Much to learn from and about UFC Fight Pass and future of streaming channels

Mark Nolan

It's been just over four months since the launch of UFC Fight Pass, two months of it as a paid service. Between its launch, and WWE's launch at the same time, there is a mountain of data to look at regarding the future of both companies business.

After four months in operation and two months as a pay service, UFC's Fight Pass has given the organization so many mountains of data on its hardest core of fans, that the trick almost becomes learning what is and isn't relevant.

At this point, it is an experiment in its embryonic stages, with the beginning of a learning curve that will take it in directions that probably nobody today can even foresee.

At this time, the streaming service is based around an extensive fight library, which includes UFC, WEC, Pride, Strikeforce and Elite XC shows, as well as live overseas UFC events that don't air on U.S. television. It also includes prelims from almost every card, exclusive features, and currently, a weekly airing of TUF Brazil. The live fights can be viewed as they happen, or at the viewers' convenience.

The product in a sense was rushed out a few months back. The announcement was made in late December, hours before UFC 168. Within a few days, it was on the air, with the first live event being on Jan. 4 from Singapore.

It's almost impossible to discuss Fight Pass without bringing up the elephant in the room, which is the WWE Network. The WWE Network launched about seven weeks later, but both became a pay service, identically priced at $9.99 per month, at the same time. Fight Pass became a paid service on March 1, the WWE Network one day later, to far more promotion and fanfare.

But while they are similar in that they are both streaming services that provide extensive libraries of old classic matches, the mentality in each company toward the product is different.

"We're not looking at this as the answer to help drive our business as a main revenue source," said Marshall Zelaznik, UFC's Chief Content Officer, who is spearheading the project. "This is a complimentary product, made for the most avid fan who wants to have more UFC content than a television network can deliver."

For WWE, the network has been its prime focus, not just a service offered, but telling stockholders that it will completely turn company business around and in many ways, reinvent the wheel. They've touted it will lead the company to multiple times the profits that it has ever achieved. And if they are correct, they may create a model the UFC can learn and emulate from. And if they aren't, the same is the case.

From a fan perspective, the key difference is WWE offers all of its pay-per-view events on the network at no additional cost, and also produces a number of "C" level television shows weekly as well as new shows, including reality shows.

Offering the pay-per-views made the launch a huge story, and perhaps a risk from a business standpoint. WWE made itself an enemy of many in the cable industry. On May 4, when WWE had its most recent pay-per-view event, neither The Dish Network nor DirecTV would carry it, because of the feeling WWE had undercut the value of the show by offering it on their streaming service.

Many lauded that move as being ahead of the curve in a changing business. And in time, it could be, but the jury is very much out. In the long run, far more consumers will view the average monthly WWE major shows shows at $9.99 than the $44.95 SD and $54.95 HD price tag on pay-per-view. The UFC and the WWE take in a figure in the range of $8 to $9 of that $9.99, whereas of the pay-per-view revenue, the companies have to split it roughly in half with the cable companies and dish distributors.

The way the math works out, they need to triple the number of pay-per-view buyers to network buyers to make the same amount in revenue. But that's not factoring in the significant cost of running the WWE network, which is another $40 million per year or more. The WWE does less on pay-per-view than the UFC, so it can break even on this gamble at 1 million network subscribers, a number they project they'll hit at the end of the year, and blow away in 2015. For UFC, because of their larger pay-per-view business, they would need a minimum of 1.6 million regular subscribers, perhaps a little more, to make it work out.

It's not an impossible figure to reach, but today it's a huge gamble that would leave them upside down financially for a long period of time even under a best-case scenario.

As far as the WWE went, they had 667,287 subscribers to the network as of April 8, the day after WrestleMania, the company's biggest show of the year. That was nearly identical with the number of pay-per-view orders the show did at full price the year before in the U.S. But they also had just under 400,000 pay-per-view buyers still paying the much higher price in the United States this year.

The company made significantly less money this year from its biggest show of the year as in previous years, but that was expected going in, and the show was viewed going in as something of a loss leader.

While the number of network subscribers could be viewed as at the low level of acceptable, the number of people who didn't sign up for the network and paid full price on pay-per-view was shockingly high. It seemed to indicate that the majority of buyers, as many as 70 percent, were very willing to pay the existing price as they had a year earlier. Lowering the price opened it up to some new customers, but not nearly as many as would have been expected. But it's way too early in this game to evaluate long-term prospects.

And the UFC is watching. Zelaznik noted he, and others in the company, pay very close attention to the WWE Network and how it's doing.

"I'm in close contact with all the pay-per-view guys and it comes up in the discussions," he said. "I watch with interest how their network is doing and I subscribe."

Zelaznik said their goal, which is years down the line, is to hit 1 million subscribers for the current version of the product, a home for historical fights, up-to-date new features, and all the fights that don't air on television or pay-per-view.

There is also the option of moving some major numbered shows, whether it be four, six or eight a year, to Fight Pass, to test if it would greatly boost numbers, and then cut back to a few pay-per-views per year, and load them up more to create the idea of a UFC pay-per-view show is a rare can't-miss event, as opposed to a regular monthly offering.

