By Richard Menta 3/21/09

March Madness begins and with it comes an interesting new digital business model that is already off to a strong start. On March 12th CBS Sports, in an effort to test the demand for streamed video of the NCAA Basketball tournament on mobile devices, released an application on Apple Inc.'s App Store to bring the games live to iPhone and iPod touch users. With the opening of the NCAA tournament yesterday the CBS Sports March Madness on Demand program became the top selling paid application on the Apple App Store.

Developed by CBS Sports Mobile with partner MobiTV, the application allows users to stream video of all of the games to their iPhone or iPod touch through their Wi-Fi connection. Additionally, iPhone users can receive audio only streams through their 3G and EDGE connections. The application interface also offers easy viewing of the tournament bracket, highlights, box scores and other team stats.

The CBS iPhone application is selling robustly for $4.99. The fact that it is selling well at that price point is critical, particularly since these same streams are available free for PC users from both the CBS and the NCAA websites. That so many are paying suggests CBS may be close to brewing that secret sauce from which they can build a successful digital revenue strategy off of.

Both the major media and the major sports franchises have tried to offer paid sports access through web pages and mobile phones before, but all prior attempts met with middling response. This time CBS mated its success not only to the most popular digital media players on the market, but to a brilliantly seemless application acquisition platform that is already enjoying solid success just eight months after its launch. The proprietary demands that Apple imposes on it's iPhone platform cements control over player, phone and 3rd party service provider. This allows CBS to charge for what consumers get for free on TV and on the Net.

The question at first was will enough people buy? The answer may already be yes, though we need to get a better idea of how many $5 apps CBS sold. We contacted CBS to get an opening sales figure, but they have not yet responded.

The mobile version of the Mac OS that runs the iPhone and the iPod touch forbids certain browser add-ons like Flash and Microsoft's Silverlight, because they are rival content delivery platforms. Outside of straight MP3 radio streams and YouTube videos no other content can be streamed to an iPod or iPhone out of the box. Apple will allow the likes of Deezer or Pandora to deliver focused streamed content to their audience, but they have to acquire Apple's iPhone developer's kit and build a separate application for it. Then they have to get Apple to approve the application for sale on the App store.

That's what CBS did, but rather than give the application away for free CBS took advantage of the App Store's ability to conveniently monetize these applications. Can CBS make a pay on-demand move stick this time?

They gave it a shot and put a $4.99 price tag on it. But this fee is not really for the application or even the content, but for the service of delivering this time-sensitive content to a specific mobile platform. Once the NCAA tournament is over the app presumably goes dormant - until they have another use for it.

The CBS on demand application has gained clear traction and the implications here carry farther than just this one time sports event:

1. CBS has identified an ample number of iPod and iPhone users who will pay for mobile streamed sports content, even when that content is available for free on TV and PC.
2. There are presently 30 million iPhones iPod touches out in the wild so far and the number of Wi-Fi enabled Apple mobile units will grow as new units are introduced.
3. The success of the CBS Sports March Madness on Demand application proves that major media suppliers can compete with free. In this case it is CBS themselves that supply the free alternatives their iPhone app competes with.
4. After the tournament the application remains on the iPhone. This theoretically means it can be revived remotely (updated) for an added charge for other sporting events like future NFL and MLB games; even pay-per-view events like a heavyweight boxing championship. What is being sold here is really not the application or the content itself, but the service of providing said content on a specific mobile ( iPod and iPhone ) platform.
5. CBS can use this established base of paying mobile users - if it is large enough - as a negotiation tool when bidding with the major sports leagues for future rights. That's assuming that FOX, NBC and ABC/ESPN are not able to duplicate this success and land their own applications on a large number of iPod and iPhone devices.

Despite the healthy sales - and we need to remind you that healthy is a relative term here - not everything is perfect with CBS Sports' execution. As of this writing there are nearly 600 user reviews on the Apple App store for CBS Sports March Madness on Demand. Most are very good, but there are several significant problems being reported. Many complained that the video and audio falls out of sync, while others reported choppy video and dropped connections as a frequent frustration. Some users could not get connected at all, particularly iPhone users grabbing 3G and EDGE streams. These problems suggest the load on CBS servers where higher than anticipated.

To reap the full benefits CBS is going to have to correct all of these issues, preferably as the tournament commences. Customer retention is critical to CBS's long term success here. Even if the short term revenues are a drop-in-the-bucket when compared with what traditional revenue mechanisms pull, if CBS can grow this market it could pay generous dividends down the road.