WWE Announces Limited Video Advertisements on the WWE Network

WWE NetworkUncredited/Associated Press

WWE sent an email to WWE Network subscribers indicating that starting today “WWE Network will begin to run limited video advertisements.” (Full text of WWE's email to WWE Network subscribers is available at F4Wonline.com.)

While many WWE fans were not expecting this development, it should not come as a total surprise.

When WWE announced the loss of 128,000 WWE Network subscribers during the second quarter of 2014 due to "payment issues," I speculated that WWE may begin displaying advertising on the WWE Network. 

WWE has always noted the possibility of adding advertising to the WWE Network in financial documents and investor presentations. 

For instance, during May's conference call covering WWE's first-quarter results, analyst Andrew Peranick raised the issue of advertising on the WWE Network. At that time, Vince McMahon simply said, “We haven’t been public as to a timeline, but obviously we’re looking at the overall business model and obviously that would make sense.”

Now that the WWE Network has been launched in over 170 countries and territories, the time has come. AdAge.com notes that Pepsi, Mattel and Kmart are among the initial high-profile sponsors.

Launching the WWE Network has been an expensive project for the company, as the service quickly cannibalized pay-per-view revenue. In the second-quarter results presentation, WWE announced that the company had plans to “improve its 2015 OIBDA outlook by $30 million” through a series of “measures to reduce costs across all of its business units”.

Cost-cutting is only one part of the plan. Generating more revenue is essential. The accelerated launch of the global WWE Network is an example of WWE's strategy to quickly grow revenue generated by the WWE Network. Depending on whether there is a negative impact on subscription levels, the advertising initiative could improve overall WWE Network profitability by generating additional revenue.

Interestingly, the deployment of advertising on the WWE Network coincided with the announcement of Lou Schwartz as the new Chief Digital Officer for the WWE. As noted by Marc Graser of Variety, Schwartz is filling a position that was vacated when former executive Perkins Miller left the WWE to join the NFL as the league's new Chief Digital Officer.

It is especially intriguing to note that WWE adopted new terminology with this position. Lou Schwartz is the “Chief Digital Officer,” while previously Miller had been the “Executive Vice President of Digital Media.”

The new chief digital officer will report directly Vince McMahon. He'll be responsible for “expanding WWE’s digital and social media presence and profitability” and “developing strategic plans and initiatives for all digital platforms.” Moreover, a very important part of Schwartz's job will involve overseeing “product development and operations for WWE Network.”

Lou Schwartz is the first new high-profile hire announced by WWE with significant involvement in the WWE Network since the departure of Miller. The previous person in charge of the WWE Network was Matthew Singerman. 

Singerman was brought on-board to the WWE as an Executive Vice President of Programming in November 2013. However, as Dave Meltzer reported in the Wrestling Observer in May 2014 (subscription required), Singerman was allegedly released as the "first scapegoat for the network performing below expectations."

As for the new WWE Network advertising, WWE outlined what subscribers can expect: 

• No commercial breaks during scheduled programming
• Limited advertising between shows
• Occasional advertising before our video-on-demand content 

According to Business Insider, the ads range in length from 15 to 30 seconds and are "served on every fourth stream."

It remains unknown how fans will react to this decision.

Some streaming subscription video services, notably Hulu Plus, have video advertisements. Netflix, with a much larger subscriber base, does not have video advertisements.

On Hulu Plus' help page, the answer to the question "Why are there ads in Hulu Plus?" is simply, "to reduce the monthly subscription price of the service."

Presumably, WWE is taking this same approach. However, this will be another calculated risk for the WWE.

It will be very interesting to see whether or not there will be an immense subscriber backlash.