April 2014 has been quite the momentous month for the WWE. In the course of just a week Bryan Daniel was crowned the unified World Champion at the main event of Wrestlemania, the Ultimate Warrior mended fences with Vince McMahon only to tragically pass away the next day from a heart attack, and the legendary Undertaker Wrestlemania streak was broken by former UFC Heavyweight Champion Brock Lesnar. WWE also announced their post-Wrestlemania subscriber number (667,287) which was met with immediately rapid drop in the $WWE stock price (shares went from $28-$30 in the week before Wrestlemania to $20-$24 since the number was announced). Yesterday, news broke on two subjects: (a) DirecTV had decided to stop carrying WWE PPVs going forward and (b) WWE was offering another Free Trial week of the WWE Network.
DIRECTV
Regarding DirecTV and WWE, this isnt the first time the two companies had butted heads. Back in October 2001, during one of hottest eras ever for WWE PPVs, DirecTV dropped PPVs from October 2001 to January 2002. At that time (over a decade ago) WWE noted in SEC filings that DirecTV represented approximately 18% of their total addressable base and that conflict was costing them approximately $1.0 to $1.3 million per month. Considering that back in 2001, B-PPVs such as Backlash, Judgment Day, King of the Ring and Unforgiven averaging a 0.84 buyrate (about 400,000 buys). By comparison, in 2013, a B-PPV such as Extreme Rules, Payback or Money in the Bank averaged about 138,000 North American buys (but at a much higher PPV price than in 2001). In a non-WWE Network year, the amount of money that DirecTV would be expected to earn from a B-level WWE PPV would be around $625,000 (about 50% of the 25,000 monthly PPV buys sold at $50/buy), which is about half of what they were getting back in 2001. However, its expected that a sizable chunk of the B-show PPV buying audience that had available broadband has already converted into being WWE Network purchasers. So, in reality, DirecTV is probably only risking a few hundred thousand dollars per month (at least for B-level PPVs) by dropping coverage of WWE events. Dish Network protested earlier in the year with the boycotting carrying the Elimination Chamber PPV. Now DirecTV is putting their foot down now. This move may encourage the other major satellite provider (Dish Network) to follow suit. Though, as discussed previously, theres probably more WWE Fans without broadband access who are Satellite customers than those that are Cable customers. Satellite companies are less likely to lose PPV buys to the WWE Network as compared to Cable conglomerates. At this time, it seems unlikely that DirecTV will again carry WWE PPVs until a major event (Summer Slam, perhaps?). However, next year, I wouldnt be surprised to see the landscape dramatically change once again as hungry PPV providers return to the fold in order to scoop up more casual viewers during the Royal Rumble through Wrestlemania 2015 season. Alternatively, should the WWE Network either announce a monthly price increase or drop any major 2015 PPVs, that could entice MVPDs (Multi-channel Video Programming Distributors) to play ball with WWE once again.
