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Delay of WWE Network in UK Underscores the Importance of WWE's TV Rights Deals

Chris Harrington@mookieghanaFeatured ColumnistSeptember 30, 2014

This graphic released by the WWE shows the logo for the new WWE network. The WWE Network launches Feb. 24, 2014 as a streaming service for $9.99 per month with a six-month commitment and will include all 12 pay-per-view events. (AP Photo/WWE)
Associated Press

Many European wrestling fans were greatly disappointed with Monday's revelation from the WWE that the launch of the U.K. version of the WWE Network has been delayed.

Last month, when the WWE Network expanded to more than 170 countries, the press release said "the network is expected to be live in the UK by this October."

However, as of today, the WWE Network FAQ for the United Kingdom reads, "The launch of WWE Network in the U.K. will be delayed given discussions with potential partners. A launch date will be announced by November 1."

The last-minute delays in officially launching the WWE Network in the United Kingdom underscores the WWE's difficult balancing act.

The company needs to retain lucrative domestic and international television rights contracts. Meanwhile, WWE is transforming their global distribution strategy with the expansion of the WWE Network.

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U.K. is a key market for WWE

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In the latest WWE Investor presentation, the company notes that their four key markets are the United States, United Kingdom, India and China. 

At the beginning of the year, WWE announced that BSkyB (covering the United Kingdom and Ireland) had won the exclusive television rights for WWE programming. BSkyB signed a new five-year with WWE which extended their partnership through 2019.

Georg Szalai of the Hollywood Reporter noted that "financial details of the BSkyB deal weren't disclosed, but sources say its value is believed to be about three times that of the previous five-year agreement."

Dave Meltzer of the Wrestling Observer Newsletter suggested that the WWE benefited greatly from a network bidding war between incumbent rights-holder BSkyB and rival network BT Sports. Previously, Sportspromedia.com reported that WWE's 2009 television distribution agreement with BSkyB was the company's largest international TV rights deal.

It's very likely that the new deal with BSkyB is still WWE's largest for international TV rights.

As one of the most important international marketplaces for the WWE, an important caveat in the new BSkyB deal is that Sky Sports Box Office will begin carrying all 12 annual WWE pay-per-views starting in 2015.

This new pay-per-view arrangement creates natural conflict with WWE's plans to launch the WWE Network. After all, it would be difficult to sell individual pay-per-views on Sky Sports Box Office if they were available for a lower price as part of an over-the-top WWE Network.

For many fans in the United Kingdom, the press release phrase "discussions with potential partners" is raising concerns that the WWE Network in the United Kingdom might not be offered as an over-the-top service at all.

Instead, it's possible that WWE may follow the example of Canada's Rogers Communications.

Recently, Rogers announced a 10-year "broadcast and multimedia agreement" with the WWE. Rogers became the "exclusive distribution partner of all WWE pay-per-view events throughout Canada." Instead of being distributed over-the-top, the Canadian version of the WWE Network has launched as a "premium linear channel."

Will the U.K. version of the WWE Network only be available to Sky subscribers? At this moment, everything is quite unclear.

Dave Allocca/Associated Press

WWE television rights remain the company's lifeblood

Over the past 15 years, WWE's television rights (and television advertising revenue) have grown from less than $40 million in fiscal year 1999 to more than $160 million for calendar year 2013.

For many years, WWE was receiving a significant amount of advertising and sponsorship revenue related to their television broadcasts in the United States and Canada.

For instance, in fiscal year 2001, advertising generated $90 million for the WWE. However, the bulk of the domestic television advertising revenue on Raw was eventually stripped out of the 2005 deal with NBC Universal when Raw returned to the USA Network. By calendar year 2011, television advertising and sponsorship net revenue had dropped to just $1 million.

WWE continues to concentrate on growing domestic and international television rights fees.

