- Online network had about 1.52m average subscribers in Q2
- Figure slightly exceeds forecast, analysts’ estimates
World Wrestling Entertainment Inc. now has about 1.52 million WrestleManiacs signed up for its $9.99-a-month online package, solidifying its place in the ranks of the biggest streaming-video services in the U.S.
The figure, which represents average subscribers over the second quarter, slightly exceeded the company’s forecasts and analysts’ estimates and was up 25 percent from a year earlier, according to a statement Thursday. It shows that demand for a niche video service can be viable for entertainment companies with a loyal following.
WWE has been at the forefront of the media industry’s attempts to establish a business providing programming straight to viewers, without an intermediary like cable or satellite networks, while still maintaining lucrative TV deals. The company made all its content, including live events, available on the internet to paid subscribers in February 2014. Last year, WWE Network was the fifth-largest streaming service by subscriber volume, beating even HBO Now, according to Parks Associates. Only Netflix, Amazon, Hulu and Major League Baseball’s MLB.TV ranked higher.
“WWE was making a long-term bet that they could grow subscribership online and revenues online better than they were doing with pay TV,” said Brett Sappington, senior director of research overseeing entertainment services at Parks Associates, who spoke before the earnings were released. “It was a big risk, a big bet. It looks like it’s paying off.”
Revenue from streaming subscriptions rose 25 percent to $45.9 million in the second quarter, making the WWE Network the company’s third-largest business in the period, trailing TV and live events. TV contracts remain its most important source of sales, with revenue climbing 8 percent to $56.1 million in the quarter.
International subscribers to the WWE Network grew by 76 percent from a year earlier to 381,000, the Stamford, Connecticut-based company said.
The company reported net income of $800,000, or 1 cent a share, compared with $5.1 million, or 7 cents, a year earlier. Operating income, leaving out depreciation and amortization, was $7.5 million, compared with the $8.99 million average of analysts’ estimates compiled by Bloomberg. If subscriber growth continues at this pace, the company said operating income this year would be at least $80 million, compared with an earlier outlook of at least $70 million.
Investors have closely watched the development of the WWE Network for signs of whether its growth will level off, with the stock reacting sharply to each earnings report when new subscriber figures are disclosed. Shares were little changed in New York at the close Thursday, and are up 11 percent this year.
Subscribers who pay for streaming have access to all WWE’s video-on-demand content as well as live events -- including the popular annual WrestleMania extravaganza, one of the first successful pay-TV ventures. The company calls itself the first 24/7 direct-to-consumer network because it includes a linear stream that runs continuously. Investors initially worried that the new service would cannibalize pay-per-view revenue, and Dish Network and DirecTV both dropped WWE from their services.
“WWE is being really foresighted in looking at what the future of video entertainment is going to be long term,” said Sappington. On an earnings call Thursday, Chief Strategy and Financial Officer George Barrios said the company is looking into developing content for both virtual reality and augmented reality.
Barrios said that the company knew that the streaming-video platform would eat into traditional sources of revenue when WWE introduced the service, but that it has allowed the business to double its revenues from when it was solely a pay-per-view media product.
“As we were going through the transition of cannibalizing our own business, our pay-per-view business, people questioned the strategy,” Barrios said in an interview. “I think people kind of see the efficacy of the strategy.”
The success of WWE’s streaming service makes it a potential takeover target, according to some analysts, especially after talent company WME-IMG agreed to acquire Ultimate Fighting Championship for $4 billion earlier this month. WWE is undervalued by investors at about $1.5 billion, they say. In May, BTIG analyst Brandon Ross wrote in a note that WWE would be a good fit for many media companies.
“The company’s had a rock-solid balance sheet, it pays a dividend, there’s nothing else like it, it generates a ton of free cash flow, and I think it would be attractive to many different parties both strategic as well as financial,” said FBN Securities analyst Robert Routh, who has the equivalent of a buy rating on the stock.
Even so, it’s unlikely that the McMahon family, which controls WWE, will ever sell the business. Chief Executive Officer Vince McMahon purchased the company from his father in 1982, and today his daughter Stephanie is actively involved in running the business. His son Shane is a performer for the company.
WWE likes “engaging with people in creative ways to try to make the WWE brand and whoever it is that we’re talking to, their brand, more successful,” Barrios said in an interview. “We’d always listen to anything that we thought could help us you know, execute more successfully, more aggressively in terms of what we’re trying to do and grow the business.” He said there aren’t specific discussions with anyone currently.
The McMahons also face some legal headwinds. WWE is being sued by former wrestlers who allege that the company didn’t do enough to warn athletes of potential permanent brain damage. In the statement Thursday, the company said corporate and other expenses rose 17 percent to $49.4 million, saying legal expenses contributed to the increase.