1 Jeff Gilbert ESPN final paper Business of sports media Prof. Tim Franklin Dec.

15, 2010 ESPN Radio pursues strategies to build its audience and revenue on FM By Jeff Gilbert About every seven days the station locator map on ESPNRadio.com goes out of date. Because every seven days somewhere in the United States, an ESPN Radio affiliate moves from the AM band to FM. There isn’t a fire sale on FM frequencies. Instead, the FM band has become more desirable than AM for talk radio for measurable reasons that add up to FM placement becoming a more profitable enterprise for ESPN and its affiliates. Since 1992, ESPN has grown its multimedia brand with a radio network that has ballooned to more than 700 affiliates, including about 370 that are full-time ESPN Radio stations. ESPN’s FM strategy is in place because of the potential to reach much larger audiences, including the desirable young male demographic. According to a Sept. 27 report on mediaweek.com, ESPN has already converted nearly one-third of its affiliates to FM. ESPN has also gotten into the local sports news Web site business in five major markets, and four of the sites are partnered with ESPN owned and operated stations. ESPN has been a big player in the radio business for 18 years, and these two new strategies make it clear that it hasn’t stopped looking for ways to expand its brand. Katy Bachman, who covers the radio industry as a senior editor for Mediaweek and mediaweek.com, wrote in an e-mail that she knows of no one in the media business who says ESPN’s growth strategies are ever misguided. “They are often held up as a prime example of a highly effective brand with a highly effective strategy,” she wrote.

2 According to a presentation obtained from ESPN about the reach of its radio brand, 12 percent of all radio listeners and 61 percent of sports radio listeners tune in weekly to ESPN Radio based on 2009 findings by radio ratings agency Arbitron. That percentage equates to 20 million listeners a week. Further, ESPN says its heavy radio users spend just over 35 hours a week with ESPN media, and almost nine of those hours are spent with radio. “Second to TV, it’s where our primary fan base spends its most time,” Traug Keller, an ESPN senior vice president who oversees ESPN Radio, said in a phone interview. “That’s no small piece. It’s an operating income contributor to the company.” Why ESPN got into radio and why it wants to expand its reach to more sports fans who like to be entertained by sports chatter, is no mystery. Ask any ESPN executive and you get the same answer. Read the financial reports that parent-company Disney files with the Securities and Exchange Commission and it’s spelled out. Even Bob Iger, the president and chief executive officer of Disney, knows the mantra. He recited it during a conference call on Nov. 11 that was timed to the release of Disney’s quarterly earnings report. In the transcript posted to the SEC’s EDGAR Web site that posts company filings, Iger said, “ESPN has a simple and powerful mission: to serve sports fans wherever sports are watched, listened to, discussed, debated, read about or played.” Keller recited the same statement almost verbatim when asked how radio fit into the company’s strategy. “That mission drives our company,” Keller added. “And from that it’s not a hard leap to see why radio wouldn’t be an important role there.” ESPN won’t divulge its percentage of revenue from radio, but with such an aggressive growth strategy and Keller’s enthusiasm for the medium it’s not hard to understand why radio is getting this attention.

3 “In this interactive age, sports talk radio was the first interactive medium,” Keller said. “Sports talk radio has been connecting from the get-go, and now using the new technologies continues to do so. “Radio’s prominence on this campus [at ESPN headquarters in Bristol, Conn.] has risen dramatically in the last few years. It has good business success and great reach and just great numbers to back it up in how many fans are consuming it.” Following the mission The way longtime ESPN management consultant Anthony F. Smith tells the story in “ESPN The Company,” the idea for the multimedia role that radio could play began in 1991. Corporate partner ABC Radio asked ESPN to provide 30-second spots that could be used during breaks in its regular programming. That request triggered some innovative brain cells in Bristol to realize it was time to venture beyond TV in pursuit of the company’s mission. Jim Allegro, who worked on the finance side, approached then-ESPN President Steve Bornstein with the idea of starting a national sports radio network. No one had previously been successful with this idea, so the right man for the job as it turned out was John Walsh, the innovator behind an earlier revamping of the cable TV icon “SportsCenter” that retains his signature today. “Steve pulled me in an office in New York one afternoon,” Walsh recalled in a recent interview he gave to Indiana University’s National Sports Journalism Center. “‘We’re starting this radio and all these guys are going on the air and we’re not paying them an extra dime. They’re all going to do it. It’s going to be part of their assignment.’” With the mission in mind to serve fans, the project began, and it didn’t matter to Walsh when he was told he had two months to get the network on the air. That’s a short time for most companies, but for ESPN it seemed about right. Smith’s book details other instances of fast-paced change at ESPN and explains that it’s simply part of the can-do, risk-taking culture that built the company.

