Source: Lexington Herald-Leader
While the bulk of World Wrestling Entertainment’s business is centered on live shows like the one coming to Rupp Arena on Friday, the fastest-growing part of its portfolio is not tickets but DVDs, toys and video games.
Consider this.
In the first quarter of 2007, the company’s consumer products division generated $37.4 million, up dramatically from $28.9 million a year earlier.
And they’re also highly profitable.
It cost WWE only 36.9 percent of that $37.4 million in revenue to make and sell the products. By contrast, it cost 62.4 percent of total revenue from live and televised entertainment to produce those.
This strong spike in sales comes as the company’s core business is trending either steady or slightly down on some other measures.
At the core of WWE’s business are characters — the Chris Benoits and John Cenas, or for the older crowd, the Hulk Hogans, “Rowdy” Roddy Pipers and Bret “The Hit Man” Harts.
The connection between character popularity and the company’s fortunes has traditionally made WWE’s business cyclical, said Michael Kelman, senior media analyst at Susquehanna Financial Group.
One of the high points came in the 1980s when Hulk Hogan ruled the stage of WWE, or as it was known at the time, the World Wrestling Federation (a suit by the World Wildlife Fund prompted the change).
The last peak in the business, Kelman said, came in the late ’90s, as stars like The Rock and Stone Cold Steve Austin sold out arenas worldwide.
“It went into a kind of protracted downturn I’d say from 2000 to sometime in 2004 … and since then it’s kind of been emerging on a cyclical upswing,” Kelman said, noting that live attendance per event, a solid indicator of financial success, has risen from 4,000 to close to 7,000 now.
While the live event business was recovering, the company began an aggressive strategy to grow its consumer products business internationally.
“We’ve established licensing agents in all the major territories around the globe,” said WWE spokesman Gary Davis.
The company has also increased its international tours, including, on occasion, producing some of its main weekly televised shows — Raw, SmackDown and ECW — from abroad.
“Whether or not we’ve reached a saturation point in terms of our ability to tour outside North America and still meet our obligations to create television is something we’re still trying to get a feel for,” Davis said. “I think a natural extension … would be to start developing businesses that can be indigenous to territories outside of North America.”
That could take the form of setting up territories with their own championships and home bases outside of North America, though Davis said it’s far too early to speculate on what form that might take.
“Your basic contention that ‘Gee, you might want to have some wrestlers from different territories that are part of a development of stars that would be part of WWE around the world’ certainly is something we’re thinking about,” Davis said. “But we’re nowhere near, at this point, ready to say that that’s the next thing we’re going to do as we expand our business globally. It’s something on the radar screen. We just haven’t decided if it’s the right thing to do at this point.”
Yesterday’s stars
For now, the company has seized on growing its consumer products business by leveraging both its current and former wrestlers.
The latter includes a program designed to monetize WWE’s library of archival footage.
Over the years, the company has acquired the video libraries of many now-defunct wrestling promotions, including its one-time top rival World Championship Wrestling, which it bought earlier this decade.
Others include the American Wrestling Association — which launched stars such as the late Curt Hennig, more familiar to WWE fans as “Mr. Perfect” — and Extreme Championship Wrestling, which WWE relaunched last year as a brand with a weekly show on the Sci-Fi Channel.
With an expansive archive, WWE has released DVDs profiling the careers, including footage of the earliest matches, of major ’80s and ’90s stars such as “Nature Boy” Ric Flair and Hart.
Revenues from home video grew 38 percent between 2004-05 and 42 percent between 2005-06.
The company has also signed some of the stars to deals to appear on television.
“One of the ways to kind of increase awareness of their current characters was to leverage some of their older stars,” Kelman said. “They try to integrate some of their older characters into the mix. If you look at the last year or two’s worth of earnings and momentum, it seems to have resonated well.”
The company also uses the archival footage in its WWE 24/7 On Demand digital cable service, which offers users unique content monthly.
TV, pay-per-views steady
While consumer products are booming as the company invades overseas markets, its core business is still recovering from the cyclical downturn in recent years.
Pay-per-view revenue has hovered around $90 million annually since 2003. It had topped $100 million the year before.
During that time, the company has expanded the number of pay-per-views it produced annually as part of a brand split in which it divided its roster of wrestlers and assigned them to one of its two main shows — Raw and SmackDown.
The pay-per-view sluggishness continued in this recent quarter, as it saw the segment’s revenues decline $1.3 million year-over-year from $17.1 million to $15.8 million. The number of pay-per-view buys fell 282,000 from 1.18 million to 901,000. Part of that, though, was attributed to a decision to raise each program’s cost from $34.95 to $39.95.
Davis said the company is not worried about its pay-per-view segment, noting that WrestleMania 23, which took place April 1, achieved 1.2 million buys, a new record for the company.The company is hoping to boost its pay-per-view fortunes and possibly juice its television ratings by a recent move that scraps brand-specific pay-per-views. When the company split its roster a few years ago, it also opted to have a handful of brand-exclusive pay-per-views annually.
The company reversed course because “we found that … pay-per-views that featured more than one brand tended to have higher buy rates,” Davis said.
Since the pay-per-views now feature the stars of each of the company’s brands, the shows may feature more crossovers between brands to promote the pay-per-views.
The strategy of loading up pay-per-views with all talent is sound, Kelman said.
“They figured what better way to help resuscitate that business than to try to really make them more of those marquee events,” Kelman said.
