The hot talk on the internet dirt sites right now all seems to revolve around the abysmal number of subscribers that the WWE Network has attracted to date. You read some of these articles, including ones appearing on sites like Business Insider, and it begins to sound like 700,000 subscribers is a complete failure and that the WWE is doomed to go out of business due to the hemorrhaging of money resulting from their investment into the WWE Network.
Sorry, but the WWE is going to be just fine.
Okay, so the WWE posted an operating loss in the second quarter, something to the tune of $14.5 million. This resulted in what some sites are terming "massive" layoffs at the WWE corporate headquarters, a figure that has now been reported as being close to a 7% reduction in staff. That 7% staff reduction has increased the WWE’s OIBDA estimates by $30 million. With this staff adjustment, WWE is on track to return to profitability by the end of 2015, even if average WWE Network subscriptions drop to 500,000.
The current number of WWE Network subscribers is 700,000, and it is entirely possible that this number may drop shortly. The initial wave of subscriptions required a six month commitment, and I would not be surprised if a number of folks choose to not renew after the expiry of those initial subscriptions, just after SummerSlam. Even if this number drops by 50%, the WWE Network would have a US subscriber base of 350,000 - not counting the number of new subscriptions that they may accumulate over the course of the third financial quarter.
Growth of the WWE Network post-WrestleMania was reported for the period of April 6, 2014 to June 30, 2014. Over that 3 month period, the subscriber base grew by 161,000 subscribers, a figure that many detractors of the WWE are describing as “slow.” Presuming this same "slow" amount of growth over the third quarter, and also assuming that 50% of the initial subscribers do not renew, we get a new subscriber number of 350,000 plus 161,000, which is equal to approximately 500,000 subscribers at the end of the third financial quarter. This is the same number of subscribers needed to return WWE to profitability by the end of 2015.
Barring any serious, unforeseen circumstances, the WWE Network is already poised to succeed in the long term, and that’s based on a worst-case scenario involving only the US market. The WWE Network will expand to over 170 new countries and territories on August 12, and is expected to debut in the U.K. by October 2014
Taking Netflix as an example, with 50 million subscribers worldwide as of mid-2014. Approximately 7.4 million of those subscriptions are in the US, or 14% of the total Netflix subscriber base. I’m not saying that the appeal of professional wrestling is similar to that of movies and television across the world, but the point is that the infrastructure exists to deliver a streaming product to other parts of the world. Plus, we already know that an obvious market for wrestling exists in foreign countries, as the WWE regularly tours other parts of the globe. Even if the US market ended up being a full 50% of the global subscriber base, the WWE can expect to have well over a million subscribers, a number which could potentially return them to profitability even earlier, by the end of 2014.
Looking at the current numbers, it appears as though the WWE can’t lose in the short-term, and the global market expansion makes greater success seem all but assured. Online streaming has been cutting into PPV buy rates for years, and the WWE Network has the potential to allow the company to regain some of those lost sales through good value and convenience. The WWE would have to be crazy to not pursue this strategy to its full extent at this point in time.
Plus, who wouldn’t want to be able to watch every Scott Steiner WCW promo from all of history, on repeat, forever? The power of streaming, ladies and gentlemen.
Numbers from the WWE second quarter financial results taken from this article. Accessed on August 1, 2014. This article is not intended as financial advice, and its authors have no competing financial interests.