NEW YORK (TheStreet) –– World Wrestling Entertainment (WWE) has placed a huge bet on the WWE Network being a radical transformation to its business and is placing even more chips on the table, unveiling the platform to advertisers earlier this week.
The company sent out emails to its subscribers that it would place what it calls "limited advertising" between shows and "occasional advertising before our video-on-demand content," in hopes to boost revenue for a company that has needed to find additional ways to grow.
WWE has been adamant that its WWE Network, a 24/7 over-the-top (OTT) streaming service akin to Netflix (NFLX) or HBO's (TWX) new Internet-only service, can change the business for the better. It's been a bumpy start to the network, which launched in February, prior to the company's big annual event, WrestleMania, which was held in April. At the end of July, WWE announced it only had 700,000 subscribers for the service, which costs $9.99 a month for a six-month contract, and would be implementing a series of new initiatives designed to boost awareness as well as engagement.In July, WWE announced a plan to make the network a pay-per-view a-la-carte channel in Canada with Rogers Communications ( RCI) starting Aug. 12 and running for 10 years. In addition, the deal renews Rogers' license of WWE's Raw and SmackDown shows, and grants Rogers distribution rights to the company's pay-per-views.
As a result of the drastic change in the business, the company has had to make various changes to its cost structure, having recently laid off 7% of its full-time staff. It also cut various wrestlers from both its developmental training facility as well as certain wrestlers and performers. The company updated its outlook for 2015 operating income before depreciation and amortization, saying it improved by $30 million due in large part to the staff cuts.
In previous interviews with TheStreet, Chief Financial Officer George Barrios said WWE needs between 1.3 million and 1.4 million subscribers at "steady state" on a global basis for the WWE Network's incremental OIBDA to offset the complete cannibalization of the company's pay-per-view and SVOD businesses. "At 1.3 million to 1.4 million subscribers, the Company's Network segment, which includes the results of WWE's Network, Pay-Per-View and SVOD businesses, would generate OIBDA results of $40 million, (+/- 10%), which is on par with the OIBDA profits generated by the Company's Pay-Per-View and SVOD businesses in 2012," the company said in a press release in July.
The introduction of advertising changes the business model a bit, and could potentially alter renewal rates as Netflix does not offer ads, though other services such as Hulu Plus do. So far, it doesn't appear that the introduction of ads will change the landscape for renewals, though that may change depending upon experience and ad loads. "I'll grumble but it's the price of doing business," said Steve Feldman, a WWE Network subscriber. "It's better than losing the network. Hulu has ads too. Just keep them short."
Others have expressed the same sentiment. "The ads are not really a deterrent for me in terms of the renewal of my subscription," said WWE fan Jermaine Roberts.
TheStreet recently had a chance to talk to Michelle Wilson, WWE's Chief Revenue and Marketing Officer, to discuss how the network is doing, and why ads were introduced now as opposed to when the network was launched. Here's a lightly edited transcript of the emailed interview.
Chris Ciaccia: Why not raise the price another $1/month or so instead of doing ads? You had talked about raising the price a few months ago, but seemed to back away from doing that.
Michelle Wilson: For $9.99 per month, WWE Network is an extraordinary value proposition, which includes all 12 pay-per-views live, and we have no plans to change that or raise the price.
Ciaccia: What are the CPMs you're charging advertisers for the ads?
Wilson: Without disclosing specifics, our pricing is competitive with other linear and OTT services. We believe that we'll offer even more value given the level of our viewers engagement and providing more opportunities for partners to develop custom integrations on WWE Network and our other digital platforms. WWE Network provides partners with 24/7 access to our fan base and enables them to reach audiences on multiple viewing platforms wherever our fans are. Our approach to and discussion with brands is to educate them on the best ways to harness all of our media assets as part of WWE Network in an effort to best connect with our highly engaged and deeply passionate fans.
Ciaccia: What led to the timing decision of including ads now?
Wilson: Initially we wanted to focus on launching WWE Network on 12 platforms and in 170 countries. It required additional development work to serve ads, and now we are excited to bring WWE Network to advertisers.
Ciaccia: Is the additional expected revenue from ads included in your projections?
Wilson: No. None of the revenue models we have shared included advertising revenue.
Ciaccia: Who are some of the advertising partners you're working with?
Wilson: WWE Network has opened up conversations with new partners and expanded relationships with existing partners. So far, the companies that will be advertising on WWE Network in 2014-2015 include Pepsi Mt. Dew (PEP) , Mattel (MAT) , Kmart (SHLD) , 2K Sports and Pure TalkUSA.
Ciaccia: Have you tested the network with ads to subscribers (outside the co.) and what were thoughts?
Wilson: We have done research and based on that we have always been very transparent about the potential of limited advertising and have been proactive in our communication to current subscribers.
Ciaccia: Thanks, Michelle.
-- Written by Chris Ciaccia in New York
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