Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

WWE shows why Old Media is dying

Nothing demonstrates how old media is doomed better than the current state of professional wrestling. You may not have noticed that wrestling is booming right now but the biggest company in the business; World Wrestling Entertainment (NYSE: WWE) is struggling to attract fans attention.

If you visit any of the seemingly unlimited number of wrestling blogs out there these days almost all the talk seems to be about Broken Matt Hardy. Hardy has taken the wrestling world by storm; but he has not been part of the WWE for well over a decade.

Fans all over the internet cannot seem to get enough of Hardy, intellectuals sing his praises in elaborate essays, YouTube pundits devote long rants to him, and thousands of people download his videos. Hardy has become the hottest thing in wrestling during a recent appearance in Tijuana, Matt; and his partner and brother Jeff, were greeted by a huge crowd chanting their catch phrase: “Delete, delete, delete.”

Much of their success is based on YouTube fandom. Just one Hardy video Matt Hardy Reads Mean Tweets had received 164,922 views in its year online. An earlier effort; a brilliant satire called The Matt Hardy GoFundMeCampaign received 85,953 views, and something called Broken Matt Heals Jeff Hardy received 469,980 views.

At the same time almost no wrestling fan is talking or even seems to care about WWE’s new champion Bray Wyatt. When I Googled Bray all I could find was a single Wikipedia entry and a batch of news articles; that looked suspiciously like the products of WWE’s public relations machine.

Matt Hardy shows how Old Media and WWE are Doomed

Under the old media rules it should not be this way, WWE has a vast amount of resources, and money. It has two prime time cable shows on a major network; USA, its own digital network and lots of old media clout. CEO Vince McMahon hangs out with his buddy Donald Trump at the White House; and former champ John Cena is a regular guest at awards and talk shows.

Yet Matt Hardy has grabbed the spotlight with nothing but a YouTube Channel, and a bunch of homemade videos. The videos are actually produced at Hardy’s farm in North Carolina and most of them star his family members. Yet they’re attracting more attention than the WWE’s prime time TV shows and expensive digital channel.

To add insult to injury Hardy works for TNA; a rival wrestling promotion to WWE, that is so badly managed it nearly went out of business. Yes folks; TNA is apparently still on TV on Pop a channel most people don’t get but that does not seem to affect Hardy’s popularity.

Part of the reason for Hardy’s success is easy to see; his videos are actually entertaining. He and Jeff recently put on Tag Team Apocalypto a wrestling show better than any of WWE’s expensive pay per views or network shows. I actually watched the whole thing and laughed.

What’s really bad for McMahon is that Tag Team Apocalypto is available free on YouTube but fans have to pay for WWE network and its pay per views. Why should fans pay for lousy wrestling when something good is available free online?

Another problem for WWE is that Hardy understands modern social media and how it works. Much of his success is real and it shows that WWE has a huge problem whether Vince McMahon admits or it not.

WWE’s Business Model is Obsolete

Matt Hardy has demonstrated how WWE’s old media business model is obsolete. He also shows that the writing might on the wall for a lot of old media such as network TV and cable channels.

The WWE relies on an old media business model of controlling and packaging all the programming. It force feeds fans the wrestling that the McMahon family thinks they want; much as CBS (NYSE: CBS) force feeds TV viewers the shows it executives think they want. Back in the bad old days, say in 2000 this model worked because fans had no real alternative.

The model worked because a wrestling promotion would have needed tens of billions of dollars and extensive media contacts to compete with WWE. For several years, after the collapse of its archrival, WCW, WWE was the only large wrestling promotion in North America.

It had an effective monopoly and control of the business so creativity went out the window. Why take risks when you can make money recycling the same tired old wrestling over and over again?

How Google Killed WWE’s Business Model

Today fans have lots of alternatives thanks to YouTube, Netflix, Hulu and other open sourced video providers. Oddly enough it is YouTube that is slowly destroying WWE’s monopoly and business.

YouTube lets fans choose the wrestling they want, just as iTunes lets people choose the music they want. So in a way it is Google; AKA Alphabet (NASDAQ: GOOG), that is really responsible for WWE’s problems.

Vince McMahon had to spend tens of millions of to build his worldwide entertainment distribution system. All Matt Hardy had to do was buy a computer, internet service and a video camera – an investment of maybe $1,000.

He was able to broadcast his videos to millions of potential fans because Alphabet (NASDAQ: GOOGL) had built him a global digital entertainment network; that was far more extensive and pervasive, than anything McMahon could create in the form of YouTube.

Hardy’s success at the expense of WWE exemplifies the dilemma old media is in. Like WWE media providers such as CBS have vast legacy infrastructure, yet they cannot connect with today’s fans.

They are also highly vulnerable to nimble open-sourced competitors; such as Hardy, who can use the new digital resources to distribute their creations directly to fans. A perfect example of this is the vast amount of attention that Netflix (NASDAQ: NFLX) shows like House of Cards have received at the expense of CBS shows.

Can WWE Survive?

This brings us to the interesting question can WWE survive in this new media landscape? What happens if the next YouTube breakout star is bigger and more popular than Hardy is?

Well, WWE is making more money; and its revenues are growing significantly. Its revenues grew by around 10%, $70.45 million during 2016. WWE started the year with $658.77 million in revenues and finished with $729.22 million. Yet even that growth is suspect when one compares it to all the attention, Hardy has grabbed with his little YouTube channel.

One problem as our friends over at ToProPress noted is that WWE’s ratings are falling. Its flag ship show Raw has been suffering from falling for some time. Between the weeks of February 6 and 13 it fell by .9%, dropping from 3.339 million to 3.199 million during the first hour.

From a viewer’s perspective it is easy to see why; the last Raw consisted of dull matches and tired skits that seemed 20 years out of date. There was none of the maniac energy and genuine wit that drives the Hard Boys’ skits. Even some of the wrestlers involved looked bored.

Is WWE Doomed?

All this makes us wonder how long can WWE last? After all on December 31, 2016, it reported a free cash flow of just $30.94 million, $56.62 million in cash from operations, and a net income of $33.84 million.

That means all it would take is a few months of losses to send WWE into the death spiral. A few months of lousy Raw or Smackdown ratings or failure at WWE Network might crash the organization overnight.

Don’t be at all surprised to see WWE suddenly collapse; and for its collapse to be a harbinger of the apocalypse that will finally kill off the rest of the old media. Matt Hardy’s success demonstrates that all it takes a talented artist making a clever use of new technology to upset media empires that have stood for generations.

Investors need to pay attention to Matt Hardy, because his success might be repeated by any performer using open sourced media to totally disrupt the business. This professional wrestler from North Carolina might be showing us the future of entertainment.