Business Week Magazine, Oct. 17, 2005
In the Zone
By Tom Lowry, with Mark Hyman in New York, Ronald Grover in Los
Angeles, and Roger Crockett in Chicago
As rivals circle, ESPN boss George Bodenheimer is trying to push
his
world-beating brand even deeper into the lives of sports fans.
On Sept. 19, millions of fans tuned in to a rare Monday night pro
football
doubleheader. Interlaced with plays were cutaways to a telethon
to help
victims of Hurricane Katrina. Viewers of ESPN and ABC saw some of
the
biggest legends in sports fielding calls from a studio in Manhattan’s
Times Square: Frank Gifford, Bart Starr, Gale Sayers, John Elway,
Eric
Dickerson, Donovan McNabb, George Bodenheimer...huh? George Boden-who?
What most folks watching didn’t realize was that the stiff-looking
guy
with the phone in his ear is perhaps the single most influential
person in
all things sports. As president of the ESPN Networks and ABC Sports,
George W. Bodenheimer runs one of the most successful and envied
franchises in entertainment, the jewel of Walt Disney Co. (), and
among
the most powerful brands of the last quarter-century. While his
round-the-clock networks are all about being brash and in-your-face,
Bodenheimer is the rare media mogul who is adamant about staying
behind
the scenes. ESPN’s top public-relations executive had to practically
drag
Bodenheimer out of a production booth and push him in front of the
cameras
to make an appearance at the Katrina telethon, which he helped pull
together with the National Football League in a matter of days.
"It’s just
not about me," he could be heard mumbling as the PR chief made
sure his
tie was straight.
That modesty has worked well for the 47-year-old Bodenheimer, and
ESPN
has flourished in his seven years at the helm. Sure, the ESPN he
inherited
had already extended itself from TV to print, the Internet, and
other
platforms. And its smart-aleck, testosterone-laden culture was already
a
trademark. But Bodenheimer’s vision of his company, where he started
in
the mailroom, is as a ubiquitous sports network -- and more. To
really
understand ESPN, you need to see it as a cluster of feisty, creative
enterprises under one killer brand. Its units, spread out mostly
over
offices in Connecticut, New York, and Los Angeles, act like startups,
full
of passionate staffers who are given the freedom to drive forward
but
always with a mission to keep the customers (rabid and tech-savvy
fans
like themselves) happy. Bodenheimer "realizes ESPN has to be
fast-paced,"
says Simon Williams, CEO of consultant Sterling Branding. "In
his realm,
if you stand still you’re dead."
So, through 50 different businesses, Bodenheimer has pushed ESPN
into
broadband, on-demand video, wireless, high-definition, even books.
His
company has the X Games. It has burgers and fries at ESPN Zone
restaurants. Video games are coming soon. All the while, the daily
news
and highlights show, SportsCenter, is as much must-see TV for millions
of
Americans as the nightly news shows were a generation ago. Put it
all
together, and Bodenheimer’s competitors can’t help but express awe.
So
ESPN has become a model for a wide range of companies, media and
others,
struggling to make their brands work in new markets. "They
have always had
a halo to do things like a SportsCenter really well," says
Jeff Price,
chief marketing officer at Sports Illustrated. "Nobody has
created those
touchpoints with consumers like they have." Adds Adam Silver,
the top TV
executive at the National Basketball Assn.: "George lets others
shine, but
don’t be fooled by the aw-shucks manner. He’s an extremely effective
manager who has put his company at the cutting edge of the digital
revolution."
REMEMBER TO HAVE FUN
Never one to gloat about the successes, the understated Bodenheimer
confesses that the track he has been pounding is getting a whole
lot
steeper lately. At his back is a slew of rivals gaining momentum.
First
among them is Comcast Corp. (), the No. 1 U.S. cable operator. Looking
to
build a cable sports network to rival ESPN’s, Comcast is also ESPN’s
biggest distributor, so its plans could aggravate what’s already
a
delicate relationship. Right about now, Bodenheimer is placing a
hefty bet
on an ESPN-branded cell phone and has said that making the new business
a
winner will be one of his biggest challenges of the year. The cell
phone
is a move into an alluring market -- delivering sports data and
images to
insatiable fans at all hours. But the payoff is uncertain at best,
and the
venture, announced on Sept. 27, could ultimately dent earnings and
tarnish
the brand. Bodenheimer’s angst was turned up a notch or two higher
when a
key executive, Mark Shapiro, resigned in August. As head of programming
and production, Shapiro was seen as a driven ideas guy who kept
new shows
flowing and viewers tuning in. He was also an effective bad cop
to
Bodenheimer’s good cop at the negotiating table.
