WWE Network finally happening

[kjh]

I appreciate the statistical analysis mookie (that's my job), but the dangers of extrapolation mean that your regression curves will have increasingly large uncertainty around them, as you move further away from the prices you have data for.

 

For example, the prediction is that 6.209 million homes would buy WrestleMania at $5, but is that realistic when even their biggest Raw of the year doesn't get close to that many homes watching?

 

The other thing you need to account for is the availability of the network in its launch year compared with the availability of their pay-per-views today. There seems to be the implicit assumption that the network will be available in the same amount of homes as pay-per-view is today.

 

John, how easy is it to get on basic? Is it possible the carriage companies balked at adding the WWE Network for even $0.07 per household?

[jdw]

I don't think the WWE was trying at the $0.07 level, nor have they been smart in looking for a partner to joint venture with to help them get clearance.

 

John

[mookeighana]

First, thanks for the comments and thoughts. I appreciate the feedback and those are all good points to consider. I would love to do a podcast point/counterpoint sometime with someone. I don't claim to be an expert; just someone who is trying to read articles, throw out ideas, test a model or two and gather feedback.

 

I agree that the basic clearance model would have opened doors providing a model with some other backup options - especially as you point that Smackdown! has a backup US home (and another selling point) for the future. However, as Bix noted, it doesn't seem like networks were biting. I do believe that they're safer being a premium channel with PPVs on it rather than just a special basic channel with WWE Classics on Demand 25/8 version two.

 

I'm curious whether there are any opportunities for WWE to try and pressure any networks (such as Comcast/NBCU) during this upcoming round of negotiations for RAW/Smackdown regarding carrying the channel. Similarly, both Stephanie and George Barrios have made reference to "non-tradtional distribution methods". (For some reason the Forbes Sportstalk article/video segment decided this meant Google or Netflix would be interested in WWE content; I don't really buy it but it does raise the question of whether there will be anything beyond a premium channel on cable/satellite.)

 

I agree with kjh that drawing conclusions from WWE PPV curves that are normally 2x or 4x higher is very dangerous. I used to be a supermarket pricing consultant so I implemented a pricing model we'd use for deep discounting of grocery; it's ballpark but the fault tolerance is huge and I agree - it's ludacrious to take the $5 or $10 price points too seriously because it's really uncharted territory. The idea you can project annual income for a monthly subscription is questionable - they might be able to hit a million subscribers for Rumble (probably with ridiculous package offers akin to what Showtime/HBO does), but during Football season? I'm not so sure.

 

My basic premise has two pieces:

1. Vince has won a lot of his TV gambles, and this one looks like it's something he could succeed at. (I like they own their library outright and a premium model would let them regenerate the $35M in Domestic PPV quickly. However, I think it's going to be really, really tough to cover the $50M+ network investment without a huge base.)

2. I am becoming increasingly optimistic about their TV Rights renewal; just seeing them up $30M rolling 12 months this year alone makes me think they could easily hit $200M by 2016 (if not before). That makes me think they're going to have a nice cushion to work with so they can invest in something like the Network. I really don't believe they're going to hit the Network hard until they're comfortable about the TV Rights negotiations. I am not expecting them to launch day after the Minneapolis PPV (Elimination Chamber) next year.

 

Honestly, would WWE be better if they avoided the XFLs, WBFs, World Resturant, WWE Studios and so forth, but I am now convinced they're going to keep at least one boondoggle on the books at all times.

[jdw]

On the Comcast front, I would go back to the table of looking to JV with them in the coming deal. Comcast has JV's for The Weather Channel, TV One, PBS Kids Sprout, Esquire Network (former Style).

 

It is funny that Comcast has essentially let G4 die by overpricing it to the WWE and UFC. They've killed off the remaining major carriers for it... just silly on their part, and to a degree the WWE. If a stupid as Esquire Network can get on the air to replace a dying niche network, there really is no reason the WWE and Comcast couldn't have gotten together at the same time to "save" G4 with the WWE Network.

[jdw]

2. I am becoming increasingly optimistic about their TV Rights renewal; just seeing them up $30M rolling 12 months this year alone makes me think they could easily hit $200M by 2016 (if not before). That makes me think they're going to have a nice cushion to work with so they can invest in something like the Network. I really don't believe they're going to hit the Network hard until they're comfortable about the TV Rights negotiations. I am not expecting them to launch day after the Minneapolis PPV (Elimination Chamber) next year.

