Wednesday, April 18, 2007

Business matters

After reading Sam's article on Vince creating a media empire, I started thinking about how much pro wrestling has changed in the last twenty years or so. The most glaring difference between then and now is obviously the downfall of the territories and the emergence of the WWE as the only real game in town. Sam made a point that stuck with me when he said that at this stage in the game, the WWE has enough invested in DVD sales, PPV buyrates, their book endeavors, their "best of" anthology DVD sets, their CD sales, and everything else to stay at the top even without direct competition and even during a pro wrestling "drought" when the product isn't as popular anymore. I never thought of it that way, but avoiding overexposure is something that was mentioned several times and I feel it deserves a second look.

When I think of WWE producing 12 PPVs a year priced at almost $40 each, the first word that comes to mind is overkill. Seeing as how we're a math and science based school, let's crunch some numbers. $39.95 x 16 = $479.4. That number might be a little off since WrestleMania is around $10 more expensive than your regular PPV, so let's say it comes out to around $490. This is how much money an "avid" fan would spend in a given year on wrestling. This is theoretical of course, since I'd say a small fraction of the fans care enough about both shows to cough up so much money. Let's say a fan orders the "big four" (Royal Rumble, WrestleMania, SummerSlam, and Survivor Series) and for argument's sake, orders another two Joe-Schmoe pay-per-views like Backlash and No Way Out or something like that. That comes out to about $250, give or take. That's still a lot of money...

I know that PPV is the WWE's bread and butter and that a huge part of their revenue is based on how many buys they get, but when is it too much? A pay-per-view each month alternating with Raw and Smackdown will only appeal to the fans that watch that respective brand, and that almost hinders how much money the WWE can actually make. Imagine for a moment that the brand extension was ended and that both rosters were combined. Now all of a sudden, you take the fans that watch Raw and the fans that watch Smackdown, and you have your full audience tuning into both shows and (cha-ching) caring about all of the PPVs that come out each month. It's not as if this formula wouldn't be successful - they were using it before the brand extension when pro wrestling was at its highest popularity, and it worked.

The problem I see in WWE's approach is that it's unrealistic to expect their fans to pay the amount for PPVs each month, especially when Sam's noted that it pays to just wait another month or so to get said PPV on DVD for around $20. Their approach is making them money, yes, but altering that approach might bring them the same amount of success with a little creativity. If the amount of PPVs were cut from 12 down to 6, that alone would make the PPVs worth so much more. They'd be more of a rarity and the anticipation for them would be huge, much more than they are now. It's like Mick Foley said in his book - the only reason WrestleMania is deemed special is because of all the hype, when in all actuality, the following month they have to go out there again and appeal to a PPV-paying audience.

Cutting the PPVs down would in fact knock out several birds with one stone. First of all, it would be a lot more realistic for fans to invest and pay for all the PPVs than it is now. Combining rosters would help because that alone would increase the audience size, which would no doubt result in more buys as well. Also, by NOT overexposing their product so much on PPV, the WWE could relax their pace and build meaningful storylines and characters, instead of rushing one rivalry one month for this PPV, and then rushing into another one for the next PPV while forgetting what just happened last month. And well, theoretically, better storylines + better and more developed characters = better ratings. Better ratings = more fans = more PPV $$$. And everyone knows that more PPV revenue = happy Vince (which is all that matters these days!).

Moving aside from the PPV point, though, I don't get why they don't just combine the rosters. When they did the roster split, they were overloaded with talent, and it made sense. But now with so many "stars" gone, both shows (Smackdown in particular) would benefit from a combined roster. It would make for fresh storylines and renewed interest, and would probably result in more revenue at the actual shows (because now, you can see them ALL). ECW though, well, I don't really know about them. I'd keep them separate, and create "competition" between Raw/Smackdown and ECW. But anyways, these are just some observations I made while reading Sam's piece and while watching the shows in general on how to make more money but avoid the overexposure at the same time. Thoughts?


Sam Ford said...

I agree that overexposure is a danger with 16 PPV shows a year now, because that's what it is up to. I don't agree that the brand extension should be cancelled because I think that would lead to worse overexposure.

