Why WWE is pushing on with plans for its own Network

WWE was originally going to roll out its own Network around WrestleMania 28 in April of this year. Now, it looks like it won't be able to do so by WrestleMania 29 in April of next year. Still, the company is pushing forward with its plans. But why?

Believe it or not, the planned WWE Network is still a hot topic of discussion within the company. Although it was originally supposed to launch around WrestleMania 28 in April of this year, it's now entirely possible it won't even launch by WrestleMania 29 in April of next year.

That's because the company has run into a few snags along the way, finding its much more difficult to get into the business of creating its own channel than previous thought otherwise.

By all accounts, the plan for the Network is a money loser but despite respected publications taking WWE to task for its wild ambitions, continued efforts are being made to push ahead. The reason for this was explained by Chief Financial Officer George Barrios at a conference call (transcription via SeekingAlpha.com, click the link to read the full transcript):

"The other thing we talked about is a potential for WWE network and over the last four or five quarters, we have seen significant investments both in CapEx and OpEx in the network and showed some of that before and how that has been a drag on earnings in the short run. We believe there is an opportunity to transform the company strategically and economically and this slide is one of the fundamental reasons for that belief. We have done a lot of deep dive rigorous research on our audience in the U.S. If you look at the 116 million homes in the U.S. that's how many households are in the U.S., there is 100 million television homes and then 90 million digitally enabled homes. So if you took the 116, about half of them, 57 million, 58 million homes would identify themselves in some way shape or form as having affinity to WWE. So it's a pretty large market for us. If you took those 57 million homes and then segment, which is the bar chart to the right, about 20% of that is what we would describe as our passionate hard-core homes.

"Those are the homes were someone in the household is watching WWE on a really regular basis. They can identify superstars, not just the John Cenas of the world, but the Dolph Zigglers, because that was part of the survey we did. You actually had to be able to name superstar to be able to fall in to that hard-core category not just self identified hard-core. You have to prove it to us. So we love everyone but we trust no one. So you have to prove it to us. That's about 20%. About 40% of the WWE homes are what we call casual fans and those are fans who are watching our content throughout the year just not with the same intensity as our passionate hard-core. Then the 40% is our lapse fans. Those are households that have someone in the home who watched the show at one point in time over a year ago that was the cutoff and just no longer is engaged with the brand but interestingly enough we saw kernels of opportunity when we looked at the network even in that part of the fan base. But the point being significant audience scale and within that survey, there is also a lot of questions about appetite for new content from WWE, appetite for existing continent that might be delivered slightly differently and I can't get into too much detail there as well as willingness to pay.

"We have talked about us going to market a network in one of three models. A dual-stream network, fully distributed, advertising and affiliate fee. A pay network, similar to an HBO model where the consumer would bear all the economic burden, no advertising primarily and then over-the-top. So the willingness to pay is both an indicator of the intensity to watch the show and that's applicable to all three that willingness to pay also is applicable for the second and third one where it would be more of a direct-to-consumer economic model.

"As we looked at all three of them and this is the underpinning for all three models in the other data that I just mentioned. We just believe there is too much there potentially not to keep pushing at it. The drag on earnings is painful. It's painful to investors. It's painful to us but we just believe payoff could be too large so we are going to continue to push on that."

That's some fascinating math they've come up with to justify this venture, especially while Monday Night Raw, WWE's flagship program, continues to decline in ratings week after week since moving to three hours back in July.

Just think of a 24 hour channel with nothing but WWE programming.

Like it or not, WWE won't back be backing off this anytime soon. Is that a good or bad thing?

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