ESPN’s IT Head Depends on Communication, Collaboration

ESPN’s Chuck Pagano is not your typically brassy sports executive. His low-key personality belies his status as an industry “playa” who scored a spot on the Sporting News Power 100 list. He loves to mix it up with the troops, rarely utters a sports clich¿nd refuses to get caught up in the celebrity hype of ESPN’s universe. Above all, he says he doesn’t take himself too seriously. “Seriously,” he emphasizes.

But Pagano—a onetime ESPN technical director who is now executive vice president of technology—will need to draw upon the goodwill and leadership skills accumulated during his nearly three decades there to tackle his biggest challenge yet: fusing the long-separated TV, IT and new media divisions into a single business unit bound by a strategic vision of ESPN’s future in the age of digital and high-definition entertainment.

Creating a team where one hasn’t existed won’t be easy. “We all have our little domains of business expertise. You start to get tunnel vision, and that’s what was happening,” Pagano says. “I’m pushing everyone toward the same strategic mission.”

Push is the operative word. ESPN and other broadcast and media companies face increasing market pressure to develop new business models that embrace the emerging digital technologies craved by consumers. At the same time, companies must also figure out how to control and manage their content in an online world that scoffs at intellectual property rights.

ESPN’s strategy going forward is simple: Give ’em what they want, when they want and how they want. “More than anybody else, ESPN has been really aggressive with using new ways to get to consumers through new channels, with a combination of traditional and digital media,” says Adi Kishore, the Yankee Group’s director of media and entertainment strategies.

How the company will continue to do that, Pagano says, is by taking first-mover risks to deliver content across all mediums and by investing in leading-edge technologies such as video-on-demand to get it there. “This is our priority: to serve the fan any way we can, through any pipe, any device, in whatever way they want to consume us, embrace us, fondle us and blow in our ear,” Pagano says. “We don’t wait for the trends to be developed.”

Pagano’s strategy hinges on transforming ESPN from a massive collector of videotape into a nimble data center that quickly disseminates multimedia sports content over IP and broadband networks to PCs, mobile phones and iPods. At the heart of that strategy is ESPN’s Digital Center, a technically sophisticated TV production facility that is the springboard for the leap into all-digital multimedia operations.

How well Pagano can lead that transformation during the next several years—and whether his team can capitalize on the power of the Digital Center—remains to be seen. But there is some evidence that his single-minded vision for 2006 and beyond has started to permeate the organization. “Our goal is to be the interactive center of the sportsman’s universe,” says Aaron LaBerge, VP of technology for ESPN.com, who reports to Pagano. “Technology plays a key part in us doing that, and the more transparent that we make it [to the consumer], the better.”

A Mandate for Growth

A twentysomething Pagano was among the original 35 staffers of Entertainment Sports Programming Network—known today as ESPN—when it launched the nightly SportsCenter newscast at 7 p.m. on Sept. 7, 1979. As cable TV’s popularity grew during the ’80s, so did Bristol, Conn.-based ESPN. It signed licensing deals with the National Football League, Major League Baseball and the NCAA, among others. The company became so attractive in 1984 that television network ABC bought it for a reported $227 million.

ESPN expanded its brand through the ’90s by launching ESPN Radio, ESPN2, ESPN.com, ESPNews, ESPN The Magazine, a restaurant chain and international editions of its products. In 1996, the Walt Disney Co. purchased ABC (now called Capital Cities/ABC) and all of its properties, including ESPN, for $19 billion.

Disney has always let ESPN be ESPN—one reason, many speculate, why the sports network has been so successful. The brand is a force: Its stable of products reached nearly 68 percent of Americans in the fourth quarter of 2005. U.S. male sports fans spend, on average, two hours a day with ESPN. To top it off, ESPN knows of about 25 kids named “ESPN.”

But last fall, Disney’s new president and CEO, Robert Iger, went public with his plans for the Magic Kingdom and its subsidiaries, including ESPN, calling for substantial investments in innovative content delivery mechanisms across all its brands by applying new technologies. “Distribution methods and new, more sophisticated consumer electronics devices are multiplying, offering consumers far more flexibility, customization and control over how, when and where they consume content,” Iger told analysts last November.

Iger also promised that ESPN would deliver double-digit annual profit growth to Disney’s coffers through 2009. ESPN’s financials remain private, grouped with other cable entities on Disney’s annual report, but Rider Research pegs its annual revenue at around $5 billion, about 15 percent of Disney’s revenue, with operating earnings of nearly $2 billion. Disney’s mandate for growth came as ESPN was busy spending tons of money: In 2005 it spent $8.8 billion for the broadcast rights to Monday Night Football for the next eight years, $2.4 billion for MLB games, and reportedly $2.1 billion for Nascar events.

Iger took the reins at Disney in October 2005. Later that month ESPN President George Bodenheimer announced a restructuring of business functions into six areas: content, sales and marketing, international, finance, administration and technology. In an e-mail, Bodenheimer says the reorganization was caused by the departure of some senior ESPN managers; these departures provided a “clean slate” opportunity to simplify ESPN’s structure, which “does mirror the growth priorities set by [Iger] for the Walt Disney Co.—creative content, technology and international expansion.”