Shapiro is often compared with Bodenheimer’s high-energy predecessor,
Steve Bornstein, ESPN’s president during much of the 1990s. The
26-year-old network’s initial blast of growth came under Bornstein,
whose
swagger infused the place with the cocky culture so strong today.
Bodenheimer’s core strength, say longtime staffers, has been to
preserve
and encourage that vibe without making it all about George. His
message to
the staff is something like: ESPN isn’t mine, it’s yours, so run
with it.
And remember to have fun.
Bodenheimer is in Brooks Brothers most days, but his operation
is
anything but buttoned-down. It’s more about hoodies and DC skateboarding
shoes, which is to say it’s all about being young. When ESPN The
Magazine
launched in 1998, designer F. Darrin Perry gave its pages a bold
look with
bright colors and unconventional type. That high-octane feel extends
even
to the magazine’s offices in midtown Manhattan, which are designed
to look
like a gym, complete with an old school scoreboard. On any given
day at
the main ESPN campus in Bristol, Conn., now encompassing 100 acres
dotted with dozens of satellite dishes, you might find former All-Star
second
baseman and Baseball Tonight host Harold Reynolds waiting in line
for
brick-oven pizza in the fancy staff cafe, or SportsCenter anchor
Stuart
Scott looking for someone to spot him on the bench press in the
state-of-the-art gym. A new $160 million digital center and studio,
crammed with robotic cameras and lighting rigs, is ringed with flat
screen
TVs beaming sports in crisp hi-def. A central control room houses
producers at computers editing a constant stream of digital-video
game
feeds.
The whole scene is NASA meets the bleacher creatures. "People
have a
passion for sports," says Rich Weinstein, the ESPN account
director at ad
agency Wieden + Kennedy, which has captured the spirit of ESPN through
its
award-winning spots for the network. "If your job is your passion,
it
brings a new perspective to the creative process. George was here
when
this was a startup, and he has preserved that feeling." True
to form, at a
strategy session this summer for the new phone, the boss rolled
up his
sleeves, snapped open a Diet Coke, and burrowed down into every
marketing
idea the team pitched. Un-mogul-like, he never checked his BlackBerry
or
cut off discussion. Then he took the group out to a swanky trattoria.
Bodenheimer, who squeezes in a golf game when he can, loves to
break the
ice by talking about -- what else? -- sports. He tries to stay engaged
with workers across the company without micro-managing. "The
great thing
about George is that he can stand back and let his managers create,"
says
Gary Hoenig, editor-in-chief of ESPN The Magazine. Going up against
venerable Sports Illustrated, ESPN’s seven-year-old biweekly has
made
great strides. Since 1999, circulation has grown by about 1 million,
to
1.8 million, while SI has held steady at 3.3 million, according
to the
Audit Bureau of Circulations. Hoenig also credits Bodenheimer with
granting him the freedom to develop lucrative specialty newsstand
magazines like one on fantasy football.
Tanya Van Court, whom Bodenheimer hired from Cablevision in April,
2004,
to oversee a revamp of broadband service, insists, too, that the
boss
never meddles. During the eight months that the new product ESPN360
was in development, "he would send hand-written notes with
suggestions every week and a half or so," she says. "He
would offer up [notes like], ’make it the
ultimate on-demand product for the sports fan and one that is as
flexible
as possible."’ When ESPN360 launched last January with programming
tailored for broadband -- including short clips recapping Sunday
games --
it just may have hit on a new model. ESPN insiders liken it to cable
TV in
its infancy in the 1970s. So far, ESPN360 is available to nearly
5 million
users through 14 different broadband providers.
