Programming

Still Ahead of the Game

George Bodenheimer says that despite losing out on the Olympics, ESPN is still sports TV’s gold standard 6/13/2011 12:01:00 AM Eastern

The
last week or so has been a whirlwind for George Bodenheimer, president of ESPN
Inc. As the name atop the Worldwide Leader in Sports, he jetted to Dallas for
the NBA Finals, then after returning home, headed to Switzerland to bid
billions on the Olympic Games. He also took time out to speak with B&C
Business Editor Jon Lafayette about the future of sports, the effect of
technology on television and where the industry is going. Despite ultimately
being outbid by Comcast and NBCUniversal for the Olympics, Bodenheimer remains
extremely positive about ESPN's prospects going forward.

How disappointing was this Olympics outcome?

We were very comfortable with what we bid, and those were the terms upon which
we would have been happy to get it, so conversely, we're not disappointed in
the least. It would have been nice to win it at the dollars we had bid. But we
made a disciplined bid and we were very comfortable with where we were.

Beyond the assets of ESPN and ABC, were there other parts of Disney that
were part of your bid?

Yes. All divisions of Disney were supportive. Consumer products was
particularly active. There was nice value we could have brought to the IOC on
the consumer product end.

The IOC and NBC both thought that doing four years was a key to making
this work from a business point of view. You guys bid for two. Why?

We just felt we were comfortable with two Olympics. There was uncertainty about
where the 2018 and 2020 games were going to be held. It wasn't more complicated
than that.

You've taken at look at NBC's numbers. Do you see any way they can make a
profit?

I'm not going to speak to the economics of their company. They made a bid that
evidently they were comfortable with and I leave it to them to discuss the
specifics of their plan.

How does this affect ESPN's momentum going forward?

I don't see it affecting it in the least. We're active in all sports
negotiations because that's what we do, but we're not about any one sport. We
put our best foot forward and we're comfortable with that, so not getting [the
Olympics] will have zero impact on ESPN going forward.

When the rights come up again, will ESPN be a bidder?

I would certainly think the company would. It's a worldclass product.

All that said, what makes ESPN ESPN? Is it big games like the NBA Finals or is
there something else about the company that's made it the huge operation it's
become?

I think it's two things. One, sports remain incredibly popular, not only in the
United States, but around the world. In the States, 90% of Americans age
12-plus, that's about 225 million people, consider themselves sports fans. So
we've got a very large and growing market. That's the first part of the answer.
The second part is, I think ESPN after nearly 32 years really has a mission to
serve sports fans. We have a culture that I think is our strategic advantage.
We have a business model that works. And so you put all that together, the ESPN
company is doing very well, thriving really, and continuing to grow. I think
it's a combination of the popularity of sports, and after 32 years, ESPN has
those things working for it -- mission, culture, business model -- that are
driving the company.

ESPN's history was just laid out in a new book that I'm sure you've seen. Do
you see ESPN differently than the way the company is described in the book?

I think the authors wrote the book that they said they were setting out to
write, chronicling the business as it played out over 30 years. They did a very
thorough job. There's much in there to recommend it as a business book. They
did an excellent job chronicling the history through the eyes of the people who
made it happen.

Do you see the company differently than the way it's described in the book?

Obviously I choose to focus on the company as it is today, and I'm very proud
of the culture that we have. And I believe that culture of passion, respecting
others, working hard, risk-taking, those things are the hallmarks of our
culture. That's what's driving the company. That's how I see the company. And I
think in large part that comes across in the book.

Where is ESPN's business and the business of sports heading? Where is the
growth?

I see growth in all things digital, whether it be our traditional online ESPN.com
types of businesses -- we have many now. But beyond that, from a distribution
standpoint obviously mobile communications are continuing to grow. There are
nearly 300 million handsets here in the United States alone, 5 billion across
the world. The percentage of those that are smartphones is going to continue to
grow, and so we're looking to serve fans in an ever-growing march of
technology. So I certainly see big growth in those areas. And if you look at
the numbers and what we're doing and how fans are utilizing ESPN, the trends
are very good for growth in that area.

What would be your biggest worry about where the business is heading?

