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In last Thursday’s “Lessons on Market-Making from Nielsen's Video Top 10s for 2023”, I concluded “Streaming platforms that have not prioritized market-making technologically and strategically” need help from third parties to scale their best content, new and old. Legacy media can generate recurring revenues by offering a direct-to-consumer subscription service, but some content in their library may be more valuable to consumers on other platforms. As 2023 year-end data from Nielsen reflected, Disney, Warner Bros. Discovery and NBCUniversal have all learned that audiences may prefer to consume their valuable library either in different pay windows or on third-party services elsewhere on the free market.
This story is messy. All of these businesses have similar business objectives for licensing content to third parties. But, they have different business objectives for which valuable library titles they opt to license to third parties and why. For example, Warner Bros. Discovery has a growing need for cash flow while Disney comfortably relies on both its Experiences business (theme parks, cruises) and ESPN for 90% of its operating income.
An easier way to understand how this problem may be solved is through the lens of the WWE’s efforts in streaming. Through four general pivots (actually multiple pivots within multiple territories) of its streaming business model—the last of which is a 10-year deal with Netflix—WWE has quietly become an expert in how to make a market in streaming.
Key Takeaway
Ten years into the streaming business, WWE has pivoted its way into two distribution partnershswith market-making abilities in Comcast (domestic) and Netflix (domestic and global). All available evidence suggests this is a smart deal that is both risky and underpriced.
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Domestic Pivot
The WWE launched the WWE Network as a standalone direct-to-consumer service in 2014 offering access to its content library. Despite being distributed globally, the subscription service never scaled: Its maximum subscriber base was 1.95 million subscribers. It had 1.5 million subscribers at the time of its domestic U.S. deal with NBCUniversal’s Peacock in 2021.
Peacock had 10 million paying subscribers at the time of the deal and was growing slowly. It was not a market-maker. The deal terms established WWE Network as its own branded channel within Peacock and split some content into the free tier, which then reached 54 million sign-ups. It offered the entire WWE Network as part of the paid Peacock Premium tier.
In another sense, this was a pivot to market-making. In last September’s “Is It Charter's or Comcast's Wicked Game Against Disney?”, I highlighted how Comcast then reached 68 million households via its Xfinity platform across Cox and Spectrum (and that number is closer to 67 million now after increased TV household churn Q4 2023 for both companies). That reach has always positioned Comcast as a “market-maker” for Peacock in the U.S. Comcast has actively done so, offering Peacock’s Premium ad-supported tier for free to Xfinity subscribers.
That, in turn, has worked out well for the WWE on Peacock. As WWE President Nick Khan told the Marchand and Ourand Sports Media Podcast last March, the WWE “love what’s happened with Peacock” and that NBCUniversal has been happy because “a significant number of Peacock’s paid subscribers… is because of WWE.” I argued then that he seemed to flip any perception that NBCUniversal may be subsidizing the WWE and instead, the WWE may be subsidizing Peacock’s success (that assumes he was not spinning, which he probably is). But, in market-making terms, he was saying that Comcast will struggle to make a market for its Peacock services without WWE content.
International Pivot
The WWE has kept WWE Network running internationally since the Peacock deal. In 2022 it partnered with multiple streaming services for international distribution in overseas territories. For example, it licensed WWE network to Disney+Hotstar in Indonesia, Disney+ in the Philippines, MBC in the Middle East, Foxtel in Australia and MultiChoice in Sub-Saharan Africa. The Netflix deal has rendered this hodgepodge of deals more short-term than long-term. WWE seems to need these deals despite its availability in 186 countries.
Last month, it announced a $5 billion rights agreement with Netflix beginning in January 2025. The deal includes the exclusive rights to Raw “in the U.S., Canada, U.K. and Latin America, among other territories, with additional countries and regions to be added over time.” Netflix will also become the home for all WWE shows and specials outside the U.S. “as available”, according to its press release. Despite all this reach and these distribution deals, Netflix Co-CEO Ted Sarandos told investors, “We believe that WWE has been historically under-distributed outside of North America. And this is a global deal. So we can help them and they can help us build that fandom around the world.”
The WWE is likely to shut down its remaining international operations at the end of 2024, enabling Netflix to assume the role of default market-maker for WWE content outside of the U.S. However, as per the “as available” from its press release, there are carveouts for live events in the deal. For example, Premium Live Events air on Peacock in the U.S. and Binge in Australia, so Netflix in Australia likely won't air them.
Market-Making with Netflix
80% to 90% of WWE’s net revenues come from media distribution, licensing and advertising deals. Although WWE has not historically broken out its streaming revenues, a former WWE employee told me that as recent as three years ago, 90% of its streaming revenues came from the U.S. So, Sarandos’ sales pitch that the WWE “historically under-distributed outside of North America” may be an understatement to investors.
It also may be under-monetized. Disney+Hotstar ARPU was $0.70 in Disney’s Q4 2023 and Disney+ ARPU internationally was $6.70. Whereas, Netflix’s ARPU in Asia-Pacific in the same fiscal quarter was $7.31. A single agreement with Netflix may solve for the inconsistencies in monetization that WWE Network experienced across multiple distribution deals internationally. As Mark Shapiro—President and COO of TKO (which owns WWE after a merger with Endeavor’s stake in UFC)—told investors, “the deal locks in significant and predictable economics for many years.”
Shapiro touted the “extraordinary reach” of Netflix, too, but Bela Bajaria—Netflix's Chief Content Officer—touted Netflix’s combination of “reach, recommendations, and fandom with WWE” as enabling Netflix and WWE “to deliver more joy and value for their audiences and our members.” In other words, this deal is not just about reach but reach and market-making by driving:
WWE fans across the globe to Netflix to consume its content;
Existing Netflix viewers who may be interested in WWE content to consuming both live and library content; and,
Audiences who may be interested in WWE that currently fall into neither category.
That second bucket, alone, in Latin America (46 million members at the end of Q4 2023) and Asia Pacific (45.3 million members) is almost 100 million subscribers, or 66x what WWE was able to convert on its own.
Therein lies the market-making logic. To paraphrase what Nick Khan, the WWE President, said last March, as much as it seems Netflix is subsidizing the WWE, the WWE may be subsidizing Netflix by offering the first Netflix TV series offering new episodes 52 weeks per year. That means, unlike any of its previous sports entertainment offerings, Netflix will be pushing the existing model of its on-platform (personalization algorithms ultimately connect supply to demand and then evolve to increasingly bet on what the most scalable forms of “connection” may be within Netflix) and off-platform marketing (e.g., email, YouTube, TikTok) into promoting a single offering with higher frequency. That will be a new paradigm that will requires global advertising sales for WWE, which Netflix is still in the early stages of doing for its own content.
The Price Is Right?
Netflix has priced this opportunity at $500 million per year for a 10-year deal with an opt-out at five years. One implication is that the WWE’s failure to solve for international distribution, to date, was a missed opportunity for $500 million in gross revenues from streaming. The other implication is that Netflix is admitting there is some risk in its ability to sell advertising and sponsorship revenue globally.
By comparison, NBCUniversal paid $287 million per year for a five-year deal which will expire in 2025. Also, Peacock lost $2.75 billion in 2023 despite growing to 31 million subscribers. So, either WWE Network is a risky bet or Netflix is about to prove Comcast's market-making model insufficient for the streaming marketplace.
All available evidence suggests this is a smart deal that may be underpriced. But, Netflix is in new territory where it still needs to solve for advertising. Even if the best possible outcome for WWE Network or any streaming service, this deal may not deliver the lucrative spoils that both parties have envisioned.