Motley Fool
WWE Goes Back to the USA
Tuesday April 5, 2:41 pm ET
By Steven Mallas
They say you can never go home again. But don't tell that to Vince McMahon and company.
According to a press release issued by World Wrestling Entertainment (NYSE: WWE - News) yesterday, General Electric's (NYSE: GE - News) NBC Universal wants to be in the wrestling (or wrasslin', depending on your personal phonetic preference) business. The media company's USA Network will now host Vince's Monday Night RAW program. This will be like old times, since the squared circle and its cavalcade of grapplers were a previous tradition for the cable channel several years back. The deal is set to begin this coming October, and it has a three-year duration.
As we all know, WWE is looking to enter a new growth cycle, something akin to the days when the McMahon/Austin feud fed the imagination of hardcore and casual fans alike. The move from one cable channel to another isn't necessarily going to cause a nascent upswing in appreciation (and monetization) of the product. Sure, the release talks about "cross-marketing opportunities" on various NBC Universal properties, but I think the real key to WWE's getting a near-term pop to its financials is a serendipitous stumble over a set of story ideas that will captivate its user base. (Longer term, I am very bullish on WWE's movie productions.)
Besides, I'm not wholly sanguine over the prospects of synergy these days. Some will argue that the USA Network brand is a better vehicle of distribution than Viacom's (NYSE: VIA - News) Spike TV, and because of that reason alone, this is a good move. Perhaps; yet there is no substitute for compelling ring drama.
The big thing to me about this move is the deal structure. USA Network will be responsible for making a profit over and above the license fees (and whatever marketing commitments, expenses, etc.) it pays to WWE for the right to broadcast RAW and other specials by selling the advertising inventory itself, as opposed to the sports entertainment concern fighting to place it. This will allow the company to allocate more concentration on the content. I am a huge fan of the licensing model; in this manner, WWE won't expose itself to the volatility that ad prices can see at any given time. This doesn't let the wrestlers off the hook, of course, since they still have to bring in the eyeballs to make future licensing arrangements increasingly valuable.
It will be interesting to gauge how this change ultimately affects WWE. Going from USA to Spike (originally called TNN) didn't necessarily send the company into the stratosphere, so we'll have to sit back and see what the ratings information tells us in the fall. The marketplace blessed the move on Monday, sending the stock to a closing price that was 2.7% higher than the previous session's final value (on pretty good volume, to boot). Let's hope all that accumulation was done at the hands of so-called "smart money."
Fool contributor Steven Mallas owns shares of General Electric. The Motley Fool has a disclosure policy.
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