As we finish the first six months of the year, you cant help but note what is going on right now with both WWE and UFC in regard to reaction in a changing business environment.
From a traditional business metric point of view, WWE has been pretty stable this year, throwing out the change in delivery of PPV and the implementation of the network. Its business has changed completely. But its popularity has stayed at relatively the same level. Television ratings are remarkably close to last year, down only slightly. Live attendance also remains steady. Live merchandise is down a little but web site merchandise is up.
WWE is also making talent changes with a very clear picture. For better or worse, the company is making a clear transition from John Cena to Roman Reigns as the face of the company, while keeping Cena in the superstar emeritus position in a role as the greatest champion in WWE history. Other young talent is emerging, most notably Bray Wyatt, who may have the potential to be a Dusty Rhodes caliber babyface. The in-ring action is as good as its ever been, and big shows have been consistently delivering for months.
If you look at UFC, you dont come to the same conclusion. PPV, long the companys most important revenue stream, is way down this year. Television viewership is also way down, but a lot of that is due to a change in station. They have nobody on the horizon that you can point to and say has a good chance to become a new major star. For 2015, its still this years stars, Jon Jones, Ronda Rousey and Cain Velasquez, with hoped for returns of Georges St-Pierre and Anderson Silva, and a hope that Chris Weidman or Anthony Pettis catch on, and hopes that a new champion may come from a foreign land to ignite business. Still, past Conor McGregor in Ireland, who is unproven against top competition, we dont have that guy anywhere.
Both companies are at their very core about developing stars. With WWE television being watched by millions, you have the vehicle to do so. For UFC, fewer viewers means what in 2010 may have been a star creating performance like what Matt Brown did with Erick Silva, may not have had much impact. In fact, thats where the 7/26 FOX show really comes into play, because if Brown gained something big, and he had the performance, attitude and unique charisma to be a cult star, it should show up in the FOX ratings.
Yes, while WWE is making cuts everywhere, UFC is making cuts nowhere, and Dana White is saying that people who think things arent doing great dont understand a changing business. Hes saying it is now an international sport with events around the globe and that things are stronger than ever.
Still, there is one point that is hard to get out of my mind. Its that anecdotal evidence people often use, but are often wrong, except when the big picture numbers back it up.
From 2006 to 2010, and still to a lesser extent through 2013, the night of a big UFC show was a big deal here. People would come over. Theyd know the key matches and know most of the fighters. If I was away covering a show, we still often had a packed house, particularly if it was someone like Brock Lesnar or GSP on top. Those days are over. I may have a friend or two come over for UFC shows, and there are times nobody does. No biggie; almost nobody ever comes over for TNA and only a few show up for WWE these days, when it used to be packed during the heyday of WWE and WCW. But what I just said about UFC, evidence of nothing, is something that, if I say it to any MMA fan who used to watch with groups, they all say, Thats the same for me.
Obviously, running 50 shows is going to dilute viewership per show. Its like Major League Baseball or the NBA. Ratings for individual games are way down because so many more games air. Its not about big ratings for most regular events, its about providing live sports programming that will deliver a core audience in a far more competitive sports environment. But those sports, while game ratings suffer, more than make up for it due to monster TV contracts.
UFC numbers on FS 1 are nothing like they were on Spike, and they are, with the exception of NASCAR or a major college football game, the highest rated programming on the station. The audience is down. The vehicle to promote shows, like Prime Times, without being on FX, is down to the point they no longer do series. Prime Times put in a position where a lot of viewers can see it are a strong catalyst in building monster PPVs. As much as people knock studying of Google trends, they are a tremendous tool to find out who people care about, who are stars, and rise and fall of popularity of stars, as well as on big events, who and what people most are interested in mainstream. Whats been hurt in UFC is not the top tier stars, who were as big as ever last year, but the secondary stars dropped badly.
In the U.S., WWE and UFC were neck-and-neck in 2010. In 2013, WWE had a huge edge. In theory, more shows would mean more regular interest in UFC, but that hasnt been the case. With the lack of the big money matches this year, WWEs interest level is more than two-and-a-half times that of UFC, even if UFC as a company is said to be worth more than double WWE because of the value of a sports franchise due to the belief in skyrocketing TV rights. In Canada, where UFC had a gigantic edge for years, the loss of GSP had brought the two companies to being neck-and-neck so far this year after UFC was 53% ahead in 2013.
