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3 Reasons the WWE Network Will Fail

By Jake Mann – Mar 4, 2014 at 7:23AM

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The WWE Network is generating a ton of buzz, but there are a few reasons it could ultimately fail.

Last month's launch of the WWE Network has generated a ton of buzz. Supporters think that by cutting out the TV middlemen, World Wrestling Entertainment's (WWE 0.71%) new streaming video channel will usher in a new era of sports viewing. I, however, believe the service will ultimately fail. Here's why.

1. A version of it has flopped before
The WWE Network has three main components: All 12 annual WWE pay-per-view (PPV) events, original reality shows and documentaries, and an on-demand library with over 1,500 hours of archived footage. Regarding the latter, WWE already packaged on-demand content on its now-defunct WWE 24/7 channel. The last reported worldwide subscriber numbers totaled just 115,000. 

As Sean O'Leary wrote recently, the PPV component is attractive to many wrestling enthusiasts, but as for the archived footage, "the casual fan will likely have no interest." Limited viewership of WWE 24/7 has already proven that.

2. The numbers just don't add up
How many subscribers does the WWE Network need? Most sources cite somewhere near 1 million as a break even, something the company told Variety in January. As fellow Fool Daniel Kline points out, WWE made a little over $83 million from PPV revenues in 2012. He writes, "if we assume ... $7.50 [net] per customer per month ... at 1 million customers, the company will be taking in $90 million a year," surpassing the break even point. 
Unfortunately for WWE, the numbers just don't add up. WrestlingObserver's Ben Miller told the Fool last week that the company's premier PPV event, WrestleMania, had 650,000 domestic purchases in 2013. Including international buys, this number rises to 1.05 million. If the 100,000 or so hardcore fans interested in on-demand content also buy WrestleMania -- a reasonable assumption -- the only way the WWE Network can break even is if 95% of all remaining buyers sign up for the streaming service. 
Because the network isn't launching outside of North America until at least this winter, hitting the 1 million mark anytime in 2014 will be next to impossible unless there are more signups than there were WrestleMania purchases last year. For an event widely dubbed the "Super Bowl of Wrestling," this doesn't make sense. In no sport do regular season events and archived footage draw more eyeballs than the championship. 

WWE Wrestlemania 28, via Simon Q, Flickr. 

Of course, there are those -- including my colleague, Dan Kline, who is writing the counterpoint to this piece -- who will argue that with 4 million Twitter followers and 16 million Facebook likes, WWE's total audience is much larger. They'll probably also mention that many fans pitch in to buy WrestleMania together, and I don't deny that. But the simple fact remains: For the WWE Network to be successful, it will have to convince nearly everyone who typically pays to watch its "Super Bowl" to adopt it.
Will some fans watch it on their smartphone, tablet, Roku, Xbox, or PlayStation? Sure, but others, who prefer wrestling on a regular television, won't. Even if smart TVs can access the network -- something WWE says should occur this summer --  only one-third of all flat screen TVs shipped last year had smart capabilities, according to Strategy Analytics. Most likely, the network will capture its most dedicated fans, and some mainstream users who have the proper technology. But beyond that, I have a tough time seeing an immediate future where subscribers total seven figures. 

3. Another hurdle remains
There's one more issue that could derail the network: technical problems. As Ringside Chicago reports, "server overloads, streaming issues, missing pay per views, censored content, and log-in issues have been just a few of the hiccups that subscribers have had to deal with." WWE issued a statement last week, saying they're working "aggressively" on a fix, but as of this writing, complaints continue to file in.

WWE's decision to launch the network in the weeks leading up to WrestleMania 30, on April 6, is a smart one, but it could backfire. If outages affect any portion of next month's event, some fans could permanently lose faith. Ditching TV for streaming video makes sense if it's cheaper, but connectivity problems might cause this advantage to evaporate.

Final thoughts
Professional wrestling is still one of the most popular sports in America, and after nearly three years of waiting, WWE's new network is finally here. As a streaming video service, its aim is ambitious, but ultimately flawed.

WWE 24/7 already proved the average fan doesn't care about on-demand archived footage, no matter how many thousands of hours are offered. And unless the company can unveil a reality show that's significantly more entertaining (and able to draw better ratings) than "Legends House" or "Tough Enough," I doubt many will jump in solely for the original programming either.

That leaves the network reliant on signups related to its 12 annual PPV events, including WrestleMania. The company's most watched event is in a little over a month, and if technical issues affect its first-ever broadcast on the WWE Network, public sentiment could turn negative quickly.

Even if these problems are fixed in time, it will only break even if the company convinces almost every WrestleMania buyer to jump on board. That's certainly a possibility, but ultimately a long shot considering the network is limited to users who want to watch wrestling on technology beyond a traditional TV.

To read Dan's take on why the WWE Network will actually be a winner, click here.

Jake Mann has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

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