SPOTLIGHTED PODCAST ALERT (YOUR ARTICLE BEGINS A FEW INCHES DOWN)...
There is an assertion or point of view out there growing in popularity that needs to be dispelled. It goes as follows: Cable ratings don’t matter that much to WWE.
This is not true. Not even close to true.
Evan Bourne told Sports Illustrated:
“I understand that ratings are important. You have to realize WWE’s contract. They’re not getting paid from advertising money. USA makes that money. WWE gets paid by USA, they get paid a lot of money, and the money increases every year. Ratings aren’t the most important thing to them. And, let’s just be honest: ratings aren’t as precise as internet clicks and time spent on the website. If you look at that, WWE is crushing everyone. So I think ratings might not be the best metric with which to rate wrestling in this day and age. But it does mean they’ve got big distribution.”
Let me at least put this out there first, because it’s probably the most important point, and if you read no further, you’ll still get 98 percent of why the above is nonsense:
This fall, a smaller percentage of people with access to cable TV on Monday nights in 18 years are choosing to watch Raw live, and the decline since the peak of the Monday Night War has taken a sharp nosedive over the last year compared to any year-to-year period in many years.
Can we agree that’s a bad thing? Can we agree that Raw, the three hour live star-studded, main-event packed, flagship show of WWE that airs on one of the very top cable networks is the primary, most instant, most relevant indicator of whether people who are WWE fans are interested in the product? I hope we can agree on that. I’ll keep it even simpler.
Fewer viewers is worse than more viewers.
So WWE is in worse shape than a year ago because there has been a sharp decline in live viewership. DVR viewership is roughly 10-12 percent of live viewership, so you can add 10-12 percent onto these live numbers, and compare them to 18 years ago, and it’s still really bad.
It is true that on a week to week or even quarter to quarter basis, WWE doesn’t get any more or any less money from advertisers on Raw when viewership goes up and down. It would be better for them if they did, because then they might be more responsive and open to change rather than stubborn. It’s the difference between a furniture or car salesperson who is paid on salary versus commission. Yes, in the short-run, if the salesperson working on a fixed salary is lazy and doesn’t sell any furniture or cars by ignoring the customers and sitting around playing games on their smartphone, they’ll get the same paycheck next time around. But no reasonable person would say that the salesperson’s laziness wasn’t impacting their long-term future wealth. Obviously, when it’s job review time, they won’t get a raise. They might even get fired if their performance is bad enough.
WWE right now is like an athlete being lazy the year after they sign a big contract. However, that contract ends, and if they only “try hard” in their “contract year” (the last year of their contract), teams are going to notice that and pay less than they would otherwise, expecting that athlete to be lazy again once they sign the new deal and feel fat and happy and comfortable again.
WWE should be working right now to maximize viewership so next time around, the huge percentage of their revenue that comes from TV doesn’t drop sharply. They can’t blow off a drop in viewership because they have a few more years locked in with a comfortable guarantee from USA Network.
Ironically, Vince McMahon has always paid wrestlers on incentive deals. He was resistant to even offer downside guarantees until WCW forced his hand. Now wrestlers get a base amount, but wrestlers have an incentive to perform well enough that they move up the card and help draw crowds so they outperform that downside and get much more than the bare minimum. WWE’s deal with NBC Universal is a flat guarantee, and NBC is suffering because of it. NBC Universal would be happier with a 2.7 rating than a 2.2 rating because they’re making way less money selling ads on Raw (and Smackdown, by the way) than they anticipated. Next time around, WWE will get paid less than if they were drawing big ratings now. Simple. Obvious. Relevant.
In the short-run, WWE is losing out, too. Raw is WWE’s best chance every week to engage their fans and to grow their fanbase. A show with an extra 500,000 people watching means you are able to get a certain percentage of those 500,000 fans to become Network subscribers, house show ticket buyers, YouTube Channel viewers, t-shirt buyers, and Christmas toy consumers.
To take it to the extreme to make an illustrative point, if Raw viewership dropped to 100,000 viewers a week instead of around 3 million, would that be good or bad for all of the other revenue sources? Obviously bad. They’d have a tiny pool of viewers to sell Network subs to, so Network sign-ups would stagnate. There’d be fewer fans aware of house shows in their area and fewer fans visiting WWE.com.
