Merill Lynch: Time to Pull Plug on Mobile ESPN

Merrill Lynch today (18.07.2006) issued a note to investors calling for ESPN to "throw in the towel" on its branded mobile phone service.

Analysts Jessica Reif Cohen and Michael Kopelman on Wednesday wrote that "it is time for Disney to pull the plug on Mobile ESPN," charging that since Disney launched the service with much fanfare during Super Bowl XL, the company has had little luck landing paying subscribers.

Merrill added that while Disney significantly reduced the cost of the handset in April, dropping the price of its Samsung model to $99 after the original Sanyo handset launched at $399, “the model does not appear to be a particularly attractive use of capital,” as the reseller business traditionally offers a low return on investment. (Incidentally, the bulkier Sanyo is now available free-of-charge after a $29 mail-in rebate.)

Cohen and Kopelman now estimate that ESPN Mobile will lure a mere 30,000 subscribers over the course of this financial year, well below their original estimate of 240,000. Along with the losses generated by a second Disney-branded phone service, ML expects that the Mouse will lose $135 million on its experiment in FY06.

While the ML analysts wrote that Disney should shelve Mobile ESPN, the undeniable lure of the branding opportunity was likely a primary factor in the decision to launch the service. Disney may have also looked to use the initiative as a means to analyse consumer consumption of wireless content.

For its part, ESPN said that it has no plans to discontinue its phone service, saying that surveys indicate that users are very satisfied with the application. “While sales have been slower than expected, we have added retail distribution outlets, introduced a new thin handset and have enhanced marketing efforts,” an ESPN spokesperson said.

Anthony Crupi
(c) MediaWeek