Market Insight

NBC Universal key to new WWE US wrestling channel launch

February 12, 2010

Erik Brannon Erik Brannon Associate Director – Research and Analysis, Service Providers & Platforms

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World Wrestling Entertainment Inc. (WWE) is gearing up to launch a dedicated wrestling linear cable network in the US by 2011. WWE is expected to leverage its existing partnership with NBC/Universal as well as its extensive content library to gain quick market access and wide distribution. If WWE is successful at securing a spot for its network in the basic digital tier of pay-TV, Screen Digest believes it could reach positive cash flow in its first year, a rare occurrence for new standalone networks.

Plans for the channel were first announced in August 2009, but confirmation of launch schedule has only recently occurred, with summer 2011 set as a tentative launch date. The announcement was followed by speculation about the possible rebranding of NBCU's Universal HD into the new WWE Network.

WWE currently produces seven hours of original television content weekly, with its most popular show being Monday night 'RAW' on NBCU's premiere cable channel USA Network. The show attracts 5.5m viewers a week, on average, and consistently ranks among the most watched shows on cable. USA Network has recently renewed its contract for 'RAW' with WWE for four more years. In addition, WWE operates a pay-per-view service that sells over 5 million big-ticket buys a year, and a VOD service called 'WWE Classics' which runs older content from the company's library and is carried by 14 of the top 15 MSOs in the US.

WWE stock outperformed the overall market as well as the entertainment sector throughout 2009. Many credit the above-average performance of the company to its new family orientation which has attracted blue-chip advertisers such as Pepsico and Proctor & Gamble that had traditionally shied away from WWE content due to the sexual innuendo and hardcore violence.

Perhaps no company has more astutely shifted its exploitation models in response to the shifting technology and consumer propositions of the US cable TV market than WWE. The fact that current channel line-ups are overcrowded with content for which most consumers have no desire is not lost on us. However, we believe that WWE has a significantly different opportunity than other new networks. The company has enjoyed the successful run of several prime-time properties like 'RAW' and 'Smackdown', both of which draw young males 18-49, drawing similar ratings (3.2, 2.9, and 2.9 in 2007, 2008 and 2009, respectively) to those of top broadcast shows. The network when launched will have access to a nearly 100,000 hours of content - The equivalent of 11.4 years of uninterrupted, commercial-free programming.

Given WWE's large library of content, we believe that it can provide a significant linear offering at a minimal expense, by foregoing the cost of licensing or producing a full schedule of new content. Similarly, the company's recent experience in the barter ad market will allow it to step into the advertising sales role with relative ease. The significant barrier to entry for the WWE cable network, as with other new networks, will be obtaining carriage. However, we suspect that the existing close relationship between WWE and NBC Universal will facilitate this process.

Both companies have something to gain from a partnership over this network:

  • The new WWE network could inherit the substantial subscriber base of the pioneering efforts of Universal HD, which has lost its mystique as one of only a few HD networks
  • The synergy between the already popular Monday 'RAW' and the new network could have a positive effect on rating and advertising revenue
  • The merger between NBC Universal and Comcast could immediately supply an adequate subscriber base from which to build significant momentum.

By our reckoning, the new channel could have instant access to 20.6m of combined NBCU/Comcast digital subscribers in 2011, assuming the Comcast NBC Universal deal goes through, along with another 35m digital subscribers from other operators. On the low end of the license fee spectrum we believe that the new network could expect $0.04 per average sub per month in year-one. With a minimum of content costs, we estimate that the network could be EBITDA positive in the first year to the tune of $5.9m, growing steadily through year-nine (2019) with a projected EBITDA at that point of $74.4m. These projections would be in line with the histories of many late-90s network launches as tracked in our US Cable Channel Intelligence database.

Back when the WWE was still the WWF, the move to an independent linear cable network was unnecessary, but now we believe that the timing of the move could deliver a rare new success in the hugely profitable, though tough to launch into, cable network business.

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