I worry about this. I don't think the bottom is going to fall out, but if the Networks / Cable Channels view the WWE as "entertainment programing" rather than something close to Sports "Watch It Live!" programing, there is always a threshold where the Cost of the programing rubs up against what the network is willing to Pay for it. We've seen decently rated cable shows / lower end network shows get the plug pulled on them because the cost component makes the network move on.

 

The WWE remains big cable ratings on some level. But if Comcast felt they were extremely valuable, they probably would have tried to lock them up before now and not risk them getting out on the market. I also think that if they saw wrestling as extremely valuable, they would have been wanting to JV badly with G4 rather than just let it die, and cut Vince a favorable enough deal on % and the valuation of G4 to make him roll over.

 

I don't see the WWE's rates going up 50%+. Perhaps I'll be surprised, but... I think Comcast is going to want to save their bullets for:

 

* NBA

* Big 10 Football/Basketball

* NASCAR (already fired and won)

* Notre Dame

 

They're not going to get the NBA without overpaying for it, which perhaps they might try. It's programing from Nov-May/Jun, critical for NBCSN and with a Finals (if they steal ESPN's half) that can roll into their shitty primetime lineup. Again... they're not likely to win it.

 

The Big 10 is the last of the college conferences that has rights open until the next decade... some of them well into the next decade. ESPN, Fox and CBS all have a piece of the college pie. NBC's is just ND football, which is limited. The Big 10's non-BTN programing is 3-4 games a week in football, letting you pick the Game of the Week for NBC (like CBS usually gets of the SEC), and 2 games over onto NBCSN. It's a pretty big deal.

 

Comcast have overpaid for pretty much everything they've won: NHL, MLS, NASCAR, EPL. In the long term the way carriage right for sports networks are growing, NBCSN getting strong is a bigger priority than USA Network retaining Raw. So... there's some risk of the WWE overplaying their hand if they don't already have a number of suitors knocking on their door.

 

Another reason why a WWE network is key in the long term: it avoids getting squeeze by the networks/channels by giving them a back up to move programing.

[kjh]

I would love to do a podcast point/counterpoint sometime with someone.

This is a really cool idea and I'd set it up if I had more experience with that sort of thing.

[mookeighana]

I'm really curious whether we'll hear more rumors about interested networks after the exclusive period of negotiations with NBCU expires.

 

TV Rights Fees

FY2006

 

2006: $85.5M + $7.4M TV Advertising

2007: $92.4M ($59.6 domestic + $32.8M int'l) + $5.9M TV Advertising

2008: $100.7M ($63.5 domestic + $37.2M int'l) + $7.4M TV Advertising

2009: $111.9M ($72.8 domestic + $39.1M int'l) + $7.7M TV Advertising

2010: $127.0M ($81.6 domestic + $45.4M int'l) + $5.9M TV Advertising

2011: $131.5M ($80.3 domestic + $51.2M int'l) + $1.1M TV Advertising

2012: $139.5M ($88.9 domestic + $50.6M int'l) + $1.4M TV Advertising

2013 YTD: $119.6M (3 quarters = $78.5 domestic + $41.1M) - which is up 20.7M over Q1-Q3 last year ($98.9M = $60.6M domestic + $38.3M int'l) +$1.7M TV Advertising

 

We're already at 15% increase for this year before even the big boosts; I have to think they'll hit at least 30% improvement by early 2015 after they negotiation Raw, Smackdown, UK and India.

[KrisZ]

The smart thing to me would be if they worked with Netflix or a service like that to put their stuff on there. Even better would be offer a sub service on your various video game outlets, Roku boxes, etc.

[jdw]

I'm really curious whether we'll hear more rumors about interested networks after the exclusive period of negotiations with NBCU expires.

 

TV Rights Fees

FY2006

 

2006: $85.5M + $7.4M TV Advertising

2007: $92.4M ($59.6 domestic + $32.8M int'l) + $5.9M TV Advertising

2008: $100.7M ($63.5 domestic + $37.2M int'l) + $7.4M TV Advertising

2009: $111.9M ($72.8 domestic + $39.1M int'l) + $7.7M TV Advertising

2010: $127.0M ($81.6 domestic + $45.4M int'l) + $5.9M TV Advertising

2011: $131.5M ($80.3 domestic + $51.2M int'l) + $1.1M TV Advertising

2012: $139.5M ($88.9 domestic + $50.6M int'l) + $1.4M TV Advertising

2013 YTD: $119.6M (3 quarters = $78.5 domestic + $41.1M) - which is up 20.7M over Q1-Q3 last year ($98.9M = $60.6M domestic + $38.3M int'l) +$1.7M TV Advertising

 

We're already at 15% increase for this year before even the big boosts; I have to think they'll hit at least 30% improvement by early 2015 after they negotiation Raw, Smackdown, UK and India.

