ESPN's 360-Degree Turn From Cable TV As Usual

Last Thursday night, ESPN offered up a considerable menu of simultaneous live broadcasts. Somewhere around 8 p.m., there was Derrick Rose sauntering across the stage as the first pick in the NBA Draft -- a marquee event that ran through its late conclusion. An hour later came Dallas versus Houston in Major League Soccer, followed by the Canadian Football League -- and all the while there was seemingly endless poker.

Those looking for more options -- who may have been at the office all day -- had easy access via a TiVo-like function to replays of multiple Wimbledon matches, the Russia-Spain semi-final in the European soccer championships and the first round of U.S. Women's Open golf.

What's remarkable is there was no need for a remote control, no need to tune in to any of ESPN's slate of networks, just to log on to Reminiscent of a cockpit, a visitor could tee up six events at once -- live or recorded -- and easily toggle between them with just a click of a mouse. No interest in the Knicks pick? Call up football or fútbol or Venus Williams.



It was all for the taking on arguably one of the little-known gems on the World Wide Web -- from the "Worldwide Leader in Sports" no less, not known to be reticent on the promotional front.

Oh, and by the way, don't like ads? No worries. It was mostly ad-free.

Don't like to pay for content on the Web? It was basically gratis.

Don't have 360? That's an issue. Some 88 million U.S. homes - mostly those without broadband service from Verizon or AT&T -- don't.

By the above rundown, 360 could be tabbed as under-marketed, under-monetized, under-capitalized, under-distributed, and even some other "unders."

ESPN doesn't agree. The network says 360 is still embryonic and its focus is on getting the infrastructure working smoothly -- then it will delve more deeply into the financials. The opportunities can't be understated.

"It's a process," said Damon Phillips, vice president of 360. "Everyone is trying to understand how to monetize these assets online."

While the media has focused on Hulu and Joost and Comedy Central now streaming the full "Daily Show," ESPN has more quietly put together its underappreciated broadband sports hub. Last September, it relaunched 360, promising 2,500 live events over the next year. Some 60% are apparently exclusive, the rest simulcasts from the ESPN on-air suite.

ESPN head George Bodenheimer has recently taken to saying 360 -- with its cricket tournaments and Turkmenistan soccer matches -- reminds him of the early days of the network when it didn't have the NFL and instead had Australian Rules Football.

But is hardly just niche. And that's enough to make the measured, soft-spoken Glenn Britt, the head of Time Warner Cable, a bit hot under the collar.

This past season, all NBA games on ESPN were simulcast on the site, including the playoffs. There was Duke-Carolina basketball. Next year, all four tennis Grand Slams will be featured there. Early rounds of the Masters and U.S. Open golf tournaments will annually be streamed live.

And college football is where the site may be in its element. On a given Saturday, dozens of games are available (including ESPN's marquee Saturday night match-up), allowing a viewer to feel like one of the clichéd "guys in the truck" with the chance to jump between screens.

The glut allows people to watch games from regions away, something unheard of just a few years ago (save some sort of premium DirecTV package). Wake up in Walla Walla and catch the second half of Mississippi-LSU.

So, what does Glenn Britt have to do with it? That's where the under-distribution comes in. The site is somewhat of a gated community, with availability in only 24 million homes. Most have broadband access via Verizon or AT&T, where subscribers get it at no extra charge. (ESPN says some 18 million college students and members of the military have access as well.)

Critically, distribution is the site's principal source of revenue, coming from fees the Verizons and AT&Ts (and some small MSOs) pay to offer it. ESPN won't say how the fees stack up compared to the princely sums it gets for carriage of its networks.

Recent figures from the Leichtman Research Group estimate some 64 million American homes have broadband service, meaning ESPN360 is available in almost 40%.

How can it rapidly chip away at the other 60%? Reach deals with Britt and his fellow executives at the top of leading MSOs -- Comcast, Cox and Cablevision. At the moment, Britt would seem to be a tough sell.

While directing his comments recently at the "Daily Show" online, he expressed frustration with networks' rush to offer the same content that's on TV for free on the Web. Reason being, over time -- particularly as Millennials and younger generations age up, if not before - consumers might drop their cable TV subscriptions altogether. They'll take the "cable bypass" on the information superhighway.

Granted, in the ESPN case, sports has a particular appeal on a big screen in HD. But - screech -- 360 is experimenting with streams in HD. And Phillips says when placed next to a TV, viewers would be hard-pressed to tell the difference.