Pagano says the reorg also mended long-standing departmental disconnects. “Before, there was no reason for [the different departments] to be together,” Pagano says. “Now, it’s a symbiotic relationship between content and technology. That’s the way the world is going.”

To lead the new technology division, Bodenheimer tapped Pagano, then senior VP of engineering and technology. The two men have known each other since ESPN’s early days, when they watched hockey games together into the wee hours of the morning. “Chuck really embodies all the qualities of ESPN’s culture and success—to think creatively and be willing to go in new directions,” Bodenheimer says. “He empowers his people to lead and to serve up new ideas.”

To keep focused, Pagano carries a card with ESPN’s five priorities for 2006: Take personal responsibility to achieve excellent communication and cooperation between individuals and across departments. Enhance ESPN2 to grow ratings and profits. Successfully launch and establish Mobile ESPN. Increase the value of the integrated ESPN and ABC Sports assets to advertisers. Grow ESPN.com, and fast-track broadband initiatives.

Pagano has his work cut out for him.

From Introverted Engineer to Extroverted Executive

Plenty of friends and relatives back in 1979 tried to talk Pagano out of leaving his technician’s job with Hartford’s WFSB-TV to work at that startup sports channel in Bristol. “You’re going to fail,” Pagano recalls them saying. Watching him work the ESPN cafeteria in 2006, it’s obvious he made the right choice. Asked if he knows everyone’s name, he smiles: “Just about.”

Pagano refined his people skills and his reputation as both a hands-on TV engineer and manager at ESPN as he climbed the ladder from technical director to systems engineering and project development roles. He listened to and learned from his bosses, noting their people-first management styles. Pagano consciously made the transition from introverted engineer to extroverted executive, becoming more of a “feeling and sensing” person and leader, he says. “My leadership is based on transformation and collaboration, and that started years ago,” Pagano says.

In his latest role as executive vice president of technology, he sees himself first as a cultural ambassador. “I’m bringing [together] three disparate areas that really had no cohesion before,” says Pagano of the IT, TV and new media groups. “They’re all doing great jobs in their separate areas, but I’ve got to bring technology to the next bar in this organization and distribute it across all the platforms that we serve.”

One of the ways Pagano does that is by holding three-hour meetings every other Monday with his department heads. There he shares business strategy, encourages brainstorming and challenges the team to address cross-departmental problems. “We’ve never had a single governance [before],” says Paul Cushing, who was named senior vice president of IT during the restructuring and reports to Pagano. Now, “we look at technology overall. What our priorities are for the company are all in one bucket. In the past, it was all dealt with individually.”

Pagano is also a devout follower of “managing by walking around.” E-mails and formal meetings aren’t his preferred ways of interacting. “I get crazy with e-mail. I fundamentally hate it,” he says. So he sets time aside at least three days a week to visit with staff, asking questions and delving into what they are thinking and talking about. “That’s the only way I learn,” he says.

Pagano also loves to speculate with his staff about the future and what ESPN will look like in two, five and 10 years. “We don’t do strategic planning; we do more scenario planning,” he says. “What is going to be the next component of TV? There’s such a long lead effort, and all sorts of thing can happen in the meantime.”

A more immediate concern for Pagano, however, is to remedy the business-IT disconnect within the company, which traditionally put TV operations first and relegated IT to a support role. ESPN’s foray into mobile phone service illustrates the challenge.

Launched on Super Bowl Sunday, Mobile ESPN delivers real-time scores, stats and video highlights to phones sporting its brand. However, ESPN doesn’t operate its own wireless networks. Acting as a mobile virtual network operator, or MVNO, it purchases minutes from a mobile phone operator (ESPN uses Sprint). It’s an intriguing business that’s gaining traction, but one with huge financial and technological investments. Although Mobile ESPN required a year and a half of high-level strategizing, IT came late to the initiative. “We got brought into it after Mobile was a done deal,” says Cushing.

Initially, much of the back-end technology for Mobile ESPN was going to be outsourced, according to Cushing. But when IT was finally brought into the loop, the group was, in fact, able to deliver backup infrastructure and other services to the Mobile ESPN team, rather than having to outsource them. If IT were involved earlier in all of ESPN’s decision making, Cushing says, the department “could have a better impact.”

Pagano is keenly aware of this fact. His strategy to make the IT department more visible going forward rests on his ability to ensure that IT has a seat at the table and to keep it in lockstep with the business to drive products to consumers. His relationship with Bodenheimer has helped him champion IT as a strategic partner for the business, a point not lost on Cushing. “It gives us a chance to see what’s happening at the visionary stage as opposed to being reactionary, and it brings us closer to the business,” says Cushing. “It’s not an us-and-them anymore.”

