Evaluating WWE Network vs. UFC Fight Pass

Michael N. Todaro

There is little doubt that at launch, for a fan of WWE and UFC, the WWE offers a better value for the money with its streaming digital service launch. But UFC would be foolish to copy what WWE is doing in 2014, and get involved in the high stakes game WWE has launched on a number of platforms.

The UFC and the WWE have spent years saying that they aren't competition for each other, that their audiences are different, and their products are even more different.

Yet, from a business standpoint, with the launch of Fight Pass just over a week ago and the launch of the WWE Network on Feb. 24, they are likely to wind up more similar than ever.  But short-term, both are taking an entirely different approach.

The assertions about not being competition for each other are true in some ways and false in others.  The success of both companies has virtually nothing to do with the other, with the exception of the pay-per-view business, which, if WWE is guessing correctly, may be changing greatly..

UFC's success depends almost entirely on putting on fights that people want to see. They can either air on television or be fights people have to purchase on pay-per-view.

WWE's success is more character driven, and based on soap opera story lines. But historically, it is those story lines building up a match that people want to pay to see, like the UFC, that has driven its business. That's why Nick Diaz and Chael Sonnen draw huge as challengers, while Junior Dos Santos and Lyoto Machida, superior fighters, don't. Both the WWE and the UFC can succeed at the same time. Both can fail at the same time. 

There is certainly an overlap in audience, but how significant is an unanswered question. In 2005, when the UFC first grew out of being a small underground company and started really breaking through, it did so with an audience largely composed of WWE wrestling fans between the ages of 18 and 34, and a few older and younger. They stuck around from watching Raw on Spike TV and started spending their money on pay-per-view shows headlined by the likes of Chuck Liddell, Randy Couture, Tito Ortiz, Ken Shamrock and even Royce Gracie.

At the same time, WWE's pay-per-view numbers started falling in the United States. Coincidence?  Who knows? When UFC was setting pay-per-view records in 2010, WWE was hitting rock bottom. When UFC fell in 2011 and 2012, in injury plagued years, WWE showed a little bit of growth.

Vince McMahon and other WWE officials have endlessly, when questioned about the idea they've lost ground or relevance to the public newer and hipper UFC, have claimed one is sport and the other is entertainment, and the fan bases are completely different. The WWE says the UFC and boxing are competitors with each other, and UFC is not its competition..

The explanation of how when the WWE would run pay-per-view shows on Sundays, the day after the UFC, the numbers were usually down significantly, was not because they were competition. The explanation was the cable barker channels on those weeks would play so many UFC ads that WWE got less ads, thus less buys. Make of that what you will.

But after nine years of both being on television, it's is clear the WWE can rarely beat the UFC on pay-per-view, and they can't get away with charging ticket prices anywhere close to what the UFC can, unless it's their once-a-year WrestleMania. Conversely, the UFC can rarely beat the WWE when it comes to television ratings. For years, the UFC could beat the WWE in Males 18-49, its key demographic, but that's less and less the case.  The WWE has always beaten the UFC with those young, and those very old. And with television rights fees becoming more-and-more important, ratings for the first time historically in this genre, are becoming more valuable, at least to WWE, than pay-per-view and ticket purchases. The shoe is on the other foot this week.

This is the time where the UFC has to hope there is very little crossover of fan bases, as each company, at about the same time, has rolled out their new digital networks, the WWE Network and UFC Fight Pass.

While the actual products of both companies couldn't be more different, the WWE being staged and overly theatrical pseudo-fighting, and often overly scripted trash talk, the UFC being actual sport, and more raw and less refined talk, they are very similar businesses. Lorenzo Fertitta, not a wrestling fan at all, noted as soon as he bought UFC, the first thing he did was study how the WWF, as it was known then, operated and ran its business. In 2001, that become the blueprint of where they wanted to be.   

From 2006 to 2010, many said in the things pro wrestling used to be the best at, creating story lines for fights, marketing headliners to be drawing cards and creating grudge matches, was being beaten by UFC..

However, the goals and importance of the WWE Network and UFC Fight Pass in 2014 are entirely different.  Years from now, they are likely to be far more similar. To a fan base that doesn't look at both companies as businesses, the competition between the two products looks one-sided.

The WWE Network, which launches with a one-week free trial, will immediately go live with about 1,500 hours of old content, documentaries, and reality shows. It will air replays of its three weekly television shows already in the U.S. market, and two others that are produced for international consumption that don't have an American home.

