The Peacock Network purchased the U.S. rights to the WWE Network for what was believed to have been slightly more than $200 million per year over five years.
This was a WWE President Nick Khan deal and it’s a positive for both WWE and its fans. It was also an admission that the WWE Network, as it stood, was never going to reach its intended targets, but the company ended up coming out stronger financially with the deal.
A deal had been talked about for months, although the nature of the entire network being moved over surprised a lot of people. While those working at the WWE Network itself were blindsided, we do know that the top of the top brass at the USA Network were aware of these talks months ago.
The WWE was generating about $132 million in the U.S. annually for what they sold for a figure of over $200 million, and the profit difference is greater than that because the deal would allow WWE to cut back on some expenses as well.
That U.S. revenue number wasn’t going to grow much, and actually, was more than likely going to slightly decline annually over the next five years. In doing so, WWE also lowers its costs because there isn’t as much money they would have to put into corporate structure and marketing of the network domestically (the network will continue overseas although no doubt WWE would try and sell it and outsource it similarly if it can in other markets).
Peacock gets a guaranteed subscriber base which it can monetize through stronger ad rates. Wrestling fans get the product for half the price, although to get it ad free would be the same price. WWE has already gotten a stock price bump since word had circulated over the deal, and it should be a long run bump because it will increase their annual profit margin and the money is guaranteed over the next five years and not subject to consumer whim or likely be impacted by bad news in the world or the economy.
WWE and NBCU are in bed together even tighter, meaning NBCU is likely to bid stronger for the Smackdown rights when they come due in the fall of 2024. It wouldn’t surprise me to see NBC offer WWE a network slot for Smackdown, not because Smackdown can do NBC Network-level numbers, but because it would be part of big-picture cross-promotion for Peacock.
Peacock itself had 33 million sign-ups as of 12/31. Subscribers to Comcast’s Xfinity X1 and Flex and Cox’s Contour get the premium service of Peacock at no additional charge, which total 24 million of the approximately 121 million U.S. homes. Those homes would be able to get all WWE PPV shows and WWE Network content free. For others, the price is $4.99 per month for an ad supported tier and $9.99 per month for a tier with no advertising. Some are talking about the idea that because far more homes have Peacock than WWE Network that it would lead to a huge increase in popularity. The reality is that far more homes, 121 million, have television and most get FOX, and nearly triple the number of people who currently have access to Peacock get USA, and with that exposure, the popularity overall is not growing. This was the same argument made when the company debuted on FOX in October 2019, that being on network prime time would lead to a popularity boom period for the industry, and the reality is popularity isn’t growing. Without normalcy, we don’t know how much or if it’s truly declining because TV ratings, while the most important financial metric since that’s where the majority of the money comes from, are only a piece of the puzzle. The metrics that would tell us better the popularity and hotness of the product aren’t there. But those metrics were not increasing prior to the pandemic with the new exposure on FOX.
The economics for Peacock don’t look pretty, but they aren’t buying it for current economic value. The idea, like with ESPN+, was to use wrestling fans to build a streaming service. However, the economics worked out extremely well for ESPN. Even forgetting the value of the $5 per month ESPN gets for the subscribers who don’t buy the PPV, ESPN’s take for the year just from PPV buyers was $350 million for UFC PPV events, and they paid $200 million. Basically it’s a huge profit maker and when the deal is up, as noted, on the next deal, I’d suspect UFC gets closer to $400 million or more.
For Peacock, if we go with 1.1 million subscribers at $4.99, that’s about $66 million. To get them I’m counting on the same number (20 percent) that will get it free and will buy the ad-free version. If less than 20 percent buy the ad free version it’s a lower number. If more, then it’s a higher number. They are paying $200 million for what, because of half the price of the WWE Network at base, will be a deal that would cost them $670 million over five years. But their belief is at the lower price, and with all the other entertainment programming thrown in, that far more than 1.1 million wrestling fans will get the service. In addition, all streaming companies are buying things up at way over their current market value to get people in on the ground floor and get a base of regular subscribers fast, with the idea like with so many companies and early purchases, it will pay off over time.
