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.
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