SBJ/March 21-27, 2011/Media

Ten years later, MLBAM still evolving

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A series of whiteboards hangs in the office of Bob Bowman, MLB Advanced Media’s president and chief executive. One has a curious set of financial numbers written in the fall of 2001, roughly a year into the company’s existence.

Within his jotted figures and assorted scribbles, Bowman estimated Major League Baseball’s interactive arm in a decade would have a hefty $685 million in annual revenue, including more than $400 million in paid content alone, unheard of for any online company at the time. With the economy falling into a recession, the first Internet bubble popped and the country reeling from Sept. 11, Bowman’s projections were that much more out of step with the times.

And MLBAM’s first year had been anything but smooth. Technical glitches were common. Concerns ran rampant about the objectivity of MLB.com’s news coverage, and some were still questioning the wisdom of MLBAM’s centralized business model. Live video was essentially nowhere across digital media (and not on MLB.com until the following year), and broadband Internet connections were still somewhat rare. Most of the company’s first-year revenue of about $40 million had come on commissions and fees from online ticketing.

But near the 10th anniversary of the 2001 relaunch of MLB.com under MLBAM control, those whiteboard notes take on a certain prescience. MLBAM is not quite a $685 million company, but its record 2010 haul nearly hit $500 million. A projected $75 million a
Mointors
year in sponsorship and advertising revenue has been surpassed. Ticketing is still a strong suit: Its 34 million tickets to MLB games sold online last year represent nearly half of the league’s 2010 attendance, and the business has been heightened by its 2005 purchase of Tickets.com and an alliance with StubHub for secondary ticketing.

monitors
MLBAM
The MLBAM mothership: Inside the Network Operations Center in New York City.
While that estimate of $400 million of paid content a year is still off by about half, MLBAM last year sold more than 500,000 subscriptions to MLB.TV, its $120 out-of-market live game package, and a similar number of downloads of MLB.com At Bat, its $14.99 mobile application. MLB.com At Bat ended 2010 as the top-grossing iPhone app on all of iTunes.

Bowman has yet to erase the whiteboard figures, keeping them as reminder of what MLBAM was, is, and could yet still be. “Every year has its challenges and opportunities, but certainly, the challenges back then were steeper,” Bowman said. “But I felt certain back then a business was there. I still do.”

Indeed, MLBAM is now widely considered the gold standard of online sports operations. With expertise in nearly every major element of digital sports, the company has built a potent blend of paid and free content, advertising, online commerce, ticketing, analytics, and a fast-growing technology component supporting live online streaming for third parties such as ESPN. As a result, MLBAM is now at the front of the line with nearly every major advance in the industry, and is seeking to accelerate not only its technological capabilities but also its revenue growth.

“They’ve done a brilliant job, not only with ESPN3, but also their own suite of products,” said John Kosner, senior vice president and general manager of ESPN Digital Media, where ESPN3.com has sharply grown its distribution and viewership over the past year with MLBAM’s help. “They’ve constantly innovated and raised the bar for everybody in this space, us included.”

CRAWL, WALK, RUN

A second whiteboard features a laundry list of MLBAM ideas anow in the company’s dustbin, including “Custom Cuts,” a personalized video highlights service, and “Press Pass,” which asked fans to pay $9.99 for yearly access to press notes.

It’s another window into the company’s rugged early days, when key league partners such as Fox Sports Chairman David Hill argued MLB.com’s 20-minute “Condensed Games” replays were “undermining our telecasts.” Bowman offers a baseball analogy: “Nobody bats 1.000 in this business.”

MLBAM’s first big turning point came midway through the 2002 season. MLBAM launched MLB.TV, its out-of-market game package, for the first time allowing fans to watch live games online. To this day, live game streaming is the core around which much of the company is built.

The product initially had its bugs, though, and many executives beyond Hill were questioning whether MLB.TV would cannibalize traditional network and regional TV. That latter point remains an issue in MLBAM’s minimal progress on in-market game streaming, in which only the New York Yankees and San Diego Padres and their regional sports networks have participated thus far. But with those initial live games online came a basic but critical notion: the idea of getting the games you wanted, when you wanted, and where you wanted.

“We felt very strongly there was a significant place for the sport on the Internet,” said Bob DuPuy, Foley & Lardner attorney, former MLB president and MLBAM’s chairman for nearly all of this initial decade until his departure from baseball last fall. “And now with this content, particularly the live games, it’s unquestionably helped baseball become more international and more relevant to younger audiences, both of which were and still are major priorities.”

Both MLB.com traffic and sales of digital media products to that end draw predominantly from the age 25-49 demographic and continue to show growth outside the U.S.

“Before MLBAM, you really didn’t have any situation where a sports league had a direct, one-to-one relationship with their fans,” said George Kliavkoff, former MLBAM executive vice president of business who was at the company from 2003-06 and is now the chief executive of Manilla.com, a Hearst Corp.-owned online bill payment hub. “Looking back, that was a really dramatic and important departure.”

