Post a Comment On: Indeed Wrestling

Commentary by Chris Harrington (@mookieghana) - chris.harrington@gmail.com
Expanding into China is obviously every business' dream. However, building a coherent framework to achieve that goal can be a nightmare.

Here two stories from June 2016 which really spoke to me:

1. WSJ: China’s Content Crackdown Forces Western Media Concessions -- Rules barring foreign media firms from video-streaming licenses are being more strictly enforced
http://www.wsj.com/articles/chinas-content-crackdown-forces-western-media-concessions-1465728327

2. NYT: How China Won the Keys to Disney’s Magic Kingdom http://www.nytimes.com/2016/06/15/business/international/china-disney.html

The WSJ article details all of the challenges ESPN, Disney and Discovery have run into as they try to launch and run over-the-top streaming services in China. This reinforces all of my concerns that WWE is over-promising their ability to navigate such a Byzantine system of regulations to bring the Network to their final marketplace.

The NYTimes' piece explains all of the groundbreaking concessions that Disney made to work with China on their new Disneyland park including giving up major stakes, apologizing for releasing a movie about Tibet and how Disney is one of the few company whose copyright infringement is being actually perused. (Yet still, Disney's DisneyLife OTT service was suddenly shut down.)

Is WWE running a show in Shanghai? Sure, that's happening on Saturday (September 10). Did John Cena spend years learning Mandarin? Yes. And did WWE recently hire a Chinese pro-wrestler? You betcha.
However, WWE is going to make more than $20 million from their Indian TV deal this year. WWE is going to make more than $80 million from the United Kingdom this year. The scale of what they're going to make in a country like China is a lot, lot, lot financially smaller.

WWE did sign a multi-year deal with PPTV for streaming WWE content in China. They actually had a deal previously, but this was an expansion.

This is not the WWE Network and nor is there a clear plan on how or when they're going to roll out the WWE Network in that country. Look at the January 2016 article in Wired (Netflix May Never Break Into China). If Netflix, the OTT juggernaut, is struggling to deal with the restrictions in that company, do I have confidence that WWE is going to succeed? I only have measured optimism. We have seen WWE adopt different routes-to-market in certain international countries - they signed a 10-year deal with Rogers in Canada, they signed a 5-year deal with OSN in the Middle East, they distribute the WWE Network a premium linear channel in Malaysia with Astro. So, could WWE make deals with Chinese companies to enable distribution of the WWE Network? I guess it's possible but that Wired article still brings up some big red flags: Chinese censorship, crackdown on streaming services, limiting foreign content, etc.
People love to pull out the Shane McMahon card. "Shane's working for WWE! Won't he be able to help them?"

I don't think so.

1. He is no longer the chairman of YOD (You on Demand). He is still a member of the board of directors. However, the annual report for YOD notes that Shane McMahon's agreement had the "customary restrictive covenants regarding non-competition relating to the pay-per-view business in the PRC, non-solicitation of employees and customers and confidentiality."

2. When I wrote an article for Seeking Alpha asking "Does Shane McMahon's Return to Television Include A Corporate WWE Position?", the NYPost quoted my piece. When they asked WWE, their answer was: Shane is merely “playing a character on a TV show.” Similarly, when WWE wrote about executive compensation and mentioned Shane McMahon (since he's family to so many executives) in March, they only referred to him as a television performer.

3. Indeed, Shane's time with YOD wasn't a rousing success. Annual losses for YOD between 2009-2014 were all majorly in the red: the company lost between six million to sixteen million each year. In the end, a Chinese billionaire (Bruno Wu) has come in and basically taken over the company and top positions.
I think the quiet departure of Gerrit Meier (the President of WWE International who left the company in June) says that WWE is restructuring how they attack the international marketplace. (In fact, it was Meier's absence at the China announcements which first raised attention to the fact he was gone.) I can't speak to whether the new strategy is going to be better or not, but it's odd such a top person is gone and they're changing reporting lines. I think we're seeing a centralization where Barrios gains a key position for international strategy and SVP Ed Wells is left in charge for reporting purposes.

Is China a "promising market"? Sure. However, do I think they're going to monetize it heavily in the short-term? They're going to do occasional live events. They're going to do get some revenue from a Raw/Smackdown streaming deal (which is unlikely to be that significant unless we see a huge jump in Digital or TV rights this year coming form China). I think they're smart to do more localization for this marketplace. But if Disney and Netflix are struggling which how to navigate China, that seems like WWE is going to struggle too.

Maybe calling it a pipedream is too strong, but I hope this lays out some of my explanation for skepticism.