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One of the things I talk about every winter, as Royal Rumble season approaches, is the fact that there will be a cadre of fans that come back to watch WWE’s product from The Royal Rumble through WrestleMania. After it’s over, they take their money and go away again until the next January. I always say that WWE should do everything humanly possible during those three months to engage the viewers so that once WrestleMania is over, they choose to stay on and keep watching WWE…..and spending their money on the product. After all, the fans care enough to check in and watch the product the first three months of the year, it stands to reason that if they were entertained that they would keep doing so once April comes.
Obviously, they have failed again at that objective again this year. As announced on the Earnings release, they hit two million subscribers for the WWE Network after WrestleMania. By the end of the quarter, they expect 300,000 of those subscribers to cancel their subscriptions. They expect to have a 5% DECLINE from the number of subscribers that they had in the second quarter last year. So apples to apples, they not only couldn’t get the comebackers to stay, they will lose another chunk of people who have screamed ENOUGH ALREADY and tapped out to the Network. The market looks for growth, WWE is giving them recession.
Let me be clear here, it’s not the Network’s fault. That product is an incredible value for wrestling fans, even if you don’t enjoy the offerings of Raw and Smackdown. There is so much excellent, top shelf content on the WWE Network that fans get more than their money’s worth, even if they don’t watch the PPVs. But in the above mentioned cases, that is not enough.
The reason that they bail out on WWE every April rests solely on the shoulders of the real head of creative, Vince McMahon. The poor build to this year’s WrestleMania is THE main reason that most of those that came back for the company’s super show have already said goodbye until next year….or least maybe they will be back next year. The storytelling didn’t engage them so they left. It’s that simple.
No matter how much great content is on the Network, the main roster product is the motor that drives the boat. When you bore fans with Raw and Smackdown broadcasts, they don’t feel the need to follow NXT or 205 Live or NXT UK. Vince is also turning off the NXT and 205 loyalists who get 100 percent behind the talents on those shows, only to see them wasted and misused when they fall under his creative. They see talent being wasted so they say goodbye. And in other cases, they stop paying the company for the Network as a way of sending a message. Their wallet makes the statement.
I am not splitting the atom here. These are very clear, obvious issues that the consumers are sending a message about. In most companies, the message would be received, loud and clear, and attempts at real change would be made. But, most companies don’t have a man who is in serious denial of his inability to connect with his fan base in charge of the product the way that WWE does. Most companies have a Board that could tell the CEO that he is underperforming and needs to make real change. WWE does not have that hierarchy in place.
So it’s left to Vince McMahon to police himself, to see his mistakes and fix them (and given he is about to put $100 Million dollars into a football league that already failed once and most probably will again, let’s just say that self reflection isn’t a strong suit. It’s actually worse here though. The one thing Vince sees himself as, above all, is a star-making storyteller. If you look at his resume, he has a lot of hits there. The problem is, most of them are in the distant past. When it comes to reaching the audience today, he is missing more than he hits. If he weren’t, non-TV revenue numbers would be going up, not down. He has two options here. He could accept that his is missing more than he hits and change his process or he could double down and try to show us how right he is. Sadly, he goes with the latter.
It’s become crystal clear that while WWE markets to TV 14, they are not even engaging that demographic on the scale that they used to, and that is a problem. A big problem. Maybe not for the next few years, given the huge TV deals that will start in October, but three or four years down the road, when the company begins to talk about a new TV deal? That could be another matter altogether. If they aren’t bringing in new fans, the bleed of losing the old ones will erode at their base, and that base is what makes them so attractive to USA and FOX. Losing a lot more fans will put WWE in a worse negotiating position when it comes time to talk money on their next TV deal.
Then again, it may not take that long for it to affect the McMahon’s in the pocket. Wall Street may be able to put WWE on notice much sooner than that. As we saw earlier, after WWE released their first quarter numbers today, Wall Street reacted….in a big way.
There was a big sell off today, with the stock closing at $85.38, down $13.12 a share. For those of you who don’t invest suffice to say that is a massive loss in value for the company and not the kind of slide that happens very often. Going into today, the stock had seen a big run up and was trading near its 52 week high. Vince McMahon likes that. Then it took a big hit today. He does NOT like that. Some investors probably took gains but when the stock started falling in a big way, no one saw an opportunity to get in cheap, so it stayed down in the double digits, a 13.32 percent loss on the day. That means the McMahons, who are the majority stockholders, saw their WWE wealth drop today in a big way.
So yes, they have the TV money to look forward to but if the stock price keeps slipping, that is a black eye that they don’t want to endure.