But, WWE, as a public company, there is no mistaking the financial problems caused by a lower than expected new television deal and the costs of the new network. The company is expected to finish the year deeply in the red. For all the positive product-wise, the WWE in 2014 is expected to end the year losing more money than any year in its history, and losing more money in a calendar year than any pro wrestling company in history with the exception of WCW in 2000.
UFC as a private company, little can be fully examined. Brazil, while also down from its peak as far as TV ratings and instantly selling out live events, still does huge ratings when on network television outside of prime time. The UFC strategy of live events in different parts of the world on prime time TV on good stations leads to gains in popularity in those markets makes sense. But even so, you at worst want to hold steady in your mature markets while building new ones. They are not holding steady in the U.S. and Canada, and in fact in a major popularity fall. But with a guaranteed TV contract, the effect of that fall may not be hurting them financially. Thats the opposite of WCW, where the TV money was low and the decline in core business killed the company. But how much of a factor is the Spike to FX to FS 1 dynamic in that? But the deal also includes four shows on FOX that should have expanded the casual audience and made new fans.
As a sport and not WWE, are they able to garner big international television revenues? If a U.S. decline is offset by international growth, that would be an argument there is a big picture. But I dont know how a decline in U.S. and Canadian popularity could be part of a long-term growth plan, even if they are profitable and have a big safety net. Ticket sales for live events are still good, but with the absence of the big fights they are also way down. When we see merchandise sale numbers at UFC live events, they are excellent. Ratings cant be fairly compared and PPV is based on main events, and this year they havent had strong ones.
Still, for the first six months of last year, the six PPV events generated $16.24 million in revenue, or $2,706,618 per show. For this year, through the end of June, that number is $10.99 million, or $1,831,475 per show, or a 32 percent drop. For PPV over the same six month period, they went from 2.78 million buys, or 463,000 per show, to 1.54 million, or 257,000 per show, or a 45 percent drop. Still, with the exception of just how bad the Demetrious Johnson vs. Ali Bagautinov fight did, none of this years numbers were any lower than Id have expected those same shows to have done in 2013, past had Ronda Rousey vs. Sara McMann taken place in early 2013 in February, it probably would have done the 100,000 more buys Rousey vs. Liz Carmouche did based on the novelty and huge amount of media publicity.
But Rousey on her own looks to be a 350,000 consistent player, partially because of limitations of challengers. Whether her quick finishes will help or hurt is hard to say. People used to say the first round knockouts were a disappointment in the Mike Tyson days because people paid so much money, but he drew huge for years. But a guy knockout artist with an aura where people are buying for devastation is not the same thing as a woman who they are buying because hes a star.
Jon Jones, the other big draw active this year, clearly declined after the canceled UFC event, past a big number with Chael Sonnen, and theres nobody who can duplicate Sonnens ability to build a fight. With the exception of Cain Velasquez, who is injured, nobody else on the current roster is even at their level (the value of Chris Weidman will be better evaluated in a few weeks; as weve never seen him headline as champion without Anderson Silva, but even if UFC 175 does a big number, its a combination of Weidman and Rousey and where Weidman stands going forward is still uncertain). Last year, all were well behind GSP and Silva.
For FOX, with only two shows, the sample size is too small. But this is significant because the big superstars dont fight on FOX, and its the second tier stars. Last years first two shows averaged a 2.31 rating and a $1.32 million average gate, which were main events of Demetrious Johnson vs. John Dodson (and Rampage Jackson had a lot to do with that one) and Benson Henderson vs. Gilbert Melendez, both title fights. This years two shows averaged a 1.75 rating and $1.21 million average gate (helped by just how big Orlandos response to its first UFC was), with main events of Benson Henderson vs. Josh Thomson, not a title fight, and Fabricio Werdum vs. Travis Browne, also not a title fight. But its a 24 percent drop in ratings. But they were also weaker shows with no Rampage this year nor any title fights.
Besides, the key is not live events in new markets as much as television exposure and events in new markets. Running once a year in New Zealand, for example, and drawing a $913,000 gate is all well and good if it leads to making new fans, but thats television exposure, not a live show that 8,089 people came to. The key to expanding the TV audience is well promoted shows in prime time on good outlets that people watch.
