WWE its way over the top

WWE is the number one wrestling company in the world. It is a media organisation that has the benefit of being both sports and scripted entertainment. Fans want to see results live similar to sport but they also get to watch shows 52 weeks a year with background stories for extra entertainment. There is no off season if you are a wrestler! WWE's television shows Raw and Smackdown reach 15 million viewers in the US. WWE's stock has been on a rollercoaster ride as shareholders attempt to gauge the value of the streaming network it has just launched and its upcoming TV rights negotiations with cable companies.

Inspired by Netflix brought to you by WWE
The company has recently received a lot of attention for the launch of its internet TV channel. WWE has considered launching its own network for years historically planning distribution through cable, however they were only offering around 21 cents a subscriber per month. The success of Netflix with 41 million subscribers inspired WWE to launch a digital channel streamed through the internet.

WWE has noted it needs 1 million subscribers to break even with a target of reaching 1 million by the end of the year. To put these numbers into context the WWE network page on Facebook has attracted 2.3 million likes. WWE's Youtube channel which is free has 3.3 million subscribers. Previous Wrestlemanias have generated around 1 million buys with last year generating 1,048,000. WWE also announced that its WWE app has been downloaded 10 million times in 220 countries since its launch in August 2012. The more important numbers are 500,000 fans use the app alongside the show on Monday nights. On April the 7th WWE announced that they had 667,287 subscribers, this was a disappointment to many as this number was released the night after Wrestlemania 30 their biggest event and likely peak demand for fans to sign up for the product.

Cannibalising itself
It is a big range but it seems between 1-1.5 million subscribers would be a reasonable bet. The WWE network is a no brainer for WWE fans. For $9.99 a month (6 month commitment) users will get access to 12 pay per views that normally cost around $55 a pop half of which is shared with the distributor. What would have previously cost die hard fans $660 a year will now cost just $120 a year plus they also get access to WWE's library of 130,000 hours of programming. WWE is betting that casual fans who may only subscribe to Wrestlemania will take up the network so that WWE will receive $120 a year instead of $55. The network is something WWE has had to launch to stay relevant for its fans.

Streaming its network over the internet makes even more sense for WWE as younger viewers tend to watch more online video (see chart above).


TV is still king
So far WWE has negotiated two contracts one in the UK that was 3x its previous TV right fees and Thailand a 7x increase. WWE's US distributor NBC has the option to match a competing offer. It has been estimated that WWE's rights fee per rating was 29 cents in 2012 significantly below Nascar at $3.90. In 2013 WWE earned $106m in domestic TV rights.

In past deals the TV series were negotiated separately but now the rights for the shows expire all at once giving WWE more negotiating power. While profitability of the network is no sure thing the renegotiation of television rights at a higher price appears more certain. See the chart above the gap between the price WWE receives and the value of the WWE audience compared to alternatives is extremely wide. The negotiation timetable has slipped from early April to late May resulting in a rollercoaster ride as investors including ourselves sold down our position as delayed negotiations are typically never a good thing. Just like fans of the TV show shareholders are on the edge of their seat awaiting the TV negotiation results at least we know there will not be a split decision.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive owns a position in WWE (WWE) stock

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