The short-term effects of COVID19 to WWE’s, and maybe AEW’s, finances may actually be positive, not negative. The inability to run normal live events actually reduces costs. TV rights payments to the company from broadcast partners, related to flagship programs Raw and Smackdown, appear unimpeded. In other words, the cost of producing programming has been greatly reduced, while the revenue directly generated from programming is unchanged.
Despite being unable to run normal live events in the last 19 days of the quarter due to COVID19, WWE was actually more profitable in Q1 than its own pre-COVID19 guidance predicted. The company also was more profitable and generated more revenue than the consensus estimate of financial analysts who had the benefit of being able to consider COVID19 effects.
If WWE doesn’t run any normal live events for the rest of the year and TV fees remain intact, the company may be more profitable in 2020 than it would’ve been in a pandemic-free 2020. (I’m working on an estimate that looks into how profitable WWE would be in the scenario there are no events for the rest of the year, which I’ll be posting soon.)
However there are long-term risks to audience stability for wrestling companies like WWE and All Elite Wrestling. The low cost programming WWE is producing in its Performance Center training facility and that AEW is producing out of other small buildings, in front of no fans, while highly cost-effective in the short-term, is not exciting for viewers. TV viewership of Raw, Smackdown, NXT and AEW Dynamite is declining. Despite the U.S. population being urged to stay in their homes, closer to their televisions, this is not translating to more people watching those wrestling programs.
Given the habitual nature of wrestling viewership and the lack of strategy that’s shown to be able to win new fans or win back lapsed ones for more than a week or two, I’m skeptical that audiences will return to pre-COVID19 levels whenever wrestling events can happen in front of live audiences again. Consequently, draining interest in wrestling TV shows and streaming/pay-per-view events without live crowds may have considerable downstream effects that are long-lasting or permanent.
I can’t remember if it was Matthew Ball or Scott Galloway who’s said it: that the COVID-19 pandemic is accelerating trajectories of media trends, maybe even in trends in personal relationships. Developments that may have under normal conditions taken a year to transpire, take only a few months. Netflix greatly exceeded subscriber expectations for Q1. Disney+ acquired 50 million subscribers in just five months. If you were doomed to divorce your spouse two years from now, well, maybe now that you’re forced to spend so many more hours at home together, you’re now doomed to divorce within a year.
Maybe this theory is applicable to the seemingly unalterable decline in at least WWE’s TV viewing audience. If, for example, Raw’s viewership was going to start averaging 1.5 million viewers by June 2021, the intervention of COVID-19 and empty building wrestling might accelerate that destiny up to, say, February 2021.
To contribute to long-term growth and stability, linear wrestling TV shows try to serve not only as a means to collect lucrative TV rights fees but as an economic battery that drives audiences and consumer business. Further, the Network/PPV events that programs like Raw, Smackdown, NXT and AEW Dynamite build to and sell are similarly hindered by having to be performed for no live audience.
Less is known about privately-held AEW, which has been in business for barely a year. But nearly all of WWE’s publicly-known consumer metrics have been gradually declining since 2016.
WWE Network subscribers, TV viewership (weighed against wider trends), and consumer product sales may continue to suffer over the duration of the COVID19 crisis. That may be driven by economic hardships of consumers but probably also by the less engaging TV product. In a post-COVID19 environment, those metrics may have weak, if any, recovery.
Certainly external factors like an increase in entertainment options are a factor to some extent in the decline of WWE’s popularity. It’s apparent though that the quality of the product has suffered. This is supported somewhat by declines in reception metrics shown above. Most importantly, WWE hasn’t succeeded at developing a star to replace the increasingly absent John Cena. Roman Reigns is arguably the company’s most important full-time star. He’s been gone, too, not appearing on TV since the end of March when he withdrew from participating in Wrestlemania because of health concerns.
In fact, the company’s product style and creative vision continuously undermines the likelihood that such a new star will be developed for WWE. Given the seeming inevitability of the attrition to WWE consumer metrics of the last few years, it’s hard to imagine them showing positive growth or audiences returning in large numbers until such a star emerges, or, quite frankly, until CEO Vince McMahon is no longer leading creative.
It’s likely there will be fleeting resurgences in some consumer metrics soon after a return to normal live events. The patterns of performance related to special episodes of Raw and Smackdown, though, have shown such increases are temporary, and audiences return to baseline trends after one or two weeks.
Thinking about the assumption that wrestling audiences will bounce back after COVID19, I’m reminded of a possibly relevant moment in wrestling history. In 2001, WCW programs Nitro and Thunder ran their final episodes in March of that year, following the sale of WCW to WWE (then-WWF). Some expected that WWF programs, Raw and Smackdown, which ran head-to-head with Nitro and Thunder, and were no longer opposed by competing wrestling shows, would absorb some significant portion of the newly homeless WCW audience. They didn’t. WWF viewership following the folding of WCW declined slightly for the rest of the year. Whatever captive audience WCW held apparently stopped watching wrestling altogether. There’s no sign they ever came back.
Maybe wrestling fans are creatures of habit. Compared to 2001, there’s greater demand for consumers’ attention today. Viewers gradually tuning out of Raw, Smackdown, NXT and Dynamite may be finding new habits, and may be hard-pressed to return to those programs, unless new, economically-significant stars emerge.
I’m not sure there’s any better alternative to maintain wrestling audiences than the current approach of taping matches in empty buildings. Electing to air library content of old matches may or may not satisfy TV contracts, but any such strategy would succeed at holding the attention of even fewer viewers.
In the short-term, expenses are down and profitability is actually up, almost certainly for WWE and probably for AEW too. Wrestling companies may be wise to think now about how they can reinvest the unexpected cash flow to fortify their business and recapture audiences when normal live events can be held again.
In the meantime, Raw and Smackdown continue to be highly ranked among other TV shows on the same night; AEW’s ranking on Wednesday has fallen somewhat, but continues to stay in the top 50; NXT is falling out of the top 50 most weeks recently. Networks are still happy enough to have some form of sports-like, somewhat DVR-proof content to give WWE and AEW their expected payments. Whether wrestling can continue to attract audiences that networks will pay large TV rights fees for, three or four years from now when new deals are negotiated, is too far over the horizon yet to see.