WWE Network Free Week Trial
The decision to once again offer a free weekly WWE Network trial, including on-demand access to the fresh Wrestlemania XXX PPV, speaks volumes about the internal reaction to the 667,287 subscriber number (and subsequent stock slide). The companys initial financial presentations targeted a million annual domestic subscribers as the minimum break-even point for the domestic WWE Network launch. That number may actually be understating the real target since there are significant marketing costs. Also, international distribution and revenue splits costs could be larger than expected. Realistically, the company has achieved about what was expected (I had predicted 650,000 by Wrestlemania), but finding those last quarter-million domestic households in this modern pro-wrestling climate are going to be difficult. Football season will take a bite out of WWE fandom (as it does every year) and WWE Classics on Demand (aka WWE 24/7) demonstrated that theres a limited market for selling nostalgia, older territorial footage and access to the WWEs tape library. In the niche sports-on-demand marketplace, UFC Fight Pass has achieved a few hundred thousand subscribers, MLB.tv has about 3 million, and its unclear how many people NBA League Pass has signed up. Meanwhile, Netflix has 30 million domestic subscribers and Amazon Prime was estimated at least 20 million streaming users while Hulu Plus was hovering around 5 million customers. Should WWE completely renegotiate their rebroadcast rights for Raw and Smackdown so that they can be shown on the WWE Network in an extremely timely fashion (i.e. same week?), that could be a larger selling point for the WWE Network. Still, in aggregate, there doesnt seem to be a lot that the WWE Network can do to hook additional domestic subscribers that werent interested prior to this years Wrestlemania. Its tough to estimate what WWE Network churn (rate of people not continuing their subscription) will be, though a study mentioned in the April 14 2014 Wrestling Observer suggested almost 85% of WWE Network Subscribers were expected to stick around after their initial six months. Of the remaining group, about half said they were going to drop the service permanently and about half said they were going to skip a cycle but return at next years Wrestlemania (assuming its still offered on the Network). Obviously, wrestling fans say a lot of things, and it remains to be seen whether their money is really where their mouth is. A lot will depend on the future state of PPV revenue for WWE. Internal WWE estimates suggested they expected about 70% worldwide PPV cannibalization should the worldwide WWE Network achieve about 1.5 million annual subscribers (which would be a growth from 1 million subscribers in January 2015 to 2 million subscribers in December 2015 still a bold prediction). Until we know the first quarter results (which will be announced May 1, 2014), we wont have any idea about how quickly customers are moving from traditional PPV to the WWE Network. Well have a better gauge in June/July when the initial Key Performance Indicators (including data for Extreme Rules buys come out). Ultimately, the latest WWE Network Free Trial feels like a reaction to a drooping stock price and a disappointing subscriber number announcement. It comes across like an attempt to scrounge up additional subscribers. While the service still has a way to build their base, giving their premiere PPV (Wrestlemania) away a week later for free is a calculated risk. In the end, the thing that will most influence the stock will be the details they reveal on their new domestic television deal. Its critically important they dont delay the announcement or that will be seen as a sign of weakness. Investors are chomping at the bit for information, and WWE had better temper expectations so that everyone understands that were dealing with multiples of the annual domestic TV rights ($106M) and the international TV rights ($55M) are an entirely separate matter. Im remaining with my prediction that theyll re-sign with NBCU but achieve less than twice rights (in the $160M to $180M range).
I'm a professional wrestling analyst, an improviser and an avid NES gamer. I live in Saint Paul, Minnesota and I'm working on my first book (#wrestlenomics). You can contact me at chris.harrington@gmail.com or on twitter (@mookieghana)
Regarding DirecTV and WWE, this isnt the first time the two companies had butted heads. Back in October 2001, during one of hottest eras ever for WWE PPVs, DirecTV dropped PPVs from October 2001 to January 2002. At that time (over a decade ago) WWE noted in SEC filings that DirecTV represented approximately 18% of their total addressable base and that conflict was costing them approximately $1.0 to $1.3 million per month. Considering that back in 2001, B-PPVs such as Backlash, Judgment Day, King of the Ring and Unforgiven averaging a 0.84 buyrate (about 400,000 buys). By comparison, in 2013, a B-PPV such as Extreme Rules, Payback or Money in the Bank averaged about 138,000 North American buys (but at a much higher PPV price than in 2001). In a non-WWE Network year, the amount of money that DirecTV would be expected to earn from a B-level WWE PPV would be around $625,000 (about 50% of the 25,000 monthly PPV buys sold at $50/buy), which is about half of what they were getting back in 2001. However, its expected that a sizable chunk of the B-show PPV buying audience that had available broadband has already converted into being WWE Network purchasers. So, in reality, DirecTV is probably only risking a few hundred thousand dollars per month (at least for B-level PPVs) by dropping coverage of WWE events. Dish Network protested earlier in the year with the boycotting carrying the Elimination Chamber PPV. Now DirecTV is putting their foot down now. This move may encourage the other major satellite provider (Dish Network) to follow suit. Though, as discussed previously, theres probably more WWE Fans without broadband access who are Satellite customers than those that are Cable customers. Satellite companies are less likely to lose PPV buys to the WWE Network as compared to Cable conglomerates. At this time, it seems unlikely that DirecTV will again carry WWE PPVs until a major event (Summer Slam, perhaps?). However, next year, I wouldnt be surprised to see the landscape dramatically change once again as hungry PPV providers return to the fold in order to scoop up more casual viewers during the Royal Rumble through Wrestlemania 2015 season. Alternatively, should the WWE Network either announce a monthly price increase or drop any major 2015 PPVs, that could entice MVPDs (Multi-channel Video Programming Distributors) to play ball with WWE once again. 
