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WWE NEWS: Status of WWE Network & how it affects other parts of WWE's business (McMahon's Conference Call)

Feb 28, 2013 - 11:16:15 AM
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By James Caldwell, PWTorch assistant editor

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WWE has no timetable for when a proposed WWE Network will launch, nor are they going to continue trying to predict a launch date for the pay-TV model channel.

"We're getting out of the prognostication business," said WWE CFO George Barrios during Thursday's conference call with investors. (The window established in WWE's "Business Plan" announcement is 2013-2015.)

As has been the case for the past two years, The Network dominated discussing during the conference call. Even WWE CEO Vince McMahon sounded agitated about how long the process has taken in his opening remarks, noting they have "been talking about a Network for God knows how long."

The fundamental issue facing the Network is reaching a break-even point of 1.0 million subscribers before it starts to create value for WWE. How long that takes depends on carriage and availability, which are typical issues facing new brand-name channels (NFL Network, Longhorn Network, OWN, etc.)

WWE said they "feel good about" the Network once it does launch, they are optimistic about the potential to "double or triple" revenue if they reach 2-4 million subscribers with "full distribution," and they do not anticipate significant cannibalization of their current programming.

One interesting item brought up is that WWE has the ability to offer non-PG programming on their Network. McMahon said it would depend of the time of day, but they would be looking to appeal to a broader fanbase and lapsed fans. "That Network can be all things," McMahon said.

WWE also does not plan to end current TV contracts - four of which are up for renewal this year, both domestically and internationally - when the Network takes off, as they want to have a "broad reach" to drive their fanbase to the Network.

One item stressed during the conference call is shifting non-WrestleMania PPVs to the Network. When asked how that would affect current contracts with their PPV partners, Barrios essentially offered a No Comment.

But, Barrios said WWE is "working very strongly" on plans to increase current PPV distribution through "over-the-top" models, which would open up more ways for their fans to order PPVs. The price-point would remain the same, though.

McMahon also pointed out one perspective they are adopting for shifting PPVs on the Network. Because their anticipated subscription price is $12.99-14.99, they are viewing the Network as a cheap, incentive-based option to watch non-Mania PPVs. So, if a Network subscriber watches nothing else besides the monthly PPV (other than Mania), he or she is paying about $13-15 for a currently-priced $45 PPV.

"The increase of Network buys would be people who cannot afford the huge PPV bill," McMahon said, while also indirectly admitting to the high-price of current PPVs.

It brings up the cannibalization topic again. Depending on how fast WWE gets "full carriage" and then can evaluate their subscription base, when does the loss in PPV revenue in exchange for the guaranteed million-plus subscriptions at $13-per-month turn into value for WWE?

WWE released a chart showing the following "realistic" scenarios.

- Scenario #1 - 1 million subscribers would generate $40-70 million with potential cannibalization of $5-10 million. Even at the break-even point of one million subscribers, WWE believes the cannibalization would be a small factor, creating value for WWE's decision to shift PPVs to the Network.

Barrios noted they believe cannibalization is a small factor because of the strength of WrestleMania as the remaining traditional PPV.

- Scenario #2 - 2 million subscribers would generate $90-130 million with potential cannibalization of $10-15 million.

Under Scenario #1, the net gain just looking at Network Revenue less Potential Cannibalization would be $35-60 million. Under Scenario #2, the net gain would be $80-115 million. Then, WWE's more unrealistic scenarios of three and four million subscribers shows a net gain of $110-245 million.

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The bottom line is that once the Network launches - whenever that is - they anticipate taking 6-12 months to ramp toward a "steady state." Barrios said it does not mean they will break-even within 12 months, but they can evaluate whether the pay model works.

It would also help if WWE can get international distribution. WWE released a chart showing that two of their most hardcore fanbases are affluent Indian viewers and fans in Mexico. Whereas, U.S. fans rank #4 behind third-ranked Australia.

It's WWE's belief that they are "uniquely positioned" to offer elements of both sports and entertainment to draw in a wide audience for their Network. Whether it's realistic that their casual-leaning audience will want to watch WWE content any time they want and watch non-Mania PPV events when WWE is essentially offering a near-PPV every Monday night with three-hour Raws remains to be seen.

It puts the onus on WWE to reach out to lapsed or casual U.S. fans to convince them that they should either re-engage in WWE's product or want to consume more of it, respectively. Along with coming up with an actual timetable for launch, addressing their audience's casual interest in the product creates significant questions to address.


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