Uncredited/Associated Press

The success of the WWE Network is contingent on attracting new subscribers to the WWE Network as well as retaining existing customers.

Beginning Sunday, August 24, customers who signed up on WWE Network's launch day will eclipse their initial six-month commitment period.



Thus far WWE executives have been unwilling to share internal projections on WWE Network subscriber churn. We have no idea how many subscribers will choose to stick with the WWE Network and how many will let their subscriptions lapse.

On the second-quarter conference call, Chief Financial Officer (CFO) George Barrios would not answer analyst Mike Hickey's question on what percentage of subscribers had signed up for auto-renewal.

Many were surprised by the revelation in the recent financial results that 128,000 WWE Network subscribers had already cancelled during the April to June period. Executives classified this cancellation activity as the "payment billing driven element of churn."



This leaves WWE in a tough spot. While the company has accelerated the launch of the global WWE Network, will it be able to attract enough new subscribers to offset the customers that are leaving due to non-renewal and payment issues?

Will changes to the WWE Network service make the project a successful endeavor?

Fumbles on the initial projections

When the WWE Network was initially announced, many had sky-high projections for potential audience.

Slides from WWE's launch presentation put the break-even point for the domestic launch of the WWE Network at one million subscribers. In January, a press release from the WWE on the WWE Network indicated the company believed "a fully distributed domestic pay network could ultimately attract between 2 million and 3 million subscribers at a steady state.”

Analyst Laura Martin of Needham & Company released a report in April which projected the WWE Network would grow to $216 million by 2015 and $336 million by 2016. Robert Routh, National Alliance Capital Markets director of equity research, was quoted in a February Fortune.com article that he believed the WWE Network could attract "6 to 8 million subscribers" in the long-term.

That sort of optimism may help explain why the WWE stock dropped 20 percent when WWE announced its post-Wrestlemania WWE Network subscriber numbers were only 667,287.

There were some analysts who held more conservative estimates of the potential audience for the WWE Network. For instance, in a Forbes article in March, Intrepid Capital Management's portfolio manager Jayme Wiggins accurately estimated the core of the WWE Network to be about 700,000 subscribers. He noted he "didn't think it’s going to be easy for them to get another 500,000.”

With more than one-in-seven subscriptions for the domestic WWE Network have already cancelled before the WWE Network was even six months old, everyone in WWE knows it's imperative it grows the WWE Network quickly.

Strategy for growth

On May 1, during the first-quarter conference call, CFO Barrios told investors in order to attract more subscribers they would execute a "five-part strategy:"

Creating new content Entering new geographies Expanding distribution platforms Developing new features Executing high-impact marketing campaign

So far, WWE has been following this plan.

1. Creating new content

The number one draw for the WWE Network is the live "pay-per-view" events.

It's important these live monthly events provide unique content which is distinct from the wrestling which is available on weekly television. For instance, having Brock Lesnar only compete at big events such as WrestleMania and SummerSlam provides incentive for fans to purchase a WWE Network subscription so they can watch him perform.

In addition, WWE has begun rolling out new programming such as Legends House and Monday Night Wars on the WWE Network. WWE has also released documentary-style programs such as the well-received special on the Ultimate Warrior, the "Excuse Me! A Cougar Countdown" retrospective on Vickie Guerrero, Daniel Bryan's "Journey to WrestleMania" special and the recent "Journey to SummerSlam: The Shield" special.

There is a looming question whether WWE's cost-cutting measures will affect the production schedule of these sorts of new programs and specials. Originally, George Barrios cited a new season of Tough Enough as an example of the sort of "new content" that WWE would be releasing on the WWE Network.

However, Dave Meltzer of the Wrestling Observer Newsletter reported in the July 13, 2014 issue (subscription required) the new season of Tough Enough, which was set to filmed at NXT in July, had been postponed to October. Meltzer also noted a second season of Legends House, whose original season had been the most-watched program on the WWE Network of the monthly pay-per-views, was completely in jeopardy of being cut altogether!

If this continues, WWE could be at risk of getting caught in a vicious loop: WWE doesn't want to spend the big bucks to produce new content because the WWE Network is still losing money, but potential subscribers shun the WWE Network because the WWE isn't producing enough new content.

2. New Geographies

On August 12, WWE expanded the availability of the English-language version of the WWE Network to "over 170 countries and territories." This expands the market for the WWE Network, in theory, to almost 2.79 billion people.

However, adoption of the WWE Network is most likely in the specific countries with established, reliable and affordable broadband access. It also helps if these countries have decent English proficiency and a strong affinity for WWE programming. With those constraints, I estimated the recent global over-the-top WWE Network launch to acquire no more than 250,000 new subscribers.

