It Could Be Said #51 Netflix Hulks Up
Will takes a look at what Netflix's new partnership with WWE means
Netflix took the worlds of sports and entertainment by surprise yesterday in announcing a new partnership with World Wrestling Entertainment that will see it air the promotion’s flagship show, Monday Night RAW in the United States and carry the whole suite of WWE programming overseas. Here’s my initial analysis of what it all means.
Netflix Has Won
It is twelve years since Netflix moved aggressively into producing original content, a decision famously justified as them wanting to ‘become HBO before HBO could become them’. And in line with the strategy they placed an emphasis on creative-led projects that generated a lot of buzz amongst the media and early-adopters, creating the sense that Netflix was the cool media brand in town.
It is not a new observation that Netflix has moved a long way from that, becoming more the new CBS than the new HBO with its steady diet of archive programming, major movies, and genre shlock. Indeed, just yesterday Business Insider was praising the streamer for the consistency of its output in the face of rivals that have attracted fleeting success with more fashionable content. Well nothing is less fashionable and more consistent than Monday Night RAW. Netflix won’t win any awards by airing RAW but it has gotten itself the cable show that more weeks than not is the most watched television show on American cable outside of sports or news.
Indeed, if there was any doubt that American cable is dying then this news should wake people up from what is now a mighty deep slumber. There’s been a lot of “Netflix has Won” commentary in the media press recently, and even I as a longtime sceptic has to accept that this time that narrative might be true. Partly this is because Netflix has become smarter with what its choosing to invest in whilst investors continue to treat it as a favoured child, but primarily its because all streaming services seem to be slowly backing away from the circular firing squad of the past few years; spending is being cut, content is once again being shared more widely, and the number of services is looking to be rationalised.
(Incidentally this gives me hope for the future of cinema because it does seem that after a brief period of indulgence we’re hurtling back to a world where American broadcasters do a few FOR YOUR CONSIDERATION prestige pieces a year but otherwise serve up repeats, sports and cheaply made programming, so creating more space for cinema to distinguish itself)
What is different about this deal is that it gives a clear roadmap for how Netflix might outmuscle its rivals moving forward without wild spending. It’s ability to credibly bid for global rights allows it to outbid American broadcasters that struggle to keep their domestic channels on the same page, let alone overseas subsidaries. And of course in most countries even channels as mighty as NBC or FOX don’t actually have channels with the reach or prestige that Netflix has worldwide.
This deal is a model for Netflix to get other rights, especially as unlike WWE, a lot of American sports have basically been giving away overseas rights to build a fanbase and support ancilary revenue streams. If you’re the NBA wouldn’t you fall over yourself to discount a package of NBA games in America to Netflix if they also promised to push the sport worldwide for you?
That also raises the broader question of whether it still makes sense for broadcasters to buy content on territorial basis given they increasely air on global streaming platforms and are promoted using global social media channels and media outlets. Never mind how easy it is to evade geoblocking restrictions! And of course the botched sale of FOX assests to Disney means that the only real rival still standing in the streaming wars didn’t get to merge Britain and Europe’s biggest premium sports broadcaster with ESPN in North America and Star in India to create the world’s first global sports streaming service. If this deal represents the future of sports broadcasting, in the same way that pro wrestling’s successful transition to cable and unsuccessful attempt to control its own streaming future predicted similar trends in sports, then that raises real questions about how high rights fees can go in the future. Indeed we may well see them start to decline, as has been the case across Europe.
Structural Changes Mean WWE Makes More Sense To Netflix
We are infamously just coming out of a writers and actors strike to improve the terms and conditions under which their work is broadcast on streaming services such as Netflix. It therefore does not take a genius to conclude that Netflix suddenly becoming more interested in the type of live content that does not involve WGA or SGA members recieving residuals is the opposite of a coincidence. Given that we all know pro wrestling is predetermined, utilises writers from other shows and has performers who aspire to be film/tv actors in its ranks, it seems increasingly self-defeating that SGA doesn’t demand that televised pro wrestling is covered under its standard contract. I’m sure new TKO Board Member Dwayne Johnson wouldn’t want to be blacklisted.
Likewise that Netflix is focused on building up its advertising business means RAW makes more sense too - a big weekly tentpole show is exactly the type of content that it can build its advertising offer around.
