Updated February 16, 2015 with references to MLB.tv and MLB At Bat app.
The future is here and it is the WWE. I am not referring to the wrestling, but rather how WWE is delivering its content to its customers.
Vince McMahon's company is losing money but that is besides the point. The success of its WWE Network--the first-ever 24-7 direct-to-consumer network that was launched live in the U.S. just a year ago that delivers content directly to fans through over-the-top digital distribution--is a success. WWE collaborated with MLB Advanced Media (MLBAM), whose MLB.tv (2002) and its At Bat app (the highest-grossing sports app of all-time) were media's first two OTT offerings,
Yesterday, WWE reported results for the fourth quarter and 2014 that were better than expected thanks to its fledgling network. As Variety reported, the network ended the year with 816,000 subscribers, WWE said, adding 85,000 during the fourth quarter, representing a 12% increase from Sept. 30. It surpassed the 1 million mark in January, 11 months after its launch. Advertising and subscription sales from the WWE Network and PPV events boosted network revenues 64% to $27.2 million during the quarter, with the streaming service accounting for much of that figure, or $23.3 million.
Give McMahon credit for having the guts to go against conventional wisdom and critics who wanted WWE to stick exclusively with its pay-per-view model. McMahon has looked Joseph Schumpeter's creative destruction theory in the eye and smiled right back. It takes you know what to take a profitable business model and rip it apart, but that is exactly what McMahon has done.
Wall Street is waking up. Since going public in 1999, WWE has badly underperformed the overall stock market. Much of the bad performance was due the stock falling 40% in one day last May. As Fortune put it,"Another reason for the big blow: the company’s WWE Network, an online streaming service, is cutting into pay-per-view revenue with little improvement expected. Around 700,000 people have subscribed since February, but the company needs over one million by end of 2014 to meet its internal goal."
And in September, the Motley Fool questioned the sustainability of WWE's 48 cents per share annual dividend. But the dividend has been maintained and with WWE's free cash flow coming in at $57 million in the fourth quarter, 10 times more than the same quarter in 2013, a cut in the payout is not likely.
But yesterday, when the overall stock market was up less than 1%, WWE's stock price rose 7%.
Over-the-top is what will drive the WWE Network's growth and is the wave of the future. Last year,
You can listen to sports media expert Chris Bevilacqua explain the potential of OTT and the Dish-Disney deal on the YES Network's three-time Emmy Award winning show Forbes SportsMoney last year on this video.
While Disney boss Bob Iger recently said in a conference call that ESPN parent Disney sees no compelling reason to take an over-the-top (OTT) version of the sports powerhouse to market anytime soon, I think the possible scenario put forth by Deep Media--networks going OTT--will become a reality sooner rather than later. Wrote Frank Rose: "The first suggestion that this (OTT) might be changing came last summer, when a top analyst, Craig Moffett, reported that US cable and satellite companies lost more than 300,000 subscribers between June 2012 and June 2013.
I don't think broadcasters of the major sports leagues can impede this tsunami. The NFL's introduction of NFL now, an OTT digital content network launched a little over a year ago that features highlights, archival content, news, behind-the-scenes programming, ticked off the league's networks, even though it does not show live games, but there was nothing Fox, CBS, ESPN or NBC could really do to stop it. Or if there was, the potential of losing the NFL prevented them from doing anything about it.
Economics lesson in 2025: How Vince McMahon captured the spirit of Joseph Schumpeter.