I think we obviously can't control -- nobody can -- the overall economic
factors. I would say those are probably the biggest worry. But again, I don't
worry about that because we can't control that. What I do pay attention to is
the things that we can control, and that's staying true to our mission to serve
fans and maintain and strengthen the culture of ESPN that I think is what's
driving the company. So I'm very bullish on the future. I don't often attempt
to predict exactly where our business will go because it's a very hard thing to
do and I don't think it's that productive a use of my time. Our company knows
what our mission is, to serve fans, and knows that it's going to do that in all
means available. So, for example, the tablets: We didn't know the tablets, like
the iPad, were going to be in existence, what, 24 months ago. There have been
various iterations of them over the years but nobody knew it was going to be
the game changer it is. But as soon as it was, ESPN is fast and quick to market
and our people know that we want to put our product there and work on a
business model that is going to be good for our company and good for our
distributors, so we don't waste any time thinking should we or shouldn't we. We
spent all of our time 'let's go. How fast to do it.' So I'm very bullish on the
future opportunities for ESPN.

You mention trying to strengthen the culture. How do you go about
strengthening that culture?

I think your leaders -- we use the term leadership in the company much more
than we do managers, we're looking for leaders. We want to embody the values of
the company and the mission of the company. We talk about it frequently.
Twenty-five percent of our employee base wasn't born when ESPN was launched in
1975, so we spend considerable time talking to our employees about the roots of
ESPN and that it was a long time before ESPN was successful. And certainly a
couple of decades before it was as successful as it is today. So we want them to
remember and know the roots of this company was hard work, persevering when the
odds were against you, when the entire industry thought there was no business
there, there was no business model, all of the kind of stuff that we [went]
through in the early days, I want to make sure to preserve knowledge of that in
the company and make sure that we stay humble and outwork our competitors, be
the best partners we can be and serve fans. And that's my formula for
maintaining and strengthening the culture of the company.

The sports business looks like a bright spot in the TV landscape. It's still
appointment TV and that seems to be attracting the other big media players,
whether it's Comcast or Turner or Fox or CBS. They all seem to be making plays
to get into the cable sports business. Who do you see as a potential challenger
in that pack?

I look at all of them as challengers. Our company is filled with very
competitive people, so we love competition and we ‘ ve got it on all fronts. A
lot of people seem to think that ESPN doesn't have competition. And it took me
a long time to ! gure out why that perception was out there. What I figured out
was that it's because there's no other company that looks like our company,
with our eight domestic television networks, our .com site, our digital
businesses, our radio network, the magazine. There's no one that looks like us,
so people think you don't have competition. But the reality is you look at any
one of those pieces, whether it's TV, radio, print, digital, we've got
ferocious competition and have for a long time. Sports have been popular in
this country for a long time. Televised sports have been popular for 50-60
years now, so that's not new. There's tremendous competition in all those
different aspects of the company. So we welcome it. It makes us better. And we
feel very confident about our prospects looking forward.

In the world of cable TV, the biggest worry seems to be consumers going over
the top to streaming providers like Netflix. Taking a broad view of the
television industry, are businesses like Netflix a friend or enemy to the TV
business?

That's a difficult question to answer today. Companies come and go and business
models evolve over time. Just speaking for our company, we want to be good
partners with our distributors, but at the same time our mission is to serve
sports fans. So in answer to your question, if there become new ways and new
distribution models to serve fans, ESPN is going to be first in line to ! gure
out how to serve fans better. Again, more distribution is good for programmers
and it presents challenges to the existing business model and you have to be
sensitive to that, of course. But we're going to be looking to distribute our
products as widely as we possibly can, and new models provide an avenue to do
that.

Netflix has talked about doing live events, like concerts. Could it or another
online streaming company become a competitor for sports rights and a venue for
showing sports?

Sure. I think the barriers to entry are lower today than they were a decade
ago, certainly with the advent of technology and the Internet. And then the
other side of the coin is if you have a check that you can write that's big
enough, you can acquire rights. So I think that certainly we're going to see
increased competition, whether it be in music or in sports or drama. I think
you're seeing that now. Television overall could not be more competitive.

You mentioned rights fees. Rights fees continue to rise. How much more can be
passed on to cable operators and then to their customers?

