Has WWE Killed Their PPV Business?

After thirty years, WWE has signed their own death warrant - at least when it comes to their Pay-Per-View business. It wasn't an easy business to kill. I'm sure it's especially vexing for WWE that others, particularly in Boxing and MMA, continue experience a vibrant (and rewarding) Pay-Per-View life. And despite the regular proclamation that PPV is dead (or dying), the PPV business continues to generate hundreds of million of dollars annually. And this was true for WWE. Since 2006, WWE has grossed between $70M and $94M in PPV revenue. And that only represents the split which WWE retains. Multichannel Video Programming Distributors took home a similar amount. Simply put: PPV was profitable business. The Pay-Per-View margin (OIBDA/Revenue) has averaged over 50% in the past five years.

WWE PPV Business2006: $93.6M (16 events, 5.74M buys) 2007: $94.3M (15 events, 5.22M buys) 2008: $91.4M (14 events, 5.03M buys) 2009: $80.0M (14 events, 4.49M buys) 2010: $70.2M (13 events, 3.63M buys) 2011: $78.3M (13 events, 3.84M buys) 2012: $83.6M (12 events, 4.02M buys) 2013: $82.5M (12 events, 3.84M buys)

While buys per event have fallen almost 14% in eight years, revenue per buy has jumped 29%. This was driven by WWE raising the PPV price per event as well as offering PPV events in HD (for an additional fee). Much like WWE's live event attendance and TV product & ratings have become stagnant, there's evidence that WWE PPV's strategy was at a plateau. Could they really have kept squeezing more and more revenue from a dwindling base of consumers? So WWE chose a different direction. Yet, let us not forget that launching the WWE Network has been a costly decision. We continue to see unpleasant ramifications to other lucrative revenue streams (besides just devouring the $40M in profit that pay-per-view historically generated). Protesting providers have abandoned traditional WWE PPV distribution (Dish Network and DirecTV have dropped support for the time being). There's evidence that WWE's recent television negotiations with NBCU (where the company overpromised and underdelivered) were negatively impacted by launching the WWE Network. This was something Vince McMahon himself admitted this in the most recent conference call). After years of delays, the WWE Network launch was met with a lot of positive press. However, it also seems to encompass substantial startup costs and revenue cannibalization which are painting a bleak financial picture for WWE's 2014 Business Outlook.

The WWE Network was a bold experiment for the company - they repriced their monthly PPV offering from $45+ per event to a monthly fee for unlimited usage of their library (including new programming). Going over-the-top brought the service to all fans with internet access (cutting out pay TV's position). Currently, the base of customers appears to include a significant portion of the WWE Universe outside of the United States with a little technical know-how. Still, launching an over-the-top (OTT) service in the tight timeframe required complex partnerships with MLBAM and App developers. WWE has substituted their profitable (though limited) PPV business for an expensive (though potentially dynamic) WWE Network model. It's a model that is full of dilemmas. WWE has stated they they will not release updated WWE Network subscriber numbers outside of quarterly updates. Despite the project being a major financial drain (driving the company into depths of losses that they've never hit previously), WWE won't add Subscriber numbers to the monthly KPI (Key Performance Indicators) update. In the wake of the investor's disappointment with the domestic TV rights negotiations, WWE didn't try to spin the conversation by leaking a new WWE Network number. Many have interpreted this as evidence that post-Wrestlemania growth has been anemic. While some hold out hope for massive WWE Network growth in international markets, there's a number of arguments against relying on Global WWE Network Demand providing the cure for WWE's financial ailments. Originally, WWE projected an enormous base of consumers that would readily adopt the streaming technology and reduced prices for PPV access. Expectations that WWE would announcing a million customers (or close to that amount) by Wrestlemania swirled both internally and externally. Instead, the actual number was less than 670,000. We later learned that "nearly 400,000 US homes" bought Wrestlemania via traditional PPV and that almost one quarter of WWE Network subscribers joined during the final week before Wrestlemania. With what has become somewhat of a trend with WWE, almost every expectation and prediction seemed to be shattered with each disclosure. WWE's PPV business previously had some powerhouses - Wrestlemania, Royal Rumble and Summer Slam. Now, all of these events have been commoditized - packaged for $9.99/month and sold alongside Legends House episodes and ECW TV reruns. Does offering access to the WWE in six-month increments at a flat rate damage the prestige and value of these former juggernauts? How many loyal WWE customers have been left orphaned by the OTT approach and are unwilling or unable to access the Network? Will the financially poor demographics of WWE's fanbase (which contribute to the low ad-rates which in turn drove the lower-than-expected renewal rights) jeopardize even the 6-month commitment with delinquent accounts?

WWE's financial troubles (which have been driven by the high cost of launching the WWE Network) are reportedly part of a cost-cutting drive which led to the release of a head writer, specter of NXT releases and last week's wave of superstar firings. The flipside to launching the WWE Network is that it's been many, many years since as many fans were watching the monthly PPVs. Back in 2001, the InVasion PPV managed over 700,000 buys. Meanwhile, in recent years, domestic buys for B-level PPV such as Fatal Four Way (2010) or Battleground (2013) sunk below 100,000 homes. The WWE Network is certainly brought far more eyeballs to Payback. However, it's arguable whether it's providing a net benefit to the aforementioned top tier events (WM, SS, RR). WWE Network is a Pandora's box. Now that it's unveiled, it's going to be incredible difficult (albeit impossible) to "re-educate" fans that PPVs are anything else but monthly specials that air as part of a package. It would be especially confounding to try and return to the high ala-cart prices of the past. Still, that's not to say that WWE couldn't raise the monthly subscription price or even pull off the truly premium events for separate transactions. However, WWE wants a good read on where their customer base stands before they risk doing that. That means they need both information on the adoption of the global WWE Network as well as information on the "churn" rate for WWE Network subscribers (i.e. the percentage of users that renew after the initial period). They're in a very uncomfortable position while they wait. In addition, leadership for the WWE Network is scattered. The former head of WWE Network Programming, Matthew Singerman, was fired. Also, the former head of Digital Media, Perkins Miller, left the company in April so he could join the NFL as their chief digital officer. In the past PPV programming was a profitable and important segment that generated more than 15% of their annual revenue. Now it's part of an expensive system which is struggling to reach break-even goals. It's television rights (which will be esclating in Q4 2014 and Q1 2015) which are growing. That segment is paying the bills and subsidizing the company's unprofitable projects. WWE faces a creative problem with their (formerly known as..) pay-per-view business in terms of branding, but they also face a financial challenge. Right now the WWE Network represents a massive investment on their part to transform their relationship with their customers and revolutionize their revenue streams. Thus far, it's been expensive and very disruptive. They'll need some clear guidance on where to go from here if they want to move out of the trends of a stagnant PPV industry built on squeezing more and more revenue from the same small base of customers. Now it's the new world. However, I'm concerned that nothing we've seen so far demonstrates they've got that any idea where they want to go.