The domestic fee increase this year is from new programing like Divas, and over having a full year of Main Event and the comp of months where they had Saturday Morning Slam this year and not last year. SMS will wash out: four months and change last year, and four months and change this year. Main Event in the last quarter will likely wash out with last year's debut in the final quarter, but you get 9 more months of it this year. Divas of course is new.

 

What the WWE wants is a significant jump in Raw and SD. I don't see those growing 50% like a lot of the leagues have done. Will they try to squeeze other revenue out? Yep. Some will sustain for a while like Main Event. Divas has a shelf life, though I think shorter than the WWE probably thinks. SMS didn't even last 12 months. The core falls back to Raw and SD unless the get other revenue for programing (Network / Library).

 

Overall rates going up? Yep as the continue to try to push internationally. I've been pushing back for years at the notion that they're a PPV company when in fact they've been a TV Production company for ages: rights fees + additional attendance of TV shows + merch sold at TV shows are massive elements of their revenue.

[jdw]

The smart thing to me would be if they worked with Netflix or a service like that to put their stuff on there. Even better would be offer a sub service on your various video game outlets, Roku boxes, etc.

We talked about this a few pages back: it's not clear that there are massive amounts of money to be made by a content provider of the WWE's level via Netflix or some other services like that. Money for sure, but big massive amounts? $100M a year levels?

 

Same thing with subs.

[Timbo Slice]

I kept trying to craft my own two cents on the network negotiations but they just fall in to what JDW's been saying.

 

One thing to keep in mind: WWE going into business for themselves with their own network needs to happen much sooner than later considering that there's a good chance that the cable landscape is going to change over the next 5-10 years. With what Apple and Google are doing, something akin to an a la carte type service where people are paying for individual networks or groups of networks as opposed to paying through a cable provider (cutting out the middle man), a joint venture with Comcast won't exactly help them considering NBC is slowly falling apart and the NBC Universal-based networks aren't exactly setting the world on fire. This has already happened with a service like HBO Go. While you do need a cable subscription to watch it on non-cable box devices, a time will come where people will be able to directly subscribe to HBO like they do a Netflix or Hulu Plus. WWE could actually capitalize on that ahead of time by offering their service as an app of their own accord, but because they don't see that revenue stream as something as massive as your normal cable agreements that was mentioned above, they won't go that route unless it's the only thing they can do.

 

My main issue is that the WWE is pushing a brand over its superstars, a lot like the ESPN model, where guys like Patrick and Olbermann got too big for the company to deal with because they didn't want to cater to superstars (Except for Berman. He's the Triple H of ESPN at this point.). Parts are interchangeable, and because there's no competition, they don't have to worry about it because revenue is still revenue. Problem is that they've slowly seen revenue shrink over the last few years, but not fast enough where there's panic. Much like Fox Sports One, it's obvious that the only competition in town for WWE isn't really worth worrying about, so while they won't be able to get the optimal amount of money for their new TV rights, it's still going to be more than enough to get them by for a while.

[kjh]

What the WWE wants is a significant jump in Raw and SD. I don't see those growing 50% like a lot of the leagues have done.

That's what they're predicting. It will only happen if WWE gets multiple big suitors for cable exclusivity for all their programming. Given that hasn't happened since 2005 and they played their cards very badly then, I'm also sceptical that they see a huge rights fees hike in 2014.

[mookeighana]

http://seekingalpha.com/article/1805212-pi...t-starts-to-run

 

Seeking Alpha has a piece today which is better than some of the real hack jobs that appear on the site (about WWE stock at least). That said, there are some ludicrous statements in there like:

the current revenue generated from broadcasting by the company is $140 million annually. There is a strong probability that could jump to as high as $420 million, and probably more.

I find his "strong probability" they'd almost double total company revenue from 2014 contract negotiations to be quite questionable.

[JNLister]

My biggest problem with the idea of getting a million subscribers is that even if every single US person who bought WrestleMania this year buys the network, you still need around 400,000 Americans who didn't buy the biggest show of the year, but are prepared to pay $15 a month for WWE TV programming. Even including people who watched it a friend's house, I don't see where those numbers are coming from.

[cm funk]

They did those polls a while back that suggested a ridiculously inflated # of wrestling fans in the USA. I don't know if they believe their own numbers (don't see how they possibly could), but that seems to be the basis for their target here.

 

Also, if they can get on sports tiers eventually that inflates their numbers, so they might be thinking they can get a million + homes based on that, where only a fraction would actually subscribe for or watch the channel. Lots of channels in sports packages that are just part of the bundle and don't get watched by most people.

