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Tuesday, April 15, 2014 2:04 PM ET

Part 1: WWE Network profitable or on the ropes?
By Sarah Barry James
World Wrestling Entertainment Inc.

has always been a bit

Tools Related Companies World Wrestling Entertainment Inc. (WWE) Inc. (AMZN) Google Inc. (GOOGL)
Last Updated: 4/17/2014 12:27 PM

untraditional. As such, it makes sense that when considering how to launch a TV network, the company built on an army of spandex-clad wrestlers chose not to adopt the conventional cable model. Instead, it opted to create a streaming network that offers both live and ondemand content for $9.99 per month. While there are many benefits to WWE's nontraditional approach, industry observers are having a hard time evaluating whether the network is a success or how many subscribers it needs. In tandem with WrestleMania XXX, WWE announced that 42 days after launching, WWE Network had a total of 667,287 subscribers and is on track to reach 1 million subscribers by the end of
$ 21.45 $ 326.30 $ 540.60 (2.37%) 0.81% (4.13%) More>>

Sources Qwilt: Wrestlemania XXX Undertakes* OTT Video Charts by Storm Users Also Read Part 2: WWE's fall from grace - Wednesday, April 16, 2014 5:46 PM NBCU launches digital video initiative - Tuesday, April 15, 2014 3:32 PM Online video presents opportunities, challenges for content providers - Tuesday, April 08, 2014 3:04 PM Keeping tabs on Amazon's Prime Instant Video Thursday, April 10, 2014 11:10 AM The 3 big lessons from NAB - Friday, April 11, 2014 5:04 PM

2014. But are those numbers strong enough? Some analysts seemed to think not. Benchmark Co. analyst Mike Hickey recently noted that many on Wall Street expected WWE to report between 800,000 and 1 million subscribers. Other industry observers, however, say that for having launched less than two months ago, WWE Network is off to a strong start. "It's been just a little over a month since they launched this service and they have 650,000-plus subscribers, so

they are growing very fast," Mark Fisher, the vice president of marketing and business development at Qwilt, told SNL Kagan. Qwilt, an online video delivery and solutions provider, noted in an April 7 blog post that thanks to WrestleMania, WWE online video traffic volume ranked below only industry giants Netflix Inc. and Google Inc.'s YouTube in North America on April 6, blasting past all other over-the-top video services. "Incredibly, WrestleMania generated 20 times more traffic than it would on a regular day, leaving services like HBO, Hulu [LLC] and Amazon[.com Inc.] hanging on the ropes," the blog post noted. "Even more remarkable, overall online video traffic Sunday evening also grew, which reflects the fact that crowds tuning in to watch the main event did not come from other online services. Instead, WrestleMania fans created an online powerbomb to the regular online video consumer audience." WWE Network's success in generating more online video traffic than longtime players like Amazon and Hulu certainly impressed Fisher. "This one surprised us, and we actually went back and looked at the report a couple of times to convince ourselves that what happened as we recorded it really did happen," he said. "To see an event like this, which of course is live streaming, get up into the rankings as it did so that it's only behind Netflix and YouTube, it's really unusual." WWE is also very pleased with the network's performance thus far, both in terms of subscribers and delivery. "After the first couple of days, which were a big learning experience, the network has been performing technically great," WWE Chief Strategy and Financial Officer George Barrios told SNL Kagan. For WrestleMania, he added, "We did six hours of live TV, and almost all of our subscribers were watching as you can imagine. I personally had it on four devices as I was watching the actual event in the Super Dome, and there wasn't a moment of buffering so we were thrilled with it." Michelle Wilson, chief revenue and marketing officer for WWE, agreed, telling SNL Kagan that the technology has really proven itself. "It is revolutionary in terms of the live streaming and the video on demand that's available," she said. "To be able to do that and do it across 11 platforms without a glitch, I think we feel pretty good that we made history on Sunday. It was groundbreaking what we were able to accomplish with WrestleMania XXX." Still, there are those who have serious concerns about the company going forward. Lemelson Capital Management Investment Manager Emmanuel Lemelson told SNL Kagan that while the number of subscribers the company reported for the WWE Network were impressive, he believes now that the company will have a hard time growing that number. "That's a pretty large number — 667,000," he said. But Lemelson suspects a large percentage of that total signed up for WrestleMania and may not stick around beyond the six-month commitment that WWE requires of new subscribers.

"For the average subscriber, they may have thought, 'I'm not going to pay $59 or $69 for pay per view. I can pay $9.99 per month and that seems less painful,'" Lemelson said. "They may not feel nearly as excited after WrestleMania about that arrangement. So without the marketing and so forth around a major event, I don't think they are going to be able to drive a substantial number of new subscribers into that network." For that reason, Lemelson said that the WWE Network could put WWE in the red for 2014. "I don't think they are going to be profitable this year with the OTT network," he said. "I could see the WWE Network being a source of losses for the remainder of 2014." But Barrios said that was not necessarily true. Even though WWE had previously said it needed 1 million subscribers for the network to break even, Barrios explained that the 1 million subscribers figure was based on 100% cannibalization of WWE's pay-per-view revenues. "The network itself, based on its own costs of programming and transmission, is probably breakeven at around 400,000 subscribers; so now that we're close to 700,000, the network itself is very, very profitable," Barrios said. "When we used that 1 million number, we were assuming complete cannibalization of the pay-per-view and subscription video on demand business that we previously had, as well as some home entertainment. And that total number, that cannibalization, would be about $60 million a year so you need another roughly 600,000 subscribers to make up for that. So with 100% cannibalization, 1 million subscribers is the right number. But on a standalone basis, if we can maintain the current 670,000 for a full year, we'll be very profitable." Moreover, WWE's Wilson expressed optimism that the network will continue to add new subscribers even now that WrestleMania is in the rearview mirror. "As to how we move forward and how we continue to bring in subscribers, as you can imagine, there is no rest for the weary on that front," she said. "It will rely first and foremost on programming that we'll be offering." She pointed to the April 17 premiere scheduled for "Legends' House," a reality show that brings together eight former wrestling legends under one roof. "That will be an important hook for us, and we're excited about that," Wilson said. Another planned series that WWE is particularly excited about is "Monday Night War," a 10-part series that chronicles the ratings battle between WWE's "Monday Night Raw" and World Championship Wrestling's "Monday Nitro." The ratings battle finally ended when WWE, which at that time was still known as World Wrestling Federation, purchased the WCW. Wilson noted that the show is exciting not just because it follows the rivalry between two industry titans — WWE CEO Vincent McMahon and WCW owner Ted Turner — but also because it will mark the release of new on-demand content on WWE Network. "When we premiere the ['Monday Night War'] live stream, we also plan to release the whole library of the WCW 'Nitro' shows that went up against 'Monday Night Raw,'" she said. "So it's

that kind of programming that we'll continue to market and promote to our current subscribers and to new subscribers to bring in more people along the way." Additionally, although WrestleMania is over, Wilson noted that other pay-per-view events are not far away. "As you can imagine, the pay per views as they are currently called will continue to be the primary hook," she said, adding that the company will be "making sure that 'Extreme Rules,' which is our next pay per view on May 4, is a huge attraction so that we'll continue to attract new subscribers." This is the first part of a two-part series on WWE. The second part, which will look beyond the WWE Network to the rest of the company's businesses, will be posted on on April 16.