Friday, September 29, 2006

The Death of ESPN Mobile – not everything ESPN touches turns to gold

Thursday, the “suits” at ESPN announced that ESPN Mobile, one of the largest product launches in ESPN history, was finished. Less then nine months after launching ESPN’s much discussed about service that would link cellular phone service and ESPN content, those who ultimately decide the fate of the direction ESPN takes on any initiative – the money men, the decision makers, realized that everything ESPN touches does not turn to gold.

“Our MVNO (mobile virtual networks) effort created a tremendous wireless asset widely recognized for quality and innovation and as a result we have been approached by well-entrenched carriers about a licensing model. We have decided to pursue it,” said Salil Mehta, executive vice president, ESPN Enterprises. “With a redefined approach we have a greater opportunity to reach millions of fans while achieving our strategic and financial goals.”

Continued Mehta: “ESPN is now able to take advantage of market opportunities that simply did not exist with our content before we built the MVNO. We remain committed to serving fans in the wireless arena."

An MVNO doesn't have its own wireless network. Instead, it puts its own brand on another company's wireless network operator's service — for Mobile ESPN it was Sprint Nextel Corp. — paying that company to connect calls and deliver content.

Sales of the product ended immediately. ESPN announced they’ll offer current customers the content they’ve purchased through the end of the calendar year, but not beyond December 31, 2006. Regardless of how ESPN attempts to spin this story, it is a setback for the Disney owned company.

According to an Associated Press report, Disney has invested a combined $150 million in developing Mobile ESPN and Disney Mobile, which are two of the highest-profile and most-heavily marketed efforts to create what's known as an "MVNO," or mobile virtual network operator. Its likely Disney invested more than $100 million in ESPN Mobile before Thursday’s announcement.

Disney Mobile is a recent addition to the more than 175 MVNO brands either launched or planned as of April of this year, according to the research firm ARCchart. More then two-thirds of the slightly more 100 employees at Mobile ESPN will likely lose their jobs next year as the company transitions to a licensing business, though some may find other positions at ESPN, executives said.

"The focus of the ESPN organization is that we took a risk, but in doing so we have the benefit of having created the industry's leading wireless application, and we're going to figure out a way to bring that to fans and make the most amount of money," Mehta, told the media. Mehta’s comments will not comfort the now 70 fired ESPN employees.

ESPN Mobile was launched at Super Bowl XL in February. The ABC telecast of Super Bowl XL (the networks last NFL broadcast), featured a 60 and 30 second commercial on ESPN Mobile. The value of the commercial inventory was in excess of $5 million.

"There remains a very strong residual mobile opportunity for ESPN," Doug Mitchelson, a media industry analyst for Deutsche Bank Securities, wrote in a note to investors according to an Associated Press report. "While the phone effort might have failed, the software developed to serve the sports fan through a mobile phone was very powerful, and a clear leader in the sports category."

"It's important that we do not overreact to this," Jaimee Minney, an analyst with M:Metrics Data, noted in an e-mailed comments on Thursday. "In the end, asking consumers to view a brand with a connotation as purely a media company as a provider of telephony is too great of a conceptual leap. Brands like Virgin, a lifestyle brand, or brands that are already providers of communications services, such as a cable company or ISP, stand a much better chance as an MVNO, as do companies that are pure-play MVNOs."

What exactly went wrong with ESPN Mobile? There is no stronger brand in sports than ESPN. Created in 1979, the remarkable evolution of ESPN has included the creation of seven different cable sports networks, the largest all-sports radio network, the Internet’s premier sports web destination and an entertainment division that offers ground breaking sports programming.

When anyone thinks of sports, they think about ESPN. It was no mistake when Disney announced in August all ABC Sports programming would carry the distinctive ESPN brand. ESPN bills itself as the world-wide sports leader; it’s all that and a great deal more. Is this a failure on the part of ESPN or is this an indication that while the technology may exist to offer ESPN programming on a cellular phone, the demand to watch a football game on a cellular phone doesn’t dictate a multi-million investment?

ESPN had planned on launching ESPN Mobile in 2005, announcing on December 1, 2004 the birth of their latest venture.

"Our goal is to extend our leadership and expertise in the two-screen environment, the television and computer, to a third screen that is becoming increasingly important to sports fans -- the wireless device," said George Bodenheimer, president of ESPN Inc. and ABC Sports at the time of the original announcement. "This enhances our mandate to serve fans anytime, anywhere, and Sprint's leadership in this medium will help lay the foundation for our success."

"ESPN Mobile will bring a unique and loyal audience to the wireless table, and we look forward to combining their experience and sports-related content with Sprint's enhanced nationwide network," said Len Lauer, president and COO, Sprint again at the time of the original 2004 announcement. "We believe ESPN's involvement in wireless will help stimulate even further consumer demand for high-speed data services, capitalizing on the strength of Sprint's EV-DO strategy."

Fifteen months later and missing two critical marketing/selling opportunities, ESPN Mobile was finally launched in early February. The Christmas gift giving season is the most important period for cellular phone operators. Close to 70 percent of new cellular phone sales takes place in the three month period between October 1 and December 31. Announcing a product launch on December 1, 2004, promising that product in 2005 and failing to deliver on any of those promises is a receipt for disaster. It sent a message to consumers, the product was in trouble long before they ‘might’ decide to buy the service.

