World Wrestling Entertainment (NYSE:WWE) has had a rough go in the early days of its over-the-top digital streaming network.
After a somewhat promising launch where the company announced it had reached 667,287 subscribers in just 42 days, the second subscriber announcement was much less hopeful. On July 31, about three months after the first announcement, WWE admitted the subscriber number had climbed to only 700,000. That made reaching the initial goal of 1 million paying customers in the United States by Jan. 1 unlikely, if not impossible.
Now the company has pinned its hopes on achieving success with a global rollout of the network -- a dubious proposition for a number of reasons. The future of WWE is the network, but the brand's customer base does not seem quite so willing to move into the future.
How bad were the U.S. numbers?
They were actually worse than they seem. The company added 161,000 new subscribers during the period, but 128,000 people canceled. In addition, during the month of July, the number that canceled was roughly 10,000 greater than the number that signed up, The Wrestling Observer reported.
This is very bad news because people aren't supposed to be able to cancel. The network is sold in six-month blocks to prevent customers from buying a month to watch a big pay-per-view, or PPV, show, then canceling. In theory, that means that anyone who wanted the network for the two biggest PPVs of the year, April's Wrestlemania and August's Summerslam, should to have to pay for six months at $9.99 a month.
Dropping out early requires real commitment -- like canceling a credit card -- except for customers paying with eBay's PayPal, who could just stop payment. Seeing so many people sample the service, then go to extraordinary lengths to drop it, does not bode well for the company when the original six-month subscription period ends and people can leave without taking special measures.
Now, in addition to increased promotion during its television programs, WWE has accelerated its plans to bring the network to the world.
What happens now?
On the positive side, WWE will bring the network to 170 countries, starting this month. It includes some countries that are traditionally supporters of pro wrestling, including Australia and Mexico. The network launches in England -- another hotbed for wrestling fans -- in October. Dates have not yet been announced for Japan or Germany, but those are potentially two of the biggest markets.
The faster launch is good news, but it comes with a huge caveat: The feed being delivered in the rest of the world is the same one American fans get -- the one that's in English.
Local customization was supposed to be part of the international expansion plan, but it was cut when the company slashed expenses after it became clear the network was not going to be an immediate hit. (PPVs are broadcast in Spanish, as well, so the live events are likely to have that option.)
Those expense cuts -- which amount to savings of roughly $10 million in 2014 and $30 million-$40 million in 2015 -- change the breakeven point for the network from 1.4 million global customers to 750,000. That seems like an attainable number, but it comes at a heavy cost.
The cuts include the company producing less original programming, which enhanced its value for on-the-fence fans who buy one or two PPVs a year. The biggest loss, however, is in not localizing the content in the language of the countries the network gets released in. This is certainly cheaper, but it dramatically limits its appeal, especially on a global level.
If the network does well in a territory, it's certainly possible WWE will localize the content. If that never happens, the number of subscribers outside the English-speaking world is likely to always be small.
Will it work?
"The numbers are trending below the company's projections, but I don't see them as proof the WWE Network was a mistake," Wrestling Observer's Ben Miller told The Motley Fool. "I see it as evidence that most people who watch their free programming are uninspired by it. The unknown is whether the company is capable of inspiring wrestling fans."
That will be an especially large challenge as it attempts to sell the network in additional English-speaking and non-English-speaking countries, some of which are not used to paying for television at all. Even in Japan -- a huge market for wrestling -- it's hard to imagine many people spending $9.99 a month for programming they can't understand. Even if they have bought WWE PPVs in English before, there is something inherently different about paying for one show and subscribing to a network in a foreign language.
Overall, WWE has done a bad job in selling the network in the United States, where it has not made it clear to fans that it's not just a computer service but one that can be watched on TV relatively easily. It's hard to see how rushing it out to the rest of the world will change things for the better.
Still, all WWE needs is stability. Hit the 750,000 global number, and the original ambitious plans can slowly be added back in. That's far from a sure thing, as U.S. subscribers could plummet when the initial six-month subscription period ends, but it's still possible.
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Daniel Kline has no position in any stocks mentioned. He is a WWE Network subscriber. The Motley Fool recommends eBay. The Motley Fool owns shares of eBay. 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.