Posted in: Mr. Tito
MR. TITO STRIKES BACK - WWE RAW Thoughts & 3rd Quarter Financial Results/WWE Network Analysis
By Mr. Tito
Nov 3, 2014 - 11:45:58 PM

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During early January 2014, I praised the idea of the WWE Network and called it an "absolute homerun" for the WWE. At the time, the streaming version of the WWE Network was a complete 180 from repeated failed attempts at creating a Cable/Satellite channel due to zero interest by big Cable or Satellite companies. Instead of playing the game with the Cable/Satellite companies, the WWE found a way to bring their network to WWE fans and kept it at a reasonable price of $9.99 per month. This price included ALL 12 Pay Per Views during the year and access to past WWE/WCW/ECW Pay Per Views. That's a very convenient package made to wrestling fans who (a) bought many Pay Per Views (at $44.95 or $59.95 for Wrestlemania) and (b) those who never saw the older shows.

It sounded great on paper... Even though Cable/Satellite represent close to 100 million households in the United States (I think that's the number), more and more younger individuals are actually doing without Cable/Satellite. Just give them an Internet Connection and they'll figure out how to watch all of their favorite shows (Netflix, Hulu, etc.). "Cord Cutters" as they call it, as the younger generation isn't as dependent on Cable/Satellite as the previous ones. With Pay Per View buys for non-Wrestlemania shows declining for the past decade, I figured that the "cord cutting" hype was here and affecting WWE considerably.

However, two things happened since January 2014 that has changed my outlook of the WWE Network...

(1) Break-even point of the WWE Network is reportedly 1,000,000 subscribers for the United States. That's extremely high when you consider that 1,000,000 * $9.99 * 12 months = $119,880,000 annually. Bandwidth, administrative costs, and production of original content really costs almost $120 Million? Holy shit...

(2) How good WWE had it with Pay Per View. For 2013, according to WWE's own 10-K report, WWE made about $82 million (3,838,000 total buys multiplied by the average $21.41 price, thank you foreign viewers). While I'm sure that Cable/Satellite companies took a slice of that, reportedly 50% in some cases, it was still profitable. In fact, Wrestlemania numbers remain high (about 700,000 domestically of the 1,000,000 total) which is insane because Wrestlemania costs $59.95 in the United States.

On July 14th, 2014, I wrote a column titled "Mr. Tito Strikes Back - Did WWE Kill Its Pay Per View Market and Make It Worse with WWE Network? and that column was a result of legitimate statistical and economical research that I performed on WWE metrics. At the time, I was actually testing RAW/Smackdown ratings and Pay Per View buyrates by World Champion. In other words, through use of correlation testing, I wanted to statistically see which WWE Champion or World Heavyweight Champion caused declining numbers. All my testing really found was that Randy Orton's 2011 Smackdown World Heavyweight Championship run was a failure while many of the other champions found insignificant results. Nothing definitive for Pay Per Views...

However, and you can see it through my July 14th column, I observed a significant relationship between WWE Pay Per View buys and PRICE. In other words, there was a strong relationship between Price going UP and Pay Per View buys going down, aside from Wrestlemania. By definition, that is the LAW OF DEMAND taught in basic Economics courses in college. The WWE's prices went from $29.95 during 2000 to $44.95 through 2013, but buys kept going down. However, what I found was that the price increase from $39.95 to $44.95 around 2010 caused a big reaction by wrestling fans (high elasticity). Coincidentally, online streaming made great advances and piracy ramped up during that time as well. We could argue about the quality of WWE programming, but we'll stick to the economic facts. The buys began to decline faster after that price hike to $44.95. WWE went above their saturation point on pricing non-Wrestlemania Pay Per Views.

Funny thing is that Wrestlemania has been unaffected by higher prices. Despite being raised to $59.95 in the United States, buys remain high or have increased.

FAST FORWARD to the 3rd Quarter of 2014 and the Financial Results posted by the WWE. Because the WWE offers shares of stock, by Securities Exchange Commission (SEC.gov) rules, the WWE must report quarterly results. Go here and read for yourself: http://www.sec.gov/Archives/edgar/data/1091907/000109190714000037/wwe-9302014x10q.htm

Let me just do some simple mathematics for everyone...

9 Months through 3Q 2013 = 3,056,400 total PPV buys * $21.80 average revenue per buy = $66,629,520

9 Months through 3Q 2013 = 2,020,600 total PPV buys * $20.29 average revenue per buy = $40,997,974

BUT - For 2014, we have to consider WWE Network... WWE reported 731,000 total subscribers, up slightly for 2nd Quarter's 700,000 subscribers. But before you can calculate anything times $9.99, what does this WWE Network actually cost? Reportedly, it takes 1 million to break even between revenues coming in and expenses going out. WWE did some staff reductions a few weeks ago along with several other production cutbacks. In addition, the start-up costs of the WWE Network will start to go away and technology applied towards bandwidth will improve with time. WWE has various expenses and other operational losses spread out through its 10-Q report. Very difficult to compute revenues without a full year's worth of data along with expenses not being broken down. However, WWE's projected Operating Incoming numbers still show 1,000,000 subscribers as the benchmark for profitability. With the losses that the WWE legitimately posted in the 3rd Quarter, we'll have to assume that the WWE Network isn't at the break-even point yet. Thus, the WWE has LOST money so far with the WWE Network compared to the Pay Per View market of previous years.

