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Expectations High for WWE Sub Results

Mark your calendars: April 7 could be the main event to end all main events for World Wrestling Entertainment.

That’s when the muscle-bound purveyor of scripted sports is expected to release subscriber numbers for its over-the-top WWE Network, and analysts and investors are expecting out of the ring results.

Over-the-top services have gained new momentum in the wake of Dish Network’s comprehensive carriage agreement with The Walt Disney Co., which includes carriage of five Disney networks on a future Dish subscription video-ondemand service. With Verizon Communications and Sony Pictures Entertainment also expected to enter the SVOD fray in the coming months, demand for programming is expected to only get bigger.

HIGH-FLYING STOCK

Investor enthusiasm for WWE stock has been unprecedented. WWE shares, usually lightly traded, have been on fire for the month of March, rising 34.6% ($8.02 each) to $30.94 per share between March 3 and March 14. Average daily trading volume, between 100,000 and 400,000 shares in December, has regularly topped more than 1 million shares this year, reaching nearly 4.8 million shares on March 7.

The stock hit its 52-week high of $31.98 on March 13 before closing slightly lower that day and shares are up an eye-popping 237% in the past 12 months. Driving that has been an unwavering optimism by shareholders that WWE will beat expectations by a wide margin.

WWE launched the WWE Network on Feb. 24, charging $9.99 per month for access to its vast library of content, original shows and 12 pay-per-view events. The company has said that it hoped the network would attract about 1 million subscribers in its first year, but investors, noting that the monthly charge is one-fifth the cost of a PPV event on traditional TV, are hoping that number is much higher.

Launching the WWE Network was a big risk, mainly because it was expected to cannibalize the company’s lucrative pay-per-view business. The one-time events typically sell for $49.99 or more via cable and satellite distributors, which also take a percentage of sale. Subscribers to WWE Network gain access to all 12 WWE pay-per-view events for $9.99 per month, or roughly the cost of about three events at the old prices.

It remains to be seen if the added subscribers to WWE Network will off set any losses — Moore estimated that PPV revenue could decline by 40% annually between 2014 and 2o16. But those fears could be soothed if the network has managed to attract the bulk of its rabid TV fans.

“It appears that initial demand was extremely strong, outpacing management’s initial expectations,” CJS Securities analyst Daniel Moore said. Moore said the next several weeks will be critical for WWE. It’s expected to announce a new U.S. network agreement in late April or early May, and the outcome of that deal “will shape the direction of earnings and cash flow for the next several years.”

Moore said a smattering of speculation that WWE could be sold has also helped goose the stock, but he believes that is unwarranted. With chairman and CEO Vince McMahon controlling the bulk of voting shares, little could be done without his blessing.

“It’s highly unlikely that the McMahon family would be willing to cede control to anybody else,” Moore said. WWE’s two top shows — Monday Night Raw and SmackDown — are carried on NBCUniversal networks USA Network and Syfy. The shows are consistent ratings toppers for both networks: WWE averages 4.6 million viewers in primetime, more than any cable network. In 2012-2013, average viewership was 3.7 million, second only to the National Football League.

Moore said other sports networks with lower ratings get carriage fees that represent five to 10 times the dollar value per hour viewed that WWE does. “They could double or even triple the rates they are achieving,” Moore said. “At least a double is already built into the stock [price].”

YOUTH MOVEMENT

WWE viewers also skew younger: 21% are between the ages of 2 and 17; 23% between 18 and 34; 21% between 35 and 49 and 35% are more than 50 years old, compared to NASCAR which has about 61% of its viewership aged 50-plus.

And the potential for growth is high. Chief strategy and financial officer George Barrios estimated at the Roth Capital conference earlier this month that of the 116 million TV households in the U.S., 13 million have at least one passionate wrestling fan, 28 million at least one casual fan and 21 million at least one lapsed fan.

“Over half of the homes in the U.S. have at least one person who is either actively involved with WWE or a lapsed fan. It’s a market with scale,” Barrios said.

And though the wrestling giant was reportedly far apart on price in early negotiations with NBCU, the analyst said that WWE’s ratings may be too big to pass up.

“USA Network is the No. 1- rated cable network,” Moore said. “The reason is Monday Night Raw. Take that out and they would be No. 5.”

TAKEAWAY

The early returns on the over-the-top WWE Network have been a lucrative slam dunk for the sports-entertainment purveyor.