Is It Really $500million Per Year?
A lot of attention has been focused on how this deal bundles other rights with the American deal for RAW (see below). But I suspect that some more blatant gamesplaying is going on with how his deal is being presented. The press release is very careful with its language, announcing a ten-year partnership that in total is worth $5billion.
BUT Netflix has the option to break at five years. Now the way television deals work is that the value that is quoted as the annual worth is an average of the fees the content provider will recieve each year over the course of the contract. But in reality the deal will start lower than the quoted figure and finish higher. This is to account for inflation and to reward good performance in fulfiling the contract.
Now, one assumes that Netflix has structured the deal in the same way, in which case the question then becomes what is WWE’s average rights fees in the five years they have a confirmed deal with Netflix. Indeed it gets murkier because Netflix can also extend the deal for a further decade, which asks the question about what is the escalator for those additional years of the deal.
If Netflix were happy to commit to ten years they wouldn’t need a break clause. If they were happy to actually pay $500million per year over the course of the next five years then WWE wouldn’t need them to agree to the possibility of a longer deal. One has to assume that in reality the first five years of this deal are for a lower average amount and that the ten year deal is spin to spare WWE’s blushes.
Bundled Rights Reflects WWE weakness
WWE was clearly trying to get outlets to report that RAW had nearly doubled its rights fees. After all, the previous deal was for $265million and this is for $500million. QED!
Leaving aside whether the deal is actually for $500million a year (see above) the deal is obviously more complicated than it sounds because it bundles in international rights fees for RAW, Smackdown and NXT into the American deal for just RAW. Now WWE have been very cagey about what they earn from outside television deals after experiencing some significant setbacks in key markets during the 2010s, most notably losing a lucrative deal with BSkyB and failing to meet inflated expectations about increased rights fees in India. And we don’t even know when Netflix takes over from existing broadcasters in territories that hadn’t aligned their licensing cycles with WWE’s American deals, which further complicates modelling what revenue the Netflix deal is actually replacing. But given that a decade ago Sky Sports paid WWE £30million a year for the British and Irish rights alone, one has to assume that the international rights the Netflix deal replaces may have been worth in excess of a $100million.
But its not just rights fees from foreign broadcasters that WWE has lost. This deal will put WWE live specials and documentaries onto Netflix outside of North America, which will destroy what’s left of the promotion’s international pay per view business and calls into question the future of the WWE Network as these had been the key selling point for the service. It’s possible that a bare bones WWE Network might continue, focused on archive content and showcasing smaller promotions in the same way UFC Fight Pass continued after losing UFC PPV replays to ESPN+. But even if it survives ones has to assume that the WWE Network will lose considerable number of subscribers come January 2025, and again that lost income must be set against the payment from Netflix.
Netflix has also been shrewd in making WWE write them a blank cheque, with the service seemingly getting the overseas rights for all future WWE programming that doesn’t already have a deal in place. That avoids WWE coming to them demanding more money for programming that has been created to sieze a new opportunity in the American television market, that isn’t covered by WWE’s deal with its overseas broadcasters. This was a constant source of tension between WWE and SKY for example, and shows that Netflix have done their due dilligence.
Likewise, this surely spells the end for WWE seperately selling the rights to replay RAW on streaming services in America, so bringing to an end its long partnership with Hulu. One would also assume that Netflix will be stricter about what it allows WWE to share on its own social media channels, wanting people to instead watch such programming on its own app, which will cost the promotion some advertising revenue.
It seems a reasonable conclusion that the reason WWE have announced a deal that bundles so many different rights packages into one is that they didn’t think what Netflix was willing to pay for the rights to RAW in America would impress the market. After all, the same 40% increase for Smackdown that caused WWE’s parent company’s stock to fall in value would have netted them $385million per year for RAW. Given there’s strong reasons to doubt that the initial five years of the deal are actually worth $500million, its hard not to conclude that WWE did not hit their target for RAW’s rights increase. Indeed there is an outside chance that this reflects a loss in revenue.