4 “Every day when people come to work here,” Walsh said, “they look at what everybody else does and say ‘How can I do it better? How can I be better today than I was yesterday? How am I going to be better tomorrow than I am today?’” So the plan, in typical ESPN practice, was to launch the radio network cheaply in two made-ofsteel studios that arrived along with a plan to stack them, writes Smith. But it was determined that the weight of the top studio would crush the bottom studio. So ESPN ordered a second studio built of wood. The time for the on-air light was approaching fast and things were being put into place at the last minute. ESPN had been here before. Stuart Evey, the Getty Oil executive who bankrolled ESPN’s early days, tells the story in “Creating an Empire: ESPN” about the chaos on the night the cable TV network made its debut. The smell of fresh paint was in the air and the studio wasn’t finished, but lights, camera, action happened anyway. The radio studios were similarly being finished as soon-to-be “SportsCenter” star Keith Olbermann prepared to go on the air the evening of Jan. 1, 1992. Then somebody realized there wasn’t a clock. So, according to Smith, someone dashed to Radio Shack to buy a wall clock. When the on-air switch was flipped, Olbermann had a scoop about baseball free agent Danny Tartabull signing with the New York Yankees. As Smith writes, the radio network never looked back and within a few years was supplying 24 hours of programming. The start-up hours weren’t great. Olbermann, Chris Berman and others worked evening shifts on Saturday and Sunday nights, and from 7-9 on Sunday mornings. But it was even harder for Walsh. “I can assure you I was the only employee those first few months that was here for all 16 hours,” Walsh said. “That was a rough go.” A new growth strategy

5 Eighteen years later, ESPN Radio is in the middle of a strategy to grow its FM portfolio under Keller’s leadership. Keller stepped down as president of ABC Radio Networks in 2004 to lead ESPN Radio and the ESPN Deportes Spanish-language television network, according to an adweek.com report in November of that year. He has since added the local sports news Web sites and Deportes Radio to his list of responsibilities. Keller’s effectiveness is somewhat measured by his inclusion in the Mediaweek 50, an annual list released in September that highlights media executives who have “advanced innovation, revenue and influence for their companies, often under a ton of pressure.” Keller, who was ranked No. 17 last year, comes in this year at No. 50. He is credited for his work with ESPN Radio and the local Web sites that are partnered with ESPN owned and operated stations. In the year Keller was judged, ESPN Radio more than doubled its FM affiliates, and ESPNNewYork.com was launched. It might seem odd at first glance that ESPN wants its sports talk on FM. After all, AM has been the longtime home of talk radio and a successful avenue for ESPN to reach more fans. “It goes back to their mission,” Smith said in a recent phone interview. “I think they realize there’s places where ESPN doesn’t have a presence and they’re going to aggressively go after that.” The key number for Keller is 80, which represents the percentage of radio listeners who are on FM. Being on AM limits audience size, especially among younger people, and Keller calls the growth potential for FM exponentially bigger than it is on AM. Radio ratings through Arbitron are proprietary numbers, so ESPN isn’t willing to release those numbers for the competition to see. “It’s going north, which is what we all want it to do,” Keller said. The ESPN affiliate in Columbus, Ohio, moved to FM in January of 2009, and the results have been as expected.

