What Does 667,287 Subscribers Mean For WWE Network?

When WWE announced the domestic rollout (Phase I) of the WWE Network, they listed three scenarios. The first scenario required 1M annual subscribers generating $115M in order to achieve €œbreak-even Incremental OIBDA€. There was two sets of costs: expenses (estimated at $55M for one million subscribers) and potential cannibalization (the sum of current revenue streams that would negatively impacted by launching the network €“ estimated at €œup to $60M€). The 667k number announced today would generate $80M annually. (However, that assumes that WWE can maintain the launch-through-Wrestlemania base of customers for an additional 6-month billing cycle which would start after August 2014 but complete prior to next year€™s WM. If your base is built on hardcore fans, that makes sense. If you€™ve already incorporated a lot of casual/lapsed fans, it€™s not clear if they€™ll stick around indefinitely. After all, they've left before and Football season usually pries lot of them away.) While two-thirds of a million annual subscribers does cover the steady-state WWE Expenses for the WWE Network (which would likely somewhere be a little south of $55M), that doesn€™t mean the WWE Network is profitable at 700k annual subscribers. Instead, without hitting a million subscribers, we can still expect a serious punch to WWE Revenue streams that are cannibalized by the WWE Network. This is mainly Domestic PPV Revenue ($66.9M in 2013) and Home Entertainment ($24.3M in 2013). WWE estimated they could lose up to $60M in revenue cannibalization, but the reality is that they don€™t know. One estimate showed how over $160M in WWE Revenue has some risk involved with it (when you factor in possibility of drops in WWE.com advertising, weakness in selling DVDs/BluRays, killing Classics on Demand channel, etc.) On the flipside, launching the WWE Network has upside -- there could be a Halo effect - bringing back lapsed fans, stimulating interest in modern WWE television programming, positive media coverage. It€™s terribly difficult to take the single 667,287 number, and instantly declare it terrific or a failure in the vacuum of how it reflects on the other key parts of WWE€™s half-billion annual revenue model. We really don€™t know what the traditional pay-per-view (PPV) buys for Wrestlemania XXX will look like. In the end, WWE was able to secure full MVPD coverage for the event, even convincing Dish Network to come back aboard. 2014 buys for Royal Rumble and Elimination Chamber were surprisingly strong (once you adjust for the lack of The Rock). These factors would suggest that WWE could have a strong year €“ albeit built on the back of Daniel Bryan going for the title and not Hollywood Superstar The Rock versus modern WWE icon John Cena. In a normal year, domestic Wrestlemania PPV buys is right in the 660,000 range. If PPV cannibalization is exceptionally low (say WM30 has 500k traditional PPV buys plus the 667k WWE Network subscribers), the WWE Network numbers would be acceptable. If PPV cannibalization is sky high (say WM30 only has 100k traditional PPV buys), it would be a poor showing. To really understand the potential for the WWE Network, we€™ll have to understand the motivation of those fans who did not choose to use the WWE Network (but watch television weekly and/or purchased the PPV through their Cable or Satellite provider). There€™s numerous reasons why someone may abstain from the WWE Network. Some fans may not have been aware the WWE Network exists. Some fans may just not have been interested in signing up for a six-month commitment. Many fans may just have been skeptical of the service crashing and did not want to risk holding a WM party and staring at blank screen for three hours. Whether successfully avoiding the stream-crash iceberg during Wrestlemania is enough to convince these fans remains to be seen.