IRRESISTIBLE ECONOMICS
Can Bodenheimer the delegator and his decentralized, free-thinking
culture keep up the winning streak? "The next two years will
be a real big
test for George," says Sean McManus, head of competing CBS
Sports and a
friend of Bodenheimer’s. All around it, companies are imitating
ESPN’s
cool and edgy packaging of sports. And if live sports is the last
great
mass market to lure advertisers, then how long can ESPN expect to
dominate? Throw in a sports-crazed, often-elusive audience of young
men
bordering on the fanatic, and the economics are irresistible. That’s
why
so many players are pushing into Bodenheimer’s domain, from teams
and
leagues launching their own channels to cable and satellite operators
creating new offerings. "ESPN listens to its audience very
closely," says
Sterling’s Williams. "If it keeps doing that, [that] should
be the glue
that holds it together."
Even so, the ESPN chief these days finds himself playing more defense
than offense to keep games out of competitors’ hands. One sign of
the
times: big hikes in the prices ESPN is paying to lock up new pro
football
and Major League Baseball rights contracts. The $2.4 billion, eight-year
MLB deal announced on Sept. 14 represents a 50% annual increase
in fees.
And in April, ESPN ponied up $8.8 billion for a new eight-year Monday
Night Football deal with the NFL for only one night of football.
ABC will
no longer broadcast games, including the lucrative Super Bowl; NBC
grabbed
ESPN’s old Sunday night spot. The bottom line: ESPN will pay nearly
twice
as much a year than it did last time around, though other goodies
were
included, such as wireless rights that will allow ESPN for the first
time
to deliver Monday night highlights to cell phones. "You have
to ask
yourself how much growth will be left if they keep spending like
this,"
says Richard Greenfield, an analyst at Fulcrum Global Partners LLC.
Counters Bodenheimer: "Look, we are a sports-media company,
and we program sports. It’s like saying a seafood restaurant is
being defensive when it
reorders lobsters."
Bodenheimer, of course, lives in a world that’s not totally of
his own
making. His ESPN is part of a tempest-rocked ship known as Disney.
For
years, ESPN has been able to do its own thing for one reason: It
was the
outfit former CEO Michael D. Eisner could count on for the numbers.
Now,
with Eisner gone, Bodenheimer will work closely with an old friend,
new
CEO Robert A. Iger, a onetime exec at ABC Sports. The bond between
Bodenheimer and Iger is strong, one pro league executive suggests,
because
they see themselves in each other -- "two executives who have
always been
underestimated." Says Iger: "People sometimes mistake
being polite for
being easy. That’s not the case with George. He’s a man of great
integrity, but he can be tough." Some speculate that Iger might
bring
Bodenheimer to Burbank, but for now he needs his friend to stay
put,
keeping ESPN the financial bulwark it is to counterbalance the fickle
businesses of theme parks and hit-driven TV and movies.
Indeed, ESPN revenues alone this year could be about $5 billion,
with
operating earnings of nearly $2 billion, according to projections
from
various analysts. The revenues -- about 60% from distribution fees
and 40%
from advertising -- would represent about 15% of Disney’s total.
Analysts
estimate that revenues could grow to nearly $6.8 billion in 2008.
More
important, ESPN is so central to cable menus that it gives Disney
bargaining power with distributors to pick up other Disney channels,
be
they SOAPnet or the ABC Family Channel. Emblematic of ESPN’s clout,
its
longtime head of affiliate sales, Sean R.H. Bratches, was promoted
a year
ago to oversee distribution for all of Disney’s cable channels and
broadband services. Using ESPN’s leverage was a favorite tactic
of
Eisner’s. So precious was ESPN to the Mouse House that the former
CEO told investors several years ago: "We bought the ABC media
network and ESPN for $19 billion in 1995. ESPN is worth substantially
more than we paid for the entire acquisition."
MUSCLES FLEXED
It’s all the more remarkable, then, that ESPN was created with such
modest intentions. It was founded in 1979 by former Hartford Whalers
play-by-play man Bill Rasmussen on a patch of mud in the blue-collar
central Connecticut town of Bristol by putting $9,000 on several
credit
cards. Rasmussen started the Entertainment and Sports Programming
Network (ESPN) as a way to beam University of Connecticut Huskies
games to a larger audience using satellite dishes. But it soon became
clear to
Rasmussen and his son, Scott, that they were on to something with
national
potential. Getty Oil would kick in $100 million a year after Rasmussen
put
on the first shows. Five years later, ABC bought out Getty’s position
(then owned by Texaco Inc.) and in 1988, Hearst Corp. bought a 20%
position that was held at the time by RJR Nabisco. Hearst still
has a 20%
stake, but Disney is the active manager. "Nobody could have
anticipated
how much of a financial juggernaut ESPN would become," says
Fulcrum
analyst Greenfield.
