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Best For Business (10/2/15): Don't Panic Over Ratings

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It's time for another edition of "Best For Business," the only column here at Smark Henry that deals with the numbers and metrics behind the wacky world of professional wrestling.

So the news is in that this week’s edition of WWE RAW set a historic non-holiday ratings low of 2.33 with just 3.3 million viewers, which is the flagship show's smallest audience since it expanded to its current three hour format back in 2012. And of course we know what kind of conversation this triggers.


Fine. TV ratings are down. But that’s perfectly okay. The sky isn’t falling, Chicken Little, and there’s absolutely no reason to panic. Here are three important reasons why this record dip in ratings shouldn’t be a big deal.


1. Ratings don’t affect earnings in the short term

First things first, from a pure financial point of view, the WWE doesn’t care what any particular week’s ratings are. The revenue they earn doesn’t change depending on a particular viewer base—it comes from the licensing fees it negotiates with its broadcast markets, which locks their earnings into a steady-state flow over an agreed number of years. So what they earn from their TV products is based on the value that networks believe they can recoup from carrying their shows, based on how much advertising spots they can sell on to brands. 

In the case of the long-term contract signed with NBC Universal in May 2014 to keep RAW on the USA Network and SmackDown on SyFy, they’re earning a supposed $160 million a year guaranteed. Throw in another $40 million from international TV rights, and the WWE is looking to earn up to a billion dollars up until their contract runs out in 2019. Again, that's guaran-damn-teed.

The real Mr. Money In The Bank.

So slumping ratings don’t affect the WWE directly, but do they affect NBC Universal? Of course they do. They paid good money to attract a certain number of eyeballs, which they can then wave to advertisers as commercial space. So a slump in ratings does make it a bit harder to sell advertising spots, but that’s NBC’s problem, not the WWE’s.

They can put pressure on the WWE to pursue certain creative directions or highlight certain stars, but unless there’s a specific creative control clause in their contract—and we haven’t heard about this, so let’s assume there isn’t—it’s purely a goodwill move by the WWE, and not a financial one, if they choose to respond or not.


2. The opportunity is on quality, not quantity.

So it's clear that the WWE has no financial stake in the weekly viewership levels since they’re locked into a long-term TV deal that pays them an agreed rate no matter what their actual audience size is. What the WWE needs to look out for is the quality of the fanbase that watches their shows, because this is what makes placing commercials and sponsorships more attractive to sponsors and advertising.

Put simply: You would ideally want an audience composed of well-educated, high-income consumers with money to blow on stuff they see advertised on TV; the more economically-challenged your audience may be, or the less-educated they are, the less inclined a high-end brand like, say, Lexus, Nike, or Samsung, would be to advertise with you.

We came across a study conducted by Scarborough Research a couple of years back that identified precisely what kind of people watch WWE compared to the national United States averages, as well as to other televised combat sports entities like UFC and professional boxing.
Let's start with gender.

Based on the national statistics, an average show should expect to enjoy an audience composed of 48% males versus 52% women. It's no surprise that all three enjoy a skew heavily tilted towards male audiences, but we see that the WWE actually enjoys the highest proportion of female fans at 37%, as compared to the mid-to-high-20s levels exhibited by both UFC and pro boxing.

There's both good news and bad news here, fight fans. The upside is that the WWE could tout its product as having the most gender-diverse audience among the televised live sports entertainment options, which in theory gives female-focused brands confidence that they could place spots on an episode of RAW. The downside is that advertisers like to be very specific and laser-focused on where they deliver their commercials—they could argue, for example, that it's a muddled audience that WWE enjoys that's neither here nor there. A brand like Red Bull, for example, which is very macho and active, would feel optimistic about placing ads for UFC since it knows that 75% of its audience are male; they'd feel less confident placing an ad on a WWE show knowing that nearly 40% of its audience might not be within its sweet spot demographic. So for all the female-friendly press releases that WWE might try releasing, the fact of the matter is for advertisers, they present a gender-muddled audience.

But that's not the only problem. Let's take a look at the age distribution among WWE fans.

On the left hand of the chart, you see that the adult American population at large tends to be quite old—over half are 45 years old and above. As a brand, you would typically want to skew your product to the millennials and Gen X-ers as the consumer segments with the buying power, engagement, and vocal passion about the brands they love.

UFC is in an excellent place in this regard. Over 70% of their fans fall within the younger segment. Boxing clearly falls into a more tito space, with over 40% of their fans aged 45 years or older. The WWE is in a better situation than pro boxing, but is significantly behind the UFC when it comes to securing the younger half of the U.S. population. They need to work on improving their mix if they want to attract more advertisers to their product, which makes carrying them more attractive to TV networks.

Let's take a peek now at educational attainment.

Here's another problem for the WWE. Despite having an older audience than UFC does, their viewers are actually less educated. Only 10% of their fans have attained a college education—even lower than the national average, and trailing both UFC and boxing by a significant margin. Generally speaking, a higher level of attained education pretty much correlates with a higher income level, so the story this tells advertisers is that when they place a spot on a WWE show, they're hitting a more low-brow audience with higher demand for mass-priced brands like Cheetos and Budweiser rather than watches and fine scotch.

And what kind of buying power do WWE fans have?