[Bix]

Did anyone figure out if WWE was actively pursuing BS data to push the idea to stockholders or if the polling company gave them skewed data to try to get on their good side?

[mookeighana]

Did anyone figure out if WWE was actively pursuing BS data to push the idea to stockholders or if the polling company gave them skewed data to try to get on their good side?

I think they took some really weak data and just went with it.

 

from my wwe network piece...

WWE has repeatedly offered up hefty numbers suggesting things such as the domestic fanbase is composed to 57 million households (based on an independent survey of 9,000 households and extrapolating to digital multichannel households) with some affinity for WWE programming.

 

 

 

It’s bold claim which puzzles why they only have 4 to 5 million weekly viewers for a show such as RAW and less than three million cumulative domestic (US & Canada) PPV buys (across 13+ events) each year.

I think one element is that they were investigating how many people were lapsed fans and whatnot; not really purchasing dynamics.

 

Let's not forgot their other nutty claim from the Citi Global Consumer Conference in May 2013 (transcript)

 

One that always strikes me is Mexico, almost 80% of the homes in Mexico are either hard core fans, casual or lapse and in fact if you look at the data so far, we are about through 14 markets or so. Mexico has the highest percentage of hard core fans. So we are really excited about the opportunity there... Our top five markets include the U.S. the U.K., India, Mexico, Germany, so it rotates from time to time, but all across the world and from a platform perspective, they range from -- our revenues range from 17% to 29% from our different platforms.

80% of the homes in Mexico are WRESTLING FANS. It for them the lights turn orange & blue?

[Robert S]

I completely forgot this survery. This is one of the most ridiculous things I have ever seen. This makes Dana White and his claim that MMA is "the fastest growing sport worldwide" for I don't know how many years seem pretty reputable.

[jdw]

Yeah... that was a chart that I just looked at the breakdown between Active / Lapsed / Non-Fan, took a look at the Non-Fan number, laughed... and then just moved on. We all know reality: in our day-to-day lives, we don't come across 50% of the people we deal with being either Active or Lapsed wrestling fans.

 

The NFL doesn't have 50% of the country being Active or Lapsed NFL fans, even cheating by counting everyone who watches the Super Bowl simply because they go to parties or are dragged their by their significant others.

 

John

[El Boricua]

Ah, polls and surveys, now we're in my wheelhouse. Looking at that data, the first question that springs to mind is how were each of those terms (lapsed, light casual, etc.) defined. The second would be how the question was phrased. The third would be how the respondent selection was done. Finally, how was the sample constructed (was it a rep sample based on census data, a customer list database, etc.).

 

Without knowing these details I wouldn't know how seriously to take the survey data.

[Ditch]

That whole pie isn't even 20% of the population, but the fact that it even approaches 20% shows it as being exaggerated.

[jdw]

The pie is 57M households, which is is 50% of the estimated 114M TV households in the US (in 2012):

 

http://www.bloomberg.com/news/2012-09-25/n...ift-to-web.html

 

Where they go from those Households to Fans is via calculations based on:

 

% Resp. is the proportion of fans within each segment, % of US HH based on survey results, # of WWE HH calculated using % of US HH applied to US Multichannel TV HHs (excl. 70+), # of WWE fans obtained by # of fans per WWE HH (from survey results) applied to # of WWE HH

50% HHs = WWE Fan At Some Point = 108M people

50% HHs = Non-Fans = 181M people (i.e. everyone else in the country with TV)

 

When that 114M HH number was come up with (2012), the number of total people with TV was 289.3M.

 

John

[mookeighana]

We had a doozy of a discussion last night on Will's podcast.

 

I'm reminded of Phil Hartman's intro to episode 24 (s3) of Newsradio - the one where it takes place on a space station.

 

after tonight, all of those questions will be answered. or at least raised and dismissed.

I did stumble into what I believe is the best idea for the WWE Network - every Sunday from 2 am to 4 am, Vince McMahon opens a bottle of scotch, sits in a leather chair and just talks to the camera for two hours.

[Ditch]

Ah, I'd missed the 'households' distinction. Yeah that's just nutty. The "parents" category makes even less sense in that context.

[jdw]

Ditch: originally I had a long post drafted out in Notepad, including breaking down how many People / Household each of the categories had (including pointing out how low the Lasped were: total Don't Get Laid, Don't Have Kids level). Then I thought it was just a waste: the 108M "WWE Fans At Some Point" number was insane enough on its own that it didn't need to be distracted from by breaking it down further. So I just kept it short for a rare instance.

 

John