In addition, the contents of every home video, a genre WWE is the king of in the sports field in, will be at the click of a mouse. They will also have unedited versions of every WWE pay-per-view show in history, 279 in all, as well as the 111 pay-per-view events held between 1987 and 2001 by defunct rival World Championship Wrestling, and the 21 shows between 1997 and 2000 by the defunct Extreme Championship Wrestling. 

There will also be pre-game and post-game shows built around every Monday, Friday and Sunday television show or live event, as well as plans down the line of a daily talk show.

The driving force of the network is that its 12 pay-per-view shows will air live, in HD. All of this content will cost $9.99 per month. These monthly Sunday specials were previously available in HD for $54.95 for most shows and $69.95 for WrestleMania.

WWE has declined greatly in pay-per-view over the past dozen years.  The company peaked at selling more than six million North American orders in 2001, and fell below 2.3 million in North America in 2013. And that figure is up from recent years, due to early year shows headlined by very expensive mega draws like Dwayne "The Rock" Johnson and Brock Lesnar. In recent months, most shows have done disappointing numbers, often not reaching 100,000 buys in the core North American market. With this, WWE has declared PPV a dying industry.

"I'm just not convinced the pay-per-view platform is in it for the long term," said Michelle Wilson, WWE's chief revenue and marketing office, to the AP at the WWE's launch Wednesday night in Las Vegas.

Some will argue they are ahead of the curve and consumers will no longer pay that kind of money for singular events. Others will scoff at that line of thinking, citing results from 2013..

It could be simply the WWE has not come to grips with the fact they've lost ground and aren't producing compelling special content, or producing so much for free that they've lowered the value of their biggest shows. Some will even argue the UFC's decline from its peak is for somewhat similar reasons, not so much the quality of shows since the UFC has had its best year ever for fights, but the production of so much free television has lowered the value of all but the biggest pay-per-views.

Either way, the so-called "dying" pay-per-view industry saw the UFC in 2013 beat the numbers of its previous two years with boxing having its best year in recent memory.

UFC did have disappointing numbers for some big fights in the latter part of the year, but UFC 168 killed any notion of pay-per-view dying. The show, even with a price to the highest price in UFC history, is expected to top 1 million buys and could end up as the second-biggest show, behind UFC 100, in history. Just three months earlier, the Floyd Mayweather Jr. vs. Canelo Alvarez fight, the most expensive pay-per-view ticket in history, topped 2.2 million buys, grossing by far the most money of any event of its kind in history. 

If anything, this year has shown if the right attraction is there, more people are willing to spend more money than ever to see it. It's also shown if you just churn out shows and don't have an attractive main event, most of the fan base will very easily skip it, or decide to risk their fate on the increasingly popular illegal streaming.

Time will tell if Vince McMahon is ahead of the curve, or risking the value of his big shows, particularly by including WrestleMania, an event that can generate $70 million in income, and giving that revenue up to jump-start the network. WWE was lauded by fans for giving so much value for the price tag, but even with company predictions of 1 to 2 million homes purchasing the network, which will only be available in the U.S. until the end of the year, they expect profits to be down this year. They do expect big growth in 2015. 

WWE's Chief Financial Officer George Barrios, in projecting 1 to 2 million U.S. homes purchasing the network in 2014, discussed in a corporate filing Thursday the projected loss of revenue this year.

"We expect the network will reduce OIBDA (operating income before depreciation and amortization) and net income (actual profits) in 2014 as the initial ramp in subscribers and revenue is not likely to be sufficient to offset both the foregone pay-per-view revenue and in the incremental, direct expense associated with a network launch, such as programming, marketing, customer service and content delivery costs," wrote Barrios.

Many question the 1 to 2 million homes potential, given that even today, less than 35 percent of U.S. homes subscribe to any kind of streaming television-like service, and WWE's weekly Raw show has been hovering around 2.6 to 3 million homes watching on cable television every Monday night this fall for free. Half of the Monday Raw audience is over the age of 38, and half of the Friday Smackdown audience is over the age of 48, age groups less likely to be purchasing a streaming service as opposed to a traditional television service like an NFL Sunday Ticket.

WWE was touting numbers claiming 41 million homes in the U.S. have current wrestling fans and another 21 million have people were fans in the past, the "lapsed" fan base they've been trying to figure out how to engage and bring back. But if only 3 million homes or less actually watch the product for free on Monday night, someone has to really question the results of the survey that come to that conclusion.

Still, this type of a service to generate revenue from the tape libraries as an adjunct to free television creating the new fans, and perhaps pay-per-view, are the keys to both businesses going forward.

The WWE is also about to make an immediate enemy, in a game that has huge repercussions in both the UFC and boxing industry: the cable industry itself.