For example, the last London show, yes, it sold out, but theyve sold out London for years. The key was it was on Ch. 5 in prime time, an over-the-air station that reaches tons more people than their BT Sports deal does. It gave them the ability to reach a new audience, and if they did well, they would have five slots a year on that station. On paper, all looked great. But the rating wasnt there, and they havent been back on Ch. 5 since. But there are always going to be hits and misses.
Dana White is saying things have never been better. There are no indications like in WWE of cutbacks. In fact, White was talking this week about how the company is going to build a new office complex in Las Vegas, which would include studios, a workout gym, and the Ultimate Fighter gym will be part of the facility.
As far as long-term goes, UFC is dependent more on what kind of rights fees it can get from television. Ratings are important, as is the value and prestige of the brand and the economic situation from television at the time the deals comes due in 2017. White talked about their network as a game changer as well. But no matter what is said publicly, there has to be concern about the drop in popularity and a fan base that is having trouble keeping up with the names and number of shows.
As for WWE, unlike WCW, and other money losing companies who usually got that way due to failing to connect with their audience and rapid interest losses and fade away, there is no such issue with WWE. The losses are likely temporary, since they are due to the implementation and start-up of the network. The network is likely to grow economically in time, probably significantly. Will it reach the levels WWE predicted, or analysts predicted? That is too soon to say. But it will increase significantly from present levels as people accept new technology. The cultural direction stemming from the lead of Netflix is that consumers are more willing to accept over-the-top services. The key to watch is if and when Netflix plateaus, because that would be the harbinger of the WWE network plateauing down the line. They are having a temporary rocky financial road. Long-term, as long as the fan base is stable, and it is, the machinery to create new stars is in order, which it also is, the prospects down the line are healthy.
WWE has worldwide popularity. It is still very conceivable that in 2016, when consumers will have less aversion to services like this, that it could be an overwhelming success even with the somewhat disappointing early returns. And there is still an international rollout for next year. No matter what percentage of current network viewers are from outside the U.S., and the number is clearly considerable, that is the hardcore audience that has learned to bypass geographically blocked services. The WWE hasnt even started a heavy marketing push in foreign markets, although there is an argument that the constant talk of the network on the television shows that air in every English language country does constitute a huge push.
But there is no mistaking that there are problems right now financially, with major cost cutting going on. The cutting of wrestlers a few weeks ago to help cut back on expected losses was just the tip of the iceberg.
A few different sources have pegged that Vince McMahon was ordering major cuts throughout the company. The number being bandied about is cuts that would total $20 million, so that the losses for 2014 are down significantly from the $45 million to $53 million projected.
Among the changes being looked at include some first class flyers flying coach, a new policy on international travel is being implemented, and there is talk of scaling back, but not eliminating, catering. In addition, there is a hiring slowdown as it regards original budgetary plans in the developmental sector.
While TV ratings and live show attendance are still important barometers of company popularity, from a financial standpoint, from this point forward, it lives and dies based on the network.
Essentially, the company will need, at a steady state, about 1.3 million to 1.4 million monthly subscribers worldwide to break even. Perhaps with the heavy cuts, that number may fall slightly. To get to previous levels of financial success, they need to get closer to 1.9 million subscribers. Once the number tops 2 million, unless unexpected costs arise (and there have been a lot of them with the network not expected going in), the company will be in its most financially healthy state it has ever been.
The business now, and going forward, is all about the subscriber numbers. PPV is going away quickly in the U.S., and the rest of the world follows suit next year. TV income is what it is for the next several years. Even in a period where sports rights fees have gone through the roof and entertainment rights fees have also gone up significantly, WWE did not get a major increase. Television is a strong revenue source, but the number is not going to escalate greatly. House shows, merchandise and licensing, categories the company had been built around for the past three decades, are now minor sectors. Popularity increases will help them, but the key is still today and for the foreseeable future, network subscriptions.
Raw on 7/7 made no bones about it. The entire television show felt like a commercial to get fans who havent sampled the network, to try it out, for a free week, just by sending in an e-mail address. They noted that you dont even have to give a credit card number.
Raw pushed the free week, promoting not just the old PPVs, every WrestleMania including this year, the recent Money in the Bank show, as well as the prime time schedule for the week. This included debuting the first Monday Night War first episode. The series will become a regular weekly multi-episode show in a few weeks. This was a preview trying to use it to get new subscribers now by offering it in the free week.