The hope would be to create the lure of a UFC 168 type show, where the public has no qualms about paying big ticket prices, similar to boxing with Mayweather, and really, what the WWE inadvertently proved without trying with this year's WrestleMania.

Another option could be to give Fight Pass subscribers the option of purchasing the pay-per-views at a major price discount. If the shows were offered at $30, UFC would get roughly the same revenue as they currently get per buy, but would cut out the cable and dish companies. Consumers would pay less per month than non-subscribers, and get all the archived content and Fight Pass exclusive fights. But that has to be weighed against creating bad will with former partners, risking distribution as the WWE has, with the casual fan base that doesn't get Fight Pass.

"It can be very hairy negotiations," said Zelaznik, about negotiating future television deals and other deals around the world in a post-Fight Pass world going forward. "Having worked in TV networks, they want all the rights they can get. In the U.S., when you have pay-TV penetration, broadband penetration, these rights become tricky."

In two years, what philosophy would work best would be far more evident. It makes no sense right now for the UFC to throw away its key revenue stream on something that could flop, not to mention damage their relationships with the cable industry in the process.

As a publicly traded company, the WWE releases its numbers. They have projected 1 million subscribers by the end of 2014, and between two and three million a year later in the U.S., as well as another 500,000 to 750,000 outside the U.S. If they reach their 2015 projections, their gamble of killing traditional pay-per-view, one of the company's three major revenue drivers with live event business and television rights, will have turned out a major success. But not everyone is confident they will. WWE stock has taken a beating ever since the first numbers released disappointed Wall Street, with the value of the company dropping 30 percent in the last five weeks.

For now, the UFC is not thinking in that direction.

"We're already in conversations (with pay-per-view providers as the current deals expire late this year) and we made it clear that we still are a pay-perv-view company," said Zelaznik. "We are not intending to do what WWE does. We like our partnership. We think pay-per-view is a sit-back experience to watch on television as opposed to a lean-in experience on a computer screen. The economics are for us in the pay-per-view world rather than the over-the-top world. Pay-per-view is a good business for us, we like it, and we don't have any intentions of putting pay-per-view on Fight Pass. Our strategy is Fight Pass is a complimentary product. That's our philosophy."

Both companies offer a one-week free trial to sample the product. Zelaznik said that between 80 and 85 percent of those who sign up for a free week end up signing up for a month or longer. New sign-ups usually peak at the time of a live show, or on Sundays, when the newest episode of TUF Brazil airs. One difference is the UFC allows its fans to sign up for a short as one month, while WWE requires a six-month minimum commitment.

While Zelaznik was very open about buyer habits and what they've learned, the UFC keeps almost all its revenue numbers private, although it was reported when Fight Pass was launched that the company's goal was 100,000 subscribers by the end of this year.  Dana White at a press scrum a few weeks back would only say that they've already topped that figure less than two months after it became a pay service. Zelaznik would only say that they are trending at this point at triple the rate of the company's original projections.

Currently Fight Pass has subscribers in about 153 countries, and the surprise was the number of subscribers outside the U.S.

Zelaznik said that their business model predicted 75 to 80 percent of subscribers would be domestic, but right now the figure is 65 percent, with Canada, Europe and Australia/New Zealand being the strongest international markets.

The biggest surprise success is Eastern Europe, Russia in particular, and they've also gotten strong response from Japan, even though there is nothing on the station in the native languages of those countries. The company's hottest international market, Brazil, does not have Fight Pass, nor is it expected to be offered there at any time in the near future, because it would interfere with existing television deals.

There have been four live fight cards thus far, the Jan. 4 debut, as well as shows on March 1 in Macau, China, March 8 in London, England, and April 11 in Abu Dhabi.

Stats show that almost all subscribers, more than 90 percent in total, watched those shows within a 24-hour period. The surprise is, most will not watch them live. It runs about 30 percent live and 70 percent later, which contradicts the belief UFC fans need to watch it when it happens. Granted, the China and Singapore shows took place in the middle of the night, but even the London show, the strongest marquee offering to date, airing on a Saturday afternoon ni the U.S., had more viewers after the fact than live. The UFC has also lucked out that the four Fight Pass shows were among the best events the company has put on from an action standpoint, all year, so word of mouth to watch those shows after completion was strong in every case.

Another surprise is the viewing of the prelims of the television cards. Previously, those fights would air on Facebook, essentially available to anyone in the world. Now, the availability is very limited, but the prelims are actually being viewed by significantly more people this year. That seems to indicate that prelim matches, and all live fights, become more important to people psychologically once they are paying for them.

Except for days of live cards, Sunday's when the new TUF Brazil episodes launch, get three to six times more sign-ups than any other day.

They have archived content labeled in about 4,000 different segments, based largely on the fight, a number that grows daily as new content is put up. During a normal week, at least 60 percent of the available content will be viewed by someone.

The product is about to launch on XBox, and then on Samsung and LG soon, with Amazon Fire TV and Apple TV hoped to be on board by late summer. At this point, it's in English only worldwide, but they are also working on the idea of a Spanish language version as well.

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