NEW YORK-Mobile ESPN seemed to have all the qualities of a successful MVNO: a highly successful brand and recognized brand, a unique user interface, slick handsets and content that would appeal to its sports-enthusiast demographic.
But after eight months on the market, the mobile virtual network operator announced last week that it is throwing in the towel.
The high-profile brand’s entrance into the wireless space was eagerly anticipated, scrutinized and praised for its innovative user interface, but handset problems and a lack of uptake from subscribers caused the company to struggle. Merrill Lynch analyst Jessica Reif Cohen earlier this year called for the Walt Disney Co. to “pull the plug” on the service, and they have. Merrill Lynch responded by raising Disney’s earnings per share estimate slightly, and Cohen said that the move would “help Disney maintain double-digit growth” in fiscal 2007.
While big-name brands can have advantages going into the wireless space, “on the flip side, they have higher profiles, they’re being watched by everybody, and they have tremendous pressure from shareholders,” said Pyramid Research analyst Ozgur Aytar, speaking on the issue at the Informa MVNO Sustainable Business Models conference after the news was announced.
However, the wireless effort isn’t entirely a wash, as ESPN now plans to make its content available through licensing agreements with carriers.
“Our MVNO effort created a tremendous wireless asset widely recognized for quality and innovation, and as a result we have been approached by well-entrenched carriers about a licensing model. We have decided to pursue it,” said Salil Mehta, executive vice president of ESPN Enterprises, in a company statement. “ESPN is now able to take advantage of market opportunities that simply did not exist with our content before we built the MVNO.”
Mobile ESPN launched nationally in February during the Super Bowl and utilizes Sprint Nextel Corp.’s CDMA 1xRTT EV-DO network. Subscribers will continue to receive bills, customer care and service until at least Dec. 31. Sales of new Mobile ESPN handsets and service plans are being frozen immediately, and the MVNO’s Web site has been replaced with an apologetic message to subscribers.
News that such a high-profile MVNO was shuttering service has been received with a mixture of shock and resignation. Informa conference participants opined that the company suffered from lack of parent company patience and a less-than-optimal distribution strategy. One audience member recalled that he had had trouble ordering through the MVNO’s Web site, and when he walked into an ESPN store in Manhattan recently and asked about the service, he was told that the service wasn’t sold in the store and that the employee was not sure if the product was available in New York.
Mobile ESPN, which was available in Best Buy stores and online, had raised hopes that MVNOs might be able to use carrier stores when it brokered a deal with Sprint Nextel to have its products available in at least 500 of the network operator’s stores. However, some conference participants noted that no sporting goods stores were selling the product, which would have made sense given the MVNO’s demographic.
“It’s interesting to see how many [MVNOs] underestimate the time associated with getting to market and the importance of distribution,” said Alex Paskoff, senior vice president of marketing and business development for Brightpoint Corp., which provides distribution and logistics services for carriers and MVNOs. “They spend so much time, energy and money focused on the brand and developing the customer experience, and relatively so little time is spent on the actual distribution strategy.”
In general for MVNOs, however, “I wouldn’t even begin to think about throwing out the baby with the bath water,” Paskell told the Informa crowd. “This is one MVNO out of many.” He said that along the lines of ratios in other businesses, about 70 percent of MVNOs could be expected to fail and 30 percent succeed.
Seamus McAteer, senior analyst with M:Metrics Inc., echoed that sentiment in a research note.
“It’s important that we do not over-react to this as the end of MVNOs…. In the end, asking consumers to view a brand with a connotation as purely a media company as a provider of telephony is too great of a conceptual leap,” said McAteer. “Brands like Virgin, a lifestyle brand, or brands that are already providers of communications services, such as a cable company or ISP, stand a much better chance as an MVNO, as do companies that are pure-play MVNOs.”
And the change may actually be a boon for ESPN and its parent company.
“In ESPN’s position, I think getting out and making their content available to all is actually a better value proposition for them,” said John Green, wireless industry partner for BusinessEdge Solutions. After the initial gold-rush phase for U.S. MVNOs, he said, he expects the market to settle into an MVNO universe mostly populated by telecom companies that will offer wireless as part of their bundled and converged services, and a few smaller players that will keep busy with underserved segments or by pushing the technology envelope.
“I think we shouldn’t lose sight of the fact that MVNOs are actually taking us forward in terms of the technology and the adoption of that technology,” Green said, citing the advanced services offered by MVNOs such as Helio, Amp’d Mobile and Disney Mobile. However, he added, “Whether they will be long-term as discrete MVNOs or not, I think, is open to question.”