The importance of a unified technology department is also not lost on Bodenheimer. “At various points in our history, there have been waves of technology,” Bodenheimer says. “We are riding an amazing, fast-to-shore wave right now. Technology is of utmost importance. Chuck and his team play a more critical role than ever.”

A Bet on the Future

Pagano’s catalyst for change lies behind the shimmering facade of ESPN’s Digital Center. Inside, ESPN production staffers are busy editing video clips and graphics via file servers with more than 200 terabytes of storage and retrieval capability. More than 7 million feet of cable snake through the building, which came online in 2004. In addition to digital HD workstations and production facilities, the building houses three HDTV studios that are home to ESPN’s studio shows, including SportsCenter.

Back in 2001, Pagano, then senior VP of engineering and technology, made a multimillion-dollar bet that the emerging 720 Progressive standard for high-definition TV would still be relevant by the time the Digital Center was completed. No one knew if the standard could scale to ESPN’s needs or if the equipment and tools would be available as the project progressed. “We selected a standard [for which] there was absolutely no equipment available,” Pagano says of the Digital Center. “That was a total risk.” The 720 Standard (as well as the 1080i) did become one of the two main standards for HDTV, and to some degree, analysts say, ESPN’s embrace of HDTV has helped spur its growth.

ESPN’s success in the digital world now depends on how much it can leverage Pagano’s HDTV bet and capitalize on the center’s technology to manipulate, repurpose and dispense content digitally over various mediums. “The Holy Grail for TV facilities has always been reuse,” says Bill Lamb, ESPN’s VP of systems engineering and electronic maintenance. “You make it once and you reuse it as many times as effective.”

ESPN is already getting some payback here. Lamb says staffers using the new digital workstations have shaved an hour off producing a highlight package for SportsCenter. It’s hard to get them to go back to the videotape environment once they’ve tasted life in the Digital Center, he says. But despite the jump to digital, ESPN is still using videotape. Production staffers need access to old clips recorded on the network’s more than 1.3 million tapes. Dependency on tape will lessen as more ESPN programs are recorded digitally and more of the 150 programs that flow into ESPN each day from other broadcasters arrive in a digital format.

The center’s ability to provide unlimited access and easy reuse of content is also enabling emerging business models that were not possible before at ESPN, such as Mobile ESPN as well as ESPN360 and ESPN Motion—video-on-demand products consumers get through ESPN.com. This allows the swift delivery of on-air content through other mediums. “We now have the flexibility to manipulate our content in a way that makes sense, whether it’s for an iPod screen or a cellular phone or the connecting game console on your television,” says ESPN.com’s LaBerge.

But the transition from analog to digital remains a challenge. “We’re inventing new concepts as we go,” says Pagano, who knows first-hand that tapping into new technologies is not without risk. Early in his engineering career at ESPN, Pagano specified and developed a videotape playback device that could play commercials back in an automated sequence. That device ended up not working with ESPN’s existing equipment and was deemed a total blunder. The lesson for Pagano?

“You have to allow people to try different things and learn from their mistakes,” he says. “And you have to be there to help them take the heat [when things go wrong].”

Dealing with the Technological Storm

Like other content providers, ESPN is hammering out intellectual property issues using digital rights management, or DRM—technology tools that define distribution and control consumer access to digital content, such as video clips, music and movies. “The good news is that nobody knows what they’re doing. The bad news is that nobody knows what they’re doing,” says Vamsi Sistla, director of broadband and digital home media at ABI Research.

The trick is balancing wide, multichannel distribution of content with intellectual property controls that prevent some type of Napster nightmare. “On the Internet, most of the media formats are still in their early stages of development,” says Sistla. “There are no established structure, rules and regulations for rights management, Internet browsers, operating systems and device capabilities.”

Different devices support different DRM standards—creating a costly and confusing proposition for content providers. “As people move their media from the PC to other devices, such as handhelds and video players, you have to support multiple DRMs,” says LaBerge. “You have to commit to one or the other, otherwise your content won’t play.” He says which DRMs ESPN will support are a work in progress: “It is something that we are in the process of figuring out.”

However, where intellectual property and content are concerned, ESPN’s strategy is clear: “We don’t believe everything on the Internet wants to be free. You can’t necessarily give it all away,” LaBerge says. “We believe it’s a mix.”

That mix is evident in ESPN.com’s Insider offering—a paid content model that provides access to premium material that fans can’t get elsewhere, such as some of Peter Gammons’ baseball commentary and ESPN’s NFL draft analysis. It seems to be working. LaBerge says the top metric used to gauge Insider’s success is total sign-ups, which has shown steady growth. But ESPN, like others, is still tweaking the pay-for-content model online. Last year it did an about-face and stopped charging for online fantasy football.

As Pagano walks through the Digital Center, he feels humbled by what he and his team are striving to accomplish. “I’m awed every time I go in there,” he says. But much like the athletes ESPN puts on display every day, Pagano refuses to admit to feeling the pressure of the big game. “I sleep perfect at night,” he says. “The pressure is good. It makes you good.”