WWE sent out a detailed press release today (Feb. 28, 2013) to coincide with its quarterly conference call to discuss the fourth quarter earnings report for 2012 and it reveals the planning and thought process behind the proposed WWE Network.
The release deals with more than just the Network but let's just get to that info, shall we?
"Our plan to transform our business is based on the global appeal of our brands and the rising value of content," stated Vince McMahon, Chairman and Chief Executive Officer. "We believe we can achieve a significant increase in earnings based on launching a WWE network in the U.S. and international markets, leveraging the renewal of our largest content agreements, and developing digital products, such as mobile games and gamification of content, which take advantage of our presence online and in social media."
To maximize the value of our content, we plan to utilize three approaches: licensing our content to established television networks, potentially launching a WWE network through traditional cable, satellite and telco distribution, and monetizing our content through alternative digital "over-the-top" distribution. These options are not mutually exclusive. We plan to utilize combinations of these approaches in our domestic and international markets.
Regarding a potential WWE network, we are evaluating multiple approaches. We believe that a premium subscription model is the best approach in the U.S. to capitalize on our fans' commitment to our brands and their desire for more WWE content. Based on our market research, we estimate that a fully distributed domestic pay network could ultimately attract between 2 million and 4 million subscribers at a "steady state." These subscriber estimates derive from a projected base of approximately 47 million WWE digital TV households in the US (including lapsed fans), and the proportion of which have an affinity for WWE content, although there is no guarantee that this affinity will translate into actual subscribers. These take-rates are based on a value proposition for the network that reflects inclusion of our pay-per-view events, except WrestleMania, as well as compelling original content. Under our preferred subscription model, while our pay-per-view events would still be offered on an á la carte basis as currently available, the research indicates that a WWE network offering would drive significant consumer interest (including households that currently do not purchase pay-per-view events). At a proposed price per month between $12.99 and $14.99, this would represent incremental revenue to WWE of between $125 million and $250 million and incremental EBITDA between $50 million and $150 million. Actual results are contingent on several factors, including the necessity of entering into distribution agreements, and such results could vary materially from the expected range based on the rate of subscriber adoption and churn rates, as well as changes in pricing, promotion levels and distribution terms. Until a base of approximately 1 million subscribers is achieved, we estimate the network would represent a net investment for WWE. Ultimately, we believe a network and other distribution and monetization options would represent a sizable economic opportunity in the U.S. and internationally.
Those are some bat-shit crazy numbers to come up with, if we're being blunt. The idea that a WWE network could attract an audience as large as Monday Night Raw gets on USA every week when the consumer has to pay almost $15 a month for the product is ludicrous. They've done the market research and all that but it seems clear the company is overplaying its hand here.
In additional notes provided along with the press release, WWE does admit that it "cannot provide any assurances regarding the length of time, if at all, that it would take to reach the level of subscribers characterized by a 'steady state' with full distribution or to surpass a break-even level of subscribers."
So at least they're still somewhat realistic here.
In addition to that, the company also notes there is no guarantee it will even be able to find a favorable distribution agreement. Essentially, the idea is to move forward with the Network at a great initial cost but to build a subscriber base that could very well affect the way the company does business forever. This is a potential game changer but the question remains whether enough fans would be willing to shell out that kind of cash every month for pro wrestling.
So I ask you Cagesiders: Would you?