By James Caldwell, PWTorch assistant editor

Three years ago in January 2009, WWE announced a ten percent staff reduction to save $8.0 million per year. It led to a period of cost-cutting and disciplined business that increased the company's profitability.

While revenues were stagnant or slipping in some areas, WWE ran an efficient operation that ensured the company would turn a profit each quarter.

Enter WWE Network, with its start-up costs, executive hires, and TV production expansion needs. WWE has nothing to show for the costs yet, which is understandable at this stage of the game, but with the Network delayed and with the cost of running a full-fledged, 24-hour cable TV network potentially smacking WWE officials in the face to begin this year, WWE has to decide whether this undertaking is worth it.

In the fourth quarter 2011, WWE reported a rare operating loss, in the amount of $13.1 million, which was way off from analyst expectations. WWE's two main issues cited were Network costs and yet another impairment loss for WWE Studios. Both are linked to WWE CEO Vince McMahon's ego.

If WWE wants to turn the Studios division into a reasonably successful enterprise, the letters "WWE" would have been removed from what the general public sees a long time ago. Those three letters work great in some areas, but also remove credibility in other areas. McMahon would have to swallow his pride simply putting out movies that have no public ties to WWE. It wouldn't make the movies any better, quality-wise, but the movies would be given more of a chance by critics, moviegoers, and distributors.

Another ego check is in-play with the Network. It's not 1999 when the product was red-hot and there was huge demand for WWE's product. In 2012, WWE has over-saturated the market with three-hour Raws, live Smackdowns with a thin roster, and too many PPVs packed into a tight window. Raw's TV ratings are on the decline and teen males (future wrestling consumers and ticket-buyers) are fleeing Raw.

Eventually, WWE will have to decide whether investing excess cash into Network start-up costs is worth it. Perhaps they could scale back and go for a mobile/hybrid "Network" that mainly delivers content through YouTube and Apps on handheld devices. But, it would mean McMahon's latest attempt to carve his legacy by being side-by-side with NFL Network and E! would fall short.

Unless the Network costs pay off in the long-term, the end result could be a blow to WWE's disciplined, cost-efficient operation that was emphasized three years ago when ten percent of employees were fired. Wall Street Cheat Sheet reported this morning:

"(Fourth) quarter marked the fifth straight quarter that the company saw shrinking gross margins, as gross margin fell 16.7 percentage points to 21.5 percent from the year-earlier quarter. In that span, margins have contracted an average of 7.7 percentage points per quarter on a year-over-year basis."

WWE's profitability is shrinking as the company tries to expand its reach with a Network launch. Is it worth it? McMahon claims it "has the power to transform (WWE) business," but he's also softening his stance. "Executing this strategy effectively, including the potential creation of a WWE Network."

Many investors and analysts may not give WWE and McMahon a chance to prove the investment is worthwhile, though.

Wall St. Cheat Sheet concludes: "Over the past 90 days, the average estimate for the first quarter of the next fiscal year has fallen from 19 cents per share to 16 cents, indicating that analysts are growing pessimistic about the company’s performance next quarter. At 57 cents per share, the average estimate for the fiscal year has fallen from 59 cents 90 days ago."

After being bold about the Network in the middle of 2011, vague about the Network at the end of 2011, and now softening their position at the beginning of 2012, WWE needs to offer some hard assurances on what direction they're heading. They could start with today's conference call with investors.

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