6 “It’s helped us significantly,” Dave Van Stone, general manager for 97.1 The Fan, said in a phone interview. “We definitely see the upside to it.” The Fan, which has been with ESPN for 14 years, kept its AM station to air 24 hours of ESPN’s national programming. The FM side carries mostly ESPN shows but it also has two long-running local shows and carries Ohio State football and basketball games and the NHL’s Columbus Blue Jackets games. While Columbus is new to the FM band, ESPN 103.3 FM in Dallas has been on FM since its inception almost 10 years ago. Pete Dits manages the station, the accompanying news Web site ESPNDallas.com and ESPN Deportes 1540 AM, so he has seen for a while why the move to FM is such a big initiative. He also knows why an owner with an FM station would be eager to become an ESPN affiliate. “You have stations that were carrying music, and to a large extent people are getting their music from other places,” Dits said in a phone interview. “What radio operators are looking for is unique programming, and sports has become a pretty big opportunity.” Part of that opportunity for ESPN Radio stations on FM is to reach a greater portion of the target audience. Of the 20 million listeners ESPN Radio says it reaches every week, 15.5 million of them are men. ESPN says it has traditionally targeted men in the 25-54 age group. That group listens to ESPN a little over four hours a week between the prime listening times of 6 a.m. to 7 p.m. Monday through Friday, according to 2009 findings by Arbitron and RADAR Network Rankings that were supplied by ESPN. Dits and Van Stone didn’t share their ratings, share or time spent listening numbers, but both testify to the advantages of being on FM instead of AM. “To get the most potential bodies, you’ve got to fish where the fish are,” Van Stone said. “Moving it to FM just made a heck of a lot of sense because there’s clearly more listeners and younger

7 listeners. Anybody under the age of 40 probably is not much of a consumer of AM. And AM’s biggest strength is really people over 70 years old. So for us it’s made perfect sense.” Keller sees no evidence that the radio audience is shrinking, and that gives him confidence that being on FM will continue to grow audience and revenue for ESPN. “Despite the heralding of the Internet and the digital world, radio, that old traditional medium, still reaches 98 percent of the country,” he said. Audience profiling What further excites Keller, Van Stone and Dits is the opportunity to start finding listeners in the 18-24 age group of men. That’s because, according to Bachman, sports fanatics are dedicated and loyal compared with most other radio listeners. “If you want a good illustration of what that audience is worth, compare the overall ratings rank of the station with the station's rank in terms of advertising revenue,” Bachman wrote in her e-mail. “The ad spend is almost always proportionately higher than the ratings, showing the desire of advertisers to pay more to reach a highly desirable audience.” Dits said sports radio stations should not expect huge market-wide ratings for persons 12-plus because the audience is predominantly male. But the Dallas market shows that numbers for men can be competitive. “We’re top five in the marketplace with men,” Dits said. “And especially being on FM allows you to get younger men, and in particular our men 18-34 numbers are very, very good.” Recently, Colin Cowherd, the host of ESPN Radio’s “The Herd,” took time on his show to lecture the critics who he said have nothing good to say about sports talk radio. The critics, he said, say listeners to shows like “The Herd” are just a bunch of dumb ex-jocks out looking for work.

8 Cowherd said he had just seen the research, and he was proud to say that the critics have it all wrong. His listeners, he said, make good money and are educated. It’s what he said he’s always known, and now he has proof. According to audience research provided by ESPN, Cowherd is right. The median household income for ESPN Radio listeners is $85,100 and 74 percent have a college education. “Having an ESPN sports station with that brand creates something different in the marketplace and creates an opportunity for them to go after a different category of advertisers that they didn’t previously,” Dits said. “It has a lot of appeal, especially if you’re in a market where people love sports.” Everybody can win The larger audience that comes with FM means stations can charge more for commercials, but it doesn’t end there. Sponsorships built into a client’s marketing plan with an all-sports station are akin to another revenue stream. “What it’s really about is unique sponsorship opportunities and an opportunity to reach the sports fan, and it can be very targeted,” Dits said. “What we’re trying to do is leverage three or four or five different assets, whereas a music station might be leveraging one asset. And people have an opportunity to do some business with ESPN, and that opens up a lot of doors.” Dits said sponsorship revenue is a strong selling point when a company that might own several stations in a market is considering a format change. He said if a station isn’t performing well, then it can be beneficial to become an ESPN station to attract different advertisers interested in a highly targeted audience. In turn, ESPN moves to FM, audience grows and revenue grows. “Ratings are not unimportant, but they’re not the only thing,” Dits said. “For a music station, where all you’re selling is commercials – you’ve got music and commercials and you’ve got nothing else – so you need to have good ratings, because what else are you selling?”