The stock price has gone up significantly over the last 20 months on the back of the new TV deals, which was a good reason as revenues will increase significantly later this year, ironical not due to getting money out of fans, but getting it out of TV companies instead. Getting that kind of increase in revenue is significant, in many ways. And it still will be once they start getting paid later this year. The question will become what happens if every year for the next five years we are talking about a 5% drop in Network subs after Mania. That means that they would be under 1.4M subscribers then, losing another 300,000 from the 1.7M they expect to have at the end of the quarter this year. In four years, the TV landscape will continue to change as people cut the cord of cable. With less measurable viewers, who knows what that will mean for advertisers and their willingness to pay for sponsorships during any broadcast, let alone WWE. WWE would really hate to look back on today as their apex but it very well may be. It seems that some of the Midas-like goodwill that Vince McMahon has had with investors may be starting to erode.
Despite some less than stellar indicators in the other parts of the business recently (such as the drops in house show business and merchandise sales), the market trusted Vince McMahon had his finger on the pulse and would fix problems, such as when he told the callers on an earnings call last year that they knew what the problems were with house show and they had a fix in mind.
Investors trusted him then. Today? Not so much. In the future? To be determined. But let’s look at some issues that are probably going through the minds of people that put money into WWE’s stock.
Vince’s excuse for the house shows, and the merchandise being sold there, being down was the many, many top and mid tier talents who were hurt and thus could not appear on the shows. Well, Roman Reigns got sick. That is true. Seth Rollins, Alexa Bliss and AJ Styles were nursing injuries. John Cena, wisely, chose to move on to his next career and distance himself from WWE. But in the past, the shows have always been about the Brand, not individuals, so that excuse is weak, at best. And also in the past, they didn’t have the glut of injuries and the shows were down in attendance anyway, so today’s excuse seems very flimsy and investors can remember the past.
But let’s just say for a second that the house shows were all about the talents and not anything else (like how the talent is booked and presented on the largest revenue generator that they have, TV), how much faith would you have in Vince when he, knowing he had this “major problem” chose to do an injury angle with his most popular talent, Becky Lynch? He told his fans she is hurt and won’t wrestle at the house shows that he believed were being decimated by not having top tier talents available due to actual injuries. Wouldn’t you question that kind of thinking if you were putting your money in the company?
And even if it were legitimate, declining house shows and merchandise numbers are not a new issue. On an investor conference call last year, Vince acknowledged the decline in house shows and said they had a plan to fix it! Well, if he did have a plan, it clearly didn’t work because those numbers were down.
Today, he also talked about changes they are making too creative to fix their issues (and let’s be honest, the creative IS THE PROBLEM). If you were an investor, would you trust him?
After all, at the end of last year he went on TV and made the same claim, saying they realized all that they did wrong in their creative and would would start listening to the fans and giving them what they want. We all know that was storyline BS, but investors often don’t follow the actual product, just the money, Maybe they took him at his word then. Even if they didn’t, he went on TV and admitted what was a real, actual problem. He can’t say he didn’t know it existed.
So what happened? Nothing! They never listened to the fans. The fans didn’t want Becky Lynch to jump through 9,000 hoops. They didn’t want her in a three way at Mania. But, that’s what they got. They did the same thing with Kofi Kingston. And many others. Clearly, the fans will only get “what they want” if it’s also what Vince McMahon wants. If not, you will get what he feeds you. What he has been feeding us led to the numbers that dropped today so again if you were an investor, would he be losing your trust?
A lot of people like to make the excuse of streaming being the problem. I won’t deny that people do stream now and they aren’t counted by Nielsen. Hell, that is how I watch Raw, via Sling TV. So let’s just compare apples to apples. On Monday’s Raw, hour one did 2,680,000 viewers. By hour two, it had dropped to 2,296,000 viewers. By the time the show ended, with a match to determine who would be the first one to face new Champion Seth Rollins, they were down to 2,146,000 viewers. They lost 534,000 viewers in two hours. And it wasn’t like they were going up against Monday Night Football. They were going against the NBA playoffs, which did under 3 million viewers.
The message there is clear as the nose on your face, you had 20 percent of the people that gave you a chance tap out before the show ended. That is a huge problem, and it has nothing to do with anyone being injured and not appearing on a house show. It has everything to do with the man who sets the direction of the creative. You bored them and they turned you off Vince. They did it before WrestleMania, when you haven’t even drawn 3 million viewers to a Raw yet this year. They did after WrestleMania, when they cancelled their subscriptions. And those left behind? 20 percent of them did it to you on Monday night. There’s a very, very clear message being sent.
If you don’t take these issues seriously, Wall Street may do the same thing. You want your stock near $100, not at $20 again. For all of the hot air that was blown on today’s conference call, the time for REAL change is upon you. Will you finally get the message that your customers (and former customers) are sending you before your investors send you a bigger message with their capital?
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