WWE Television Rights Revenue
Time PeriodDomestic TV RightsInternational TV RightsTV AdvertisingTV RIghts
Fiscal Year 1999$5.0$4.1$30.1$39.2
Fiscal Year 2000$7.0$5.1$77.9$90.0
Fiscal Year 2001$20.9$14.3$90.2$125.4
Fiscal Year 2002$35.0$18.3$83.6$136.9
Fiscal Year 2003$38.8$19.7$72.9$131.4
Fiscal Year 2004$48.3$22.8$59.5$130.6
Fiscal Year 2005$53.2$24.8$43.7$121.7
Fiscal Year 2006$53.0$28.5$22.6$104.1
Transition Year 2006 (8 months)$38.0$27.0$4.5$69.5
Calendar Year 2007$59.6$32.8$5.9$98.3
Calendar Year 2008$63.5$37.2$7.4$108.1
Calendar Year 2009$72.8$39.1$7.7$119.6
Calendar Year 2010$81.6$45.4$5.9$132.9
Calendar Year 2011$80.3$51.2$1.1$132.6
Calendar Year 2012$88.9$50.6$1.4$140.9
Calendar Year 2013$105.9$55.0$2.5$163.4
Analysis by Chris Harrington (https://sites.google.com/site/chrisharrington/wwe_tv_rights_revenue)

2014 has been a huge year for announcements of TV deals by the WWE.

WWE has announced the aforementioned U.K. agreement along with many other international countries including India, Canada, France, Germany, Austria and Thailand. They've also signed regional deals covering Latin America and the Middle East.

The most important deal was WWE's domestic television rights deal.

After months of negotiations, the WWE finally announced a new, multi-year deal with NBC Universal in May 2014. This covered the domestic television rights to Raw and SmackDown. While WWE touted the "potential for significant earnings growth" from their renewals of several "Key Television Agreements," investors were disappointed.

Shares in WWE plunged overnight due to investor disappointment. Forbes estimated that Vince McMahon lost nearly $350 million in a single day due to the share price dropping 40 percent.

In the end, WWE's new domestic television rights deal didn't meet the high expectations that had sent the WWE stock soaring in the prior months.

Meanwhile, the WWE has been struggling with the costs associated with launching the WWE Network.

The company detailed in their second-quarter results that "OIBDA results declined to a loss of $14.6 million from income of $14.9 million in the prior year quarter." That's a drop of $30 million.

The culprit was the WWE Network. In particular, "the ramp-up of WWE Network resulted in $15.5 million reduction in OIBDA as the growth in subscribers and subscription revenue was more than offset by the loss of pay-per-view revenue and increased programming, customer service and marketing costs."

It's clear that WWE is sacrificing a lot of revenue streams to get the WWE Network off the ground.

RICHARD DREW/Associated Press

The company is cannibalizing their pay-per-view revenue. They are also endangering their home entertainment sales. Most importantly, launching the WWE Network has even alienated cable and satellite distribution partners.

Even Vince McMahon admitted during the second-quarter conference call that launching the WWE Network in February “definitely had a negative impact” on the recent negotiations with NBC Universal. 

With such an uncertain financial future for the WWE Network, it makes a lot of business sense for the WWE to shift gears and continue to shore up their lucrative television rights.

In that context it makes more sense why WWE agreed to such a long-term deal in Canada which included launching the WWE Network as a premium cable channel. When asked, Vince McMahon told investors that Rogers simply made "an offer that we couldn’t turn down."

It appears that WWE is increasingly focused on maintaining a strong relationship with their television distribution partners.

Television rights fees generated almost a third of the company's revenue in calendar year 2013. With so many deals now signed and set to take effect in 2015, the company will be increasingly dependent on those relationships in the short term. They need the television revenue to subsidize losses from WWE Network.

Perhaps the global launch of the WWE Network will give the service the momentum to take off and become an enormous profit-generating mechanism. However, until then the WWE cannot afford to damage their lucrative television partnerships.

This is especially true when it comes to BSkyB, since that is likely the WWE's largest international TV right deal.

Did the WWE ever intend to launch in the U.K. on October 1? Was the timing just a negotiation tactic in discussions with Sky? Right now, it's very hard to say. Perhaps a clearer picture will emerge after WWE releases their third-quarter results in late October. Those will include initial results from August's global WWE Network launch.

All we know is that right now WWE is taking things slowly when it comes to rolling out the WWE Network in the United Kingdom. While this may be frustrating for European wrestling fans, remember that it's all part of a larger calculated risk for the WWE.

For more analysis on WWE Financials, be sure to follow me on Twitter at @mookieghana.

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