World Wrestling Entertainment Plans Major Overhaul Of WWE Network And Associated Content

| About: World Wrestling (WWE)

Summary

The WWE Network will likely soon offer four membership tiers including a free option.

The expansion is based on the likely acquisition of TNA Wrestling’s content library and distribution deals with Sinclair Broadcast Group.

Wall Street has high expectations for WWE despite October price trends.

The fundamentals are solid and WWE looks to end 2016 on a strong note.

World Wrestling Entertainment, Inc. (NYSE:WWE) is planning on building upon the success of its in-house digital streaming station, the WWE Network. The Network was first introduced in January of 2014 and currently boasts about 1.5 million subscribers paying $9.95 per month. Previously, the WWE had relied on its network of cable and satellite provider partners in order to distribute live special events. With the advent of the WWE Network, fans saw a roughly 80% drop in prices along with a new 24/7 live streaming channel and access to various WWE-produced reality shows, documentaries, and professional wrestling archives, the vast majority of which still remains in the company's private library and will be slowly introduced on the WWE Network.

The Network Will Likely Soon Offer Tiered Memberships

According to multiple reports, the company has recently surveyed fans requesting opinions regarding tiered memberships featuring a various range of wrestling-related content including non-WWE related content. According to the survey, the WWE will offer a free version of the Network which will omit access to multiple live special events including NXT Takeover specials which feature development talents the company is training to feature on LIVE TV in the near future. The free version would likely be supported by advertising revenue.

Three paid memberships would be available. The most basic package would run $4.99 per month and provide access to the company's 'Big Four' annual special events including Wrestlemania, The Royal Rumble, Money in The Bank (or possibly Survivor Series) and SummerSlam. The current $9.99 plan would remain mostly as-is with limited commercial interruptions and may feature weekly, possibly live, NXT shows. The company is also considering developing its recent Cruiserweight Classic Special into a weekly series as well included in the $9.99 tier. The tier would also include access to the company's weekly TV series', Raw and Smackdown roughly 30 days after airing on the USA Network.

The biggest surprise comes in the form of the 4th tier - a $14.99 per month subscription fee which will provide access to all of WWE's live special events and weekly episodic series'. Furthermore, the subscription will include access to what the company has referred to as "independent wrestling content".

Offering Independent Wrestling Content on the WWE Network

According to Anthony DiMoro of Forbes, Vince McMahon and the WWE have emerged as the most serious bidder to purchase TNA Wrestling's content library. The purchase of the library would allow for compelling documentaries and specials to be produced for some of WWE's hottest talents such as AJ Styles, Bobby Roode, Samoa Joe and others whom have large bodies of work owned by TNA. The purchase would only include the content library and leave contracts and obligations to another bidder, likely Billy Corgan, former Smashing Pumpkins front man who acquired partial ownership of TNA in 2016 whom plans on rebranding the organization. The content library would likely air on the WWE Network alongside current episodes of Ring of Honor, an independent wrestling organization owned by Sinclair Broadcast Group.

According to Dave Meltzer of the Wrestling Observer, included in the package would be access to Evolve Wrestling, founded by Ring of Honor, as well as Progress Wrestling out of the U.K. and possibly other promotions.

Is WWE Spreading Itself Too Thin?

In my previous analysis of WWE, I touched upon the increase in WWE live events as well as increased bargaining leverage in distribution contracts (that the company has wisely positioned itself for) by reducing reliance on cable and satellite distributors through the use of its own distribution channels in the WWE Network. Despite the recent news of further expansion of the Network, however, the stock price opened at $19.71 nearly 9% below its 52-week high of 21.55 (set at the end of September) and is currently trading at around $19.60. The current price trends could likely show mixed feelings from investors regarding the ability of the Network's expanded offering to increase subscription rates for the WWE Network.

Currently, analysts are mostly giving a buy or hold rating for WWE. Pacific Crest, Zacks Investment Research and Needham & Company have all reaffirmed "buy" ratings in the last quarter. According to recent chart analysis, prices have formed an up wedge with targets in the $29-$30 range. The wedge indicates low risk of the stock falling further below current trading levels solidifying a $1.5 billion market cap. Of course, wedges are not fool proof and a further pullback is possible but remains unlikely given the company's 14% price increase since March 2016 outperforming the S&P 500 by more than 6%.

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Q3 Earnings Will Make or Break the Stock.

Analysts and investors are looking forward to WWE's Q3 2016 Earnings, which will be released on Thursday, November 3 rd prior to the opening bell. Expectations look good with an average EPS expectation of $0.15, up over 7% year over year. If analyst projections are right, WWE's profits will run roughly 33x P/E (11.24 million). After the company beat EPS expectations by $0.01 for the previous quarter, analysts are forecasting 1400% EPS growth, putting the pressure on the company to perform. My sentiments on the stock still remain mostly positive. In my opinion, investors are downplaying the boost in WWE Network subscription revenue from expanded content offering much as they downplayed the WWE Network in early 2014. The company remains financially sound with no major competition on the rise which it is ensuring by incorporating independent wrestling content into the WWE Network. Furthermore, the expansion of the library with the purchase of TNA content allows for the creation of compelling content and character development as well as increased interest from overseas buyers due to a centralization of mainstream and independent United States professional wrestling content on one digital network.

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.