WWE’s Next Big Deal
One reason why I was sceptical about the idea of RAW going to a streamer was that it would complicate the ability to sell the streaming rights to the live specials when the rights for them become available in 2026; streamers may worry about WWE fans not wanting to pay for two subscriptions or not want to essentially co-promote the brand. Given that the Netflix deal involves overseas rights for the live specials, its even more likely that it will complicate efforts to sell those rights, for which Peacock are currently paying $200million a year.
Given Peacock is trying to cut corners at every turn as it bleeds money its hard to see them being a serious contender to renew their current deal, although they potentially could enter into another co-exclusive partnership with Netflix. Maybe Peacock gets a limited number of Smackdown-branded specials and shares the cross-brand shows such as Royal Rumble and Wrestlemania? I couldn’t see Amazon Prime wanting to partner with a brand that will be so closely associated with Netflix, especially as the deal would have to be funded solely from their American customers.
If there is one competitor to Netflix that I could see beat them for the American live special rights, it would be ESPN+. Whilst being tempted by the size of WWE’s audience, ESPN have always been clear they don’t really have the schedule space for weekly combat sports programming, hence why so much of UFC’s content goes on the streaming service. ESPN+ also has the ability to put WWE’s bigger shows on pay per view, which could justify it outbidding Netflix for the live specials.
But if ESPN+ isn’t tempted then its quite possible that this deal will undermine the WWE’s ability to get a rights increase on its monthly live specials. One imagines that the promotion will be hoping that the overseas viewership of the specials through 2025 will persuade Netflix to invest heavily in securing the American rights.
What Should We Expect For RAW’s Viewership
Ratings analysts everywhere will no doubt be happy to hear that reports RAW moving to Netflix will stop pro wrestling fans obsessing about Nielsen ratings have been greatly exaggerated as the ratings research agency now does research on streaming viewing habits as well! Every week it releases the ten most watched programme on streaming by minutes watched. In 2023 it showed that;
Outer Banks was the service’s best performing original show in a given week, racking up 3.1 billion minutes watched during the week commencing 20th February.
Suits was the service’s best performing acquired in a given week, racking up 3.9 billion minutes watched during the week commencing commencing 17th July
Glass Onion was the service’s best performing movie in a given week, racking up 2.9 billion minutes watched during during the week commencing 26th December 2022
Now these are some mighty big numbers but I think RAW should prove reasonably competitive. The average RAW viewership on USA Network in 2023 was just over 1.7million viewers. That timed by the show’s 180minute run time means that on average RAW racked up over three hundred million viewing minutes. That would be enough to get it into the top ten for original streaming shows for the last week we have figures (week commencing 11th December).
But these are statistics for how many people watched a single show the night it was aired - and RAW’s scheduled finish is 11pm so that doesn’t give much time for delayed viewing. By this new metric each edition will have a week to build its audience, and if the new deal reduces how much WWE puts on YouTube that will force casual or jaded fans to watch the actual programme. Furthermore for television shows Nielsen doesn’t distinguish between individual episodes - its simply measuring how many minutes were spent on that show in a given week. Therefore people watching the RAW archive would be counted to RAW’s total for that week.
The most recent week we have numbers for, Super Mario Bros is the tenth most watched programme on streaming with 730million viewing minutes. There are several more movies in that 700million to 900million zone. I don’t see any reason to think that RAW shouldn’t be getting at least that. And if the full archive is available at launch, then RAW could easily be fighting for top spot many weeks.
Don’t Take Too Seriously Talk About RAW’s Format
There’s already been some chatter about what this deal means for RAW’s format. The fact that they don’t know where RAW will air in America for the last three months of 2024 shows that such talk isn’t to be taken seriously (I assume WWE and USA Network will do a deal to extend for a few months). As Netflix admirably admitted, this is new territory for them, and they’ll be using the next year to get ready for what will be a big challenge for them. If they don’t know, then nobody knows, including me. ESPECIALLY me. However I have some guesses/hopes:
Now that streaming is being judged by minutes viewed I think the dream that RAW might be trimmed down from 180minutes is unlikely to happen. Likewise it would surely make sense for RAW to air on Mondays to give it the whole week to build its audience to game the Nielsen ratngs. That’s especially true if the preexisting archive doesn’t come with it at launch.
