scale up the member count of its network for it to be a viable business.

I think it can. There are 350 million social media followers of WWE. According to a recent investor presentation, 52 million homes pay attention to the product. Of that, 40 million are casual fans. But 13 million American homes are passionate about the WWE.

If it can harness just 10% of that fan base, it will be able to successfully offset the losses from its PPV business. And let's not forget that the WWE is a global operation. It does business in Mexico, India, Australia, and Germany. So it should get a nice boost, once it starts to log subs in these regions.

Source: Wikipedia.

It's also a diverse audience. You'd think this entertainment would appeal only to kids and early 20-something males, but that's not true. Some 33% of its fan base are women. According to a recent investor presentation, more females watch the WWE than Oxygen, TLC, and WE tv. Also, 56% of its audience is over 35 years of age, and only 23% is between the ages of 18 and 34.

At this point, the WWE Network should be able to ramp up its subscriber count very quickly. Earlier in its growth cycle, Netflix had quarters where it grew its member count by 40%. It won't be until after the WWE picks all this low-hanging fruit that we'll have a better idea of the appeal of its product offering.

Foolish final words
When it reports its second-quarter results on July 31, try not to get bogged down by sales numbers, earnings, and costs. In my opinion, the only number that matters for the WWE is its network member count. I'll go out on a limb and say a 10%-20% growth rate would be healthy. Anything less, and it may be an indicator that the Network is having trouble connecting with fans.

Your cable company is scared, but you can get rich
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. 



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Wade Michels

A former full time Fool, Wade believes in the bigger picture. Valuation is important, but so is having the ability to spot game-changing trends. He would rather pay a fair price for a great business than a great price for a fair business.

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