I think again, time will tell. We're operating in a very competitive,
capitalistic market. Sports continue to be among the most valuable programming
that can be purchased out there. The vast majority of it is consumed live. So I
kind of love it. I thrive on it. It's capitalism. Companies will make decisions
about what their best interest is. Some of those will work out, some won't, and
over time things will change. The makeup of the partners and the distribution
and where the rights lay are certainly going to change. We're seeing that now.
So the market will answer your question. I don't think anybody can accurately
look into a crystal ball on that subject. Only time will tell. I will say ESPN
remains the most valuable products that our distributors offer to their
customers. Within that, sports continues to be highly valued by customers. It's
certainly a vibrant marketplace. We'll have to make decisions as well. We can't
own all sports. We never have, and it's not our goal to do that. We'll be able
to prosper with a proper mix of rights, and that's the thinking that we put
into what we do acquiring rights. And that's a big part of our thinking going
forward.

Broadcasters are starting to get money from cable. Does that affect their
ability to compete with you, to compete for rights and push rights fees up as
you compete with CBS and NBC and Fox?

I don't know what its impact on rights fees will be, but certainly the retransmission
fees that broadcasters are receiving have increased from what they were several
years ago. And broadcasters deserve a fair compensation for the product that
they are delivering and putting into the ecosystem. What its impact on sports
will be, again, I don't know that. But sports remains an extremely competitive
area, so how it impacts that, I suppose time will tell.

Are there revenue sources other than advertising and subscriber fees that you
can tap to help pay for these rights?

Sure. There's direct-to-consumer businesses that I think are going to develop
over time. We have ESPN Insider, which is the Insider section of ESPN.com.
It's knocking on half a million customers. There are various subscription
models that will be enabled by digital technology. I think you'll see all of
those things as ways to mitigate the cost of sports and any programming,
frankly. So yes, I see additional revenue streams, mainly direct-to-consumer
models down the road.

Getting back to tablets, where do they fit into the equation? At this point,
can you measure whether or not your iPad app is cannibalizing ESPN on TV? How
would that affect revenue?

The beautiful facts about all things digital is that when it comes to sports
they are making the entire pie grow. All of the new products that have been
created by ESPN over the last few years have done nothing but support the
growth of the traditional television business. That's why the business
continues to be strong. As you produce more digital products to serve fans, it
helps grow the traditional TV business. We've seen zero cannibalization, and I
don't expect to see that. I think more is more and it's going to continue to
drive usage to all of our products. ESPN had the highest-rated year in its
history last year, and we continue to see record usage numbers across our
digital sites, our radio efforts, everything that we're putting out continues
to grow. It is not a zero-sum game in any way. That's the great news.

If you could have one more ESPN-branded network, what would it be?

My favorite answer is I don't know. I want the fans to tell us what they want,
or our employees to determine what is in the best interest of serving our
mission. There are a number of networks that I am extremely bullish on: ESPNU,
ESPN Deportes, ESPN 3D. All of these networks in some respects are still in
their infancy, and I believe all have very strong growth ahead of them. So
while I expect we'll continue to expand with what you might call a traditional
networkâ€"ESPN3 for example is a digital network, a new kind of networkâ€"well,
I see a lot of growth in that, too. So we're going to keep listening to the
fans and they'll tell us what it is that they want and ESPN will be there to
deliver on it.

Are you interested in local college networks? You're doing the network with the
University of Texas.

Yes. We had a very unique opportunity with the University of Texas and I'm
extremely pleased to be in business with them. They're obviously a world-class
university run by ! ne people and we take a lot of pride in being good
partners. So, I'm very bullish about what that network could be. We've not done
that before. It's new. So I'm very bullish in looking at this as a bit of an
open canvas on how to make the best Longhorn network that we can. And I have no
doubt that we will. We're moving quickly to launch, and it's ESPN's passion and
culture and spirit that's going to launch a successful Longhorn network with
the University of Texas in just a few short months.

Are you also interested in running the Pac-12 Network?

We're going to talk to Larry Scott, the commissioner. We talk to all of our partners
all the time. As you know, we negotiated a big deal with the Pac-12 that we're
extremely happy with. We know it's on Larry's list to consider launching his
own network. We'll certainly be talking to him, but to say anything more at
this point would be premature.

College sports rights in particular seem to be blowing up in terms of the
demand for them and the prices that programmers are willing to pay for them.
Has that reached a point of insanity?

I don't think so. College sports has been a foundation, an engine, if you will,
for ESPN for 30 years. In fact, the ! rst major contract that our founder, Bill
Rasmussen, signed was with the NCAA. College sports has among sports' most
passionate loyal fan bases and I don't see that changing any time soon. So
obviously you're seeing an explosion of college product that is going to be
offered to fans and alumni and I think that's all good for the college
landscape. Where the rights fees and the costs of those packages settle out,
again, it will be part of the competitive marketplace that we're in and we will
see how that plays out over time. We've never been disappointed in any
association we've had with a college conference, and it's fantastic
programming. College football, college basketball, all the Olympic sports,
women's softball is on now, those continue to grow. So it's just great product,
and great product commands a fee.