The second major turning point for MLBAM arrived in 2008, the year Apple opened its App Store to third-party developers. Among the initial name-brand content brands creating an application for Apple’s celebrated iPhone, MLBAM generated strong reviews for MLB.com At Bat, and soon was a fixture within Apple’s national advertising for the device.

The iPhone, however, also helped open a broader realm for MLBAM, one of partnership. After seven years of essentially selling its content as a sole proprietor, MLBAM, like other content owners, was forced to strike alliances with third-party vendors and hardware manufacturers. Apple was soon joined by Google, Roku, Sony, BlackBerry parent Research In Motion, Boxee and many others to bring live baseball to smartphones, tablets, Internet-connected TVs, digital video set-top boxes, and video game consoles. In each case, a complex deal had to be struck, and often revised, governing not only financial splits but also content, customer service, data mining, marketing rules and so forth.

In many cases, it has helped expose MLB digital products to new audiences. But it also means sharing revenue with outside parties. Apple, for example, takes a 30 percent cut on all sales of MLB.com At Bat for the iPhone, iPod touch and iPad. In part because of that, MLBAM has not included full MLB.TV access within the app, and still requires a separate subscription to view the complete schedule of live games on mobile devices.

“Four years ago, we had no intermediary between us and the fan. Now there are a whole bunch of them, and we’ve sort of had to color within the lines,” said Joe Inzerillo, MLBAM senior vice president for multimedia and distribution. “It’s been a somewhat difficult shift, and there’s certainly a lot of volatility still in the marketplace. We don’t necessarily believe in TV Everywhere, but we believe very strongly in baseball everywhere.”

THE BOWMAN FACTOR

It is impossible to discuss MLBAM without quickly focusing on the 55-year-old Bowman. Hired in November 2000, a few months before the public relaunch of MLB.com (then still majorleaguebaseball.com), the former Michigan state treasurer and ITT Corp. executive has developed a widespread reputation as a fierce negotiator and indefatigable advocate for MLBAM, its people and its output.

His top lieutenants describe him as a sort of modern-day Socrates, a boss that loves to vigorously debate concepts and ideas, sometimes loudly, but always in the name of finding the optimal solution.

“His personality is one that absolutely demands victory, and he does so in a creative and passionate way,” said Dinn Mann, MLBAM executive vice president for content, who along with Inzerillo, chief technology officer Joe Choti and Noah Garden, executive vice president for commerce and sponsorship, make up the quartet of senior executives Bowman calls his “four horsemen” of the company.

“He’s heavily involved, but not a micromanager, and that’s a fine line he’s been able to walk. He can be charming and he can be intimidating, depending on what the situation calls for,” Mann said.

Shannon Terry, founder and CEO of the Tennessee-based 247Sports.com and former head of Rivals.com, tells a similar story. MLBAM discussed buying a minority stake in Rivals.com before the company was acquired by Yahoo! in 2007.

“Bob’s not afraid to shout from the rooftops as to the enormous value of his asset. He definitely comes in as the sheriff of town and absolutely gets the most of his assets at the negotiating table,” Terry said. “But that’s the great thing about him. So many other people in this space are much more hands-off and removed. No one is more hands-on in this business than Bob. And that’s why he’s been a pioneer in this space.”

That mind-set has engendered long-term employee loyalty. MLBAM employs 480 people, up from 139 at the company’s formal outset. Fifty-two of them, including nearly all of the company’s senior executive ranks, have been with MLBAM for the entire 10-year run, a striking figure in an industry where staff turnover is common. Those 52 employees were each given commemorative bats in December at the company’s holiday party.

Bowman grew up rooting for his hometown Milwaukee Brewers, but colleagues and partners describe him now as more diplomatic with regard to his personal fandom.

“He’s a fan first of what’s best for the business,” said Jimmy Pitaro, co-president of the Disney Interactive Media Group and former head of Yahoo! Sports, where he struck several large content and advertising deals with MLBAM. “I’ve learned a ton from him. He’s a tough negotiator, and I’ve been both the victim and beneficiary of that. He’s always been able, though, to keep a very long-term view and see that both sides always come out ahead on a deal.”

The question of what’s next, however, seems to be always around the corner for Bowman, who has now stayed with MLBAM longer than at any other job he’s held. Early last year, Bowman filed paperwork in Michigan to consider a bid for governor as a Democrat and raise campaign funds, then ended the possibility of a 2010 run but left the door open for a future campaign.

Pressed recently on his career plans, Bowman said, “I don’t think about it. I’m having fun doing what we’re doing. I’m focused on 2011.”

