WEB + SPORTS = PROFIT. RIGHT? IN CYBERSPACE, WHERE SPORTS FANS ABOUND, ESPN AND AN ALLY RUN ONE OF THE HOTTEST WEBSITES. NOW, IF IT CAN ONLY MAKE MONEY...
By MARC GUNTHER REPORTER ASSOCIATE SHEREE R. CURRY

(FORTUNE Magazine) – In their rush to do business on the Internet, many media companies have left common sense behind. Strange as it seems, TV networks and publishers are spending millions of dollars to give away content they ordinarily sell. Few have more than a vague hope of getting a return on their investment. All of which raises a question: Can't anybody here play this game?

Well, first we need to figure out the rules. While no one knows for sure how to make money on the Internet, ESPN and Starwave, the creators of ESPNET SportsZone, have the most promising game plan around. Their World Wide Web site is, for now, the best place to scope out the future of the media business in cyberspace.

ESPN, the sports cable network about to become part of Disney, and Starwave, a media company that belongs to Microsoft co-founder Paul Allen, launched ESPNET SportsZone last April. Since then the Zone, as it's known, has become one of the most popular destinations on the Web, the multimedia portion of the Internet that is experiencing hypergrowth. Sports fans point and click their way to up-to-the-minute scores, game reports, feature stories, and reams of statistics and columns by such personalities as Dick Vitale and Frank Deford.

SportsZone attracts more than 140,000 users on a typical weekday and, as a result, has one of the highest advertising rates on the Web. While most of the site is open to all, SportsZone last fall began charging monthly fees to die-hard fans who want access to a premium service. That's the first significant challenge to the Internet ethos that information should be free, which remains a major obstacle facing media companies seeking profits in cyberspace.

The people who own SportsZone say that, with revenues from advertisers and subscribers, the venture will turn a profit in 1997. "We could be making money now, but we're building for the future," says Mike Slade, Starwave's president.

But SportsZone's success is anything but assured. It must still show it can generate substantial ad revenues or convert surfers into paid subscribers. The stakes are high, not just for SportsZone but for every company that wants to publish online. "ESPNET SportsZone demonstrates the potential of online media," says Peter Krasilovsky of Arlen Communications, a Bethesda, Maryland, consulting firm. But, he adds, "if ESPN can't sell its service, then the prognosis for selling information on the Internet is very poor indeed."

SportsZone must contend with tough competition. USA Today and Sports Illustrated provide extensive online sports information. SportsLine USA, a Florida startup that offers scores, stats, and commentary, also features extensive handicapping information for gamblers, an obvious market. Niche programmers like the Tennis Server and GolfWeb argue that targeting golf or tennis buffs makes better business sense than programming for all sports fans. (For the record, I love sports, but the online services will find me a hard sell. I like my games on TV and my columns in print. I do use the Internet to communicate with fellow runners.)

With so much available free, fans online are bound to resist paying fees to SportsZone. Lorraine Cichowski, vice president of USA Today Information Network, says: "I would love to charge a subscription price, but I don't see that happening. The Web is really moving toward a broadcast model."

But broadcasts need mass audiences to flourish. For all the glamour of new media, considerable doubt remains about how much traffic will flow to any single Website. Put it this way: Can ESPNET SportsZone compete with Seinfeld and Monday Night Football?

Perhaps not, but as the cheerleaders used to say back in high school, if they can't do it, no one can. Here's the strategy ESPN and Starwave have used to forge ahead of media rivals still trying to get their bearings in cyberspace:

Target the right customers. Sports and cyberspace make a perfect demographic match. "Who are the people sitting in front of these computer screens?" asks Starwave senior vice president Tom Phillips. "They're 18- to 34-year-old males. Our demographic is as pure as you can get in any medium." That's the kind of audience advertisers, at least in theory, will pay a premium to reach.

Especially hungry for sports information are so-called displaced fans--Boston Red Sox followers in Florida, say, who can't get enough information about their team. Roughly 10% of SportsZone users log in from overseas.

Other media companies, by contrast, are chasing harder-to-find users. Hearst wants to entice women to a Website called HomeArts, about homes, health, and family. The screens are beautiful, but most Internet users are men. Make the product great. With 18,000 pages of sports data, SportsZone has enough depth and breadth to please all but insatiable fans. There's a mix of timely information (live scores, player stats) and archival material (Cal Ripken Jr.'s career, year by year).

This too is the right fit for the online world, where the most valuable information tends to be less than two hours or more than two weeks old--information, that is, that can't be found easily elsewhere. Yet what do many media companies do? They load this morning's paper or last week's magazine onto the Web. Shovelware, as it's called, has limited value.

ESPN and Starwave have committed about 80 full-time people to the Zone, enough to create a product that's worth going online to find. By contrast, major media power NBC News has a tiny staff putting out its online product. It shows.

Apply synergy and leverage brand names. ESPN analysts rework on-air commentaries into online columns. ESPN uses its cable networks to promote the SportsZone address (http://espnet.sportszone.com). Then there is SportsZone's use of ESPN's name: In the cluttered world of the Web, a familiar brand has powerful appeal.

Surprisingly, some rivals have buried their brands online. Bill Bluestein, an analyst at Forrester Research in Cambridge, Massachusetts, says: "Where is Sports Illustrated online? It's crammed into Time Warner's Pathfinder site. That's a huge mistake. They haven't carried their brand onto the Web." (Sports Illustrated, which is owned by FORTUNE's publisher, recently expanded its site and changed the name from Sports Access to SIonline.)

ESPN's relationships with pro sports leagues also help--the NFL Website, for instance, tells users to click to SportsZone for up-to-date scores and highlights.

Drive the market. Rather than merely dabbling with the Internet, ESPN and Starwave are taking big risks and seeking big returns. SportsZone charges advertisers up to $100,000 for three months of online exposure, well above the going rate on the Internet. Seventeen sponsors have signed up.

Bold too was the decision to charge users for premium services. Some 2,000 customers paid $40 each this fall to play a fantasy football game, and insiders say about 20,000 subscribers are paying $4.95 a month, or $39.95 a year, for the full service.

"They laughed when we went out with our rate card," says ESPN Enterprises senior vice president Dick Glover. "They said, you can't sell advertising on the Internet. Well, it works, and it's growing like a weed. Then people said you can't create a premium service--no one will pay for information on the Internet. Now you see others doing it because we've shown you can."

If SportsZone can establish itself as a market leader, ESPN and Starwave will try to develop a third revenue stream--by charging Internet access providers that link users to the service. That's a business model from cable TV, where local operators pay to carry ESPN. "It's a lot easier to defend market share than it is to create it," says Starwave's Slade.

The danger is that customers won't follow. The Internet could grow more slowly than expected. Or it could evolve into a medium that functions mainly as a way to connect far-flung individuals through virtual communities or via e-mail, leaving traditional media companies out of the loop. "This is still a very young business," says ESPN's Glover. "We're all building it. Will they come? If people come to the Web, the economics will take care of themselves. If they don't, no economics will matter."

That's not a bad way to look at it: the World Wide Web as the infotech equivalent of Field of Dreams. Hollywood gave the baseball movie a happy ending--but not many companies would risk real dollars to build a stadium in an Iowa cornfield.

REPORTER ASSOCIATE Sheree R. Curry