In addition, Rogers Communications has launched their version of the WWE Network in Canada with the WWE NET PAK. The feedback regarding service availability, video-on-demand selection and price has certainly been mixed. Still, as Keith Harris of Cagesideseats.com reported, the roll-out of the Canadian version of the WWE Network is exceeding internal expectations.

Still, as previously discussed, the WWE Network has not yet launched in many of the WWE's most important international markets. This includes key markets such as India, China and the United Kingdom along with Japan, Germany, Italy, Philippines, Thailand, Malaysia and the United Arab Emirates.

Future expansion in these markets is crucial.

The WWE will be rolled out in the United Kingdom in October. Several other important markets may launch later this year or early next year. However, we still don't know whether the next round of WWE Network launches will be as an over-the-top service or whether they will be distributed more akin to a traditional subscription television channel.

Considering how many of these blacked-out countries recently signed new television rights contracts with WWE, there's reason to suspect the WWE may be moving more in the direction of what was done in the Rogers/Canada situation.

3. Expanding distribution platforms

WWE is continuing to expand the array of devices which can access the WWE Network. According the WWE Network FAQ, a subscriber in the United States can access the WWE Network using an Amazon Fire TV, an Amazon Kindle device, Android devices, Apple TV, iOS devices, Roku devices, specific models of Samsung Blu-ray players and Samsung Smart TVs, specific models of Sony Blu-ray players and Song Internet Connected TVs, and gaming consoles including the XBox360, XBox One, Sony Playstation 3 and Sony Playstation 4 systems. And of course, the WWE Network is always available through their Website.

There's a lot of variety in there.

Still, some older gaming consoles have been left behind. For instance, the Wii and Wii U are not supported. While that may not seem so important, consider a September 2013 study from Nielsen found 17 percent of Netflix users and 14 percent of Hulu Plus users were using Wii/WiiU consoles to watch streaming content. At that time that was a higher percentage than either PS3 or XBox Live.

Since WWE estimates more than a third of its audience is older than 50, in order to entice older fans to adopt a streaming technology, the WWE should ensure they are targeting devices older fans may have in their household such as the Wii.

Among U.S. adults, the penetration of cable and satellite television service is above 80 percent for Baby Boomers (aged 49-67) and Mature adults (aged 68+). Perhaps it would make more sense for WWE to invest in delivering the WWE Network as a traditional pay channel available through a cable or satellite provider to reach that age group.

4. Developing new features

The WWE Network is functional on all devices. However, functionality isn't identical across all platforms. Some devices offer the ability to skip match to match using chapters. Some devices offer a "resume" function to pick up where you left off. These functions aren't universal.

Furthermore, WWE could develop a lot more in terms of additional features. There's significantly more they could do with social integration (allowing fans to sync up and watch the same shows together) and playlist creation functionality.

5. Executing high-impact marketing campaign

WWE has made Raw its primary platform for getting out the $9.99 message for the WWE Network.

Each week the announcers incessantly remind the audience they could be subscribing for just $10 a month. A television presence is certainly a reasonable prong in their campaign. However, it cannot represent the entire crusade.

As CFO Barrios mentioned at the August 5 Needham & Company Fireside Chat, WWE was planning on extensively using SEO (search engine optimization) and SEM (search engine marketing) technology to spread the word about the WWE Network. Again, that is a piece of the strategy. Still, reaching all of their fanbase, particularly lapsed or older fans, will require more than just ads on Google.

Recently the WWE launched its new mobile collectible card game WWE SuperCard. WWE and developer 2k Games reported the free-to-play game has received more than 1.5 downloads globally in less than a week. Success such as that proves WWE has the ability to quickly and broadly engage its fanbase. It needs to continue to work on converting those casual users into paying consumers, especially for products such as the WWE Network.

Conclusion

WWE was successful at initially creating a lot of buzz and hullabaloo when it announced the creation of the WWE Network. However, as subscription numbers have failed to quickly reach the expected heights, the company has been forced into cost-cutting mode.

It has responded by accelerating the WWE Network global launch, adopting new distribution strategies besides over-the-top (thus far notable in Canada) and doubling-down on a hard-sell for the $9.99 price point.

So far WWE has continued to execute its strategy for growing the WWE Network which it outlined back in May. Yet, even with improved OIBDA (operating income before depreciation and amortization) projections for 2015, WWE still needs a large steady-state subscriber base for its WWE Network.

WWE needs to replace the profit the pay-per-view segment used to generate. It hasn't exactly pegged a new subscription target yet. Presumably, with cost-cutting it's somewhere below the 1.3 million annual subscribers WWE detailed in the May 15 Financial Outlook. Any way you look at it, WWE needs to stay focused on doing more and more.

In my next piece, I'll write more about what WWE must do to in order to improve WWE Network adoption rates.