CULTURE CLASHES

MLB remains the only major U.S. sports entity to have its digital operations carved out from the rest of the league as a separate holding company, and some ad buyers and marketers who have openly expressed frustration about the divided structure. MLBAM’s distinct status and separate headquarters in New York has also created a corporate culture often quite unlike what exists uptown at MLB’s league headquarters. An MLB sponsor wanting to activate that partnership online needs a separate deal with MLBAM, and an MLBAM partner wanting to use league marks in offline media needs to make a deal with MLB Properties. Stories of DuPuy needing to settle sales conflicts between the two entities, each of which reported to him, are something of legend around the industry.

But MLB Commissioner Bud Selig said he prefers to keep MLBAM a separate entity from MLB Properties, and says he has plenty of data to back up his stance. MLB’s traditional sponsorship business, recent hiccups such as a legal dustup with beer sponsor Anheuser-Busch aside, has been operating at record levels. So, too, has MLBAM’s advertising and sponsorship revenue. On a broader level, the sport sees itself somewhat like Procter & Gamble or another diversified company with multiple brands in which those brands function primarily as stand-alone operations.

“I’m quite content to leave the current structure as it is. There’s no need to merge, and they’ve each done beautifully,” said Selig, who went on to call MLBAM “one of the great success stories of not only the baseball business, but American business.”

Those on the ground also insist the reports of feuding within MLBAM and MLB Properties are overblown, and instead say there has been improved sales collaboration between MLB Properties, MLBAM and the MLB Network, particularly in recent months.

“I don’t see friction now,” said Garden, who also worked with Bowman in the late 1990s at online retailer Cyberian Outpost. “We’ve come a long way, particularly in educating people what MLB.com is really about. And I think you’ll see great things out of all three of us going forward.”

Only time will tell, particularly since MLB Properties’ corporate sales efforts remain in transition after the departures last year of veteran executives John Brody and Ari Roitman and the recent arrival of Lou Koskovolis from Six Flags Entertainment.

“I have every reason to believe they will continue to realize that one entity isn’t going to succeed without the other,” said Woody Thompson, Octagon executive vice president, who represents MLB/MLBAM clients Bank of America and MasterCard.

The recent departure of DuPuy left a newly flattened organizational structure in which Bowman reports directly to Selig and new MLBAM Chairman David Glass, owner of the Kansas City Royals. On paper, it’s an odd scenario for a high-flying online outfit such as MLBAM. Instead of dealing with DuPuy, who possessed an easy comfort with new technology, Bowman now reports to the 76-year-old Selig, who doesn’t use a computer, and the 75-year-old Glass, who helped turn Wal-Mart into the global colossus it now is but is also firmly outside the Internet generation.

“Those have been two pretty great bosses to have,” Bowman said. “Bud may not necessarily have a teenager’s curiosity about the iPhone, but he definitely has a teenager’s curiosity about business. They’re both extremely successful businessmen, and are rabidly interested in what we’re doing.”

TECHNOLOGICAL FUTURE

For all of MLBAM’s success as a consumer-facing digital media company, it may derive much of the its future growth as a back-end video services provider for outside entities. MLBAM last year opened a 4,000-square-foot data center across the street from its Manhattan headquarters to handle its increasing battery of live and on-demand video. The high-end server facility arrived at roughly the same time as a broad alliance with ESPN in which MLBAM is providing the technical infrastructure and operational support for ESPN3.com. Other video clients included CBS Sports, Turner Sports and Minor League Baseball.

When CBS and ESPN had a public spat last year as to who held the record for the most unique users ever to watch a live online sports event, a U.S. World Cup match or the start of 2010’s March Madness On Demand, they were arguing over events both supported by MLBAM.

All told, MLBAM now handles more than 12,000 live online video events a year, along with serving as the operational hub for MLB’s new instant replay system. It’s an evolving and dramatic shift for the company, which earlier handled front-end website production duties for several outside outfits, including Major League Soccer’s MLSNet.com, before de-emphasizing that line of work beginning in 2008.

“Streaming video falls right in our sweet spot,” Choti said.

MLBAM also is starting to stake a position as sort of a venture capital firm investing in smaller tech companies. Its recent alignment with Bay Area firm Auditude to develop a new platform for ad serving in live games to mobile devices includes MLBAM taking on a single-digit percentage minority equity stake.

More of these types of equity investment deals are likely for MLBAM. While it has not shown interest in an initial public offering of its own, despite a constant run of calls from investment bankers and years of rumors of IPO valuations of at least $2 billion, investing in other companies still gives the 30 MLB clubs that own MLBAM some additional financial upside.

Those team owners to have been repaid threefold on their initial investment in MLBAM, estimated at $80 million in total, and still retain 100 percent ownership of the company. That’s only a fraction of MLBAM profits over the past decade. The rest continues to be plowed back into the company to fuel more growth. Beyond that, the Nationals, Braves, Cubs, Padres and Rangers over the past half-decade each saw their sale prices boosted by MLBAM’s surging value.

“Under Bob’s leadership, MLBAM has been able to unlock and extract tremendous value from their digital products that very few other media companies have been able to do,” Kliavkoff said. “He’s like a master locksmith.”

Staff writer Terry Lefton contributed to this report.

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