Once more, the numbers are massively unfavorable for the WWE. While 23% of the total United States population can claim an annual income of at least $100,000, the WWE audience isn't even half of that, with just 11% hitting this bar. Both UFC and boxing fall behind the national average as well, but they're in a much more favorable position than the McMahon empire. Advertising goes where the money is, and in that regard, the WWE is most definitely not in a good place.

What all this means is that if I were on the WWE Board of Directors, my focus wouldn't so much be on increasing my viewership, but on getting more educated, higher-earning fans into my product. Audience size doesn't matter, after all, if advertisers know they can get smarter, richer consumers by hitting UFC and boxing, as defined by the study.

So let's pause all this panic about getting more viewers. The big focus should be on getting better quality viewers.


3. This is part of the strategy

What people aren’t talking about is how the WWE predicted a shift to a digital ecosystem for consumers to view its content. And not only did it pioneer its own specialized infrastructure to support this move, it’s actively pushing its viewers towards them.

Let’s take a look back at one slide in particular that the WWE showed its investors back in 2014 laying out their long-term strategy.

See that? It’s absolutely clear that the WWE has just three major strategic imperatives on its mind:

1. Grow the WWE Network
2. Grow its global TV market
3. Start to earn money from its digital efforts

It has its revenue stream from domestic US TV rights locked in until the end of this decade, so how they’re measuring their success today is the progress they’re achieving (or not achieving) vis-a-vis these three points.

But are they succeeding in this points? To a huge degree, they are.

Not only does the WWE Network remain to be one-of-a-kind innovation in delivering over-the-top streaming content, it’s successfully brought in over 1.2 million paying subscribers as of last count. That means at $9.99 a month, the Network should be bringing in roughly $140-150 million a year—roughly the equivalent of their TV deal. If you’ll recall, as of July of this year, it is the second biggest revenue engine for the WWE, trailing just their massive TV rights fees. The WWE continues to cement its global presence across multiple markets all over the world. No other wrestling promotion has the absolute reach that they do, and with the continued roll-out of the WWE Network from its current 170 countries and territories, they are the kings of the globalization of wrestling.

The faces of globalization, errbody!

And let’s not forget the obvious news nobody (except the WWE themselves) is trumpeting—the WWE is an absolute beast when it comes to social media presence. As of last month, the WWE now has the number one channel on YouTube with its 7.7 million subscribers helping to create nearly half a billion total views of their online content in August alone. WWE content on YouTube generates nearly 50% more views than Buzzfeed Video, for what its worth.

Meanwhile, RAW continues to be a consistent top five placer on the weekly Nielsen Twitter TV rankings, a proprietary tool that measures the total conversations a particular show generates among its viewers, showing that for what they may have lost in absolute viewership numbers, they more than make up for in engagement.

Don't cry, HHH. You're in a good place.
The massive social media presence of WWE would logically have its trade-offs; why would a viewer bother to watch RAW every Monday night when he knows he can watch highlight reels or entire episodes hosted right on YouTube? But the WWE knows this—heck, the whole TV industry knows this—and is doing their best to capitalize on this ongoing shift to on-demand digital content rather than force people to stay locked into fixed schedule TV content. And that’s why the three-point strategy clearly states that the priority isn’t to maintain US TV viewership numbers, but to find a business model to monetize the new digital-first viewing behavior of today’s modern consumers.

Nasdaq in fact has WWE stock rated as a consensus “Buy” among its analyst base, showing strong investor confidence and demand in whatever Vince McMahon has to sell.

At its current stock price of $17.18 per share as of October 1st, it’s even considered to be slightly undervalued, with experts agreeing it should be trading at the $17.98 range.

Based on the strength of WWE's financial performance, they've been decisively outperforming the industry when it comes to earnings per share by nearly a factor of three.

We aren’t sure, from a business perspective, how to respond to usual IWC snarkiness on how Vince is out of touch, but the money markets tell us that the WWE is on the right path based on the strategy that they've set.


So there you have it. Yeah, it sucks that the TV ratings for the WWE are nowhere near what they used to be in the good ol' days—but by no means are they anywhere near collapsing or dying. Their earnings are pretty much set in stone for the next four to five years with some massive guaranteed coin from their TV network partners, the financial markets are on-board with their long-term strategy and the E's performance vis-a-vis its vision, and they continue to lead the way in building a best practice digital ecosystem for a new breed of viewers.

If we're going to panic, don't let it be over viewership numbers. If there's one thing everyone needs to have a good, long, hard look at, it's the overall quality of the viewers that WWE still hasn't captured—younger, richer, better-educated ones that advertisers would be happy to buy commercial space for, if we buy into what the Scarborough study says. That's an obvious point of improvement that gets glossed over when it comes to their investor report, but has nothing to do with the number of eyeballs that catches RAW on any given week.

What do you guys think about the dip in WWE's TV ratings? Do you still think it's time for a management overhaul? Let us know in the comments section below.


Mark De Joya (@MDJSuperstar) is an advertising professional and brand strategist by day, but dreams of being the Vince McMahon of the Philippines by night. He writes anything to do with numbers for Smark Henry: People Power, our weekly fan survey, and Best For Business, our regular financial report. With 18" arms and a 300-pound squat, he is also the official bouncer of the Smark Henry offices.

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