They also uploaded a number of Saturday Nights Main Event, somewhat loading up on the Tuesday almost live Main Event show pushing a talk segment with Chris Jericho and Bret Hart, as well as pushing a replay of the great Warrior documentary. More episodes of SNME will be uploaded shortly, but after the free week. They pushed a 90 percent consumer satisfaction survey (which sounds believable because if you are a wrestling fan, its a bargain). Obviously, the idea of making it as easy as possible for those who havent tried to watch for free is a way to get paid subscriber numbers up starting next week from those who tried it out. The timing of now is to pump up the subscriber numbers since the second announcement will be made on or around 8/1, and a weak number will hurt the stock price. The timing if they get people buying the network on 7/14, when the trial ends, is that their subscriptions would run out on 1/14, or right before the Royal Rumble.
They need to have a number that at least indicates they will hit 1 million subscribers by the end of the year. One could come to the conclusion watching Raw that this hard sell was an indication they arent on track and its a desperation move to close the gap. But the marketing strategy was always to offer occasional free weeks, and pushing that you can watch it on your TV set and making it as simple for people to try it out should have been part of the marketing.
There is no question WWE has a loyal audience. The only question is, how many fans worldwide numbers are willing to pay for this service? Even if they hit 1 million by December, is the number of people interested and those who will break down the mental barrier to order in 2015 large enough to hit 2 million by July, the original projection? Maybe not. Can they hit 1.4 million by July of next year with expected early year international growth? Thats plausible, but 1.4 million by July would only make 2015 into a break-even year. For a company hitting $50 million in profits annually, and paying out $36 million a year in dividends, a break-even year is not a success when the year was originally projected to be the single most profitable year in the history of the company. But if its just a slower gain, and they get there in 2016, its still a success. The next number will tell a story regarding short-term, but to make any kind of educated guess about long-term past thoughts about what percentage of homes that watch WWE television are willing to pay extra for more content, which is ultimately what will determine what the final number is. People who dont watch Raw are not going to get the network in any significant numbers.
For 2015 to be as profitable as the company was before they started spending on the network, they need to hit the 1.9 million figure as a full year average, meaning growing the first half of the year, hitting it by mid-year, and continuing to grow at the same rate until the end of the year. It seems unlikely but this is uncharted waters. While the service can always improve, the key question in the long run is not consumers being mentally willing to buy an over-the-top network. In time, and very quickly, that will happen. Baseball has already been successful at this. All sports will be doing so.
The question is whether WWE has enough fans around the world willing to pay $9.99 per month for extra programming, to hit and maintain the numbers in question. A 667,000 number after months of hard selling to get WrestleMania at a bargain price is an indication it wont be easy. An announcement of 850,000 subscribers isnt what Id call great, since you need 1.4 million by next July just for the company to break-even. But it would be okay.
Given how hard the network has been pushed, the hotshot marketing, the quality of the PPV shows and the timing of the Ultimate Warrior death, a number at less than 850,000 would not be good.
But amidst all the hype are significant signs of cutting not just within the company, but on first-run programming for the network itself, which means second thoughts are being made as far as the value vs. cost of new first-run non-traditional wrestling programming.
The remake of Tough Enough was scheduled to start filming this week at the performance center in Orlando. We had heard last week that it was no longer a certainty it would be done, and if it was, the production budget was going to be greatly cut. Then, on around 7/3, the people working on the show were told filming was being postponed until October.
The idea had been for a second season of Legends House to go into production in October. There is some question whether there will be a second season. The first season was, except for PPVs, the most-watched thing most weeks on the network. One source in a country where Legends House aired on television noted that WWE sent them word that there would not be a second season of the show. Another WWE source said that there would be a second season, but filming would be delayed until after the completion of Tough Enough, probably not until early next year.
The reality shows are the most expensive things on the network. Legends House was done two years ago so its costs arent even recognized on this years books. But these are multi-million dollar shows. We know that Total Divas cost $400,000 per episode. So if you do a ten week shoot for a show like that, its a $4 million cost over a ten week first run airing. A $4 million show over ten weeks, to be cost effective, would require such a show to bring in 200,000 new subscribers over the ten weeks to justify it. Granted, you then have the footage for all eternity and there is value in that. And if the show brings in 50,000 new subscribers and most of them stick around for a year, its also a success. But for Total Divas, its a lot better for the company to recoup the cost and make some profit by selling to E!, and then having rights to put it on its network six or nine months later, than spend the money for a first-run network launch. But year-old Total Divas episodes hardly have the value for the network that a first-run Tough Enough or Legends House would.
