Thread by @wrestlenomics

Stephanie McMahon: “we decided we had a real opportunity and that’s why we went for it and [the WWE Network] was hugely profitable for us. More than doubled what we were doing on pay-per-view.”

Fact check.... 1/

https://twitter.com/adthompson__/status/1271208144073633792

This is, at best, a misleading statement.

The Network is more profitable but it came at a great cost not yet recovered.

As of the end of 2019, WWE overall is not more profitable thanks to the Network.

What the hell does that mean? 2/

I estimated WWE is about $90 million in the hole on the WWE Network strategy, as of year-end 2019, and they have only just started to make the cost back. 3/
docs.google.com/spreadsheets/d…

It’s important to understand the chosen WWE Network strategy negatively impact other areas of business besides the obvious self-disruption re: the PPV business. It affected:
-Home Entertainment
-Digital PPV
-Traditional PPV
-TV rights 4/

Home Entertainment effect was probably least significant. Appeal of physical media would have declined regardless. Optimally there was probably remaining value in selling video a la carte. Nonetheless, Home Ent is the smallest piece. A few million in profits per year, max. 5/

Before the Network, WWE sold PPVs on WWE.com. W/o the Network, sales would grow. There would be opportunities to sell via streaming devices. 6/

It’s hard to know the costs but maybe digital PPV was/would be more profitable per buy than traditional PPV because WWE probably wouldn’t have to share so much net revenue, as they do w/ PPV carriers. 7/

Obviously traditional PPV was deliberately impacted. By 2015, yes, the Network was more profitable than PPV, but only after incurring all opportunity costs, including tens of millions in Network startup costs and the impact the timing of the launch had on 2014 TV negotiations. 8/

WWE’s US TV contract with NBCUniversal (USA Network) was set to expire in fall 2014. While negotiations were happening, WWE decided to launch the Network, in Feb 2014. 9/

Before then, Vince McMahon hyped WWE would receive a big raise in US TV rights. Vince told analyst Brad Safalow he’d let him put him “in a hammerlock” if WWE didn’t at least double its fees from the previous deal. 10/google.com/amp/s/syndicat…

Most expected a 2x or 3x ($154mm-$231mm AAV) increase in US TV fees. When the deal was finalized in May 2014, it was at a 1.7x increase, or about $131mm avg annual value. 11/
whatculture.com/wwe/wwes-new-t…

Essentially the Network launch timing probably cost WWE more than $100mm in TV fees over 5 years. WWE’s stock price tumbled as a result. 12/

Even though the Network only carried episodes of Raw and Smackdown on a 30-day delay, NBCU was apparently wary about the Network. NBCU’s parent is Comcast, a cable distributor that helped WWE sell traditional PPV. 13/

To a lesser extent it probably didn’t help either that the WWE Network being offered DTC “over the top” threatened to compete with NBCU networks for watch time, WWE content or otherwise. 14/

Vince himself admitted on an earnings call that the timing of the Network launch negatively impacted TV rights. 15/
variety.com/2014/biz/news/…

It was until 2018, when WWE finalized new deals with NBCU and Fox that WWE got a big raise, for its deals beginning fall 2019, at a rate of 3.6x, or $470mm avg annual value. 16/

Who knows if $470mm number would be even higher if WWE had been negotiating from current terms higher than $131mm. 17/

There’s a great deal of variability in trying to imagine the alternate scenario but it doesn’t take an aggressive estimate to see the WWE Network is still an investment the company is waiting to have pay off. 18/

Now, you might say, “There was more to the value proposition of the Network than just selling subscriptions!” True. The Network caused tens of millions of people to create user accounts from which WWE could extract data. 19/

They could use that data to execute customized marketing. To sell you merch for stars you engaged with on the Network, to sell you tickets near your location. Hard to say from the outside how effective this was but merch and ticket sales are down last 2 years. 20/

But wait! Maybe WWE could sell its user data to third-parties. Maybe so but I would venture to guess WWE customers are probably at least perceived to have less disposable income than the typical consumer, making their data less valuable. 21/

Vince on the Feb 2020 earnings call said he now thinks the value of the data the Network provided, much hyped by fired co-president George Barrios, was overemphasized. 22/

But wait! WWE PPVs are viewed by larger audiences since they’re available to all subs, which gives WWE more valuable ad space. And that’s probably true. WWE reported $70mm+ in media ad revenue last year in a segment that also includes YouTube and probably other TV placements. 23/

But that’s probably not nearly enough for the Network to have been financially “worth it”.

To be fair, all this is said with the benefit of hindsight. The Network launch was a bold strategy and a great value offer for consumers. 24/

The gamble though was that WWE could attract 3-4 million paid sub consistently. If that happened, the Network would’ve soon provided profits that made all the costs worth it.

Here, a Barrios slide from 2014. 25/

The Network has now stalled around 1.5 million paid subs, never getting higher than about 2 million trial+paid for Wrestlemania. 26/
corporate.wwe.com/~/media/Files/…

The future of the Network now looks like it will eventually be a place for WWE’s massive library and new content from secondary brands, with PPVs probably soon being sold off to a major streaming player for guaranteed money, like Raw and Smackdown. 27/

In that case, there’s probably still a few 100,000 paid subs who will pay $10 or more year round just for the library and other new content, and the PPVs, after COVID, can probably attract enough revenue to provide more profits than the current Network strategy. 28/28