The key to WWE's game-changing announcement of the new WWE Network streaming service this week was that all of WWE's monthly pay-per-view events, including WrestleMania, would be available live and in HD as part of the $9.95 per month subscription price. If someone buys all WWE PPV events in HD, they will be saving $555 per year with a WWE Network subscription.
In the traditional cable and satellite-based PPV model, the producer of the event only gets about 40 percent of the purchase price. The rest goes to the cable/satellite companies and distributors (InDemand, formerly known as Viewer's Choice, and Vubiquity, formerly Avail-TVN). In the past, WWE has withheld events to get a bigger piece of the pie from Viewer's Choice and DirecTV but quickly returned to the fold.
How will WWE's dispute with DirecTV be resolved?
On the Internet, where WWE controls the distribution and gets 100 percent of the revenue, they've been required to maintain pricing parity with the cable and satellite companies. This goes back years, even before the picture quality was really comparable to what we can get via traditional distribution. In addition, the events were only available on desktops and laptops until last year when game consoles were added, so Internet buys have always been a pretty insignificant number.
With all this in mind, ever since the plans for including PPVs on WWE Network were announced, I've been wondering how exactly WWE was going to get around the agreements in place. Were they waiting for current contracts to expire before they launched? Did they find some kind of exception that would apply to the new service?
It looks like WWE just decided to run with the idea and deal with the fallout later, as addressed by an article that appeared on the Los Angeles Times' website last night. The key was a statement from DirecTV, which was also sent to Bleacher Report when we asked for a comment:
The audience for WWE PPV events has been steadily declining, and this new low-cost competitive offering will only accelerate this trend. Clearly we need to quickly re-evaluate the economics and viability of their business with us, as it now appears the WWE feels they do not need their PPV distributors.
WWE responded with this:
While WWE has to say that, it's still funny to read it because there's no good reason for anyone with the ability to get WWE Network to choose traditional PPV over it at 450 percent to 550 percent of the streaming service's price, adding up to a $555 difference annually. On Wednesday, before the DirecTV statement, Vince McMahon told the Times "I think it’d be foolish for [cable and satellite companies] not to want to carry the pay-per-view anymore. It’s found money for them."
WWE fans in rural areas without broadband Internet access would still need DirecTV or Dish Network. While satellite Internet service has progressed to the point that speeds are good enough for high quality Internet video, providers like HughesNet (DirecTV sister company) cap maximum downloads too low to use it for WWE Network.
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DirecTV declined to comment on how they'd be affected and if dropping WWE PPVs would just encourage the rural fans to switch to Dish Network. Of the 103 million American homes with some kind of pay TV service, about 20 million have DirecTV, but there's no real indication how many of those homes can't get cable or fiber service.
In the long run, the most important thing about this dispute is this: If WWE PPV events stay on cable and satellite systems while also available at a steep discount on the network, WWE would have changed the PPV game for everyone with a stake in it. With WWE having set a precedent that the traditional distributors won't do anything, everyone else can follow in their footsteps.
TNA (if they're still producing traditional live PPVs since none are scheduled right now) UFC, Showtime and HBO (the latter two produce the major boxing PPVs) would be able to put their events online at a discount while still making more money than they do with 40 percent of traditional PPV. At UFC's new price of $59.95 HD, they get $23.98 per buy.
If UFC went online with HD PPVs at $35 instead of having to match the $59.95 price point like they do now, it would be a significant discount for fans while increasing UFC's revenue per buy by almost 50 percent. They could even copy the WWE Network model, albeit at a higher price because PPV is a significantly bigger piece of their overall revenue than WWE, which relies more on TV rights fees.
Independent of the DirecTV standoff, there are a few more ways WWE Network may affect UFC:
- In the short term, UFC may benefit, as fans of both will be less inclined to skip UFC events in the same billing cycle as WWE's biggest and best shows like Royal Rumble, WrestleMania and SummerSlam.
- On the not so good side, this leaves UFC as the last monthly producer of live PPV events. With TNA either quarterly or gone, HBO and Showtime only doing a couple of events each in 2013 and WWE moving their PPVs to WWE Network, UFC stands alone. It looks a lot more expensive when they're the only ones doing it.
- Also not so sunny: If the "UFC fans are WWE fans who grew up" theory is true, then down the line, UFC fans will not have been trained to see monthly three hour events that each cost the same price as a brand new video game as anything resembling normal.
WWE helped build the PPV industry, but they've recognized that it's time for them to put it out of its misery.