WWE has three TV shows a week. If the brand extension is cancelled, and thinking back before the brand extension began, the top stars were on every show. That means, first, that you see the top stars three times a week, which starts to make the act overkill; second, that you run out of matches and feuds more quickly because instead of progressing them once a week you have your top feuds moving forward multiple times a week; and, third, a lot of people would no longer get TV time in order to make way for the top stars being on every show. That means consequently that WWE would probably let a significant portion of its roster go because there would be no need for guys at the middle of the card.

That's not to say that I argue with your logic, particularly about the PPV. The main problem I have is that the brand extension didn't create three competing brands that seem seperate but instead establishes them all as Vince's feds. We don't even have leadership on the ECW or RAW shows aside from McMahon, whlie at least Vince is hardly ever on Smackdown and Theodore Long is truly considered a leader there...In short, they have set up a dichotomy where RAW is the A roster, Smackdown the B roster, and ECW the C roster of one company, rather than the feeling of three very different shows. And, while Smackdown has loads of talent on it, perception becomes reality, so the idea is that the brand with Undertaker, Batista, Chris Benoit, Booker T, Rey Misterio, Kennedy, Finlay, MVP, Matt Hardy, etc., is the B brand, compared to a brand with Cena, HHH, Shawn Michaels, Ric Flair, Umaga, Jeff Hardy, Edge, Randy Orton, etc.

The problem is that they've already gone back to tri-branded PPVs, with the idea that each PPV will feature stars from all three brands. That's 16 of them a year though! I think this might work short-term in bringing buys up, but it will burn out fast and WWE has to beware of damaging its PPV business overall by overexposure. Tri-branded PPVs are bad for the London and Kendricks of the world because guys who were on every Smackdown PPV may not be on every PPV period anymore, while the top guys will start getting 16 PPV payoffs a year. But, if you dropped the # of PPVs back down to six, the roster would be very unhappy because a significant portion of their earnings come from PPV payoffs, and guys who were wrestling on most PPVs would see a significant decline in money if a plan like this were put in place.

Again, not to say you are wrong, Carolina, because I think 16 PPVs a year is overexposure, and as a fan it got to be so much that I quit buying any at all and now just buy the DVDs instead, for half the cost. That's not a big deal when a small portion of your fan base does it, but WWE has to be careful if more and more people who used to buy PPVs decide it's no longer worth it.

Peter "The Malcontent" Rauch said...

I'd assumed part of the reason for the brand separation was to carve out a space for the fans who didn't have the time or money to follow all of it, but that breaks down somewhat with the tri-branded PPVs. I wonder how important the PPV buys are to the total PPV revenue.

In "An Evening With Kevin Smith 2," Smith talks about internet postings that predict the end of his career when a movie underperforms. He said he always laughs, because these people have no idea how Hollywood works: he makes comparatively low-budget movies, and doesn't have to make blockbusters to keep his investors happy. More importantly, he said, actual theatrical revenue is a small part of a movie's total revenue stream these days. He described the theatrical release of a movie as being mostly an ad for the DVD, merchandise, and eventual TV rights. WWE seems to know how the DVD game is played, judging by the revenue stream for The Marine. I wonder if they're trying to go long tail with the PPVs?

Sam Ford said...

My understanding is that, of the $40 spent on a PPV, $20 goes to WWE and $20 to the service provider. WWE's popularity is growing tremendously internationally on PPV, but they don't charge as much in many of those international markets...

As for the PPVs, I think WWE is increasingly looking at how to add significantly to the revenue through the long tail. WWE DVDs come out less than a month after the PPV itself, which makes a huge difference, but they may want to beware flooding the marketplace with too many DVDs or they can't promote each launch properly. It also throws their story off if you have one of the main chapters of your story each month not watched in order.

The business is still measured by how well a PPV does in buys, so analysts like Dave Meltzer measures WWE's popularity based on PPV performance. I do think the DVD market has to be taken into account, though, since a significant number of fans might wait until after the event is over to decide whether it's worth the $$$ or not.

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Sam Ford said...

Thanks for stopping by, zang.