Disney is a conglomerate known for throwing big bucks at content powerhouses like Marvel and Lucasfilm, so its $1 billion investment in Major League Baseball’s BAMTech video unit last week was something of a curveball.
BAMtech handles back-end technology for streaming services at a slew of media brands, including Time Warner’s HBO Now, WWE Network, Sony’s PlayStation Vue internet TV service, and Glenn Beck’s TheBlaze.com.
Now that Disney holds a 33% stake in BAMTech (MLB owns 58%, and the National Hockey League the rest), ESPN is gearing up to launch a new multi-sport subscription streaming service by the end of 2016, in what may presage a torrent of over-the-top products from Disney’s brands.
“Having a partner like Disney is going to make us far more successful than we’d be on our own,” said MLB Advanced Media CEO Bob Bowman, who oversees a team of 700 employees.
Under the terms of the deal, Disney has the option to acquire majority ownership in BAMTech after a few years. But there are other reasons Disney entered the game.
MLB Has a Solid Track Record
New York-based MLBAM has been streaming live video online, with its MLB.TV service, since 2000 — years before YouTube was even a glimmer in Google’s eye. ESPN has used MLBAM to power its branded streaming app, WatchESPN, since it launched, so Disney is familiar with its capabilities.
BAMTech’s next assignment: An ESPN-branded OTT service will feature live content from both BAMTech and ESPN — programming to which they already own the rights, like college football and basketball, rugby, and cricket. The service won’t include the more popular sports ESPN puts on TV, but Disney CEO Bob Iger believes there’s a market for the mix.
“In general, live sports has really thrived, even in a world where there’s so much more for people to do and to watch,” he said on the company’s earnings call last week.
Pay TV Is in Decline
Disney is eyeing the streaming marketplace because U.S. cable, satellite, and telco TV operators lost a collective 1.4 million subscribers over the 12 months that ended in June, according to research firm SNL Kagan. That’s down 1.4% year-over-year — still relatively marginal, but Disney wants to be in a position to move fast if the wheels really fall off pay TV. BAMTech’s breadth of live and on-demand video streaming services give the company that vehicle. “Where we can monetize the most is where the content will go,” Iger said.
Disney Can Afford to Make Bold Bets
The conglomerate had $5.2 billion in cash and equivalents on its balance sheet at the end of June, and Iger has shown a willingness to go large on the M&A front.
But Disney’s batting average when it comes to digital acquisitions hasn’t been amazing. It bought YouTube-centric network Maker Studios in 2014, ultimately paying $675 million (less than the $950 million max price with earn-outs), and so far it’s unclear what upside, if any, the deal has produced. Last month, Maker laid off 30 employees.
But not every investment needs to be a winner: “Disney is being smart by putting down a bunch of different bets and essentially protecting itself from getting caught unaware by some trend,” said VideoNuze publisher Will Richmond.
The Deal Lets Disney Kick the OTT Tires
The new ESPN streaming service, stocked with admittedly second-tier events, will be “an exploratory OTT project” to let Disney gather data for pricing, ad support, and viewership, RBC Capital Markets analyst Steven Cahall wrote in a note. It’s also possible that ESPN and MLB will seek additional streaming rights in the future for the initial OTT service, Iger told analysts.
Added Bowman: “Disney is one the largest content companies. How that all works out, only time will tell, but distribution is important.” Considering OTT, he couldn’t resist adding, “We’re in the first inning.”