Air Time: Mobile ESPN: A Blowout Loss

The idea seemed compelling. ESPN as a brand dwarfs all other providersof sports content, in both scope and breath. With the emergence of broadbandcellular networks and smartphones, the delivery of rich content to sportsnuts had become a viable possibility. Virgin Mobile had achieved significantsuccess as an early MVNO (Mobile Virtual Network Operator), buying cellularcapacity at wholesale prices and reselling it at retail to consumers. However,after making a big splash with a well-publicized Super Bowl launch last February,Mobile ESPN attracted far fewer subscribers than expected. Imagine if the firstSuper Bowl was held in an 80,000-seat stadium and only 10,000 fans showed up. Itmight have been one and done for that idea as well. That was the scenario facingmanagers at ESPN Mobile. In July, Merrill Lynch analysts recommended that theplug be pulled. Last week, Mobile ESPN subscribers were informed that they haduntil the end of the year to find a new provider.

This one hit home. For his 20th birthday earlier this year, I bought mysports-nut son a new Sanyo phone offered by Mobile ESPN. Buying time withmonth-to-month service from T-Mobile after the expiration of his service contract,he was ready for something new to replace his aging Sidekick II. He explored allthe options, including devices and service providers, and settled on what lookedto be a very good deal for Mobile ESPN. It could have been worse. At least MobileESPN will refund the purchase price of the phone. He switched to Verizon andspent $200 for a Motorola Q.

As the dust settles, there's an opportunity for reflection, about Mobile ESPNand the MVNO market as a whole. Although numerous factors conspired againstMobile ESPN, four stand out. First, despite significant technical progress anda ton of hype, cellular networks and the devices used to access these networksaren't yet ready for video content. Riding atop Sprint's EV-DO network, MobileESPN leveraged state-of-the-art wireless technology, but it still wasn't goodenough to provide a compelling user experience. Further, the Sanyo Mobile ESPNphone is a nice device, but the screen is simply too small to deliversports-oriented content.

A second factor relates to consumer purchasing patterns. First and foremost,consumers signing up for a mobile services contract are looking for reliablevoice service. Second, they want service at a predictable and reasonable price.Sure, all the bells and whistles are nice, but basic voice service is stillking. The major carriers all know that. It's the reason Verizon blankets theairwaves with clever commercials touting the superiority of their network.Cingular does the same, promising more bars than anyone else, a simple messagethat most consumers understand. Never mind the reality of dropped calls andincreasingly frequent service outages. Most people have come to accept theseproblems as inevitable--glitches that affect all carriers.

The third factor, common to all MVNO's, is the increasing difficulty inattracting new customers to cellular networks. Value-priced MVNO's havebeen effective in using price as a draw to sign up new customers, but marketsaturation is clearly in sight. And once a carrier has a customer, it reallyneeds to screw up badly to lose that user. Despite the obvious benefits ofnumber portability, churn rates are down across the industry, save for Sprint,which has struggled to hang onto Nextel customers, many of whom blame Sprintfor the slow demise of their network. The bottom line is that it isn't easy toswitch wireless carriers. Most phones can't be ported between networks and theincreasing complexity of today's phones means that you're probably in for afairly steep learning curve once you switch, even if it's a phone from thesame manufacturer. As luck would have it, that's almost never your first choice.The last, and perhaps most important factor when moving beyond basic voiceservice as a primary service is the relevance, value and uniqueness of content.For entertainment services like sports, it's not easy to compete withhigh-definition TV and the Web. Yes, getting the latest scores on your phonemay be convenient, but except for gamblers tracking their latest bets, it'snot particularly compelling. The novelty appeal wears off much more quicklyand the entertainment value is limited. For most people, an iPod kills timemuch more effectively than scaled down reruns of SportsCenter. And even ifusers do place value on content, it has to be unique enough to differentiate.Although Mobile ESPN did a credible job of packaging its content, it was notparticularly unique. A vast array of sports-related information--even richmedia--is available from all the carrier networks.

Mobile ESPN's demise doesn't necessarily mean that the MVNO business modelis unsustainable, but it is suggestive of more fundamental flaws in thatwholesale business model. Carriers are consolidating, increasing theiroperational efficiency and lowering prices for basic services. They aredesperate to find new ways to increase monthly revenue per user, withnew data services and content seen as strategic. Content-oriented MVNO'slike Mobile ESPN--Helio is currently the best example--will face a steepuphill battle in their efforts to differentiate themselves from the carrierswhose networks carry their packets.