Save, ESPN has for three decades mainly operated with a dual-revenue stream. Garner high carriage fees and then sell advertising on top.

With 360, it faced a choice. Go with the more conventional model on the Internet: Make the service free to all and hope for heavy traffic and ad dollars to follow. Or, it could go with the potentially more lucrative and groundbreaking "gatekeeper" approach: Bring in guaranteed revenue with the carriage fees and then add ad dollars.

In retrospect, and perhaps unintentionally, the decision seems insightful. Monetizing online video with an advertising-only model seems to still be a puzzle. Google is walking on eggshells as it grapples with how to turn its massive YouTube traffic into profits, while avoiding over-commercialization.

David Preschlack, a top affiliate sales executive who negotiates carriage deals for 360, said ESPN is "committed to working" with distributors and not "going around them." ESPN, of course, is wary of disrupting relationships with TWC and the like, where the MSOs continue to pay billions to carry its roster of traditional networks.

(It's worth mentioning that ESPN hasn't entirely avoided offering some of its TV content free to all comers online, including the popular "Pardon the Interruption.")

Still, in the meantime, ESPN remains in an apparent stand-off with the TWCs and Comcasts, who either are balking at the fees it's asking for 360 or aren't crazy about offering 2,500 events essentially free online.

Which relates to whether 360 is under-marketed. Preschlack said ESPN is "bullish on the idea that content's going to be a driver" in the broadband battle. In other words, a sort of saturation point will come where competing DSL and MSO providers won't be able to lower their fees anymore to attract customers on price. So, ESPN360 or other exclusive offerings could serve as a differentiation point.

But Verizon, for one, doesn't appear eager to invest heavily in persuading sports fans to drop competing cable broadband and switch over for 360. Which besides the thousands of events, offers a Slingbox-like opportunity to log in with a Verizon account and watch anywhere in the world.

Preschlack said that telco and cable providers have run successful 360-based promotions that appear to have brought them new subscribers.

ESPN itself has used its airwaves for clever "Don't Question My Fanhood" spots for 360, and run outdoor-radio-TV campaigns in 10 markets. It also places small banners on and directs visitors to 360 during events. But arguably, it has failed to find the sweet spot for marketing the service -- either to persuade consumers to switch broadband carriers to get 360, or encourage those who have it to try it.

One issue is its on-air talent has yet to reflexively refer to the service as, often opting to use its previous moniker of ESPN360. Even for the tech-savvy, that can sound like an orbiting satellite, making it difficult to determine where to find it.

Which strongly suggests that a poll of, say, Verizon DSL customers who identify themselves as passionate sports fans would likely show Ron Paul-like numbers for the amount who know they have 360 or have checked it out.

ESPN's Phillips said, "We've been in our current form since September and it takes time to build awareness." A new campaign is coming this fall, he said.

Online measurement firm comScore doesn't provide user figures for 360. But ESPN says the service had its highest-ever single-day traffic this month during the U.S. Open playoff with Tiger Woods, not surprising given it took place while people were at work. But the network says June will finish as the most-visited month since the September relaunch.

If gaining subscribers might take time due to tough negotiations, 360 would seem to offer a fastball-down-the-middle for amassing ad dollars -- which ESPN has yet to take advantage of. Cisco did a quasi-takeover during the college basketball tournaments in 2007, while IBM had some involvement with the Masters. Nike and HDTV marketer Olevia have run spots during events, and Blackberry has recently occupied a small display banner.

But the majority of commercial breaks offer one ESPN house ad after another -- frequently the same house ads in a nonstop loop. A "This is SportsCenter" spot will be followed by one for ESPN Mobile, then for ESPN Magazine, then ESPN Radio and ESPN Golf Schools -- again and again.

And there's the ad for ESPNU that runs incessantly, featuring a blind date that ends when the two find out they root for rival football teams. It wasn't particularly compelling or clever when it debuted and gets more grating each time.

Nonetheless, in a twisted way, the maddening repetition offers ample upside. Viewers by now are likely so fed up with ESPN this-ESPN that, they'd probably welcome some hard-sells for paper towels.

Beyond that, opportunity lies in pitching the site as a venue for reaching the young men advertisers covet -- and the chance to target ads specifically by sport. The profile of a cricket or Italian soccer fan certainly would be appealing to some marketers, while the Spanish-language feeds of the NBA or Dominican baseball could offer a platform in the lucrative Hispanic market.

ESPN's Preschlack indicated new ad models are coming within the next six months. "That's sort of the promise of the service," he said.

One of many.

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