I do however hope that WWE and Netflix will take the opportunity to be inventive with show timings. It would make sense to allow special editions of RAW to go way past the three hour mark to maximise the minutes watched, and they could mix in the odd shorter episode to keep viewers guessing when main events are going to end AND not drag out shows that fall within a natural lull.
Given that Netflix has a tier that allows viewers not to see the adverts I hope they can be a bit more creative with when they place them, especially as they’re not bound by quarter-hour ratings or broadcast regulations about ad-length duration. Fewer but longer advertising breaks that allowed for matches to be broadcast uninterrupted for all viewers would greatly improve the product, and you can always give premium subscribers an archive or bonus match during the prolonged break.
Given Netflix has the overseas rights, one would expect RAW to go overseas even more than it has been recently. Indeed, one suspects Nick Khan’s big push for overseas shows helped secure the deal. It will be interesting to see if NBC Universal becomes more resistant to Smackdown being filmed oveseas, given that their American rights fees make up the overwhelming majority of that programme’s budget. One would also expect that WWE will continue to diversify its roster to better appeal to overseas audiences.
I hope Netflix explores innovative ways to package WWE content for those of us who don’t want to slouch through the full programming every week. Netflix could easily release monthly summaries that still count towards the show’s minutes viewed because they’re billed as additional episodes. I however fear that they will instead stick to the weekly show format with no summaries because they want people to watch it all. Likewise one has to worry that WWE’s sensible decision to be more brisk with live special running times will be unpicked as they try to game the minutes viewed metric.
Look On The Bright Side
I appreciate this has been more negative about WWE announcing they’ve found $5billion down the sofa than many might have been expecting. But that’s because clearly the lengthy negotiations, and the dribbled announcements reflect a process that has not gone entirely to plan. This is partly because WWE did so well last time, with the brand split allowing them to capitalise on poor old FOX being dazed and confused after it had divorced its own television studio. Somehow Nick Khan managed to persuade FOX to spend money it was never going to recoup on WWE after the station had failed to recoup the same money from its deal with deal with UFC for the exact same reason - network television no longer significantly inflates the audience for niche programming.
Khan has done his best given the circumstaces he confronted. The subterfuge seems to have done its job, with TKO stock trading higher than before the deal was announced. And whilst sellling all overseas rights to Netflix may not maximise revenue it will help TKO further cut WWE’s back office staff as the deal significantly streamlines the promotion’s enagement with media partners for the foreseeable future. To a certain extent WWE can leave it to Netflix to handle its overseas promotion now.
And yet, WWE is such an important player in American cable I wonder if they may regret this move. Because what happens if without RAW, USA Network continues its long decline to the point it cannot sustain major rights deals. Or that RAW is a getway to streaming for its older viewers, and so further weakens viewing figures for shows still on cable. This announcement has surely brought us closer to the day that NBC Universal says that they won’t be spending serious money on orignal content for USA Network, and will instead rely on repeats. What happens to WWE if the only people who can bid for them next time are Netflix and their various competitors in the streaming space, most of whom were long beaten when *this* deal was signed.
WWE is boldly kicking away the foundations of the platform that allowed it to continue to thrive as nearly every other country’s pro wrestling was bankrupted by the implosion of its network television audience. Now being first to make the move to cable worked then, and so maybe being the first to make the jump to streaming will work now, but it does put WWE at Netflix’s mercy.
What makes that particularly alarming is that WWE has a bad record in fulfiling promises made in transformative deals; their 2000 deal with Viacom, 2013 deal with Sky Sports in Britain and Ireland, and 2019 deal with FOX all saw big rights increases only for each broadcaster to become so disenchanted that they refused to even enter negotiations with the promotion to renew their deal. And remember, Netflix can break this deal after just five years, if they don’t think WWE is hitting key targets.
But if the risks are great then so are the rewards. WWE has talked about how viewing figures for the live specials have significantly improved since they began airing on Peacock. Netlix has more subscribers and better UI, and so one has to assume that the service will significantly enance WWE’s reach. This will particularly be the case for younger viewers, and those lapsed fans who weren’t subscriped to whichever niche sports channel carried WWE programming in their country.
Providing they can meet whatever viewership expectations Neftlix has, WWE have played a difficult hand well. Whilst they may be making less than shareholders hoped, they have the platform to build for future success. But they’re going to have to earn it.