How is ESPN's local push going? Are you planning to add local Websites in
more markets?

Well, the local sites are doing extremely well. It's another example of
businesses that didn't exist for us less than two years ago and another example
of businesses where ESPN culture and our employeesâ€"in Chicago, in
factâ€"recognized an opportunity for us to move and we moved quickly. We're
very satisfied with the audience it's generating and I look forward to sales
revenue catching up with that, so I'm extremely bullish. As far as additional
expansion, we have six such local sites now. We're going to be enjoying the NBA
Finals. It will be a boon to our Dallas site and our Dallas radio efforts down
there. So, there's good opportunity. I have no expansion plans to discuss
today, but I wouldn't be surprised to see that expand in the future.

What's your view on the labor situation with the NFL and the NBA? Is it
possible for the two sides to kill what looks like a golden goose?

Obviously, we are hopeful that all those labor issues get resolved. We have no
direct control over that either, so we're interested bystanders, if you will.
But no, I think these deals will get done. It's just a matter of when, not if.
We hope not to miss games. But that goes back to one of the things we're
talking about here. These businesses, these leagues, offer tremendously popular
programming to the sports fans in the country and the sports fans are going to
want them to be played and they will be played. So I think the health of
professional sports leagues, once they get the various issues that they each have
settled, is bullish.

If those leagues don't play for a while, how do you fill the gap? I guess
there's always soccer, right?

Well, we have opportunities to program other sports and create new programming
as well. We haven't firmed up what our plans would be, obviously it's highly
speculative at this point, but we would ! nd a way to program effectively
during any work stoppage. I'm really not worried about that. I'm hopeful that
it won't come to pass but if it does, we'll deal with it.

Would the absence of the NFL affect your deals with affiliates and
advertisers?

Again, too speculative to say. For right now, it's business as usual for us.
We're selling the time in the games. The market is active, ad sales are very
strong, so the market's quite robust. I that case too, we've got opportunities
to move advertisers into college football if need be, so again right now it's
business as usual.

What's your research telling you about sports fans today and do you use
that data to tell you which sports to acquire, or how best to target ad sales?

Research is very important to ESPN's operations. It's not an overstatement to
say that it's a cornerstone of everything we do. We pay a lot of attention to
what the fans are saying and doing. It guides our strategy across platforms, in
the development of new product, in our on-air applications, how we sell
advertising through our Advertising Lab, located outside of Austin, Texas. So
we're very vested in research here. It's a vital part of our company.

What the coolest thing your research people have come back and told you
recently?

I would say I have high hopes for the effort we're working on with NASCAR, our
new NASCAR format [dubbed NASCAR NonStop, which shows commercials in one part
of the screen while racing action continues in another part of the screen].
What it's telling us is fans are going to accept that format as a way to stay
tuned to the action. Not having to leave the action, at the same time, the ads
will continue to work hard for the advertisers. That's what I'm most bullish on
coming out of the Ad Lab.

NASCAR's ratings are up so far this season, but nobody seems to know why.
Do you have thoughts about why NASCAR is doing better this year?

I think the quality of the racing is probably number one. It's been high, with
good story lines. The coverage that we and others provide I think is certainly
boosting the sport. And it's a great sport. Sports tend to be cyclical at
times, so we're enjoying an upswing and we're putting all of our efforts behind
the great sport of NASCAR.
 
Are there any sports out there that ESPN doesn't have that it wants?

Yes and no. Yes in that we're interested in all sports because that's what we
do. But no, in that as I've said earlier, we don't set out to own rights to all
sports. It's not really about any one sport for ESPN. It's about our
aggregation of sports and how we're serving fans in totality. So I'm extremely
comfortable with our current mix. But we're always aggressively looking to
improve our product line and we always will be.

You guys didn't get NHL hockey. ESPN can survive just fine without
hockey?

Yes. We're big hockey fans. It's a wonderful sport and we're affiliated with
the NHL both digitally and in countries outside the United States. As far as
here in the U.S., we wish them well with their current partners and I think
ESPN will do just fine.
 
