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WWE’s risky gamble on streaming video is paying off

WWE heavyweight champion Seth Rollins celebrates at WrestleMania 31 in March. Investors worried that WWE fans wouldn’t keep their subscriptions after the marquee annual event ended. (Don Feria/AP Images for WWE)
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World Wrestling Entertainment set out last year to completely rework its business model — and maybe change the way people watch sports in the process.

The company launched a bold gambit: Selling subscriptions to an online streaming service for $10 a month, a fraction of the $45 to $60 WWE has traditionally charged for a fight on pay-per-view.

WWE posted loss after loss as the upstart online service, WWE Network, got underway. Its stock tanked.

But the company on Thursday showed signs that the model is working, adding more paid online subscribers than Wall Street expected and turning a second-straight quarterly profit, if a modest one. It now makes more from Web subscribers, which reached 1.2 million during the quarter, than it ever did from pay-per-view, WWE’s chief executive Vince McMahon told investors.

That helped the WWE bring in $5.1 million, or 7 cents a share, in the second quarter, compared with a loss of $14.5 million during the same period last year. Its shares surged 20 percent to $19.80 by Thursday afternoon.

“The growth of [the] network demonstrates our ability to transform our legacy pay-per-view business into a global subscription business with high growth potential,” George Barrios, WWE’s chief financial officer, told investors.

[WWE cuts ties with Hulk Hogan amid report that he used slurs]

WWE making headway in the video streaming business is helping reshape the media and entertainment industries as consumers increasingly shed their cable contracts. Even Disney’s chief executive Bob Iger this week suggested that sports giant ESPN will one day have an online subscription service.

WWE was ahead of most of the industry in pushing online, analysts said. “I think you could describe it as bold or risky, or both,” said Daniel Moore, an analyst at equity research firm CJS Securities. “Clearly, Vince McMahon’s been a risk-taker for 30 years, so the company — and the company’s culture — is not afraid of being entrepreneurial and going out.”

During the second quarter, WWE also managed to pass a test posed by investors: Would online subscribers drop the service after the WWE’s marquee event, WrestleMania, in March? That would indicate that fans were treating the Web service like a low-cost pay-per-view purchase, not a long-term subscription service, indicating questions about its ability to grow long-term.

About 100,000 subscribers canceled their online subscriptions after the fight, but that was fewer than some analysts had feared.

Despite its recent success, it is still unclear how far the company can take its subscription service — and how big it can make the fan base, said Bradley Safalow, founder of investment research firm PAA Research.

It has, for example, nearly 7 million subscribers on YouTube and 4 million viewers on its USA Network show “Raw.” But WWE is not nearly as popular as it was in the late ’90s and early 2000s, when star wrestlers such as the Rock and Stone Cold Steve Austin dominated the ring on a regular basis.

It will need to find a new crop of superstars to bring back the big audiences and keep growing in the long term, no matter how they’re watching, Safalow said.

McMahon said the company is investing in new programs to grow its audience and keep fans watching. WWE is planning new shows for the online network, he said, including a reality show that follows up-and-coming wrestlers and “Camp WWE,” an animated comedy series a la “South Park.”

“They have really thrown everything and the kitchen sink at it,” Moore said. “They’re basically saying, let’s get people to try it, and hopefully we can get them hooked.”