SBJ/January 24 - 30, 2005/This Weeks Issue

ESPN gets $850 million to stay in the game

Never mind the estimated $850 million ESPN will get from Electronic Arts over the next 15 years to use the ESPN brand name and content in EA’s sports video games. The deal between the parties announced last week marked a spectacular save for the network, which had watched EA completely recapture control of what is arguably the most important licensing category for the most valuable sports league.

“You cannot underestimate the dominance of NFL football games in the sports video game category,” said Michael Jerchower, former director of sports marketing at former EA competitor Acclaim Entertainment. “I think ESPN recognized the importance of having their brand on the NFL football title.”

Teaming with EA was the only chance ESPN had to be an NFL partner in the category, thanks to the five-year deal EA signed with Players Inc. last month to be the exclusive publisher of NFL video games.

ESPN and Sega Corp. have partnered in recent years for their own licensed NFL title, a critically lauded game that nonetheless has not sold well. But last year’s decision by ESPN-Sega distributor Take-Two Interactive to slash the price of the ESPN NFL 2K5 game from $50 to $20 helped spur sales, also undercutting EA’s Madden 2005 franchise and ultimately forcing EA to slash the price of its game by $20.

ESPN has one year remaining on its partnership with Sega and Take-Two, but the EA/NFL deal meant ESPN would have to leave Take-Two after 2005 if it wanted to remain competitive in the market for licensed sports games.

Skipper

John Skipper, executive vice president at ESPN, said last week that while this deal came together in the last couple of weeks, EA’s deal with the NFL “really did not come into play” in the decision to leave Take-Two after that deal expires at the end of 2005. “We would have done the deal whether [EA] got the NFL deal or not,” Skipper said. “This just makes us feel a little smarter.”

It also removes a huge obstacle to ESPN’s evolving transformation from a sports broadcasting company to a sports media company that reaches young fans through every medium, Skipper said.

EA controls more than 70 percent of the market for sports video games, which accounted for 20 percent, or $1.2 billion, of the $5.8 billion video game market last year, according to the NPD Group.

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