WWE Q3 Call – WWE addresses low TV ratings; how it affects entire biz

WWE CEO Vince McMahon typically addresses TV ratings in the opening remarks of his quarterly conference call. However, with TV ratings slumping in 2015, there was no mention of ratings.

During the Q&A portion of the call, the topic was brought to management’s attention. They were asked whether they are concerned, what they are doing about it, and whether it is a short or long-term issue.

WWE financial executive George Barrios fielded the question, acknowledging that Raw and Smackdown ratings are down year-over-year. He said they are unsure whether it’s a broader issue with the TV audience and/or technology changing, or simply a cyclical issue they have to ride out.

However, Barrios said that programming-wise, they believe “the content is great and fans are enjoying it,” which could point to a disconnect between WWE’s public stance and the audience’s reception, especially when looking at Raw’s typical downward viewership pattern over the course of a three-hour show.

Barrios said even though they are aware of ratings being down, their approach is to look at all related metrics, such as social media engagement, YouTube views, and Network subscriptions. Internally, TV Ratings performance is lumped together with the other metrics to evaluate the audience’s total engagement.

Despite that, Barrios touched on WWE/Vince McMahon’s mindset to “win in each ecosystem,” so they are “working like hell to change” their current ratings position.

Barrios also found a positive by noting that Raw and Smackdown are “doing significantly better than the overall USA ratings and also Syfy ratings.”

Overall, Barrios said they’re still learning where the rapidly-changing entertainment world is going. However, they plan to “win” and “own all the platforms” so they can choose where to emphasize content. He said it “depends on how ecosystems develop and where the money goes.”

The model for WWE is a three-tier approach of YouTube/Facebook content on the lower rung, cable/satellite pay TV programming such as Raw and Smackdown on the middle rung, and Network/PPV content that requires additional consumer spending on the top rung.

Right now, the social media content is a “mid-seven-figures” pay-out, but with YouTube announcing their subscription-based “YouTube Red” offering, WWE should see an increase in revenue by adding revenue-sharing on subscriptions to go with revenue-sharing on advertising from their free channel.

Right now, WWE’s digital media division is not close to TV Revenue, Network, or Live Events Revenue. Digital drew $5.8 million in the Third Quarter, which was 3.5 percent of total quarterly revenue.

However, is the anticipated increase in YouTube revenue or the prospect of an online boom enough to make the digital media division a significant contributor? Barrios acknowledged that it’s “still way below pay TV monetization,” but he added: “We don’t know what the world will be long-term in the rapidly-changing ecosystem.”

The key is figuring out how to balance which content goes where, he said. YouTube/FB gets short-form content or episode clips, pay TV gets full episodes, and the Network gets prime live events, new content, and library.

But, what if major changes to the system or audience dictates a different way of delivering content to draw the most viewers?

Wherever the money goes, WWE plans to already be there “winning” the next big platform, Barrios said.

As a result, WWE plans to invest significantly in new and emerging technology. Barrios said the internal plan is to “invest more than ever in company history” in technology to be sure they’re ready.

Financially, Barrios said they are projecting $90-100 million in operating earnings in 2016, but long-term investment in “content, technology, and emerging markets” could bring that down to $75-85 million, pointing to about $20 million in investments.

“The ultimate goal is long-term planning,” Barrios said, trying to appeal to investors who want to lock in with an entertainment company that is ahead of a moving target.

How this ties back to TV ratings is that WWE is waiting to see what the final Network subscriber count is for the year. Since WWE lumps all of these metrics together, if Network subs remain flat-to-slow in Fourth Quarter growth, it could affect how much WWE invests in new technology, especially if ratings continue to drag down the overall performance.

Going back to last year, WWE said their break-even point on the Network was 1.0 million average paid subscribers. WWE reached that point in Second Quarter 2015, stayed above the benchmark in the Third Quarter, and is expected to maintain that over the full year. WWE is expecting single-digits percentage growth in the Fourth Quarter, but a greater increase in Network business would provide peace of mind on the Network’s stability, leading to more money shifting to investments in new technology to prepare for where the market is going long-term.

Will Raw, Smackdown, or a PPV event eventually be live-streamed right there on Twitter while tweeting about a show? It could happen down the road, and WWE wants to be ready if the entertainment world moves in that direction.