How can ESPN Mobile fail in America?

Another death in mobile was already broadly covered in the blogosphere and the mainstream news. ESPN Mobile, the MVNO (Mobile Virtual Network Operator) in the USA, owned by Disney, has announced it is discontinuing its service and now will sell some of its assets and services to big carriers in America. It is offering refunds to existing customers. ESPN Mobile had according to industry gossip acquired only 30,000 subscribers in the USA, at a time of strong subscriber growth in that market.

How is this possible? A very strong brand (those who don't know the American TV broadcast market, ESPN is one of the most powerful cable TV brands, offering 24 hour sports on numerous ESPN channels. Similar to Eurosport in Europe, only much more powerful within the American TV market). ESPN offered additional value propositions around sports themes, it wasn't entering mobile telecoms as a low-cost MVNO, like Telmore in Denmark or Saunalahti in Finland. But rather it offered a targetted branded offering to a specific niche market, like the very successful Amp'd aiming for the youth market in the USA.

Actually it is not easy to bridge the broadcaster to MVNO offering. Finland saw its biggest commercial TV broadcaster MTV3 (that stands for "Mainos TV 3" - not in any way MusicTV "MTV" related) launch as an MVNO, achieve modest user success, and terminate its MVNO service. The "real" MTV ie MusicTV launched in Sweden as an MVNO and struggled early until discovering its proposition. But now MTV is so happy with the success that they are expanding into other European markets such as their recent launch as an MVNO in Germany. And in Belgium, radio broadcaster NRJ is a successful MVNO. Certainly it is quite possible to make that transition, but like we've said in our book Communities Dominate Brands - indeed as I say in my earlier business book for telecoms, m-Profits - an MVNO is not an automatic license to print money. The most famous of the MVNO's - Virgin Mobile, while very successful in the UK, USA, Australia and Canada, failed miserably in Singapore. So not every MVNO can succeed in every market.

My first thought is this. ESPN had all the cards. In a market where Virgin USA and Amp'd and dozens of other smaller and targetted MVNOs are able to achieve profitable business, there is NO REASON whatsoever for ESPN failing (having lost by some rumours as much as 50 million dollars???). There must have been a total, utter, lack of professional competence in its management ! How is it conceivable that Disney, ESPN's owners, did not bring in COMPETENT management or at least management consultancy, to fix issues before they became this bad. Disney knows perfectly well, that TV viewership is declining. They know their viewers are shifting their time to online interactive media, to the internet and to mobile.

And Disney should know - they were after all involved in Japan from the launch of the first mobile internet service from day 1 - that there is an inevitable global trend from the fixed internet to mobile internet - 58% of all internet users already access the web via mobile phone some of the time (majority of the time via PC of course) and 25% of the internet users - mostly in Japan, Korea and China - access the web exclusively on mobile phones. For ANY TV brand to survive, they HAVE to start the migration to mobile. This was the obviously consensus lesson from the second annual TV mobile conference I just chaired this week here in London.

Telmore took 20% of the Danish telecoms market. Saunalahti was sold in a record making deal in Finland that put the MVNO managers in charge of their now "parent" Elisa Group. Virgin mobile is in the dominant brand position in its merger here in the UK with NTL the cable TV operator. Alan Moore and I have been tracking the MVNO space, and offered countless lessons from both the successes and failure of MVNOs around the world. There are dozens of totally competent experts who could have saved Disney literally millions - and helped move ESPN from a disaster into a blazing success. I have to say ESPN fails only because of management incompetence. Utter and total incompetence. Shame on you ESPN and shame on you Disney!

Meanwhile Disney is putting on a brave face. They say this ESPN fiasco has no impact on its Disney Mobile MVNO offering targeting young phone users - or obviously their parents as a family offering. So far so good. If Disney was in the least bit honest about this, why did they recruit UK based MVNO management and then announce they won't launch here?

We have said it so many times before, and we have to once again remind it. Americans do not understand mobile telecoms (cellular, wireless, cellphones) and the carrier (mobile operator) business. The American mobile telecoms industry lags the whole industrialized world having fallen to second-to-last, with only Canada behind it. This is so ironic, because the whole technology was invented in America and many of the global giants such as Motorola, Lucent (now with Alcatel), Qualcomm in the USA and Nortel and RIM (Research In Motion - ie Blackberry) in neighboring Canada, not to mention the concerted future efforts from major players like Microsoft, Google etc all focusing their future to the inevitable future platform for their offering - mobile.

All of the innovation in the industry comes from Europe and Asia! The first generation cellphones were not introduced in the USA commercially. They were introduced by NTT DoCoMo in Japan. Second generation (digital) cellphone first launched in Finland by Radiolinja (now part of Elisa). Third generation was launched again in Japan, again by NTT DoCoMo. SMS text messaging - 41% of Americans already send texts - this is a four year lag from the European average - and text messaging is growing faster than IM Instant Messaging - yes with more users - and e-mail use has plateaued, with youth reporting a decline in e-mail use (following the trends first observed in Asia six years ago). SMS text messaging entered American mainstream use in 2002 and still today American Idol is the single most powerful agent for teaching Americans how to text. SMS was launched by Elisa in Finland in 1992.

