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Industry Pressures for Telecoms

Originally published October 31, 2006

Recently, ESPN and Disney shut down the highly publicized Mobile ESPN. While some have attributed the shutdown to poor operational choices made by a first time mobile “operator,” I have a slightly different opinion. I think the “Street” killed Mobile ESPN.

For regular readers of my articles, this is a common theme of some of my thoughts. Wall Street puts the short-term interest(s) of consistent quarterly reporting and/or the oftentimes loud opinions of external analysts over long-term business goals and strategy. This is not an overall condemnation of Wall Street or public equity markets as being bad for business strategy. I fully realize that there is no such thing as a free lunch. The “Street’s” opportunity cost(s), for access to equity that they provide, are the SEC mandated 10K and 10Q reports and the analysts who interpret them or oftentimes attempt to influence them. Mobile ESPN is another example of how these external pressures associated with the publicly traded telecom industry are impacting the decisions of telecom executives to a greater extent than their own internal business plans.

The Analysts’ Myopic View…
Our story starts with the analysts touting Mobile ESPN early in 2006 as being innovative. ESPN had the support that it needed to develop a new ESPN “channel” and encourage the development of Mobile ESPN. However, starting in July and moving into the fall, the most vocal analysts changed their tune about the MVNO venture. The estimated subscribers were not there. Losses were piling up. Revenues were not meeting the “Street’s” expectations. With all of this, analysts started to call for an end to the experiment before more losses needed to be reported on the quarterly financial reports.

This is called, by some, myopic loss aversion (MLA). MLA is a point of view where the fear of short-term losses all but eliminates the potential for long-term gains. Peppers and Rogers have a great assessment of how this can be detrimental to the direction of public companies. Just imagine if the same type of MLA culture had been around six months after ESPN first broadcast its collection of World’s Strongest Man competitions and Australian-rules football games. It is entirely possible that during the summer of 1980, Getty Oil and Nabisco would have pulled the plug on what is now a cultural icon.

Good Idea! Wrong Plan…
From the time that ESPN announced the start-up of Mobile ESPN, I was intrigued. (it should be noted that I am about as addicted to sports as one can be and still be married…. ) With mobile ESPN, I could have on my phone all the sports scores, game highlights, SportsCenter commercials, etc. That situation prompted my wife to ask more than once, as I watched the ever-present SportsCenter reruns while eating breakfast, “Didn’t you watch this last night?” However, after the uniqueness of the idea wore off, I realized that between my television and my laptop, I already had just about all the ESPN that I could reasonably handle AND it came at a lower price than the proposed mobile solution. ESPN had my interest, but missed my price point.

Reacting to reports from those ever vocal market analysts in July, ESPN starting changing the marketing focus of Mobile ESPN from “ESPN in your pocket” to “How to gain an edge in your fantasy league.” From this, I realized that ESPN had found its “bread-and-butter” audience. It was not the overall sports junkie who, at a lower price, might round out the subscriber totals. It was the hard-core fantasy league junkie who could drive average revenue per user toward the goals of the analysts. What’s another $100-$150 per month to guys, and gals, for whom it is not unusual to spend $2,500 to $5,000 per sport per year in fantasy league fees. For the fantasy league crowd, the most lucrative is the fantasy football junkie. Oddly enough, ESPN started their service during the Super Bowl when most fantasy football leagues had been shut down for a month and would not open again for at least six months. Again, ESPN probably had the right price point, but missed their interest.

Strike Two!
How could ESPN, the master of marketing and positioning, miss twice?

One, they probably listened too much to people who told them how to run a mobile phone company rather than their own existing customers. ESPN knows its content and how to tune its content for different formats – television, radio, Internet and print. They probably should have used their existing cable and radio customer information to perform market research of the recommended target groups for an MVNO. They probably would have found the average American sports junkie prefers existing channels, but for the right price they would definitely try a new channel for sports information. I believe there are lessons to be learned from the ESPN, the magazine launch and distribution.

