SBJ/October 2 - 8, 2006/This Weeks News

Flop hangs an ‘L’ on ESPN

ESPN’s unexpected and swift shutdown last week of its highly publicized wireless venture, Mobile ESPN, marked an unusual position for the self-proclaimed Worldwide Leader in Sports: unquestionable failure.

To be certain, the company has had more than a few bumps in the road in its celebrated 27-year run, such as “Playmakers,” Rush Limbaugh and “ESPN Hollywood.” But whenever ESPN sought to extend its brand beyond television and broadly into new areas, such as magazines, the Internet, award shows, themed restaurants and other licensing ventures, the result was bona fide success.

Until now.

As of Dec. 31, ESPN will exit the business of mobile virtual network operators and instead licenseout its mobile content to existing national wireless carriers. Last week’s sudden announcement, believed to be orchestrated primarily by Walt Disney Co. president Bob Iger, arrives less than eight months after a big-budget launch on the heels of Super Bowl XL and aggressive advertising touting the phone as “The greatest invention in the history of the world. Ever.”

“Weighing the risk and reward going forward, we just didn’t have a comfort level,” said Manish Jha, Mobile ESPN general manager. “This is a tough decision, but I believe the right one for the company.”

Estimates of Mobile ESPN’s subscriber base vary between 5,000 and 20,000 — the company, as of press time last week, had never disclosed an exact number. But that range remains well below the 250,000 subscribers internally projected by the network as a year-end target. Disney had invested $150 million into Mobile ESPN, according to Iger.

ESPN tried a variety of marketing efforts behind
Mobile ESPN, but none caught on.
Despite the high-profile and expensive shuttering, industry analysts do not believe the move will cause long-term harm to ESPN’s overall brand, due in part to the company’s size and diversification.

“Disney’s trying new things and trying to find new outlets and quickly exiting from things that are not going in the right direction,” said Gordon Hodge of Thomas Weisel Partners. “They weren’t calling it a beta test when they did it, but in hindsight it certainly was a beta test.”

PK Worldmedia analyst Paul Kagan agreed, “I think it will be forgotten in no time. ESPN is way too strong a brand and way too big an institution to be significantly hurt by a beta test that didn’t work out. ESPN has been very aggressive. They wanted their brand to be everywhere, but sports fans don’t need it to be everywhere.”

Disney’s family-oriented MVNO, Disney Mobile, is unaffected by the Mobile ESPN decision. That product by most accounts has far more uniqueness in the market due to its extensive controls designed for parents to monitor children’s use of cell phones. Conversely, sports scores and updates are widely available with every major wireless carrier.

Mobile ESPN’s brief run saw the product receive mostly positive reviews from a technology and content standpoint from the press, but little traction at retail. The marketing of the product also was never set. The company offered a steadily changing array of price and content plans, unsuccessfully searching for a sweet spot of customer acceptance. Among the network’s last and most drastic offers was a $150 “signing bonus” for new customers. Mobile ESPN also existed under near-constant pressure from industry and financial analysts, many of whom never saw a defined market for the service and felt that the advertising for the phones failed to create one.

Through it all, Mobile ESPN executives doggedly — at times defiantly — insisted the market would soon respond to the company’s overtures.

“They were going after a very defined niche market of hard-core sports fans, and these people already have phones and phone plans,” said Linda Barrabee, an analyst who tracks the mobile industry for the Yankee Group. “These people are, by and large, locked into contracts they aren’t really looking to get out of. That was just such a tough thing to get around.”

Similarly, Jha last week acknowledged that Mobile ESPN was fighting a tough tide. Most American consumers buy wireless services based mainly on price and phone functionality. To that end, industry estimates point to as little as 1 percent of wireless purchases being motivated primarily by content, yet it was content that Mobile ESPN used to differentiate itself.

Merrill Lynch analyst Jessica Reif Cohen, perhaps Wall Street’s foremost critic of Mobile ESPN, immediately raised her outlook on Disney stock as a result of the shutdown.

Jha said content licensing deals with major U.S. carriers have not yet been reached, though discussions have already begun to that end. ESPN has licensed out data, such as scores and basic text, to wireless carriers since the mid-1990s. What will now be offered is the more graphical interface central to Mobile ESPN, as well as a deep battery of audio and video content.

What ESPN was saying

  • Feb. 27, 2006
    “We feel very strongly about the content we’re offering, so it’s really now a sales and marketing issue. We’re happy with the progress to date and remain bullish, but this is still a work in progress. No new business runs on automatic pilot.” — George Bodenheimer, ESPN/ABC Sports president
  • April 10, 2006
    “We’re still very confident going forward. The idea is not to grow this crazily but in a real and meaningful way.” — Chris LaPlaca, ESPN senior vice president of consumer communications
  • April 24, 2006
    “Our goal was not necessarily to accumulate as many subscribers as possible. Our goal is to always have measured and controlled growth.” — Manish Jha, Mobile ESPN senior vice president and general manager
  • July 31, 2006
    “We are, at least within the Mobile organization, feeling very, very good about what we’ve created and continue to focus on how we make it even better as time goes on.” — Jha
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