Cordella feels that for the WWE audience, the idea of seeing all the other programming, plus the ability to monetize via ad sales, will make money on the ad end and the lower price and other content will lead to far more subscribers than the network currently has. That’s counting on the wrestling audience being interested in programming other than wrestling which crosses over to what Peacock offers.
Khan sees being on Peacock as a chance for WWE to make new fans, although the reality is that’s still what television is for.
“If it is only on WWE Network and you are not a fan yet, why would you subscribe to that?” Khan said. “This gives a chance to win people over when it is right in front of them and the hope is there is a trickle down effect to Raw and SmackDown and ultimately to ticket sales, once that is happening again, merchandising, etc.”
One would think the key product, the PPV, would not take ad breaks during the matches. It likely would between matches when they otherwise would be doing their own in-house ads.
This is also the last major deal for the company, according to Khan’s comment to Sports Business Journal until the new television deals, which expire in October 2024, which likely means talks begin in late 2022 and through 2023.
The other key is with the income guaranteed, it does not guarantee WWE’s popularity or audience connection, but completely now guarantees them $670 million in revenue annually in the U.S. market alone, not including any international deals, or non-television/streaming based revenue such as merchandise, licensing or live events when they return.
Essentially it is less important than ever before in putting on a product that appeals to fans or creates new fans, and the key is simply churning out content. While quality is always important in the long run, it has never been less important than now. It also adds to the company’s already immense financial advantages over competitors both domestically and worldwide, most notably AEW and New Japan Pro Wrestling, particularly in uncertain economic or other times, such as the period we are in now.
Some business insiders see this as part of a deal where NBCU will attempt to purchase the company, which in the long run, makes sense. And with this, the price value would go up. If NBCU were to offer WWE $6 billion today, well above the current market value which is just over $4 billion, they already pay $670 million annually now, a number that will likely go up, particularly for Smackdown because there could be multiple bidders in a few years. If we were to estimate $760 million in guaranteed revenue after the next round of television deals, and that is a low-end estimate (the last industry estimate we saw would have the new deals in 2024 end up in the range of $952 million for those who think the sky is falling and this all collapses when these deals come due–and like with the current deal, the vast majority of the new revenue goes right to the profit side of the ledger), if NBCU gets Smackdown, essentially paying a large percentage of almost all of WWE’s annual income. At six billion, it pays for itself in less than eight years, and after that, they own the property and only have to fund the company at whatever budget they want and it guards against future rights fee increases, and will also take in revenues from international, live events, house shows, merchandise, licensing and everywhere else.
When this deal is up, in 2026, Vince McMahon will be almost 81 and selling at that price will make the most sense for him. Really if not for the FOX deal for Smackdown, it would have been beneficial for NBCU to have simply tried to buy the company. All these things tied up for NBCU makes it difficult for anyone else to get the property down the line. Another key is that now, on FOX, every Friday night, on their network, Smackdown will be pushing PPV shows airing exclusively on Peacock, which is an uneasy alliance.
When George Barrios and Michelle Wilson were Co-Presidents, they were big on the network because of the analytics available to learn from and about the hardest core consumer base. In a conference call after they left, Vince McMahon seemed less interested in that data, and with the sale of the network having that level of data in house to study from.
In many ways this deal was inspired by the success UFC had in growing ESPN+. But there are key differences and the UFC deal in the long run is far superior even though the prices for each deal were identical.
The UFC deal saw the company maintain its own network with the archival footage of UFC and other MMA promotions, and built it around streaming live events from other MMA promotions as well as other combat sports like kickboxing, boxing, Jiu Jitsu and submission wrestling. The UFC deal with ESPN gave fans access to live weekly shows and maintained PPVs as a buy-per-event with a high price tag, now $69.99. After a brief period the first year, largely due to the breakthrough of last year’s Conor McGregor vs. Donald Cerrone fight, UFC has been able to convert its television PPV buyers to streaming buyers. Granted, it was a disaster this past week with the servers unable to handle the interest level of McGregor vs. Dustin Poirier on 1/23, but the belief is that event was the second biggest PPV event in company history, doing so with even with no television availability of the show in the U.S.
The most notable aspect of the decision is that Peacock will not have a PPV component.