9 Dits’ station does have two competitors that are 24-hour sports stations. One is on FM and one is on AM, and Dits said the ratings go back and forth in the market. But he has rights to the NBA’s Dallas Mavericks and baseball’s Texas Rangers, which has led to numerous commercial and sponsorship packages. “What our package here might look like is I’ve got commercials in a game broadcast, I’ve got commercials in a sports talk show that is talking about the game,” Dits said. “I might have a feature that is pertinent to the team or let’s say that we’ve got Rangers team president Nolan Ryan who does a weekly show on the radio station, and I can sell a sponsorship for that, a commercial in there and it’s a brought to you by.” Growing revenue is not limited to being on the air for ESPN 103.3 FM and other ESPN stations that are in a market with pro sports teams or big-time college teams. Dits said there are also online options and off-air opportunities such as tailgate parties before games where a sponsor can be seen on a banner by thousands of fans. “Pretty soon, instead of just selling commercials, you’re selling a pretty exciting package that’s got a multitude of different opportunities in it for somebody,” Dits said. “If you’re a sponsor who wants to reach not only the fan and wants to reach them in several different ways, and also you might enjoy having some perks yourself, that’s a pretty neat way to go. And it offers you a different kind of opportunity than just buying spots on a music radio station.” A sound decision The sound on FM radio is clearly superior to AM, but for a long time it was thought AM was good enough for talk radio and FM was only for music. That’s not so anymore with sports and news talk stations making the switch all around the country. In Atlanta and Dayton, Ohio, for instance, the news talk stations owned by Cox Communications now have an FM frequency to go along with their AM. CBS has a sports radio franchise of 16 stations in major markets with nine of them on FM.

10 “Because of all the digital devices, people are used to better listening opportunities,” Keller said. “FM is clearly a better listening opportunity than AM, and so it’s just scratching the surface.” Another factor that hurts AM radio is that some stations are required to decrease their power at night to make room for clear channel stations broadcasting out of big-city markets. But it’s not quite the problem it used to be for a lot of small-market stations, according to Fred Stiening, who writes a radio industry blog called streamingradioguide.com/blogradio. In a September of 2009 posting titled “Why Talk is Moving to FM,” Stiening argues that the Federal Communications C omission did not help the cause of AM radio when it made the big-market 50,000-watt AM stations start scaling back in 1986. That decision allowed small-market stations on the clear-channel frequencies to stay on the air at night. “We now have the worst of both worlds,” Stiening writes. “The clear channel stations are now regional stations with directional antennas and the local AM stations are too weak to be of much use (many are less than 50 watts at night).” That’s especially bad news for AM stations carrying play-by-play of local teams, which many ESPN affiliates do. There’s no signal reduction on FM at night, so for a station like the one in Dallas it’s a great help to them as the rights holders for the Mavericks and Rangers. The station has a strong 24-hour signal. The other bad news for AM stations is that FM is not the only place audio consumers are listening. The Web and mobile devices have opened up many more platforms for ESPN to increase its audience. While ESPN said its terrestrial radio reach is 20 million listeners a week, its digital reach is over 43 million a week. And ESPNRadio.com claims to be the world’s most listened to sports Web site. Advertising revenue for streaming audio, however, accounts for no more than five percent of a station’s total revenue, according to Bachman in a Sept. 23 audio interview on

