wwe_marketsize

Excerpt from an unpublished article written by Chris Harrington (chris.harrington@gmail.com)

WWE did not correctly size the demand for their over-the-top service.

http://3.bp.blogspot.com/-d8BaadKiTgs/UtVjU0RFtnI/AAAAAAAAAW0/tYJ-LW1RC_I/s1600/wwe_network_leaverages_pg23.png

Original WWE Network Presentation – January 2014

Initially, WWE believed their service could attract at least a million domestic subscribers. That was actually the break-even point for Incremental OIBDA. Actually, the company strongly suggested that the WWE Network would achieve between two million and three million subscribers. With that many subscribers, WWE Network would generate $50M to $150M in incremental OIBDA which would represent a monumental improvement.

http://3.bp.blogspot.com/-CpiVehDh77U/UtVkGPg7cKI/AAAAAAAAAW8/zENBKyf9p9M/s1600/wwe_network_leaverages_pg24.png

Original WWE Network Presentation – January 2014

In addition, WWE believed that just from the “Phase I” international countries (UK, Canada, Australia/New Zealand, Singapore & Hong Kong, Nordic countries), could generate an additional 250,000 subscribers (break-even) to 1.5 million subscribers ($85M incremental OIBDA).

These were very bold predictions based on fuzzy math.

Here’s how WWE has explained how they came up with these future demand numbers.


 

The company commissioned consumer research in 2012.

http://web.archive.org/web/20140108040924/http://corporate.wwe.com/documents/Q3WWE2012Presentation-FINAL11.01.12.pdf

WWE Q3 2012 Earnings Presentation

A third party firm polled a “representative sample of 12,000,U.S. respondents”.

WWE extrapolated those results against the total homes in the US (114 million), total TV homes in the US (111 million), total multi-channel homes in the US (97 million) and total broadband homes in the US (88 million).

What did WWE report as keyf indings from their consumer research?

·        52% of households in the United States could be considered a “WWE fan household”

·        There are 10M households in the United States with a “Passionate” WWE fan

·        There are 15M households in the United States with a “Casual” WWE fan

·        There are 9M households in the United States with a “Light Casual” WWE fan

·        There are 3M households in the United States with a WWE “Fan Parent”

·        There are 20M households in the United States with a “Lapsed” WWE fan

In 2012, WWE concluded that there was 57M television households in the United States which had “an affinity for WWE product” (this was the sum of the Passionate, Casual, Light Casual, Fan Parent, Lapsed households). WWE decided this would correspond to 47M potential broadband households in the United State in 2014. Over time, WWE decided that the number of broadband households with a “WWE affinity” in the US would grow to 52M broadband households.

http://ir.corporate.wwe.com/Cache/1500066004.PDF?Y=&O=PDF&D=&FID=1500066004&T=&IID=4121687

WWE Investors Presentation – November 2014

 

http://ir.corporate.wwe.com/Cache/1500066004.PDF?Y=&O=PDF&D=&FID=1500066004&T=&IID=4121687

WWE Investors Presentation – November 2014

WWE based their estimates on capturing between 2% (one million subscribers) and 6% (three million subscribers) of this 52M broadband households.

It made for a simple sell. After all, WWE was suggesting they could turn a healthy profit if they could convince just 1 in 25 WWE-affinity households to subscribe to their revolutionary service. It tells a great story.

However, the numbers didn’t make sense to wrestling analysts.

If there was really 50M+ households with an affinity for WWE content, how did WWE explain their TV ratings and live event business?

Why was WWE Raw on the USA Network only averaging about 4 million U.S. viewers (which corresponded to significantly less households)? Why was the total annual attendance at WWE’s live events (over 320 shows) less than two million people across the entire global?

WWE claims that their programs reach “approximately 14 million viewers in the United States during the average week”. However, that number includes every single original show and every single replay of the shows during that week. It also counts anyone as a viewer who watched at least six minutes of the show.

It’s a stretch to imagine that many of those exceptionally casual (or accidental) viewers would be likely to embark on a six-month subscription to an over-the-top wrestling service.

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