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WWE Gets Squeezed by Streaming Losses

World Wrestling Entertainment stock continued to fall last week, even as chairman and CEO Vince McMahon repeatedly hinted that a deal concerning its WWE Network streaming service could be imminent.

WWE stock was down nearly 30% between Jan. 30, when it announced the firing of co-presidents George Barrios and Michelle Wilson, and its Feb. 6 earnings results. Although WWE reported some of its strongest financial growth ever in Q4 (revenue was up 18% and cash flow up 67%, mainly on the deal with Fox for WWE SmackDown engineered by Barrios and Wilson), investors were more concerned with the future. The scripted sports company’s guidance for 2020 was considerably lower than what analysts had expected. WWE said adjusted OIBDA, a measure of cash flow, would be in the $250 million to $300 million range for 2020, well below consensus estimates of $390 million.

That low guidance doesn’t take into account expected carriage deals in India and the Middle East but nonetheless spooked investors, who drove the stock down as much as 15% in early trading Feb. 6, ending the day at $44.50 each, down 9%. The slide continued on Feb. 7, with the stock falling another 4.2% to close at $42.62.

While investors continued to worry about the management shakeup and the reduced guidance, they also were concerned whether WWE was ready to throw in the towel on its streaming service, WWE Network. Launched in 2014, WWE Network peaked at about 2.1 million subscribers in 2018. In Q4, that base had dropped to about 1.5 million. Initially, some critics feared the streaming service would cannibalize its other businesses — particularly pay-per-view — something the company said it would strive to avoid. Now, with declining membership, that may have changed.

WWE said prior to the call that it was evaluating strategic alternatives for WWE Network, which usually means it is pursuing a sale. That is an option, but McMahon said the company could also keep it as is, or form a partnership. He repeatedly interjected during a conference call with analysts that “the majors” are “clamoring” for WWE content. If the company did decide to do a licensing deal, he said, it could announce it before the end of next month.

“We’d be announcing that deal, if we go that way, in the first quarter,” McMahon said. “That’s how far along we are.”

McMahon also was open to the idea of an ad-supported version of WWE Network. He said if the decision is to keep the service as is, WWE would consider pursuing ads. That makes sense, especially since The Walt Disney Co. revealed in its fiscal Q1 results that streaming service Hulu generates about $13 in month revenue per subscriber per month for a $5.99 service.

While Hulu has an $11.99 per month ad-free option, Disney chief financial officer Christine McCarthy said on the company’s earnings call that most of the service’s 30.5 million subscribers opt for the ad-supported service.

But WWE content has been on the skids in the past several months, with ratings down and fans complaining of tired storylines. Several script writers have left the fold and McMahon has vowed to inject more excitement into the programming. On the conference call, he mentioned a culture change at WWE — to become more inclusive — and pointed to changes that have already been made to bring in new talent and improve ratings.“You can see there is growth there,” McMahon said, adding that past problems were exacerbated by a rash of injuries to top talent last year.

FBN Securities media analyst Robert Routh said that he believes the panic around WWE is a bit overdone, adding that ratings have started to improve, partly because it has a broadcast outlet (Fox) reaching a larger fan base. And he expects that McMahon has a deal up his sleeve.

“It sounds like he [McMahon] has something transformational that he could do if he wants to but he hasn’t decided yet. The question is who is it that might have offered him a ton of money to own WWE Network or to bundle it with what they have?” Routh said, adding that WWE content could be attractive to streaming services like Hulu, Netflix or NBCUniversal’s Peacock.

‘SmackDown’ Ratings Down

In a blog post, LightShed Partners media analyst Brandon Ross said viewership for SmackDown on Fox has been light, averaging about 2.4 million weekly viewers instead of the 3-million-plus most analysts expected.

Righting the WWE ship will be critical over the next three years, Ross wrote, because that’s when Monday Night Raw, which airs on NBCU’s USA Network, and SmackDown enter their next renewal cycle. With the shift in overall TV viewership toward streaming, the analyst predicted total pay TV subscribers could be reduced to as few as about 70 million, substantially reducing the WWE’s negotiating leverage.

“Vince McMahon, the pressure is on,” Ross wrote.

Vince McMahon

Vince McMahon


WWE chairman and CEO Vince McMahon laid out the future of WWE Network to analysts:

1. Maintaining the Status Quo: WWE continues to run the streaming service “as is,” with the possibility of adding advertising, a move McMahon said he would “definitely consider.”

2. Adding ‘Free’ and ‘Enhanced’ Tiers to WWE Network: A free option was quietly introduced in December, offering nonsubscribers access to some short-form content, and McMahon said a pricier “enhanced” tier also could be on the table. WWE Network costs $9.99 per month.

3. Licensing WWE Network content to ‘the majors’: WWE Network has a ton of pay-per-view and library content that would likely be attractive to several networks and OTT providers. McMahon said that there is high interest from “the majors” for WWE content, and the company could potentially announce a deal before the end of the first quarter (March 31). “That’s how far along we are,” he said.