WWE's Barrios: We can't underestimate impact of shift to online video

WWE began thinking about a bigger online presence more than three years ago, an idea that came to fruition as WWE Network, its hugely popular subscription video on demand (SVOD) and live streaming service. But the company's shift from pay-per-view to online has had a few challenges, Chief Strategy & Financial Officer George Barrios told investors.

George Barrios, WWE

Barrios (Image source: WWE)

"It's a significant pivot in the business model," Barrios said during a presentation at the J.P. Morgan Global Technology, Media and Telecom conference in Boston. "We have transitioned essentially the core growth platform to a subscription video service."

WWE's move proved popular with the audience, as its $9.95 per month service signed on more than 667,000 subscribers in its first six weeks, particularly around its premier Wrestlemania event. But investors haven't warmed to it as quickly: WWE's stock dove more than 40 percent on Friday after the company announced a licensing deal with NBCUniversal that disappointed investors, and revealed that it wouldn't make up the lost profits from its pay-per-view business until 2015.

"Doing that kind of pivot within a public company construct makes the communication issue a challenge. We have to be as transparent as possible. You can't underestimate the (impact of) the shift," he said.

WWE remains optimistic about its online network's potential. Following the two most profitable years in the company's history, 2009 and 2010, WWE went into an "investment phase," Barrios said, looking at the potential profits involved in two key business strategies. The company looked at launching an online network that would monetize its social media and digital media assets, and at renegotiating its four largest rights deals, he said.

By 2013 the company had locked in those rights deals and felt that the profit potential made the shift to online video a risk worth taking.

But to surpass its 2012 OIBDA (operating income before depreciation and amortization) high of around $63 million, WWE needs to continue adding subscribers. It's well on its way with nearly 700,000 signed up, but it needs to double that number to match what it once made solely through its pay-per-view broadcasts.

"Break even for us on a global basis … is about 1.3 or 1.4 million subscribers," Barrios said. "Our pay-per-view used to generate on average about $40 million. … With that 1.3 or 1.4 million we think we can generate about that same $40 million of OIBDA."

WWE's 2015 outlook is much more favorable, as it predicted growth in its subscriber base to as much as 2.5 million, which would drive net income somewhere between $57 million and $105 million.

For more:
- listen to the webcast
- Bloomberg has this story
- The Motley Fool has this post

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