How about UFC? That's another sports that you guys sometimes seem to be
interested in.

Well, we cover UFC on a variety of our platforms. Also in the magazine and on
dotcom. We're keeping an eye on its growth. It certainly delivers you
demographics and we'll see what the future plays out. But it's certainly has a
growing appeal.

There is scripted programming coming on ESPN Deportes. Is scripted
programming an area that ESPN might be interested in getting back into?

Again, if you look at us worldwide, obviously we're trying a lot of things
around the world. Here in the U.S. on the English language networks I don't see
us heading in that direction. I'm very comfortable with the direction ESPN
Films is headed, coming off the success of "30 for 30." We got tons
of feedback across the fan base. The quality of the work was high. We just won
a Peabody Award last week for "30 for 30," so I was very proud of
what our folks did. We're going to continue our documentary work, but we're
always exploring all things, and we have some new scripted product, as you
know, down in Latin America and I'm anxious to see how that performs.

Over at NBC and Comcast, Dick Ebersol just left and was replaced by Mark
Lazarus. Do you have any thoughts on how that changes the sports TV landscape?

It's not going to alter anything that we're doing. I've known Mark for years.
He's smart and I wish him well.
 
Can you monetize cross-platform as well as you might be able to monetize
more traditional primetime programming?

Yes. And it's growing as the years pass by here. Seventy percent of the sales
deals we do are cross-platform. That's up significantly over the last two to
three years. If you're an advertiser and you want to buy ESPN, why would you
simply want to buy just television when we've got fans accessing ESPN across
tablets and phones and computers? You want your message to reach all of those
fans, so yes, there's absolutely a sales market in cross-platform and I think
ESPN is leading the way there. If you look at what we were doing with our Watch
ESPN application, it was really a groundbreaking extension of our 'best screen
available philosophy. It's a sea change for the industry and a dream come true
for sports fans. I'm very proud of what the company has done to get to the
market quickly with the Watch ESPN app.

The BCS Championship was on ESPN this year. The NBA Finals are on ABC.
Are cable and broadcast interchangeable for big events in the sports world?

We believe they are. The vast majority of the fans watching these big sporting
events are doing it through some sort of a pay television subscription, so I
don't think fans are disenfranchised in any way. I think that certainly the
demographics bode well for a complete lack of distinction between broadcast and
cable going forward. The power of pay television networks are going to continue
to grow as the economics of the business evolve.

Do you think ESPN will get a Super Bowl while you're still running the
company?

Well, I don't know. We'll see. I wouldn't rule anything out.

Do you have any plans to buy anything, start anything up, fold anything?

No, nothing that I'm prepared to talk about today. Our company is performing at
a very high level. It's performing at the highest level in its history in a
variety of measures, brand and usage, to cite two. But we are not complacent
here at ESPN. We never have been and we never will be. So, we're always looking
to revise our mix, whether that means we acquire properties or businesses or
shed them, we look at everything. There's no automatic pilot here at ESPN.
We're working hard to keep our company moving forward.
 
And is that your main mission as CEO, to keep the company from being
complacent and moving forward? Is that your role in the organization?

Yes. Our goal is continued growth, and it's my job to shepherd that, steward
that.

Since there is a cable show coming up, do you have any big negotiations
coming up with any of the major distributors?

We don't at the moment. We're coming off a very nice negotiation, which I'm
very proud of, with Time Warner Cable last fall. It was a win-win as
acknowledged by both companies for both companies. So I'm very proud of that.
We have some coming up, but the days have long passed where we sit down to do
those at the show. I do remember those days vividly, but those days have passed
us by. I'd rather go to a Cubs or White Sox game.

Five or 10 years ago, the sub fee increases ESPN were getting were so
huge cable operators were upset when they negotiated with you. Has that
relationship changed?

I'm very proud of the relationships we have with our distributors, cable
operators, the satellite companies. They know that ESPN and Disney over all
deliver the best product in the business and we work hard at that. None of that
comes easy, both in creating product, marketing it and making it valuable for
the consumers. But we've created new products, as we did last year in the Time
Warner Cable agreement, the Buzzer Beater for example, and I'm proud of that.
We were open-minded and we want to listen to our distributors and help create
products that work for them as well and we're ready to put our money where our
mouth is on that and work to have constructive relationships with distributors.

E-mail
comments to jlafayette@nbmedia.com and follow
him on Twitter: @jlafayette

March