WWE's (NYSE:WWE) falling television ratings suggest the company's popularity is also declining, but Google Trends, house show attendance and merchandise revenue show otherwise.
There was a strong relationship between Google interest in WWE and WWE Raw TV ratings up until about 2013, when Google interest started to bow in the opposite direction of declining ratings.
When we take WWE Raw's Live+SD TV ratings and average them by month, then standardize them like Google Trends metrics (by standardizing the highest instance as 100), then we see an interesting picture.
We see the correlation between the two data sets from 2008 to present is 0.2689, indicating a weak relationship between Raw's TV ratings and Google interest in WWE across that time. (By the way, the correlation result for this and the other examples discussed later are exactly the same if we take the original non-standardized TV ratings dataset; standardizing the TV ratings data set to a standard of 100 changes nothing.)
If we look at just January 2008 through December 2013, though, the relationship is strong. For those years, Google interest and Raw TV ratings correlated well.
But if you look at the relationship after that point, you can see that the two data sets went in opposite directions.
What happened? The first thing you can point to is the launch of the WWE Network on February 24, 2014. But if you look at the graph at the top of this page again, you can see the correlation peaked and began disintegrating about in the middle of 2012, well before the launch of the WWE Network. Subscribing to the WWE Network, while it does give you access to thousands of hours of WWE content, it doesn't give viewers access to episodes of Raw (or Smackdown) until 30 days after they originally air.
It's plausible that the slight increase we see in WWE on Google is due to the product's increasing presence throughout the internet and social media. It's also plausible that a genuine decrease in popularity is masked by an increase in such activity. As I'll discuss later, though, other metrics don't corroborate a decline in popularity over recent years.
The graph for WWE's Google Trends itself looks like this:
Source: Google Trends
That's worldwide interest. If you look at interest just in the U.S., it's very similar.
But what is the Google Trend metric? "Measuring search interest in topics is a beta feature which quickly provides accurate measurements of overall search interest," according to Google. When you measure interest in a search topic (such as WWE), Google's algorithms "count many different search queries that may relate to the same topic". So when you select "WWE - professional wrestling company", Google is not just counting the search string 'WWE' but lots of other strings that are related. It's also important to understand the value Google Trends reveals isn't an absolute unit; it's a relative value, with the highest instance of interest standardized as 100, and all other instances compared to that standard.
Are Google Trends a reliable indicator of WWE's popularity? Let's look at Google Trends data for two similar businesses: Total Nonstop Action and the Ultimate Fighting Championship.
Click to enlarge
Source: Google Trends
TNA is another pro wrestling company. Its decline in popularity and financial health is consistent with the Google Trends graph above.
TNA has been on cable TV with national exposure since 2005. Most of the time since 2005, it has been the number-two pro wrestling company in the country, albeit a very distant number-two to WWE. TNA was broadcast on Spike from 2005 to 2014. The peak in Google interest shown on the graph above coincides with January 4, 2010, when TNA loaded up their program in a move to Monday night to go head-to-head with Raw, scoring their highest TV rating ever, in a short-lived attempt to recreate the Monday Night Wars. After losing their deal with Spike, TNA moved to the lower profile Destination America for all of 2015 until that relationship was ended as well and it ended up on PopTV beginning 2016: a deal that provides them with no rights fees, only ad revenue. While ratings declined, the company's financial welfare has reportedly declined as well. There are regular reports of talent and production crew members not being paid on time. Just recently, their live pay-per-view broadcast and television tapings had to be saved from cancellation by last-minute financial backing.
Source: Google Trends
UFC is the most popular mixed martial arts promotion in the world. UFC 196 in March of this year scored 1.5 million pay-per-view buys, nearly the highest in the company's history. UFC President Dana White said it was the most successful event the organization ever promoted. That event coincides with the spike seen on the graph above for that time period. If the show only did 1.5 million buys, though, it's interesting that UFC 100, which drew 1.6 million in July 2010, only drew 62% as much interest on Google.
What about other WWE metrics?
A decline in live event attendance in addition to TV ratings would be a more worrying sign for WWE's popularity. But attendance over the last several years has been stable.
WWE reported in their Key Performance Indicators a 6,100 average for North American attendance for 2016 Q1, which is right on par with the norm.
2016 Q2 results will probably be released in early August. House show attendance sourced from the Wrestling Observer Newsletter for Q2 through June 11, shows attendance for those non-televised events is at a low point, with an average of 3,779 attendees per show.
John Cena is WWE's lone proven difference-maker, among those who regularly work house shows. He's been off of all house shows so far this year due to injury. He's scheduled to return to regular touring beginning June 29. Investors should watch to see if WWE indeed reports a low North American live attendance average for Q2, which I would expect. And if WWE does so, investors should watch for whether there's a recovery in Q3 and Q4 with Cena back on tour. If live attendance does not recover, that would point to a genuine decline in popularity, and other key areas of their business might suffer.
