WWE Network Numbers Put Company's Future at Risk

World Wrestling Entertainment reported a shockingly low number of overall subscribers for its network.

Aug 3, 2014 at 8:17AM

World Wrestling Entertainment (NYSE:WWE) made a huge bet that its over-the-top streaming network would replace the revenue from its slowly dying pay-per-view business.

On the surface, the move seemed sound. WWE would cut out the cable companies and sell its network directly to consumers for around the price of buying two pay-per-view, or PPV, events a year. For $9.99 a month, fans would get all the year's big events, plus original programming and thousands of hours of archived shows. Logically, it made nothing but sense for fans and the business.

Unfortunately for WWE, logic and reality have not matched up -- the number of paid users for the network, which the company announced Thursday, is stunningly disappointing.

How bad was it?
When the network launched, WWE forecast that it would have 1 million subscribers in the United States by the end of the year. In April, just 42 days after launching, it had 667,287. In reality, however, the total was disappointing -- the period covered included the largest PPV event of the year, Wrestlemania.

Ordering Wrestlemania alone on traditional PPV costs roughly the same as a six-month subscription to WWE Network. The pricing should have made the hundreds of thousands of casual fans who buy only Wrestlemania sign up for the network. Instead, nearly 400,000 customers ordered Wrestlemania through their cable providers. That would be OK for WWE if those customers kept buying PPVs in the old way, but that has not been the case.

The company last week did not break down PPV sales between the U.S., where the network is available, and the rest of the world, where it isn't. But it did provide worldwide totals. Globally, WrestleMania did 690,000 buys, Extreme Rules did 108,000, Payback did 67,000, and Money in the Bank did 122,000. Those are huge drops from 2013, when WrestleMania did 1.1 million buys, Extreme Rules did 245,000, Payback did 198,000, and Money in the Bank did 223,000. 

Those drops would be fine if the network was making up the difference, but it's not. During the same July 31 call, the company said it had 700,000 subscribers at the end of June. That's an increase of only 33,000 subscribers since April. While the original 667,000 subscribers more than made up for the revenue drop due to losing 410,000 Mania buys, the added 33,000 customers does not begin to cover the revenue drop from losing roughly 370,000 buys on the next three PPVs.

It's actually worse than that
The 700,000 number makes it very unlikely the company will reach 1 million U.S. subscribers by January. WWE first reported numbers on April 7, so the new number covers a little under three months, making the growth rate around 10,000 new customers a month. That would leave the company at 760,000 come January, but the actual number could be far worse.

Network subscriptions are supposed to be for a six-month minimum. That was enacted to stop people from singing up for a month to watch a certain PPV, then canceling. But people have found a way around that. Between April 7 and June 30, the network added 161,000 subscribers, but had 128,000 cancellations.

That should theoretically have been impossible, but customers found creative ways to skirt the rules, like stopping PayPal payments or canceling their credit cards. If people are willing to go to that length to get out of their commitment, what will happen in September when it comes time for people to renew?

With no major drawing card like Wrestlemania to keep casual fans interested, cancellations could lead to lower subscriber numbers come Jan. 1. That would be extremely bad news, as WWE has admitted there is no going back. During the call, the company said it expects the PPV business go to away in 2015. That means the network has to either make up the roughly $90 million the company made on PPV, or WWE has to make major changes to its operating model.

Can this be saved?
WWE knows it has a problem -- at least in the short term. It has already started making cuts, announcing a 7% workforce reduction and promised savings of $10 million in 2014 and $30 million in 2015. 

"The cutbacks are so significant that they now feel they can break even on 500,000 subscribers in 2015 as opposed to 1.4 million subscribers," wrote Dave Meltzer of the Wrestling Observer newsletter. 

There are some other signs for at least mild optimism. The company will begin rolling out the network to the rest of the world on Aug. 12, starting with 170 countries including Australia, New Zealand, Mexico, Spain, Norway, Sweden, and Finland. A United Kingdom launch is planned for October, and although no date has been set, plans are also under way for Italy, Germany, and Japan, which have traditionally been large wrestling markets.

WWE CFO George Barrios told analysts in February that the network could attract as many as 3 million subscribers and become a "major source of future earnings growth" with as much as $150 million a year in cash flow, Deadline.com reported. That number seems like a dream, and while it may be possible in the long run, it's highly unlikely anytime soon.

It's hard to see the launch of the WWE Network as anything other than a disaster, but it's a disaster the company can recover from. WWE has done a lousy job explaining how the network works to the millions of fans who watch its Raw and Smackdown programs. It has corrected that in recent weeks by comparing it to Netflix, but the messaging must improve. People need to know they can watch the network on their television, and the company must increase the number of devices that stream the network to a TV.

To avoid losing subscribers to cancellations, the company also needs to make more content available on the network. The company owns tens of thousands of hours of its own shows, as well as libraries from countless out-of-business wrestling promotions. Very little of that content is on the network, which has led to even hard-core fans questioning whether it's worth $9.99 a month.

WWE has a good product. The network offers a tremendous value, and it makes sense for even casual fans. Ultimately that should lead to success, but the company will have to travel a very bumpy road to get there.  

Daniel Kline has no position in any stocks mentioned. 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