WWE touts digital media growth, says evidence emerging of dollars following eyeballs (w/Keller’s Analysis)

A contention among those evaluating WWE’s business approach in recent years has been the perceived cannibalization of key revenue sources (mainly TV, but also PPV and even WWE Network growth) in the chase for more interaction and views on social media and YouTube. WWE has touted the growth in “eyeballs” seeing and interacting with the product for the last several years, but hasn’t been able to boast about revenue.

In today’s conference call with investors, George Barrios said that is changing. He said there’s been “a long history of dollars following eyeballs,” meaning even if you’re not making money at first, as long as people are engaging and interacting with your product, eventually that can be monetized. He said they are starting to see that.

WWE’s 2017 financial statement released today shows considerable growth in “digital engagements,” with video views up 32 percent and social media engagement up 4 percent to approximately 1.2 million from 2016.

With video views up 32 percent, WWE saw “Digital Media” revenue grow 28 percent in 2017 from $26.9 million to $34.5 million.

DIGITAL MEDIA:

2014: $20.9 million
2015: $21.5 million (up $600,000)
2016: $26.9 million (up $5.4 million)
2017: $34.5 million (up $7.6 million)

So while WWE Network growth has diminished year to year the last three years, Digital Media revenue is growing. And unlike TV Rights Fees, it isn’t disconnected from actual user engagement and measurable performance. It remains a fraction, though, of their media division revenue.

MEDIA DIVISION REVENUE IN 2017:

TV Rights Fees: $270.2 million
WWE Network: $197.9 million
Digital Media: $34.5 million
Home Entertainment (DVDs, etc.): $8.6 million (down $13.1 million in 2016)

For comparison purposes, Digital Media revenue is now 17 percent of WWE Network revenue and 13 percent of TV Rights revenue. It’s revenue is 23 percent of live event ticket revenue.

WWE’s YouTube channel is the no. 1 most viewed sports channel in the U.S. and second most viewed YouTube channel overall, with 20 billion lifetime views as of Jan. 31, 2018.

Keller’s Analysis: If WWE Network growth essentially stalls and Digital Media continues to grow at this incremental pace, in two years, Digital Media could grow to $55 million, with WWE Network “stuck” around $200 million. That would put Digital Media still far behind WWE Network subscription revenue, but more than 25 percent of the total and a significant part of the revenue collage. But that’s assuming a similar growth in annual increases the next two years. It could be more or less. Plus, WWE could increase WWE Network revenue through a technology tipping point in a major country they have a digital media presence in, or through tiered pricing or an overall price increase while retaining existing users in the United States.

Monetizing social media engagements seems unlikely at any significant level; it’s likely to remain “free advertising” in trying to send people to places where revenue is earned instead and just build brand loyalty. But monetizing YouTube and WWE.com video plays can be valuable, especially overseas. WWE co-president George Barrios noted in today’s investor conference call that Raw and Smackdown are available online in certain countries, which they track, and they are seeing people getting more comfortable watching longer programs online whereas in the past shorter clips were more typical.

Since 70 percent of digital consumption happens outside of the United States, if WWE can see growth in monetization of that category, it shouldn’t concurrently cannibalize existing revenue sources, but rather just add icing to the existing cake. The more WWE can grow through a new category that wasn’t a significant contributor in prior years, the more they can absorb potential losses eventually in TV rights fees (which is an unknown in this changing media landscape) or other categories (such as Home Entertainment and PPV).

NOW CHECK OUT THIS RECENT REPORT: WWE live event revenue increases 5 percent while attendance declines 8 percent in 2017 compared to 2016