After entering the mobile virtual network operator space with naked ambition, a $500 Sanyo Corp. handset (the “MVP”) and a take-the-world-by-storm marketing spend, Walt Disney Co.-owned Mobile ESPN L.L.C. has regrouped. Results have not met expectations for the lucrative sports news franchise-gone-mobile, or in the words of Disney’s chief executive officer, Bob Iger, in May, results were “lower than hoped.”
First, the MVNO changed its name (startlingly from ESPN Mobile), slashed the price of its original handset (just a tad) to $30, hired a new PR agency to focus on new initiatives and launched the Samsung Electronics Co. Ltd. Ace-a retooled version of the vendor’s successful A900 handset-to its handset lineup for $100.
Industry observers are awaiting signs of revived subscriber and revenue growth at the MVNO itself, which rides on Sprint Nextel Corp.’s CDMA network. Meanwhile, what does the Ace launch say about Samsung Electronics’ strategy in the United States?
Randy Smith, vice president of marketing and business development at Samsung, said that the A900-turned-Ace is positioned as a premium product to match the Mobile ESPN demographic: a post-paid audience ready to ante up for content and a stylish device.
“Given the A900’s success at Sprint, the Ace made a lot of sense for the data-centric user who will pay a significant amount of money for the service and the device,” Smith said. “With the Ace you’ve got a great screen, really good sound and a cool form factor.”
Smith said that in terms of manufacturing efficiencies and time-to-market strategy, the Ace reflects Samsung’s favored approach: design stylish handsets for the mid- and upper-tier segments, leverage the non-recurring engineering expense across multiple platforms for product differentiation and stay with the cost curve of the industry, as handset prices migrate down to mass-market levels. Turning the A900 into a co-branded MVNO phone will extend its life beyond one year, Smith said.
In the Ace’s case, Samsung tapped an established base for the slim, clamshell form factor and the phone had done well with the general public via Sprint Nextel, which has begun selling Mobile ESPN products through some of its retail channels and has a retail sales force well-positioned to sell the Ace, according to Smith. With the phone co-branded with Mobile ESPN and decked in the black-and-red ESPN colors, the MVNO “doesn’t have to sell the hardware, it only has to sell the MVNO service,” Smith said.
Samsung finds a good match between its preference for addressing only mid- and high-tier price points and the needs of MVNOs. The South Korean handset maker offers the “Jitterbug” phone in two models at $150 apiece through Great Call, the soon-to-launch MVNO catering to Baby Boomers and their parents that features a simplified keypad and large font screen. Samsung has other MVNO deals in the works, Smith said, declining to offer details.
“MVNOs are finding that they better have a feature-rich handset,” Smith said. “It is a premium purchase in most instances, so they need a hot platform. The reality with MVNOs is that, 90 percent of the time, it’s a traditional phone; maybe 10 percent of the time the handset is dedicated to the MVNO content. So what we’re trying to do with our MVNO strategy is to make sure it’s a very successful model, like the A900, that we then integrate into the MVNO space.
“MVNOs are in their infancy, but they do a couple things for Samsung,” Smith continued. “They represent new growth for us. As MVNOs grow they become an alternate channel, additional distribution for Samsung. And MVNOs are a growth area. According to the Yankee Group, a lot of the growth in the next five years (in the U.S.) is in second- and third-tier carriers and in MVNOs, which are growing at a significant rate above traditional carrier business. It’s an area of growth we need to address.” Samsung is betting that MVNOs will attract new users-the last, untapped market niches in the U.S.
Samsung takes a more conservative approach to MVNOs than some of its competitors, Smith said. “We’re trying to launch behind MVNOs that have an established brand affinity and a paid subscriber base. If they’re already paying a premium for particular content, it’s logical that they will pay a premium to get it on their wireless device.”
Taha Rangwala, an analyst with Pyramid Research, observed that Samsung has been vocal about its focus on gaining market share in the higher-end handset space and it has not pursued the lower-end segment as, for instance, LG Electronics Co. Ltd. has. So the A900, now the Ace, fits Samsung’s pursuit of the higher-end device market. “They seem well-versed in the pitfalls of mass production and low margins,” Rangwala said. “They don’t want to be a volume player across the entire portfolio, just in their segment. It sounds to me like a pretty well-thought-out strategy.”
From its perspective, Mobile ESPN clearly wanted that high-end look and functionality and, just as importantly, it wanted a handset that was “tried and true”-that is, already validated by extensive, real-world use on Sprint Nextel’s network, a process that can add significantly to a product’s time-to-market. “A `tried and true’ model can give Mobile ESPN quicker traction on the subscriber front,” Rangwala said. “Once they have subscriber growth, Mobile ESPN can go with a less conventional model that may be popular elsewhere in the world.”
While the Mobile ESPN subscriber model is solid, according to Rangwala, the question is, how much are subscribers willing to spend upfront on a device? “That’s really a question that most of the MVNOs in the U.S. are trying to figure out today,” he said. “We know these will be high-spending, high data-consuming customers, but keep in mind that [Mobile] ESPN’s initial launch of the Sanyo MVP phone had it priced at $499. They learned that $499 won’t work, dropped the price to, I think, $99, and upon launching the Ace, dropped the MVP’s price to $29.”
The “sweet spot” for MVNO handset pricing follows the traditional wireless market and probably is under $100, due to Americans’ expectations that handsets will be heavily subsidized, given their relatively high monthly service fees.
“There may have been some questionable decisions at ESPN on advertising and marketing strategy,” Rangwala said. “The advertisements broadcast during the Super Bowl added to high costs, which did not contribute to the expected subscriber uptake. I don’t know whether they’re cutting spending or increasing it, but I think they’re re-thinking how to spend that money and target consumers at a more personal level. “From what I’ve heard,” the analyst concluded, “consumers who approach a [Sprint] kiosk want more hands-on experience with the device, they want to know how things work.”
