World Wrestling Entertainment (NYSE:WWE) finds itself stuck between two worlds. The company has been a pioneer when it comes to digital delivery, but it's still reliant on its cable deal with Comcast (NASDAQ:CMCSA) for about a third of its total revenue.
The challenge for the company is that growth for its streaming network looks hard to come by while its television deal remains a question mark going forward. Both could turn out very well, but one of the two has the potential to be a big disaster.
What's ahead for WWE?
In 2019 the company's television rights in the United States for its flagship programs Raw and Smackdown Live! become available. In Q3 the company took in $64.7 million from its various TV deals around the world. Its Comcast deal provides the majority of that, though the company does not break down rights payments by markets.
The challenge for WWE is that in the three years since its last deal, which was not for as much as it hoped for, the TV landscape has changed. Cord cutting has accelerated and that has hurt revenue at networks including USA which get a fee from pay-television providers for every subscriber.
Conversely, while the shrinking cable universe could hurt WWE, there are other factors that could help it. Live sports, which the company is, albeit with predetermined outcomes, still draws people to their televisions when the program airs. That, plus the fact that aside from WWE and UFC, most sports rights are tied up in long-term deals could weigh in WWE's favor.
What about the Network?
WWE Network, the company's subscription streaming service, serves as it second-largest source of revenue bringing in $50.3 million in Q3. The problem is that while the company was smart to invest in the network, its growth has been slow.
The network had 1.52 million subscribers at the end of Q3. That's a strong number, but it's well below the two to three million the company projected by this point when WWE Network first launched.
It's also reasonable to think that if WWE lost its TV deal it would move RAW and SmackDown to the network. That would add subscribers, but would almost certainly not double them, which would be required to replace the revenue lost if its U.S. TV rights deal goes away.
What's going to happen?
Pay-television has changed and cord cutting is going to accelerate, but things have not gotten so bad that there won't be a market for programming that draws consistently strong ratings 52 weeks a year.
Whether WWE gets a better deal depends upon whether it has two suitors, which it did not the last time its U.S. rights were up for bid. Whether that happens may depend upon whether UFC, which has its U.S. TV rights come up for bid before WWE stays at FOX (NASDAQ:FOX), where it is now, or moves to another property.
If UFC moves to ESPN or one of the Turner networks, that creates a lot of hours to fill on FS1 and that could put WWE in play. Even if UFC stays put, it's possible FOX wants WWE simply because it fills programming hours while also bringing eyeballs to a channel many people don't visit often.
WWE won't go out of business if it gets less money for its U.S. TV rights, but it would be hurt. Realistically, though, while it may be for the last time, the company should be able to make one more TV deal covering at least three years. If that happens, the company should be able to grow its network and perhaps add other digital channels for its programming helping it fully transition into the new television reality.