One could find the entire spectrum of reaction to yesterdays announcement that the post-Wrestlemania subscriber number for the WWE Network was 667,287 homes. Everyone was armed with the same fact: after six-weeks WWE was at two-thirds of their break-even goal of 1 million annual subscriber. Some outlets basically reworded the WWEs press release, added some terrible wrestling wordplay and treated this as an unqualifed success. Examples include Time (Already Body-Slamming Tons of Subscribers), Variety (Profit in Sight), and the Hollywood Reporter. On the other side, it was impossible to ignore the beating that $WWE stock took. Many of the more business-minded publications searched out explanations for why investors were disappointed. Pieces portraying the subscriber number as being lower than analyst expectations included Wall Street Journal, Bloomberg, Motley Fool and Business Insider. (Some financial articles credited to a negative review in Barrons published over the weekend for the drop. It simply explained how inflated WWE stock was compared with historic revenue.) Very few publications understood the real story. Wrestlemania represented the peak of demand for the WWE Network. The growth between now and the end of the year will be a modicum compared to the enormous swell that came in the first 72 hours (likely half of the current number) and the week leading up to Wrestlemania. Its highly questionable whether the domestic service will reach a million subscription before the end of 2014. (And no, adding international subscribers doesnt offset this number. The goal was for a 1,000,000 annual subscribers on the US service to break-even in addition to another 250,000 annual subscribers on the international service to break-even there.) WWEs has been throwing around sky-high numbers based on 2012 consumer research. That survey suggested 62M US Households have an affinity for WWE. Investors and analysts began to believe that it wouldnt be hard for WWE to reach 2% or even 3% of this market. Suddenly, estimates of 2 million or 3 million annual WWE Network subscribers seemed plausible. With that base, it would generate tens of millions in pure profit for WWE. However, the 667,287 subscriber brought everyone back to earth. It demonstrates how ludicrous those suggestions were. In a typical year, Wrestlemania garners about 664,000 North American buys at a traditional PPV price above $60. With the $10/month WWE Network subscription, WWE achieved a nearly identical number (667k). Granted, there were some purchases through traditional Cable and Satellite operators. However, this still suggests WWE has not been successful at mobilizing a base anywhere outside of the same people who have been buying PPVs in the past, even when you offer them a huge value proposition. Dave Meltzer, editor of the Wrestling Observer Newsletter, confirmed that internal reaction in WWE to the 667,287 subscriber number was disappointment. They had been led to believe (as many analysts had also speculated) that WWE was going to announce a number above one million. As I wrote about in-depth yesterday, the number that WWE announced is basically just above the mark of being dismal. You can hear some additional thoughts on the matter in the special one-hour podcast that I recorded with Bleacher Reports David Bixenspan. Given this situation, WWE is already considering the options that were discussed in yesterdays article: raising the WWE Network price and carving off certain PPVs from the WWE Network. On yesterdays Wrestling Observer Radio, Dave Meltzer & Bryan Alvarez discussed that WWE is looking at raising the monthly price by 20%-30% in 2015. Also, when you look at the three biggest PPVs of the year (Wrestlemania, Royal Rumble and Summer Slam), together they represent almost half of the total North American PPV buys for the entire year. Its growing increasingly possible that WWE will remove anywhere from one to three of the largest PPVs from the WWE Network service. While this may anger many fans, the evidence strongly suggests that the pool of potential subscribers is fixed and those in the pool are largely price inelastic. The domestic WWE Network can break-even, but its questionable whether it will unless WWE tweaks the content offerings and pricing structure. In the NY Times, MLW Radio personality and former WWE Creative Team member Court Bauer put it best:
Unless they rolled out an aggressive international campaign and offer the service to key international regions or have a game-changing creative strategy up their sleeve, I dont foresee substantial growth for the remainder of the year
Yesterdays stock plummet for WWE was the markets recognition that the super bullish case for WWE has been demolished. Originally, there were some analysts and investors who believed that an enormous TV rights deal (ala NASCAR) combined with a wildly successful over-the-top WWE Network service (with over two million annual subscribers) would generate mammoth profit for Vince McMahons company. The stock would shoot up into the $40-$50 range. When it became evident that the WWE Network wasnt a complete failure, but was hardly a unequivocal success, there was no more basis for pretending that this colossal profit scenario still existed for WWE. As weve been saying, the biggest card left in WWEs hand is the future of the domestic TV Rights. Unless they announce a huge deal, the stock is likely to drop. At each conference call, Vince McMahon has been promising investors that hes going to double or triple their current domestic TV rights ($106M). However, regardless of how much hype the WWE might get in the media, and how many times they compare themselves to live sports, this still is the central problem of low advertising rates for pro-wrestling programming. Or as the LA Times put it:
The challenge for potential buyers is that although WWE fare gets big ratings, there isn't much of a trickle-down effect. Also, though WWE has softened its content to appease advertisers, it still does not always command a commercial rate commensurate with the size of its audience.
Here's another example of the lack of strong programming appetite for WWE television: this weeks episode of Main Event (April 9 2014) will be the last one shown on Ion television. The program started October 3 2012 and Ion paid many millions for the rights for the original one-hour show. However, much like Saturday Morning Slam (CW, August 2012 to May 2013), WWE Superstars (WGN America, April 2009 to April 2011) and ECW/NXT (SyFy, June 2006 to September 2010). WWE has struggled to retain partners for their C-level television programs. While the show may continue to air internationally, and will appear on the WWE Network for the time being, the real money remains on domestic television. In fact, WWE's whole financial future lies in these TV deals. Yesterday's WWE Network subscriber numbers confirmed that they can't rely on the WWE Network to be their saving grace.