11 advertisingweek.posterous.com. She said she’s heard estimates that streaming revenue could reach as high as 10 percent by 2014. “The inventory on the Internet is incredibly vast,” Bachman said in the online interview. “But if you really want to reach people in a less fragmented environment, you’re going to need to go to broadcast.” ESPN relates to its listening consumers through its secondary brands of ESPN Radio, ESPNRadio.com, Deportes Radio, Podcenter, ESPN2 (simulcasts of “Mike & Mike in the Morning” and “The Scott Van Pelt Show”), ESPNU (simulcasts of “The Herd with Colin Cowherd”), and through digital delivery systems XMSirius Satellite Radio, XBOX 360, iPhone, Droid and Blackberry. In the advertising trade, however, Keller said ESPN began marketing itself about two years ago as a conglomeration of the previous list under the label of ESPN Audio to persuade advertisers to plan a campaign across different platforms. “It’s kind of uber audio everywhere,” Keller said. “Where there is an audio device, we want to be. Especially in the last eight to 12 months with the proliferation of hand-held devices, we’ve seen real growth in listening from digital things.” Keller has a personal appreciation for being able to listen to sports radio when and where he wants. During Super Bowl week last season he visited radio row in Fort Lauderdale, Fla., and sat in on the “The Michael Kay Show,” which originates from ESPN 1050 AM in New York, but he had to leave before the show was over. “I got in my car to drive back down to Miami and I plugged my iPhone jack into the dashboard of my rental car and I listened to ‘The Michael Kay Show,’” Keller said. “It was much clearer than it would ever be on AM and uninterrupted all the way to Miami. We’re just seeing that happen more and more and more.”

12 This past summer ESPN Radio carried the World Cup, and Keller said almost 40 percent of the listening came from non-terrestrial radio. Being known still takes work When a station moves to FM, that doesn’t necessarily mean the station owner will suddenly be flush with new business. Yes, being on FM translates to being better known in the market simply because FM has 80 percent of radio listeners. But Dits said making occasional radio listeners aware that 103.3 FM exists and carries sports content is not simple. He said he first has to fight his staff’s notion that assumes everybody in the market is aware of the station. So building a loyal audience really takes a two-pronged attack: challenge the staff to do everything it can to raise awareness, and apply strategies as a station to promote the brand. “That’s our biggest challenge really,” Dits said. “We’ve been on the air almost 10 years, and there’s still sports fans out there in this marketplace that don’t know that we exist. So we’re constantly trying to put our brand out there and put our frequency out there so that we can reach those people.” Still, Dits is thankful he doesn’t have the steeper challenge that exists on AM of building a large audience where far fewer people are predisposed to searching the dial. In turn, his station does bank some of its audience-building strategy on being unintentionally discovered. “When you turn on FM you are going to have a lot more people who inadvertently come across your radio station and say ‘Oh, wow. Look at this 103.3 FM and they’re talking sports. That’s cool. I think I’ll listen to them,’” Dits said. “Literally, that’s how a lot of people discover us even though we put up billboards and we’ve got banners where the Mavericks play and where the Rangers play. Not everybody has found out about us yet.” Promoting through partners

13 If an ESPN Radio station remains anonymous to a significant number of sports fans in a market like Dallas, it’s not for lack of trying. ESPN doesn’t disseminate a single piece of information without it going out on multiple platforms. Radio shows are simulcast on television, on ESPNRadio.com and through individual radio station Web sites. Some television shows and games are also on ESPN3.com, and all ESPN radio and television programming continually promote ESPN.com and the local news Web sites in Dallas, Chicago, New York, Boston and Los Angeles. Each site with the exception of Boston’s is partnered with a station that is owned and operated by ESPN, and each one has a radio Listen Live button prominently displayed on the top portion of the home page. “ESPN, like all Disney brands, focuses on brand first,” Bachman wrote. “Its success is based on making sure that brand is ubiquitous across all platforms.” The local Web sites have been up for an average of about a year and are covering local pro and college teams all the way down to high schools with full-time writers. At ESPNDallas.com, Dits employs six editors, seven beat writers and numerous part-time and freelance writers. He said it’s difficult to quantify the size of the staff because anything written for other ESPN Web sites about Dallas teams or anything else that would be of interest to Dallas-area readers will end up on the Dallas site. “It’s been an experiment that we’ve been really pleased with in the first full year,” Keller said. “Out of the gate we’ve held our own against the digital versions of the local newspapers. In fact, in just about every case, we’re beating them in terms of their sports sections. It’s turned into a nice, very synergistic business with the local radio business.” The Dallas site has been online for a little more than a year, but Dits said there are already five to six million unique visitors to the site in a given month and that the site is the now the most viewed