With the exception of UFC 168, the UFC prices its shows at $44.95 for standard definition and $54.95 for HD, the same as the WWE. These days, the vast majority of purchasers buy the latter more expensive option. That's yet another argument it's show quality and not price that determines purchases, because consumers have the option to pay $10 less per show, and only a minority do. Of that money, roughly half goes to the cable companies or satellite distributors and the other half goes to the promotion.  In the contracts for pay-per-views, the promotions are prohibited from charging a lower price for Internet distribution. This makes sense to protect themselves.

The UFC, for example, if it was allowed, could charge $40 on its web site for a pay-per-view, and instead of getting $27.50, would get the entire $40.  Those who don't have qualms about purchasing from a web site would get the show cheaper, yet the UFC could make more. But in doing so, the cable companies and satellite providers will be cut out completely.

WWE is not just undercutting the price a little, but essentially creating a situation where the price on cable is now exorbitant. WWE is still wanting to provide its shows on pay-per-view for those who don't subscribe to the network, or to those who may want to do pay-per-view parties and don't trust a stream, even though WWE will have the top-of-the-line in technical help.

DirecTV was the first distributor to go public saying they are considering not even offering WWE events on pay-per-view going forward. "Clearly we need to quickly reevaluate the economics and viability of their business with us, as it now appears the WWE feels they do not need their PPV distributors," DirecTV released in a statement to the Los Angeles Times. 

And DirecTV gave a parting shot back, stating how WWE business "has been steadily declining, and this new low-cost competitive offering will only accelerate this trend."

But if DirecTV, inDemand, Dish Network and others continue to provide WWE shows on pay-per-view while allowing the company to undercut their price to that great a margin, it opens the door to the UFC and boxing, both far stronger in pay-per-view than WWE, to do the same.  That would speed up what may be an inevitable decline in incomes the carriers themselves get from pay-per-view events.

The UFC would be foolish, at least in 2014, to follow WWE's lead in putting pay-per-views on its network, let alone stepping into a fight with its own distributors. But in not being foolish, they look bad to consumers who compare the two services. In 2018, the game may be entirely different. 

Fight Pass, for the same $9.99 price tag after its two month free launch that ends on Feb. 29, also has archived footage. The WWE owns 100,000 hours of footage dating back as much as 50 years or more, from territories around North America that thrived into the 80s. The UFC, even with its own collection of its own library, as well as Strikeforce, Pride, WEC, Elite XC, Affliction and other groups, will never have close to the same level of content. MMA doesn't have the history, nor the content, to ever match the kind of library WWE has. Unless the pay-per-view business tanks, it will never, nor should it, provide the top-of-the-line attractions on Fight Pass live.

Fight Pass is also based on live showing of international events. The shows are generally about twice as long as a WWE live event. But the WWE is able, by its nature, to have virtually all its top names on every monthly show. The WWE can carry a main roster of 65 or so regular touring performers who can do up to 225 events per year. The UFC has more than 450 fighters who usually do three or fewer fights per year.

Fight Pass will virtually never air first-run live content featuring the champions, who will usually appear on pay-per-view, but if not, on FOX or FS 1.

WWE will charge $9.99 per month, but the shortest term you can order for would be six months. So it's a $60 commitment, not a $10 commitment. After six months, to reorder, once again, the minimum time frame is six months. You can't spend a month watching old footage, or just getting WrestleMania as a bargain price, and then cancel.

It appears UFC will allow one to order on a month-by-month basis. 

The WWE Network needs 1 million subscribers to break even. Fight Pass, far less elaborate, needs 100,000. The WWE Network has been in the works for years, and its launch wasn't rushed. It's been delayed for more than two years. Fight Pass had to be launched by Jan. 4, as the show last week was the first UFC event not covered by the FOX contract. That meant if the network wasn't launched, UFC's two options would be to not make it available to be seen in the U.S., or give it away in a way where no revenue at all would be derived from it, nor anything built from it.

If Fight Pass does disappointing numbers, it will have virtually no affect on the UFC's business as a whole, which is carried by FOX and international television rights fees, as well as pay-per-view revenue.

If the WWE Network fails, the company will lose money and its stock value will likely plummet. And then they will have to retrain fans to purchase the shows they had gotten for almost nothing and pay $54.95 for them again.

If the WWE Network is a gigantic success, the UFC can and should copy from the lessons of its success without risking much in the process.

If one is a fan of both genres, the WWE Network is more indispensable, both for the fan and the company. Fight Pass is something for the UFC fan who wants to see everything.

Ultimately, both channels will change greatly, through trial-and-error, over the next several years. Whatever is the best winning formula in the long run is the one both are likely to embrace.

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