The decision to once again offer a free weekly WWE Network trial, including on-demand access to the fresh Wrestlemania XXX PPV, speaks volumes about the internal reaction to the 667,287 subscriber number (and subsequent stock slide). The companys initial financial presentations targeted a million annual domestic subscribers as the minimum break-even point for the domestic WWE Network launch. That number may actually be understating the real target since there are significant marketing costs. Also, international distribution and revenue splits costs could be larger than expected. Realistically, the company has achieved about what was expected (I had predicted 650,000 by Wrestlemania), but finding those last quarter-million domestic households in this modern pro-wrestling climate are going to be difficult. Football season will take a bite out of WWE fandom (as it does every year) and WWE Classics on Demand (aka WWE 24/7) demonstrated that theres a limited market for selling nostalgia, older territorial footage and access to the WWEs tape library. In the niche sports-on-demand marketplace, UFC Fight Pass has achieved a few hundred thousand subscribers, MLB.tv has about 3 million, and its unclear how many people NBA League Pass has signed up. Meanwhile, Netflix has 30 million domestic subscribers and Amazon Prime was estimated at least 20 million streaming users while Hulu Plus was hovering around 5 million customers. Should WWE completely renegotiate their rebroadcast rights for Raw and Smackdown so that they can be shown on the WWE Network in an extremely timely fashion (i.e. same week?), that could be a larger selling point for the WWE Network. Still, in aggregate, there doesnt seem to be a lot that the WWE Network can do to hook additional domestic subscribers that werent interested prior to this years Wrestlemania. Its tough to estimate what WWE Network churn (rate of people not continuing their subscription) will be, though a study mentioned in the April 14 2014 Wrestling Observer suggested almost 85% of WWE Network Subscribers were expected to stick around after their initial six months. Of the remaining group, about half said they were going to drop the service permanently and about half said they were going to skip a cycle but return at next years Wrestlemania (assuming its still offered on the Network). Obviously, wrestling fans say a lot of things, and it remains to be seen whether their money is really where their mouth is. A lot will depend on the future state of PPV revenue for WWE. Internal WWE estimates suggested they expected about 70% worldwide PPV cannibalization should the worldwide WWE Network achieve about 1.5 million annual subscribers (which would be a growth from 1 million subscribers in January 2015 to 2 million subscribers in December 2015 still a bold prediction). Until we know the first quarter results (which will be announced May 1, 2014), we wont have any idea about how quickly customers are moving from traditional PPV to the WWE Network. Well have a better gauge in June/July when the initial Key Performance Indicators (including data for Extreme Rules buys come out). Ultimately, the latest WWE Network Free Trial feels like a reaction to a drooping stock price and a disappointing subscriber number announcement. It comes across like an attempt to scrounge up additional subscribers. While the service still has a way to build their base, giving their premiere PPV (Wrestlemania) away a week later for free is a calculated risk. In the end, the thing that will most influence the stock will be the details they reveal on their new domestic television deal. Its critically important they dont delay the announcement or that will be seen as a sign of weakness. Investors are chomping at the bit for information, and WWE had better temper expectations so that everyone understands that were dealing with multiples of the annual domestic TV rights ($106M) and the international TV rights ($55M) are an entirely separate matter. Im remaining with my prediction that theyll re-sign with NBCU but achieve less than twice rights (in the $160M to $180M range).