So fewer viewers is bad in many obvious, significant ways. Some of the price that WWE pays for a product that is attracting fewer and fewer fans by big numbers this fall compared to last fall won’t manifest until the next TV deal. That’s a bad thing, just like eating terrible food that’s bad for your heart might not give you a heart attack right away, but that’s no reason to discount the dangers of eating poorly.
In a more abstract sense, when viewers are abandoning what used to be weekly appointment TV for them, that’s a bad thing, not a good thing, as it relates to the customer satisfaction with the current product WWE is offering. It’s a warning sign WWE should heed, not make excuses for.
If Raw ratings were going up, not down, there is no way the excuse-makers would say that didn’t matter. They wouldn’t be pointing out that maybe, just maybe, those cable ratings can’t be trusted to be accurate. I suppose that’d be something worth investigating if the eyeball test didn’t tell us that WWE’s product is in a bad place lately. But if you understand the bare bone basics of how statistics work, you’d understand that random sampling of large populations is widely accepted and proven to be accurate enough to be a reliable indicator on which billions of ad dollars are allocated by very big companies run by smart people who wouldn’t spend more money on higher rated shows if the system were a farce.
There was a time when TV ratings had zero direct influence on a wresting promotion’s bottom line. Vince McMahon used to pay for his TV show to air in syndication in the 1980s. Many promotions saw TV as a loss-leader, a necessary expense in order to expose their wrestlers to fans and market ticket sales to big live events. They cared about TV ratings because the more people who were watching, the more people they were giving their pitch to regarding the upcoming live event. So even if no ad dollars were on the line for WWE now or ever, fewer viewers is bad.
So viewership numbers count. When viewership is down, it means fewer people are deciding to watch your show and are opting for other things to do with their time. Some of those people choosing not to watch Raw might be as engaged in the product as they ever were, but they’re watching Raw on Hulu or highlights on WWE.com or YouTube or WWE Network. Yes, some of them are. That was also the case last year, when ratings were significantly higher. The same choices were there, and by a wide margin fewer people are watching WWE Raw on Monday nights, the flagship live show that WWE touted was “DVR proof” when they were trying to get the most money for their new TV deal last year, and that’s a bad thing. It’s not a good thing. It’s not even a neutral thing. It’s a bad thing.
If WWE had 3 million Network subscribers today, the impact of lower TV ratings would be smaller on their revenues. Right now, the Network revenue is merely a substitute for what used to be PPV revenue. TV ratings, Network sub revenue, and house show tickets sales plus venue merchandise sales total 83 percent of all WWE revenue, as of the last quarterly financials released by WWE.
TV isn’t just one of the Big Three revenue generators, it’s the most important of the Big Three because (a) it’s the biggest; and (b) it’s what drives the other two. More specifically, TV rights fees equal 40 percent of WWE revenue, Network subs total 25 percent, and house show tickets sales and venue merchandise sales equals 18 percent of revenue. So low ratings means WWE is going to have to brace for a huge drop in TV rights fees next time they negotiate a contract, and in the mean time, fewer people are being reached as potential Network and house show customers.
WWE is not getting many new Network sign-ups who aren’t Raw viewers who are engaged in the show on a week to week basis, or at least like what they see when they watch every few weeks. Fans buying tickets to live events are predominantly people who like Raw right now, or are at least watching it enough to care enough about the wrestlers and feuds and titles to pay to see them perform live. People buying WrestleMania tickets to fill 100,000 seats at WrestleMania next year aren’t people disgruntled with Raw and choosing not to watch. People paying top dollar are more likely to be people who, to some degree, like WWE enough to watch the free weekly live flagship show.
TV ratings matter. They are the most important measurement of WWE’s business right now, and fewer viewers – both in the short-run and long-run – means less revenue for WWE. WWE is hoping ratings go up because they know more viewers is better, not worse.
So when viewership is down, don’t listen to excuse makers who say such measurements are archaic or less important than in the past. TV viewership is the most immediate, direct, and reliable indicator of whether the product WWE is producing is appealing to their customer base. It’s the type of statistic that’s known by economists as a “leading indicator,” the earliest sign of whether the overall picture is headed up or down. Viewership numbers lately indicate a sharp decline in customer satisfaction, and it will begin to show up in other places, including the quarterly business figures, unless WWE re-engages the fans who have turned to other escapes on Monday nights from 8-11:05 p.m.