The recession-induced plunge in consumer spending seems largely to have bypassed sports, at least regarding the young, male, technology-oriented audience that tunes in to sports broadcasts. After some decline in 2009, ESPN, the sports media empire, bounced back strongly last year, no doubt much to the delight of The Walt Disney Co., which owns 80% of the company, and Hearst Corp., which owns the other 20%.
As advertising revenue grew across all its media platforms, ESPN bucked Corporate America's current cash-hoarding ways and instead invested in projects such as last June's launch of ESPN 3D. The network expects to offer about 100 live events in 3D in its first year. In September, ESPN also entered into a long-term, wide-ranging agreement with Time Warner to supply many new cable customers with access to ESPN stations, online content, and video on demand. The month before, as part of its push for growth via overseas markets, ESPN acquired broad rights to UK Premier League Soccer for the next three seasons.
The company and its CFO, Christine Driessen, have come a long way together. Driessen celebrated her 25th anniversary with ESPN last year, having joined the company as controller just six years after its first SportsCenter television broadcast on September 7, 1979. Since then, she has seen the company expand into radio, print, the Internet, and broadband, picking up restaurant and consumer-product business along the way. Driessen has played a key role in much of the expansion, yet she says that one of her most important roles is to pull the plug on projects that have gone awry.
The plunge in advertising revenue has killed off many media properties. Do you think this is merely a temporary symptom of the downturn or an enduring structural change?
I think it's an economic phenomenon rather than a permanent change. Television sports, in particular, is a place where advertisers seek to reach the male audience. Because it's must-have, we probably were hurt the least of anybody in our business. Our print business did see some decline in advertising in fiscal 2009, but in fiscal '10 we came back. We've seen new spending in men's grooming, which has become a huge category in the advertising marketplace. Insurance, foreign autos, and telecommunications have all come back nicely.
What do you see as the most promising emerging geographical markets for sports news and broadcasting?
We have a 50/50 joint venture with News Corp. called ESPN Star Sports, which distributes sports programming in multiple markets throughout most of Asia. India is a terrific market, with great fan avidity for cricket and soccer. We've been in business there for some years, but we think it's ripe for further investing in sports.
Our acquisition of the rights to English Premier Soccer and our coverage of rugby and the FA Cup are also going to enable us to seek a new fan base in the UK and present ourselves in the United States as having created a great brand and a great product for the sports fans in the UK. We have a huge operation in Latin America as well. Cable is starting to see some real growth there.
What three areas have the biggest potential for growth in your sports coverage?
You can't deny that the NFL has seen incredible ratings and continues to grow. Soccer is second. The third one is up for grabs: the NBA has come back really strong, and baseball continues to do well. The traditional sports have always done well, but in this past year we've seen nice growth across the table.
ESPN scored a huge coup when it landed the contract for Monday Night Football in 2005. How has that worked out?
It's been phenomenal. We're very happy with the performance of that contract. We took a product that was really a three-hour window on Monday Night Football, and after ESPN got it in 2005, we began to dedicate the whole day to coverage. So you'll hear about the upcoming event starting around 6 a.m. on radio and the Internet. We have studio shows that surround the coverage of the game itself. The game just happens to be one piece of the coverage. There's only one game on Monday night, and therefore we can cover it very significantly — not only on the day but running up to that day.
What's been your role in ESPN's acquisition of programming rights for such events as Monday Night Football, The Masters in golf, and U.S. Open Tennis?
I'm involved in any programming-rights deal that gets done. We strategically decided 8 to 10 years ago that we were no longer just in the television business. As a result, we're looking at the financial models and the return on investment for acquiring digital, publishing, radio, and cable TV rights. I play a significant role in evaluating the impact of these deals on advertising sales and production costs — and ultimately what we're prepared to spend for those investments and content.
What have been your biggest challenges as the CFO of ESPN?
The biggest challenge has been balancing continued investment in new technology and new-product development with the concern that it may require time to recoup that investment. In 2009, everybody struggled financially. Balancing the continued desire to invest in new things, such as 3D technology, given where our performance levels were then, was no easy task.
Also challenging — especially when you have a very successful company — is ensuring that the financial acumen and controls are in place to make sure that we continue to be the lowest-cost provider and not get carried away with our success. Knowing when to say no — or when to say we've tried this and we need to move away from it — is a big part of my job.
Can you give an example of that?
The best example is when we decided to get into the phone-manufacturing business about five or six years ago. Not only were we creating content for the phone business, but we also thought we could manufacture a cell phone and get into the mobile business itself. We got to a point where we recognized that manufacturing phones was not our core expertise, so we decided to change our business model and exit phone manufacturing, but continue in content development for mobile applications. It was a good experience because we were forced to evaluate pretty quickly that we could do a better job in creating content than in manufacturing. Now we have lots of apps on mobile phones and the iPad, and that's all an offshoot of the investment we made in developing content for that medium.
Another example occurred about two years ago when we decided to give away our Insider product — which includes exclusive, online sports journalism and blogs — for free. We eliminated our subscription fee, but not long after that we realized that we really had something unique and exclusive, so we decided to put the genie back in the bottle and once again charge our fans for content that they could get only on ESPN.com. We've been very successful in pulling that back and monetizing it because of the exclusive nature of what we get and give our fans.
Many media companies have struggled with the pay-versus-free business model regarding Web content. What was the determining factor in reverting to a paid model?
We found out that it wasn't about the number of site visitors but about the quality and exclusivity of the content, which is tailored to a specific and very passionate fan base. We have predictive tools and analysis, professional-level scouting information, the best draft coverage, exclusive video, and much more. That led us to reevaluate the business model and we decided to go back to a paid model. People and companies learn from mistakes, so we don't look back, we just move forward.