The mobile internet? NTT DoCoMo's iMode is considered the commercial launch of the mobile internet, that happened in 1999. Value-add content on phones? The first value-add content was the humble ringing tone - first launched in Finland by Saunalahti in 1998. Cameraphones? J-Phone (since Vodafone KK now Softbank) launched the first mass-market cameraphone line and picture messaging service in 2001.

The innovation has not only been in Japan and Finland. Mobile payments? Norway first launched an SMS based mobile parking solution in 2000. Music sales to phones? iTunes may have introduced music sales over the web and iPod launched in 2001 in America, but it was the Koreans who invented the world's most used music download technology - direct to mobile phones - in 2003. Digital TV broadcasts to mobile phones? South Korea launched commercially last year. I could go on and on and on.

America has lost the plot. While the major carriers consolidate and face declining market shares, the biggest growers tend to be the foreign players. T-Mobile was a trivial also-ran until the German parent came in and today T-Mobile is one of the giants. Virgin Mobile as an European "East Coast" invasion and Helio as a South Korean "West Coast" invasion are scaring the domestic telecoms executives to the point of losing sleep.

And here is the saddest part. it is NOT rocket science. Americans are brilliant at competitiveness and marketing. Telecoms is today not a technology race, it is ONLY about competition and marketing. That is why my third book, 3G Marketing, became the fastest-selling telecoms book of all time. Not one word about 3G technology, simply on how to do basic marketing in the mobile telecoms space, to succeed in the wars of churn, with new issues such as customers with multiple subscriptions. What level of sheer arrogance for American mobile telecoms management to ignore all the huge global success consistent in EVERY MARKET from Singapore to South Africa, from Belgium to Brazil. That somehow global trends and lessons would not work in the USA?

So yes, ESPN should not have folded. Utter sheer incompetence. They could have hired any reasonably competent management from a successful MVNO in Europe to turn that thing around. Or even less expensively, brought in a bit of understanding from any one of a dozen top consultants who are continuously quoted on these topics.

One little plug - I wrote a "Thought Piece" on the MVNOs earlier this year, as a follow up to what is in our book. That Thought Piece is a pdf file you can have of course for free. So please drop me an e-mail at  tomi at tomiahonen dot com  and I will send it to you. Its not the deep insights on how to make money in telecoms - for that you have to buy my book m-Profits - but this simple document at least catalogues several of the early successes worldwide in MVNOs, and explains some of the basics of what you have to do in the minimum to make an MVNO turn a profit.

Comments

[Michael Mace]

Nice article. I'm not sure Mobile ESPN failed because of incompetent management. I think the concept may have been flawed from the start.

Many mobile phones offer sports headlines and scores. The additional content you got from the Mobile ESPN system was interesting, but was it was enough better to justify the cost and hassle of switching operators?

Also, the text on the phone's screen was roughly five points high, making it very hard to read for anyone over 35. It's one thing to do that in a youth phone, but the sports fanatic demographic isn't necessarily young adults -- especially when you factor in the cost of Mobile ESPN's service.

One other thought: It is probably unreasonable to expect any MVNO to take off rapidly in a country where the vast majority of mobile users are on multi-year contracts. Maybe all of these MVNOs are being judged too quickly.

Michael Mace

[Paul Jardine]

Tomi, I have to agree with you. I hear too many people say that the MVNO model doesn't make money, but, as in this case, it's not that the MVNO model is wrong, it's just piss-poor execution by the company. Maybe it's greed or maybe it is just a complete lack of understanding, but an MVNO isn't going to make money charging premium prices for basic services. It felt like they thought "Hey, let's launch an MVNO and get all our stupid customers to pay through the nose, just cos it's ESPN", rather than thinking about how they could provide a valuable service to their customers.
As a VC once said - it's more important to make something people want, than something that makes money; if enough people want it, you'll make money anyway.
I have a feeling it was their strategic objectives that were missing, substituted by a shallow money-grab that people saw through pretty quickly.

[Tomi T Ahonen]

Hi Michael and Paul

(Michael, thank you for reposting that comment. We were totally swamped by over 1900 spam entries over the weekend)

Thanks for the comments. I agree Michael, that an MVNO - especially one that targets a mass-market adoption - will need to be given time. For every successful Virgin, there are many of the Easyphones (Stelios, the Easy discount airline also in the UK).

Its not easy, and yes, we need to give them time. But what surprises me is that they were losing money from the start? How massive an organization had been built? Most successful MVNOs that I know run on totally shoestring budgets and minimal staff - often only literally a handful of people.

Paul - totally agree with you. And good insights from your VC friend.

Thanks for writing guys! See you soon again..

Tomi Ahonen :-)