The WWE announced its 3rd Quarter earnings on November 1st with mixed news as the company saw a decline in its profits and revenue from last year yet it beat analyst expectations. The big news from the earnings call is that the WWE has decided on a pay subscription model for its WWE Network.
The WWE net income for the third quarter of the year was $3.5 million and 5 cents a share whereas it earned $10.6 million and 14 cents a share in 2011. Thus, the net income was down 67%. The earnings for Q3 in 2012 would have been $5 million and 7 cents a share but for a one-time expense adjustment.
Revenue was down 4% from $108.5 million to $104.2 million this quarter.
Good news for the company was that average attendance in North America was up 6% and PPV buys saw an increase of 13% for 3 events in the quarter. This rise was anchored by Summerslam which was up 21%. This can be attributed in part to Brock Lesnar’s participation in this year’s Summerslam main event.
Notwithstanding the financials, the big news coming out was the WWE Network. The WWE produced research which indicates “a significant WWE U.S. fan base of 57 million households.” A detailed survey of over 9,000 households was conducted and the findings concluded that 50% of U.S. households can be considered a “WWE fan household.”
Last week, industry trade RBR.com reported on the study compiled by SNL Kagan which indicates that 20% of the 57 million are hardcore wrestling fans that follow the wrestlers, the storylines and regularly watch the WWE shows. A bigger subset of casual fans (40%) are not heavily invested in the program and while the research identified another subset of “lapsed fans.” These are individuals that used to watch wrestling and may be able to be attracted back to watching. I would contend that many of us are “lapsed fans” to some extent.
But, based on the research to support its choice, the WWE Network will be a premium subscription channel which will have some form of interactive component. McMahon indicated that the network would be an “add-on” to its complement of shows on cable and its PPVs although there is a possibility that PPVs may be included on the network.
Payout Perspective:
As more news on the network continues to trickle out, it would be interesting to know what investors think of this investment. We can be skeptical of the SNL Kagan study like we may have been with the WWE’s economic impact report on host cities for Wrestlmania but there is a segment of the population that likes wrestling. The big question is how much? I am not sure that consumers would be willing to spend $10-$15 a month on one premium channel for wrestling. Certainly, this is the WWE’s challenge. I surmise that the WWE is hoping to utilize its vast wrestling library to conjure up some of the memories of the past to attract some of those lapsed fans while providing fresh content for its hardcore fans. The price point will be the big influencer on its success. Analyst Brad Safalow of PAA research believes that the premium model could pan out well for the company.
Via the LA Times:
“Subscribing to the network would be a ‘no brainer’ for the company’s hardcore fans,” (Brad) Safalow wrote in a recent report. Safalow said he anticipates a price of $14.95 for the channel and that WWE should be able to get 400,000 subscribers out of the gate and almost double that in two years. In 2014 Safalow projects that a pay channel could add as much as $141.6 million in revenue to WWE.
400K subscribers and $141.6 million in “add-on” revenue would perk the ears of investors but the questions remain as everyone waits for a launch date and more specifics.
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