Over the years, ESPN began to flex its muscles like the jocks it
had
helped turn into celebrities. It charged its cable and satellite
distributors nearly twice as much for its service than any other
channel
fetches. (Today, ESPN gets an estimated $2.80 per subscriber per
month,
vs. about 40 cents for CNN, according to Morgan Stanley). Double-digit
hikes each year created a lot of ill will, culminating in a showdown
two
years ago that erupted in the halls of Congress. The battle pitted
Bodenheimer against James O. Robbins, the outspoken CEO of cable
operator Cox Communications Inc., who, acting on behalf of his industry,
complained to lawmakers about the steep fees.
The brawl put Bodenheimer in an unwelcome spotlight, where he defended
ESPN’s pricing by blaming the high cost of rights deals with the
leagues.
Eventually Cox won lower annual fee increases, down from about 20%
to
about 7%. But ESPN claimed victory, too: New agreements included
the
operators’ carriage of the latest ESPN channels, such as its
Spanish-language outlet ESPN Deportes. "We achieved everything
we wanted in that negotiation," says Ed Durso, ESPN’s top executive
for government and public affairs. "George rose to the occasion."
Bodenheimer knows the next battle is the big one. News Corp. ()
founder
Rupert Murdoch, with 15 regional sports channels, is only making
noises
about a national sports channel. Comcast is making plans. It has
held
several meetings in recent weeks to talk strategy and has even contacted
ESPN executives about jumping ship, say sources close to both companies.
Comcast already owns the Philadelphia 76ers, the Philadelphia Flyers,
and
a bunch of regional sports networks in cities from Philadelphia
to Chicago
to San Francisco. And it’s no secret that Comcast CEO Brian L. Roberts
and
President Stephen B. Burke, a former Disney executive, want a piece
of the
ESPN business model. When the Philadelphia-based cable operator
made its
unsolicited $54 billion bid for Disney in February, 2004, it was
driven in
part by a desire to capture ESPN.
Having its own hot sports channel would give Comcast ESPN-like
leverage,
amplifying its powerful 22 million subscriber base -- even if its
expertise is largely that of a distributor, not a programmer. For
now,
it’s sticking to plans to convert its relatively unknown Outdoor
Life
Network, available in 64 million homes, into an ESPN for the new
millennium. OLN got some buzz by airing Lance Armstrong’s cycling
feats
every summer from the Tour de France. The rest of the channel’s
programming, from bull-riding to fishing shows, has niche appeal
at best.
But Comcast is moving fast. It signed a $300 million, five-year
deal in
August to broadcast National Hockey League games on OLN starting
this
fall, with an option to bail out after two years. (ESPN ditched
the sport
after its contract expired this year following the acrimonious lockout.)
Now, Comcast needs to cinch some of the remaining 60 games available
from
MLB and win a package of Thursday and Saturday games from the NFL,
which draws the largest TV audiences in sports. "Without the
NFL, I don’t see
anybody being a threat to ESPN," says John Mansell, a senior
analyst at
Kagan Research LLC.
GAMES IN YOUR POCKET
Even as he fends off rivals, Bodenheimer is about to lead his troops
into
ESPN’s trickiest brand extension so far. The idea is that ESPN could
be
missing the chance to stay in touch with fans who get off the sofa
or walk
away from their computer screens. Says Bodenheimer: "We want
fans to know you don’t have to let the rest of your life get in
the way of being a
sports fan. You can take it with you." In the past year he
has met
frequently with the Mobile ESPN development team to sign off on
everything
from the phone’s black-and-red design on a Sanyo handset to the
special
displays constructed for big retailers. ESPN is leasing network
time from
Sprint Nextel Corp. () and will outsource billing, messaging, and
customer
service (its price is yet to be announced). The opportunity to partner
with ESPN was a no-brainer for Sprint Nextel CEO Gary Forsee. "As
proud as we are of our brand, we’d be hard pressed to say Sprint
can successfully
go after the segments that ESPN [does]," he says. "But
ESPN is the world
leader, right?"