However, as the chart above shows, the decline in TV ratings over the long-term does not yet coincide with any long-term decline in either house show attendance or live attendance overall, which has fluctuated but remained stable. Nor does the decline in Raw's ratings coincide with a decline in attendance for Raw tapings themselves, which have gone up slightly in the last few years -- again, as sourced from the Observer:
2014 WWE Raw attendance average: 9,571
2015 WWE Raw attendance average: 9,677
2016 WWE Raw attendance average (through June 13): 10,304
Merchandise revenue, if anything, has increased thanks to more online sales (all filed by the company under "WWEShop", whether they occur on WWEShop.com, Amazon or elsewhere).
In light of the fact that Google searches are up, house show attendance is flat, Raw attendance is slightly up, and merchandise revenue is up, I don't believe WWE is declining in popularity. TV ratings are the only key metric in a genuine decline; reasons for that will be discussed further below.
In all this evidence, though, there is room for an argument that WWE has become more of a niche product over the last several years. It's possible Google searches are up because the same number of people or fewer people are just searching WWE-related topics more often. It's possible that merchandise revenue is up, not because more unique customers are buying, but because customers are buying more units and/or more expensive items. House show attendance being flat, but attendance to the more prestigious Raw events being slightly up is consistent with a fan base that is becoming more ardent. Developments like the WWE Network and the success of the NXT brand, which both appeal strongly to the most ardent fans, are clues as well. Investors should watch whether this pattern grows more over time.
All that said, WWE is in a quandary in regards to its lucrative TV rights fees and declining ratings. Television rights fees are the company's largest revenue source. Because of that, TV ratings are still important.
To say, though, that WWE's declining ratings are just an example of declines throughout television is skirting the issue. There are a number of critical subtleties:
Live sports ratings for the NFL, NBA and MLB, as well as mixed martial arts promotions, UFC and Bellator, are all stable if not strong in recent years. True, ratings for scripted programming are largely down. I think WWE is a hybrid of both live sports and scripted programming, so if all other things are equal, the "all ratings are down" effect should be afflicting them less so than other scripted entertainment and more so than other live sports.
Some think cord-cutting is affecting WWE's ratings. But the ratings shouldn't be affected by cord-cutting, because the ratings metric takes into account the percentage of households the channel is available in that view the program, so that homes that no longer have access to cable channels like the USA Network (the home of Raw and Smackdown) aren't part of the equation.
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Source: Chris Harrington
Raw's move from a two- to three-hour format in 2012 is indeed taking a toll. The anecdotal as well as the quantitative evidence suggests viewers are exhausted by the longer program. The third hour of Raw is the least viewed of the three almost every week.
Some say WWE's strong push of digital and social media (e.g., the WWE Network, clips on YouTube and Facebook of everything that happens on Raw and Smackdown, next day VOD of Raw and Smackdown on Hulu, etc.) is cannibalizing the older media: television. I considered this a few weeks ago. Cannibalization of that kind must be happening to some degree, but it's hard to say to what extent.
Last, but most importantly, WWE hasn't created a difference-making star in over ten years: John Cena being the last one. Roman Reigns is the company's new hope, but he's been rejected by at least a portion of the fans, and has yet to show he makes a positive difference to any of the company's known business metrics. The emergence of a new difference-making star to the level of past stars like Hulk Hogan, Steve Austin or The Rock, would blow all of these other caveats away; star power would override the winds of changing media and ratings would rise. The company's inability to create stars in the last ten years has been its greatest shortcoming; until it remedies that problem WWE will always fall short of its true potential.
The Google Trends graphs in this article show ratings completely stopped correlating to Google searches certainly by early 2015. From there, ratings continued to decline, but Google interest didn't. In fact, Google interest has gone up while ratings have gone down. The conclusion to draw from this is that ratings are no longer a reliable indicator of product interest. Of course, if genuine interest in WWE dramatically increased, we would see a renewed correlation between Google Trends and ratings.
"Ratings don't matter" is the wrong conclusion to draw. From week-to-week, big changes in ratings still mean something in regards to interest within a small window, but over longer periods of time, they don't. It would also be wrong to say that because ratings are down 10% from last year, there's now 10% less interest in the WWE product. But most crucial, ratings do matter to TV partners who rely on WWE to sell ads and improve their rankings among other networks.
What will the future hold for the company's TV rights fees -- 35% of all revenue in 2015 -- if ratings continue to slide? The next deal with major partners like NBCUniversal will likely happen around 2018: providing a few more years for ratings to sink further, or for WWE to cultivate a true star.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.