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At the most recent investors conference call, WWE management was asked about the status of negotiations towards a new television rights deal as their current contract with NBC Universal expires in 2019. Smartly, they declined to make a statement.
I say smartly because in the period leading up to the announcement of the last contract back in 2014, Vince McMahon famously guaranteed that the company would double the amount of money that they were getting from the terms that they were currently working under. Of course, that didn’t happen and the WWE stock took a large hit when the new deal was announced since part of the run up that the stock had was attributed to the promised jump in revenue rights fees. So, it makes a lot of sense to not contract another case of foot-in-mouth disease if it can be avoided. But, it’s also smart to keep from commenting because the cable television world is changing at such an alarming pace that predicting two months into the future can be difficult, let alone two years.
Even under the best of circumstances, the negotiations with NBC Universal would be a battle. Under much better circumstances in 2014, WWE couldn’t come close to doubling their rights fees. The landscape in the cable industry is, to be honest, a minefield. Cable networks are being hit hard from a number directions. Obviously, cord cutting has become a major problem for the industry. Even when they keep customers via streaming, they don’t generate the revenue that they did from having that content viewed by cable subscribers. For those that don’t care enough to get a service like Sling TV, there is no revenue to be had at all from the cutters unless they purchase their channel directly. More and more people are happy to pay for Netflix and/or Hulu Plus, and then use and old school antenna to get the broadcast networks for free. In the old days, people had to see shows in “real time”. Now they are happy to wait and binge on whole seasons well after the fact. And of course, there are the gaming options that allow people to create their own entertainment, on their own terms. All of these things are taking aim at cable programming.
As we have seen with ESPN, in particular, the loss of cable subscribers has directly affected the bottom line and massive cuts throughout the company, including long-time on-air talent, have been massive. They are creating a new normal in Bristol and the pain has been felt far and wide. Their main issue came from the massive amounts that they have paid in rights fees for various sporting events. It is harder to make that money back when less people are paying (via their cable bill) to watch, or not watch, ESPN. A la carte programming is allowing the people that don’t want ESPN to no longer have to pay the $9 dollars a month or so that ESPN charges. ESPN is the extreme example, but the bottom line is as people cut the cord, revenue disappears. That has an affect on what programmers will pay for content.
If that were the only issue, WWE would probably be still standing on solid footing, but there are a few other items that could work against them as negotiations with NBC Universal near.
For one thing, back in 2014, USA Network was still creating new hit shows and being the top rated Basic Cable Network was very important to them. Adding in the strong, weekly viewership of Raw was a great strategic move to help them achieve that goal, at a very affordable price. Their original programming plus the WWE audience often meant that they won the race. Since then, they haven’t been creating the hits that they used to. They moved Smackdown to Tuesdays as a concession to that fact. If they were to change their philosophy, and choose to reset their strategy, WWE programming could be worth less to them. Maybe a lot less.
But the bigger problem that WWE has to face when dealing with NBC is one that they have completely created: Themselves. NBC could very well feel that WWE has not lived up to their end of the deal and take a hard line approach when it comes to negotiations. Why you ask?
For the sake of comparison the 5/12/14 Raw, which was the show before WWE announced that new deal in 2014, did 4,006,000 overnight viewers. By contrast, the second May Raw of 2017 did overnight 2,696,000 viewers. For you math types, that is a drop of 33% of people watching Raw. While WWE didn’t double their rights fees as they promised that they would, their sales pitch that WWE was “DVR proof” programming since people wanted to watch it in real time did garner them a significant increase from NBC Universal. And that increase was rewarded by losing almost a third of the viewers that were supposed to be “DVR proof”. The worst part is that the company itself, with it’s predictable booking and stale presentation, are the primary reason that the product has become DVRable! They did it to themselves.
I can’t state this for a fact but I think it’s reasonable to assume that NBC Universal didn’t pay more money for less viewers. That isn’t how business works. When you add in that the main reason that the viewers have left is due completely due to the people that told you that they wouldn’t? That could create some animus.
So in two years, WWE very well may find itself in a position where it could be facing a reduced offer from NBC, or worse. In this climate, it may be hard to even find other bidders that are willing to pay what they are getting now. After all, in 2014 NBCU put the best offer on the table and it was far less than what Vince McMahon wanted.
WWE is mature product and in the TV industry, that often works against a program. When one adds in the concerning loss of viewers, it makes a mature product an even harder sell for top dollar. There’s a real possibility that USA may tell WWE we want to work with you, but you need to take a pay cut (and if that happens PLEASE, PLEASE, PLEASE get rid of that third hour of Raw, for all of our sakes). It’s possible they could just walk away altogether. If either happens, it seems pretty obvious that WWE’s top revenue producer, television rights fees, would take a major hit. And that would affect the company.
At that point, their options would be limited. They could look for another partner, most probably for less money. Or they could take it in-house on the WWE Network and create a tiered pricing model where they sell you a subscription to Raw and Smackdown and they sell advertising on the programs and keep what they sell. There is no guarantee that they could even come close to making up for the lost revenue with either option.
Neither of those options is better than what they have in place now. To me, the best way to not have to make the decision as to which fork in the road that you have to take is to make sure you never have to make the decision. The company still has time to bail water from the ship to keep it from going down. It would require a commitment to changing up the predictable way that they do business immediately. If they want to avoid coming to that unwanted fork, the time to make changes is now. If they don’t, this time in 2019 could be really scary for them.
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