Still, the risk for ESPN is that if the phone bugs out, users won’t
be
cursing some wireless outfit -- they’ll be blaming ESPN. "Content
providers need to focus on what they do best," says one TV
executive.
"Hardware plays are fraught with problems." And the venture
will require
patience. "Sometimes it is up to two years with this kind of
business
before you reach enough scale with subscribers to be able to turn
a
profit," says Marina Amoroso, a wireless analyst with researcher
Yankee
Group. Bodenheimer says he’s aware of the perils, "but it is
a riskier
move not to do this."
The last thing Bodenheimer needs now is to worry about top talent.
Yet
shortly before programming whiz Shapiro quit, Chief Marketing Executive
Lee Ann Daly resigned as well. Losing Shapiro, who quit to join
Washington
Redskins owner Dan Snyder in remaking Six Flags Inc. (), is the
most
problematic. Shapiro’s handiwork is all over the network. ESPN Original
Entertainment, the cable network’s venture into movies, episodic
dramas,
and talk shows, was his creation. He gave juice to Sports Century,
the
Emmy Award-winning series of profiles of top athletes (and a horse,
Secretariat).
In June, Disney heaped new responsibility on Shapiro, promoting
him to
executive vice-president, overseeing programming at both ESPN and
ABC
Sports. To all the world it looked as if his next step would be
into
headquarters. Then, in early August, Shapiro met with Bodenheimer
to tell
him he was thinking about leaving. He’d had a feeler to head news
operations at NBC. A few weeks later he accepted the offer from
Snyder. "I
knew at some point I was going to go entrepreneurial. It was just
a
question of when," says Shapiro.
Questions remain about why Bodenheimer and Iger waited so long
to lock
Shapiro into a new contract. But it is known that top executives
at ESPN
had been fielding complaints from the brass at pro sports leagues
for some
time that they could no longer work with Shapiro. Several league
officials
said they had never dealt with a negotiator as aggressive or as
eager to
pass himself off as the smartest guy at the table. "ESPN had
just had
tough relations with their customers, the cable guys," says
one TV
executive. "They could ill-afford to have bad relations with
their
suppliers, too. They need the leagues." Shapiro shakes off
such criticism.
"Of course I’m going to be tough in negotiations. That’s my
job...not to
say to [the leagues]: ’Here’s a check, fill out how much you want."’
Still, by the end of Shapiro’s tenure at ESPN, officials in at least
two
leagues refused to deal with him unless Bodenheimer was in on the
talks.
"MINUTE-TO-MINUTE BATTLE"
Shapiro may have also ticked off Disney top brass when he turned
down an
offer last year to become president of ABC Entertainment, the No.
2 job
under then-ABC executive Susan Lyne, who would have become chairman,
say sources within the company. The plan was to eventually move
out Lyne and put Shapiro in charge, those sources say. Shapiro told
Iger he was excited
about running prime time -- but ultimately turned him down flat.
Bodenheimer denies that there was any ill will toward Shapiro at
Disney.
Bodenheimer says he is confident that the culture he has fostered,
one of
tapping ESPN’s inner strengths, will ultimately make Shapiro’s departure
less of a blow. "Mark was obviously a significant contributor,"
says
Bodenheimer. "He’s a great talent, but we have a tremendous
reservoir of
talent here." In fact, Bodenheimer used Shapiro’s departure
to realign top
management in early October into new segments: content, technology,
sales
and affiliates, and international. John Skipper, the much-admired
senior
executive who oversaw advertising and new media, will now run content,
assuming much of Shapiro’s programming mantle.
How Bodenheimer leads will go a long way in determining whether
ESPN
remains preeminent, especially as competitors zoom in on niches
like
volleyball, tennis, you name it. "ESPN will always be a general
store of
sports," says Brian Bedol, co-founder of college sports channel
CSTV, "but
it may have to learn to coexist with the leagues and new media companies
[that] want to reach fans with very special interests. Technology
today is
allowing for a direct relationship with those fans."
Nobody wants to understand fans more than Bodenheimer, who will
often
leave the luxury boxes at games and walk through arenas studying
the
crowds -- unrecognized, of course. "It’s a minute-to-minute
battle to
retain viewers in today’s media world," says Bodenheimer. "That’s
why I
want to know what fans are saying -- about sports, about ESPN."
It’s also
why the most powerful man in sports needs to stay at the top of
his game.
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