If 731,000 total subscribers was a great number, you wouldn't be seeing (a) November for FREE on the WWE Network or (b) removal of the 6 month commitment. Worse yet for the WWE, they keep advertising $9.99 and that means they've locked in that price for a long time. You also wouldn't see Vince McMahon appearing on RAW, as he did tonight...

Without the 6 month commitment, wrestling fans can legitimately buy Pay Per Views for only $9.99. In the past, I usually bought Royal Rumble, Wrestlemania, and SummerSlam and paid full $44.95 or $59.95 for them. Now, I can pay just $9.99 each for them for HUGE savings than what I paid for those events just 1 year ago. Seriously, I went from paying $59.95 for Wrestlemania to $9.99 with the removal of the 6 month commitment. Foolish...

And the removal of the 6 month commitment will probably be a success, at least in terms of number of subscribers particularly around the "Big 3". By just paying $9.99 for whatever Pay Per View you want, it describes the LAW OF DEMAND in reverse... CUT PRICES, INCREASE VIEWERSHIP. Cut regular Pay Per Views from $44.95 to $9.99, and wow, more people will watch. Which fits right into my argument of my July 14th, 2014 Column about Pay Per Views and WWE Network. In my opinion and based on the actual data being analyzed, WWE foolishly raised Pay Per View prices too high and it scared away consumers. But now, for just $9.99, the WWE is bringing them back.

But damn those bandwidth costs... If you want to know why the WWE stock goes from $30 to $10, aside from a lower-than-expected television deal, mislead investors on expenses. WWE Network was a major risk and "game changer" for the WWE. You can't just raise expectations so high and yet be unable to generate profit. The McMahon family should know better based on their experience running a company and now being a corporation for 15 years now.

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SOME RAW THOUGHTS

Good to have Vince McMahon back. Sorry, but the Authority has been played out. Aside from Triple H and Stephanie activity burying Daniel Bryan, their biggest failure was being too much of an authority figure and not about wrestling. If you compare the Authority of 2013-2014 to the Corporation of 1998-1999, the difference was that the Corporation was an actual stable of wrestlers. Vince was the boss, but you couldn't get to him because he had an army of wrestlers protecting him at all times. However, with Triple H and Stephanie, they out in front and intimidating wrestlers to their faces. Yet, there is barely any retaliation for any WWE wrestler.

If anybody doubts John Cena's drawing power, consider this FACT. WWE actually offered refunds to anyone in attendance at RAW tonight if they were upset at John Cena's absence. Suck on that fact multiple ways, haters. Cena = DRAW. Nobody puts more live event butts in seats, nor does anybody in wrestling move merchandise like him. WWE would be in deep shit financially without him.

Big Show vs. Mark Henry was brutal tonight... Mark Henry has been in the WWE since 1996 while Big Show has been there since 1999. It really showed.

Yep, WWE is pushing Nikki Bella HARD as the next breakthrough Bella. Kudos to Bella, as she changed up her look with bigger boobs and she's in amazing physical shape right now (those abs!). Nikki is approaching Playboy hot levels right now and that's what the WWE wants in a top diva.

The damn "WHAT?" chant was holding strong for Rusev's promo tonight. Ouch. Austin did that crap during 2001-2003, more than 10 years ago. Yet, it holds strong to this day for the fans to shit on bad promos or bad wrestlers. And tonight on the WWE Network, there's an exclusive Sheamus vs. Rusev US Title match. I wonder how pissed USA Networks will be on that exclusive match granted to WWE Network? And just because it's free, doesn't mean that I want WWE having my information on file. "No such thing as a free lunch".

The Ryback experience continues... He pretty much smashed Titus O'Neil. Speaking of returning to form, can we get the Prime Time Players back as a tag team? Why not? Titus just isn't catching on as a singles wrestler.

Mizdow is fully being carried by the antics of Damien Sandow. The guy is totally selling the stuntman gimmick, much in the way that Wade Barrett bought into the "Bad News" gimmick. However, at least now, Sandow is allowed to actually wrestle by now feuding with the Tag Team division.

I do like how Randy Orton is changing his character up a little bit... Possibly thanks in part to the internet, but his character has played such a wuss for the past year that it's been painful to enjoy. If there's ever a person that needs to drop Triple H with an RKO, it's Randy Orton. HHH has always had the better of him and it's time that Orton is shown to effectively overcome him.

Main event was Randy Orton vs. Seth Rollins with the Authority at ringside. And we have a legitimate match given away for FREE and not the old "bait and switch" of something other than a match. Decent match, but the chemistry between Rollins and Orton just isn't there yet. WWE might be better served to put these two on houseshows against each other to then deliver a strong one on one match on television. And how about that? Seth Rollins pulls off a victory by countering the RKO. After the match, Randy was shaking hands with the other Authority members and of course, Orton delivered the RKO to Rollins. Then, he attacked the rest of the Authority. Just as he was about to kick Rollins's head off, Triple H intervened. The heat grew stronger and stronger as Orton and HHH were face to face, and as Orton walked away, he bumped HHH and then attacked him! The rest of the Authority attacked. Orton fought them off until he was trapped at the announcer table and Rollins delivered a Curb Stomp on the table! Randy Orton was busted open, too... HHH gave the order to "finish him" and walked away. Curb Stomp on the STEEL Steps for Orton!

Interesting end to a decent RAW... I'm liking how Survivor Series 2014 is shaping up so far and maybe you do too. It's free to watch!

SO JUST CHILL... 'TIL THE NEXT EPISODE!

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