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ESPN to Launch Over-the-Top Sports Service After Disney’s $1 Billion Investment in MLB’s BAMTech

Disney is paying $1 billion for a 33% stake in Major League Baseball’s BAMTech streaming-media unit, and with the investment ESPN is planning to launch a new “multi-sport” subscription streaming service.

ESPN’s direct-to-consumer service will feature content from both BAMTech and ESPN, and is slated to launch by the end of 2016 with live regional, national and international sporting events. However, the parties said current content on ESPN’s linear TV networks will not be carried on the new subscription streaming service. Pricing details weren’t disclosed.

ESPN president John Skipper made a point of underscoring that the new OTT service would not cannibalize viewers from the sports giant’s existing pay-TV footprint — at least, for now. “As WatchESPN continues to grow and add value to the multichannel video subscription, this new service will be an outstanding complement,” he said in a prepared statement.

But Disney chairman and CEO Bog Iger, in an interview with CNBC Tuesday, said the BAMTech relationship gives the company “optionality” to deliver core ESPN programming and other networks in a direct-to-consumer package that would cut out cable, satellite and telco TV distributors.

“Our primary priority as a company is to work on making sure that the (pay-TV) package is healthy because it creates value for our company,” he said. But “if the business model that is supporting these great media properties starts to fray in any significant way, we have the ability to pivot quickly and put out a direct-to-consumer product to potentially replace it or supplant it… It’s our hope that doesn’t happen, but this certainly puts us in a great position should it happen.”

Content in the forthcoming ESPN-branded OTT service will include college sports, including football and basketball, as well as tennis, rugby and cricket, Iger said on Disney’s earnings call.

Disney announced the investment in BAMTech, which had previously been reported, in releasing second-quarter 2016 results. Under the terms of the deal with MLB, Disney has the option to acquire majority ownership in BAMTech in the next few years. Disney will pay the $1 billion in two installments, one now and the second in January 2017.

BAMTech, which has been separated from the broader MLB Advanced Media business, powers MLB.tv, the league’s out-of-market video subscription service. It also serves other clients including Time Warner’s HBO Now, WWE Network, Sony’s PlayStation Vue internet TV service, the PGA and Glenn Beck’s TheBlaze. According to Major League Baseball, BAMTech handles video distribution and other services for nearly 7.5 million total paid subscribers on behalf of clients.

The National Hockey League owns a minority stake in BAMTech, after the NHL signed a six-year deal last summer with MLB Advanced Media under which MBLAM assumed the management of NHL’s TV broadcasting and Internet-streaming operations.

For Disney, the stake in BAMTech is its biggest investment in digital video yet. In 2014, the Mouse House acquired YouTube-centric network Maker Studios, ultimately paying $675 million (less than the potential $950 million price tag, which included performance-based incentives). It’s unclear how well Maker is paying off for Disney financially; last week, Maker said it was laying off an undisclosed number of employees.

Disney’s deal with MLB comes after Turner Broadcasting bought a majority stake in streaming-video provider iStreamPlanet last summer for $148 million net of cash acquired, according to Time Warner’s 2015 10-K filing.

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