Instead, they purchased rights to the WWE Network and Peacock’s price will be $4.99, half of the $9.99 WWE had charged, although that price will include advertising during the shows. All PPVs, including WrestleMania’s two days, will be part of the package. Peacock basically adds 1.1 million subscribers to its network (this deal is only for the U.S., the existing WWE Network will remain in foreign countries, although it is likely this will spur on deals with streaming services in those companies to sell off local rights similarly).
The WWE Network had basically plateaued years ago and was never going to come close to the three to four million subscribers projected at launch. There had been declines in recent years, but due to a new strategy of adding a free tier, there was an increase in the past year, but it had leveled off. WWE had talked of doing different tiers including a premium tier for hardcore fans that would include non-WWE wrestling content from different promotions. But with the pandemic, those promotions they were working with were not running, and also, with the decline in independent talent, it was going to be far tougher for them on a relaunch. Evolve, which was a key company in that deal, had already folded.
WWE also has sold network rights in different countries to local conglomerates. While no two deals are alike, WWE has deals with Rogers in Canada and Astro in Malaysia for actual regular television channels, Sony LIV in India (as an add on to the subscription price) and PP Sports in China (as an add on to the regular subscription price).
At the end of October, the WWE Network had 1,137,000 U.S. subscribers and 412,000 outside the U.S. Last year in quarter four the U.S. subscriber number fell 66,000 which would be a similar estimate for this year, and then it would grow in quarter one with the Rumble and lead-up to WrestleMania.
At the end of October last year the numbers were 1,062,000 and 404,000. The numbers were below that of 2019 in the first quarter of 2020, but a combination of the pandemic and the free tier and certain changes did lead to growth over the next six months of what was a slowly declining number. This also explains recent gimmicks such as going to previous subscribers with cut rate offers to build up the number of paid subscribers leading into these negotiations.
Going with a 1.1 million number, the revenue driven would be roughly $132 million per year. When UFC made its deal for an estimated $200 million for its PPVs, it got a figure roughly what the company was already getting in PPV but guaranteed them in lean times, such as post-McGregor if no new stars emerge, through 2025.
But this has to be worth more because the one thing with the UFC deal is that in 2025, they can still sell their content to a rival network and take back the PPV business. They’ve already converted their PPV audience to streaming so would no longer have to go with cable companies, and at a $69.99 price, if they were to do six million buys per year, that’s $420 million, more than double what ESPN paid for the original deal. Or ESPN or someone else could buy it with that value, because they’ve eliminated the 50 percent charged by the cable companies by converting the audience to streaming.
The changeover will be on 3/18, which explains the addition of the Fast Lane PPV show on 3/21, just 20 days before the two-day WrestleMania. Fast Lane and WrestleMania will be used to roll out the service and NBC will likely do massive promotion for both events along with WWE. Part of the deal is that Peacock will be charging for advertising, so there is added value for them past the subscription price, so expect WWE content but with more ads, similar to ESPN+.
Unlike with UFC, WWE and Peacock will continue to have PPV events available via traditional PPV channels, although that revenue, because of the price, is fairly minimal these days. As of a year ago, the events were doing about 10,000 to 15,000 U.S. buys for the B shows and the 2019 WrestleMania did about 65,000, down about 90 percent from when television was the exclusive. In reality, given the price difference, it’s actually a surprise they’ve maintained that ten percent.
This also lowers the pressure on WWE when it comes to offering new programming to the network, since the key component, the PPVs, will be rolled out monthly and as part of a giant service, the ups or downs won’t be able to be fully attributed, or blamed, on the performance of the pro wrestling end. ESPN+ was able to target the live UFC shows as the key points of growth for that network until the Disney tie-up, and that may be the case early with WWE as well. But the key with the ESPN+ deal is that every month they know who, both old and new, is ordering the service specifically for UFC because they are buying the PPVs, apart from those who already have it or get it for the weekly shows. The most-watched programming on the network besides the PPV shows has been the in-house documentaries and Broken Skull Sessions and compilation of old content shows, or old major shows each month. Most of that is fairly low cost.
The entire 17,000 hour library will be moved over to Peacock.
