Ratings -vs- Buyrates

Tyler Durden

I love this article from Bryan Alvarez (writer, part time wrestler and co-author of "Death of WCW"...an excellent read). The figures may be heavy for some of you to follow, but it fascinated me!

http://thefightnetwork.com/news_detail.php?nid=4113

By: Bryan Alvarez
The Fight Network
bryanalvarez@f4wonline.com

Ever since Vince McMahon was blown to smithereens in a fiery car bombing, there has been a great deal of talk about whether or not this was good for business. The question was raised again this past Monday night when the entire Raw show was built around his death, despite the fact that a pay-per-view event was scheduled six days later. As far as go-home shows are concerned, this one sucked. Plus, the big push on the show wasn't even for Vengeance, it was for next week's Raw, a three-hour spectacular which will apparently be a "funeral" of sorts for Vince's character.

This is following on the heels of last week's three-hour draft show, which did a 3.8 rating. But that number is misleading -- the first hour was remarkably low, and the second and third hours did a 4.0 and a 4.4. So if you consider that a lot of fans might have tuned in thinking the show started at 9:00 (and in all the ads the prior week, WWE only noted that Raw would be a three-hour show "at a special start time", not bothering to mention the time), in its normal timeslot from 9-11 it actually did around a 4.2 rating. This week's show, the aftermath, also did a 4.2.

Ratings are a funny thing. Prior to the Raw vs. Nitro Monday Night Wars, nobody cared about ratings. TV ratings were TV ratings, and what really mattered was how many people bought tickets to house shows, or how many people bought a major pay-per-view event. There were many times when NWA or WCW programming beat WWF programming in the rating pre-1995, and it was never a story.

Even during the Monday Night Wars ratings weren't that important. They were mostly there for bragging rights. Really, they were taken way too seriously, often to the determinant of business. Who can forget WCW putting Hulk Hogan vs. Goldberg on Nitro free of charge and basically flushing tens of millions of dollars in potential PPV revenue down the toilet? At the bitter end, even though ratings were a fraction of what they were during the peak of the Wars, the numbers for Nitro and Thunder weren't all that bad, particularly in comparison to most other programming on TBS and TNT. But the company was losing $60 million dollars, and it wasn't a tough decision for Jamie Kellner to pull the plug.

For years, the main source of revenue for the major wrestling companies was PPV. Plunging PPV revenues is one of the main reasons WCW went from grossing over $200 million per year to sinking into oblivion. Low buyrates were the main reason that TNA nearly folded up shop three months into their run, being saved exactly five years ago by Bob Carter of Panda Energy. Pro-wrestling television had evolved from, ideally, a vehicle to sell house show tickets to a vehicle to sell pay-per-view buys.

The only thing constant about the pro-wrestling business is that things are going to change. And it's now 2007, and in WWE, things have changed.

The company released their first quarter 2007 financial report on May 3rd. Revenues totaled $107.4 million as compared to $95.1 million last year at this time, an increase of thirteen percent. Net income was $15.1 million as compared to $9.5 million in 2006. Some people believe that WWE business is tanking. That's absolutely not the case. But this was not the most interesting piece of information in the filing.

WWE pay-per-view business, as everyone is aware, is down. Last year they made $17.1 million and this year they only made $15.8. Worse, last year the shows were only $34.95 as compared to $39.95 this year. In other words, they drew far fewer buys, 901,000 compared to 1.2 million to be exact. That's bad news.

Let's recap. Revenues were $107.4 million. PPV was $15.8 million.

Times have changed. PPV is no longer the bread and butter of WWE. In fact, in 2007, PPV ranked FOURTH in income generators for the company. In third place, believe it or not, was live attendance, which had revenues of $18.2 million. In second place was licensing, at $20.6 million (a huge jump from the $13.3 million last year -- Smackdown vs. Raw 2007 was a big hit). And in first place was, you guessed it, television rights fees, at $21.9 million. Today, TV is a far more lucrative portion of WWE's business than PPV.

Now, obviously, it would be ideal for WWE to strike a balance where they could produce good, highly-rated television that also compelled fans to spend money on PPVs. The TV has done a horrible job of that lately, though there are also the issues of too much product available between WWE, TNA and (especially) UFC, and creative team burnout due to all the hours of programming they have to produce week after week. But the reality is that concentrating a good deal of their efforts on pulling ratings is not the worst business strategy. Obviously, the company is not going to make any more money for the 4.2 they drew the last two weeks than the 3.8 or so they'd been averaging. But the higher the average rating they can sustain, the better position they will be in when it comes time to negotiate a new television deal. Of the four current revenue streams, the two biggest and most stable are television rights fees and licensing. Realistically, these should be the prime concerns. If those two can generate strong stable revenue quarter after quarter, fluctuations in PPV buyrates and live show attendances will not even come close to sinking the company.

With all that said, an important consideration is that this applies only to WWE today, and obviously things will change in some way in the future. The key is that the WWE business model and the TNA business model are NOT the same. TNA, after being in business for five years, has begun to build other revenue streams. They have a Midway-produced video game scheduled for release in 2008. They've got television on Spike TV and international deals in place. Perhaps some day these sources of revenue will grow to the point where they alone can keep the company profitable. For now, however, the single biggest source of revenue for TNA is PPV. Throwing away free "dream matches" on television, such as Kurt Angle vs. Sting, in an effort to boost the rating from a 1.0 to a 1.3 is not, in fact, a sound business strategy. If the company is not making enough money on PPV to show a profit, what difference does it make today if their average rating is a 1.0 or a 1.3? At this point, the focus of Impact should be primarily to sell PPVs.

Coincidentally, even though UFC is WWE's biggest competitor on PPV, their business model is far closer to TNA's than WWE's. UFC's main source of revenue is PPV, and, like TNA, they have a one-hour weekly show (Ultimate Fighter) and one-hour hype specials prior to big shows (which TNA also has, though I'd bet most of you had no idea since TNA does absolutely nothing to promote them). TNA's use of television in 2006 caused them to make zero dollars profit, whereas UFC's use of television helped them gross $222 million. People can argue about real vs. fake and hot vs. cold and whatever they wish, but the reality is that one group used their promotional vehicle to maximize their main source of revenue, and one did not.

aaron

A good read, and as business graduate myself - it all makes sense. Of course in an ideal world, the writers (i refuse to use the term booker now) in wrestling should be churning out good stuff week in week out but as long as they don't book Barney-Teletubbies handicap match and revenues remain strong, we may not see a great improvement (if any) in the quality of WWE programming, eeeeeeeeeeeeeever again!

Blitzkrieg

I think it all depends on who you are and where you make your money. WWE knows that PPV buyrates are down, so they are focusing on everything else that makes them more money..

If all TNA's money came from television, then I'd expect them to give away shit for free. Doesn't surprise me that TNA doesn't know what they're doing, giving Sting/Angle away..