MVNO strategy out of playbook?

Despite ESPN's fumble, leasing mobile space a viable option

The Walt Disney Co.'s benching of ESPN Mobile likely will lead other media companies to rethink their game plans for the wireless world.

Last week, Disney signaled its intent to restructure the sports network's mobile strategy, shifting ESPN from mobile virtual network operator to licensing. ESPN already had poured $150 million into its mobile plan -- including relentless promotion since launching during the Super Bowl in February -- only to attract just 30,000 subscribers.

But the conglomerate still is pursuing another MVNO play, Disney Mobile, targeting families much the way ESPN aimed its product at sports fans. What's more, a wide assortment of new- and old-media players are intent on using their content as a differentiator to penetrate the crowded but burgeoning mobile marketplace, including recent buzz swirling around Apple and News Corp.'s MySpace.

"I think a lot of people will be running around with a sky-is-falling mentality for the next few months," said DP Venkatesh, founder and CEO of mPortal, a mobile technology firm that worked on Mobile ESPN as well as with other content companies. "But the MVNO is just one option, and there's a lot of media companies that want to get aggressive here."

The MVNO strategy involves leasing network capacity from major carriers -- in ESPN's case, Sprint Nextel -- and offering their own branded service instead of or in addition to licensing their content to carriers.

The advantage of an MVNO is that it forms a direct relationship with the customer, whereas licensing content to a carrier means taking a back seat to the carrier. But it takes much more time and money to make an MVNO work.

MVNOs target niche customer bases that major carriers ignore in their effort to be all things to everyone, particularly through calling plans for the entire family. It mirrors somewhat the dynamic in the television industry, where cable channels also aim for distinct audience segments that broadcasters neglect.

And therein lies the cruel irony to ESPN's failure in mobile. No one maximized the cable strategy better than ESPN, which built a bustling empire by cornering the sports TV world, especially its die-hard young-male fan base.

But when it came to putting the same strategy in effect in the mobile space, ESPN mapped a route as risky as a Hail Mary pass, given the array of market forces that swarmed the company downfield.

"It's not the same game they experienced in the TV market," said Hans Henkes, general manager of the U.S. division of European mobile tech firm Mindmatics. "Given the market conditions and their time of entry, brand equity still doesn't guarantee you success."

For starters, such early successful MVNOs as Virgin Mobile and Boost Mobile already have an entrenched customer base in the millions. Content-oriented MVNOs have since struggled to carve out their piece of the pie, even those with major backers, including Helio, a joint venture of Earthlink and Korean firm SK Telecom, and Amp'd, whose investors include MTV Networks and Universal Music Group.

In addition to these ventures, ESPN Mobile was going up against established carriers with more attractive prepaid calling plans. The offering was criticized from the start for being too expensive as well as lacking distribution and a variety of handset options.

Potent programming was ESPN's leading edge, but as promising a future mobile devices have as content platforms, that future isn't here yet. "In the short term, people pick phones on the basis of voice first and foremost," Current Analysis' William Ho said.

In addition, ESPN isn't the only game in town for mobile sports. Amp'd, for instance, has deals to license sports content from such ESPN rivals as Fox Sports and CSTV. "It's not hard for us to offer the kind of sports functionality that ESPN offers," Amp'd chief marketing officer Doug Dobie said. "And sports is only part of the mix of original programming we have."

Media companies who think they can just extend their brands into new categories might be in for a surprise in the mobile arena. "I think there may have been some arrogance around consumer brands, as if they could just take their brands anywhere including mobile," Jupiter Research's Julie Ask said.
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