Still when ESPN Mobile was ready, ESPN’s steadfast belief that their mantra is to deliver everything and anything sports (and that the consumer will buy it) was as steadfast as ever.

"Our mission is to serve sports fans on any platform," said Manish Jha, senior vice president and general manager of Mobile ESPN days before the early February launch. "What we realized a couple of years ago is that the cell phone industry is highly fragmented. Cell phone carriers are trying to reach 17 different groups of people, and the effectiveness of that is limited."

Several analysts told online industry newsletter CNET, ESPN indeed might be making a mistake.

"Not every Scotch or 3M needs its own branded cellular service," said Fedor Smith, director of strategy at telecommunications industry research firm Atlantic-ACM. "Companies need some sort of unique content or service, or even an established cool brand to make this work."

ESPN believed they where going to offer sports fans exactly what Smith was suggesting – unique content and service. ESPN believed cellular phones where the next logical step for SportsCenter, Pardon the Interruption and other ESPN programming. They believed sports fans would pay $400 for a phone (the cost of the phone) and monthly service plans ranging from $34.99 a month for 100 minutes of talk time to $224.99 for 4,000 minutes.

"It's not for every brand," Marina Amoroso, an analyst at the Yankee Group warned in a CNET report. "Aside from the cost issue, you also don't want to damage the brand you've built up. Nike may not want to shoulder the burden of a cell phone service that drops calls."

ESPN wasn’t going to be deterred – nothing was going to get in the way of how ESPN looked at the mobile phone opportunity.

"Mobile ESPN has defined a new wireless category, and with that, we are positioning the service and our marketing around the idea that life will never get in the way of sports again," said Manish Jha, senior vice president and general manager of ESPN Mobile in report published by just prior to the product launch. "This is more than a phone -- it is like putting ESPN in your pocket."

"I think branding is going to be key and this ESPN offering has a built-in customer base -- all ESPN viewers and readers," telecom analyst Jeff Kagan told the E-Commerce Times. "So they have that universe of customers to start with. Now they have to develop the kind of content at the kind of price that the base will choose to access."

The $100 million question would sports fans pay what amounted to a king’s ransom for ESPN programming offered on a cellular phone? ESPN used every available platform they could too create product awareness and market ESPN Mobile. ESPN Mobile was promoted on the seven different cable networks, on ESPN radio and was front and center at None of that mattered, the consumer was never interested.

On July 19, Merrill Lynch analysts Jessica Reif Cohen and Michael Kopelman issued a note to investors that it was time for ESPN to “throw in the towel” on its cellular phone venture. They believed that "it is time for Disney to pull the plug on Mobile ESPN," charging that since Disney launched the service with much fanfare during Super Bowl XL, the company has had little luck landing paying subscribers.

Merrill added that while Disney significantly reduced the cost of the handset in April, dropping the price of its Samsung model to $99 after the original Sanyo handset launched at $399, “the model does not appear to be a particularly attractive use of capital,” as the reseller business traditionally offers a low return on investment. Cohen and Kopelman’s greater concern was ESPN initial projection of 240,000 subscribers by years end would fall below 30,000.

ESPN’s last stand in moving ESPN Mobile forward took place earlier this month. ESPN announced it would broadcast college football games over mobile phones this fall, via its struggling Mobile ESPN wireless service.

ESPN announced it would offer up to 25 live broadcasts a month beginning Sept. 2. The move marked the first time that broadcasts of entire sporting events was regularly available for viewing over a U.S. wireless network.

Mobile ESPN, which launched nationwide in February, made the college football broadcasts available to all of its customers who subscribed to its Total Sports Package. The package cost an additional $25 a month above the customer's monthly calling plan.

Less then a month after offering the Florida State – U of Miami Labor Day game from Miami’s Orange Bowl, looking like a boxer that has endured a terrible beating, ESPN has tossed in the towel on offering content on cellular phones.

Major League Baseball's MLB Advanced Media subsidiary, which sells the broadest range of online multimedia content among all major U.S. professional sports leagues, charges $6 a month for its Gameday Audio service, which provides audio broadcasts of every MLB game on Sprint. Other sports events have been available on a one-off basis: For instance, Deutsche Telecom's T-Mobile wireless subsidiary broadcast 20 soccer matches in Germany during this year's World Cup.

Was ESPN’s decision to offer college football games through its cellular service a last desperate act? Given that ESPN, believed it was in their best interests as a company to abandon a medium that had invested more then $100 million in, days before the key annual selling period for that product, ESPN Mobile was an unmitigated disaster for ESPN and Disney.

However, ESPN may have made the right decision. Better to end a failed experiment, then throw more good money after what was for ESPN a bad idea. ESPN has done nearly everything right in developing their brand in the last 27-years. Sooner or later, something was inevitably going to go wrong at ESPN.

The bigger question what if anything does it say about content and cellular phones? Sports fans love having instant access to scores and the latest sports news. Information (scores and results) and watching SportsCenter, a football game or Pardon the Interruption are very different concepts.

Clearly ESPN overpriced the product when it was finally released, and never really offered value for what they where offering. ESPN failure is more a reflection of their lack of understanding of the consumer, not the buying public rejecting sports related content on cellular phones. ESPN’s failure opens the door to a competitor to get it right.

For Sports Business News this is Howard Bloom. Sources cited in this report: Forbes, Associated Press, and