Two, they should have looked deep into their own fantasy leagues and paid-content customers to study these users and their habits to discern the right launch zones for those users and their expected activity levels. At the very least, ESPN would have had hard numbers to show why a relatively low subscriber count from February to August was expected, which may have even paralleled their existing experiences, and how August to October would be a greater opportunity to bring in subscribers with three major sports leagues starting their seasons and associated fantasy seasons.

Going Private
The moral of the Mobile ESPN story, in my mind, is the overarching power that the “Street” has over the long-term strategy of publicly traded firms. Yes, it is their capital that is being invested in various ventures. However, should they really have the ability to “Monday morning quarterback” the firms they invest in?

This month, McKinsey talks about how large companies need to innovate to take advantage of global trends. However, it appears, in the case of Mobile ESPN, the expectations of Wall Street and the analysts that serve Wall Street are driving out at least some of that innovation in favor of the MLA culture.

ESPN and Disney are not alone in this environment. Some public organizations are attempting to “strike back” at the expectations of the equity markets. In a recent bid to take the cable service provider Cablevision Systems private, a letter to the shareholders explaining the bid included the following:

"We continue to feel that succeeding in this fiercely competitive environment requires a long-term, entrepreneurial management perspective that is not constrained by the public markets' constant focus on short-term results."

While it remains to be seen if this bid for Cablevision will be successful, it does show that there are telecom executives who are tiring of constantly updating financial spreadsheets and winning the “analyst call” public relations battles. Also, the Mobile ESPN “post game analysis” shows that if ESPN had used their own internal business intelligence, they would have had stronger evidence to support Mobile ESPN’s business plan and refute the contentions of market analysts during those analyst calls.

NOTE: If anyone at ESPN or Disney reads this, my analysis….errr… suggestion (added to the VERY long list of opinions about what to do differently at/with Mobile ESPN…if you doubt me, just Google it…) would have been to have started the service much closer to fantasy football season, say the MLB All-Star game, to avoid much of the cost associated with a Super Bowl launch. Also, this would have saved six months of corporate “spend,” extended the honeymoon with the analysts and given Mobile ESPN a better chance to market to a greater revenue-generating crowd right off the bat.


Monthly Notes:

Unofficial Book of the MonthThe Long Tail by Chris Anderson . While I am not the first person to review/recommend this book this fall, I feel it has particular application to the situation at Mobile ESPN and ESPN.com. Both of those outlets have the ability to deliver content in a much different fashion than those at ESPN, ESPN2, ESPN News and ESPN U (have I forgotten “the Ocho”…). The Long Tail talks about how a change in viewpoint can help with the Internet’s and mobile content delivery’s business cases.

Interesting MBA Observation of the Month: Part 1 – I once read an e-mail joke that the U.S. would continue to be an advanced technology leader for no other reason than the ability to produce acronyms. That leads to my revelation that a rules engine is no longer a rules engine… a rules engine is now a BRMS, Business Rules Management System. I guess I am now waiting for my Web browser to become a WVMS, Webpage Viewing Management System.

Interesting MBA Observation of the Month: Part 2 – Google buys YouTube for $1.65 billion. Google is now in the bandwidth business in a big way. How soon until Google starts thinking differently about quality of service attributes from ISPs? How soon until Google starts lining up on the other side of the net neutrality argument?

  • John MyersJohn Myers

    John Myers, a senior analyst in the business intelligence (BI) practice at  Enterprise Management Associates (EMA). In this role, John delivers comprehensive coverage of the business intelligence and data warehouse industry with a focus on database management, data integration, data visualization, and process management solutions. Prior to joining EMA, John spent over ten years working with business analytics implementations associated with the telecommunications industry.

    John may be contacted by email at JMyers@enterprisemanagement.com.

    Editor's note: More telecom articles, resources, news and events are available in the BeyeNETWORK's Telecom Channel. Be sure to visit today!

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