14 sports Web site in the market. He said the site had 800,000 visitors the day the Dallas Cowboys fired head coach Wade Phillips in the middle of the 2010 NFL season. A Sports Business Journal story published April 12 about ESPN’s local Web site business, reported that ESPNDallas.com drew 1.6 million unique visitors in February. The entire Dallas Morning News site drew 1.5 million unique visitors the same month. The sites in other cities, according to SBJ, measured up respectably to their competition of local newspaper sites. “The numbers are just nothing short of incredible, and far beyond what we anticipated they would be,” Dits said. “From the sales standpoint, we’re making some very nice progress.” Dits said in the current quarter, October through December, that the Web site has billed more for advertising than what it billed for the entire year two years ago before it was relaunched as a news site. The site is robust with content, but Dits dreams of even more content in a state where high school football is as popular as it is in any state. There are 140 high schools in the Dallas-Forth Worth metro area, and Dits wants to eventually have live ESPN GameCasts for every high school game in the area. Keller said it’s probable that ESPN could expand its local Web site model into other major markets, but he said he is unsure if the model could do well enough in smaller markets. He said there is no timetable for expansion. In cities like Columbus, The Fan is not owned by ESPN, but has a Web site called ESPNColumbus.com. However, it simply aggregates news from ESPN.com customized for a local audience with tabs for news on local teams that take the reader to ESPN.com. There are also headline links to Columbus Dispatch stories and to news on team and league sites of local interest. There is no local staff of reporters, and Van Stone said the site is not heavily promoted. He said he doesn’t even track the traffic, and he is not expecting a call from Bristol anytime soon that the site is going big time.

15 “Heck, at the rate they’re growing and the momentum that whole company is gaining almost daily, could they someday develop it into something?” he said. “Gosh, who knows?” Not all ESPN stations use ESPN in their name, and Columbus is an example. “We have a lot of marketing and such invested in The Fan,” Van Stone said. “We’ve done research, and people know us as The Fan and they see our brand as well as ESPN’s kind of intertwined as one.” Being on FM is making a positive difference for ESPN stations, but ESPN Radio was growing before it began migrating from AM to FM. Programming has to play a role, and Keller, Van Stone and Dits agree that a mix between national and local is good for the cause. The Fan in Columbus has two primary local afternoon shows that are the station’s highest rated shows, but those shows do draw on personalities associated with ESPN. Chris Spielman, a former Ohio State and NFL linebacker, is a co-host for the noon show. He also is a college football game analyst for ESPN. Kirk Herbstreit, one of the hosts for ESPN’s “College Gameday” show and the analyst for ABC’s “Saturday Night Football,” is a longtime contributor to The Fan, and it’s where he got his start. “It’s the backbone of the station,” Van Stone said. “And while people like to hear a national viewpoint with ESPN programming, I know the local shows are what win for us.” That’s not to say Van Stone doesn’t appreciate the national shows like “Mike & Mike” and “The Herd.” He says the blend is great, and that being associated with the ESPN brand has paid off. “They are the 800-pound gorilla, so we certainly realize the value of that product,” Van Stone said. ESPN was voted the most powerful brand in sports by readers of Sports Business Journal in its Nov. 29 issue. One of the factors for ESPN has been the use of its radio network as a catalyst in its integration of TV, radio and all of its mediums that have followed during the past 18 years.

16 “With 370-some-odd 24/7 affiliates you’ve got a great way to promote and tell people in this very complicated world what’s on ESPN at night, what’s over on ESPN.com, what’s in ESPN The Magazine, what’s on ESPN3,” Keller said. “Those are all the things that make it real practical in a business sense.”

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