ESPN will weather nearly $550 million in losses from its branded mobile phone service over the next four years, but will turn a profit in year five and increase annual revenue from the venture to more than $1.5 billion by 2010, according to forecasts issued by Merrill Lynch.
A report written by top media analyst Jessica Reif Cohen last week questioned the overall wisdom of ESPN’s mobile venture, calling it “a bit perplexing” and saying Merrill Lynch is “hard pressed to understand who the core customer is for a premium-priced ESPN phone product.”
She noted that ESPN has slashed the price of its phone for its rollout to $199 from $399 during the beta launch phase, and put a low-end subscription rate of $34.99 on the market, down from $64.99. She said that “suggests that the results from the test markets were not encouraging.”
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ESPN has begun a sizable marketing push
behind its new mobile service. |
Still, Merrill Lynch projects that the mobile business will turn a profit in 2010 with subscriber numbers topping 1.8 million. It predicts ESPN will end this year with 240,000 subscribers, slightly more conservative than the internal projections used by ESPN.
The most striking element of the report is the sheer size of ESPN’s investment in Mobile ESPN, which some company insiders say will dwarf the startup costs of ESPN2.
This year alone, the report says, ESPN will spend about $225 million on operations and marketing behind the branded mobile line, against about $120 million in revenue. Next year the spread grows to nearly $530 million of expenditure, versus more than $375 million in revenue.
The cost to acquire each new subscriber — a key measure for any subscription-based business — is projected to be $500. That includes $400 in sales and marketing plus another $100 subsidy on the cost of each phone.
Reif Cohen concluded: “The bottom line is that the … model does not appear to be a particularly attractive use of capital. … We note that ESPN’s service is priced at a significant premium to competing services, but that it seems unlikely the service will appeal to high income users.”
SHOWTIME DOCUMENTARIES: Showtime will launch its first weekly sports documentary series on March 11, a 13-episode action sports series titled “RE: Evolution of Sports.”
Shot in high definition, the series purports to go “inside the heads” of the world’s most extreme athletes, with half-hour episodes devoted to the most popular action sports, such as snowboarding and surfing, but also more dangerous pursuits such as ice climbing and B.A.S.E. jumping.
Former Fox Sports exec George Krieger is executive producer of the series, which cost several hundred thousands dollars per episode to produce. Krieger’s company, Apparent Gravity Media, joined Grace Entertainment and Teton Gravity Research to produce the series, which will air at 7:30 p.m. ET and PT Saturdays.
Apparent Gravity Media also handles international distribution for the Dew Action Sports Tour and produces shows for OLN, Fuel and Fox Sports Net.
Andy Bernstein can be reached at abernstein@sportsbusinessjournal.com.
