WWE Transitioning Back into Pure-Play B2B Business?

JohnWallStreet

WrestleMania 36 went on as scheduled (behind the closed doors of the WWE Performance Center in Orlando) this past weekend (April 4-5). The annual pro wrestling extravaganza was available to fans - as it has been since 2014 - via the WWE’s D-T-C streaming service, WWE Network. Fox Sports also carried the event (for the 1st time), making it available on FoxSports.com and the Fox Sports and Fox Now apps. The sports programming division of Fox Corporation gained the rights to sell the PPV as part of a “larger programming deal” (that includes the network’s weekly broadcast of WWE SmackDown), but Yannick Ramcke (media industry observer, author of the blog OFFTHEFIELDBUSINESS.de) believes WWE’s decision to include PPV events in that pact is “the company's first step towards once again becoming a pure-play B2B business.”

Howie Long-Short: Ramcke envisions a future where WWE sells its library and all of the archive content currently sitting on WWE Network to a 3rd party OTT service (he points to the share price - down -62% over trailing 12 months - as a reason to reevaluate the monetization model). The monthly PPV events (which WM aside, have not been sold a-la-carte for the last 5+ years) would then be offered behind a secondary paywall. “As it stands, WWE is assuming all of the financial risk when it comes to their PPV business. With a monthly subscription service, where the subscriber can cancel in a matter of seconds, losses immediately trickle down to the bottom line. The company would eliminate much of the volatility in earnings and could generate much more - and secure - revenue by returning to a wholesale model.”

WWE created the blueprint for building a successful standalone direct-to-consumer streaming service (for sports leagues/organizations), but the platform appears to have hit a ceiling. At the end of 2018, the OTT service had 1.59 million subscribers globally; at the end of Q1 ’20 it had 1.42 million. Ramcke explained that the problem WWE Network faces is not unique. “The main challenge for any of these [league-owned] D-T-C plays is their inability to reach viewers beyond the hardcore fan. [While WWE has the benefit of weekly linear distribution], the company is not reaching the casual sports fan with their most monetizable content and it’s limiting the business’ financial upside and predictability.” Aligning with a 3rd party OTT service would give WWE the large scale built-in audience and customer access it needs to maximize PPV revenues.

To be clear, WWE has the option of re-establishing itself as a pure-play B2B business - while still maintaining upside in PPV buys (think: rev-share) because its marquee events hold "incremental pay-value and warrant a secondary paywall within OTT subscription services." That’s certainly not the case with all sports leagues, but it’s worth wondering if the NFL - a league with huge drawing power and still in possession of some valuable exclusive broadcast rights - would consider folding up its league-owned network, selling the bulk of its programming to a 3rd party OTT service and making the exclusive TNF games available via a secondary paywall. Ramcke thinks that very well could happen, “especially as the current pay-TV model - the exclusive distribution and monetization strategy for NFL Network - continues to deteriorate.” While he does not believe we’ve reached the tipping point yet for the league to abandon (or at least untether) its television network from traditional Pay-TV, "NFL games on an exclusive basis have the drawing power and pay value to warrant a PPV offering.”

There seemingly wouldn’t be a shortage of interested partners if WWE chose to pursue an OTT + secondary paywall strategy. Ramcke explained “it’s a really attractive business model for an OTT provider. At the moment, streaming services are valued solely on subscribers; if the company is experiencing subscriber growth, valuations are rising without any regard for cash-flow or profitability. But putting marquee events behind a secondary paywall is a great way for those companies to grow subscribers for the actual subscription service (see: ESPN+ added 500K subscribers with the last McGregor fight) and to [generate ancillary revenues].” ESPN+, Peacock and Amazon Prime would all make sense as potential homes for WWE's content.

Fan Marino: It’s worth noting that the cost of the Fox Sports PPV was $59.99. By contrast, a monthly subscription to WWE Network is $9.99/month (the first mo. is free). Unless the buyer wasn’t aware he/she could still watch WrestleMania on WWE Network, it’s unclear why anyone would have bought the event through Fox Sports.

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