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Disney to End Netflix Deal, Sets Launch of ESPN and Disney-Branded Streaming Services

Disney to acquire majority stake in BAMTech from Major League Baseball for additional $1.58 billion

Disney is ending its distribution agreement with Netflix for new movie releases, while it’s also buying majority ownership of BAMTech — the streaming-video company founded by Major League Baseball — in a $1.58 billion deal.

The moves set a clear course for the media giant to launch Netflix-style direct-to-consumer internet services from ESPN and Disney. Disney said will end its distribution agreement with Netflix for subscription streaming of new movie releases, beginning with the 2019 theatrical slate.

“This acquisition and the launch of our direct-to-consumer services mark an entirely new growth strategy for the company, one that takes advantage of the incredible opportunity that changing technology provides us to leverage the strength of our great brands,” Disney CEO Bob Iger said in a statement. The company announced the plans as part of reporting fiscal Q3 earnings, which included a 3% revenue decline in its cable networks group.

The media conglomerate said it will launch an ESPN-branded multi-sport video streaming service in early 2018, followed by a new Disney-branded direct-to-consumer streaming service in 2019. Those will be powered by BAMTech, in which Disney will hold a 75% stake. The current plan is for Disney and ESPN streaming services to be available for purchase directly from Disney and ESPN; in app stores; and from authorized pay-TV partners.

Disney didn’t provide details on what the new over-the-top services are expected to cost.

The new Disney-branded service will become the exclusive home in the U.S. for subscription VOD access to new releases from Disney and Pixar beginning with the 2019 theatrical slate. Those are set to include “Toy Story 4,” the sequel to “Frozen,” and “The Lion King” from Disney’s live-action division.

Disney hasn’t yet determined streaming distribution for films from its Marvel Entertainment and Lucasfilm studios. Those movies could be licensed to a third-party subscription VOD service or stay in-house (either on their own dedicated service, or on the Disney-branded service planned for 2019).

In addition, Disney said it expects to make a “significant investment” in an annual slate of original movies, TV shows, short-form content and other Disney-branded exclusives for the service. The subscription service also will feature library content, including Disney and Pixar movies and shows from Disney Channel, Disney Junior and Disney XD.

The revised plans for the ESPN-branded multi-sport service are much broader than the over-the-top play Disney originally had slotted for the end of 2016. The new service will include about 10,000 live games from leagues including Major League Baseball, the National Hockey League and Major League Soccer. It also will include collegiate sports and Grand Slam tennis coverage. Noticeably missing from the lineup in the forthcoming ESPN OTT service are NFL and NBA games — the two most popular pro sports in the U.S.

“For many sports fans, this app will become the premier digital destination for all their sports content,” Disney said in its announcement.

Even with the launch of ESPN’s subscription sports service, Disney said OTT packages for individual sports will also be available for purchase, including MLB.TV, NHL.TV and MLS Live. The new service will be based on an “enhanced version” of the current ESPN app, which will continue to offer pay-TV subscribers access the ESPN programming on an authenticated basis.

Under terms of the deal for BAMTech, Disney will pay $1.58 billion to acquire an additional 42% stake in the New York-based streaming and video infrastructure company from MLB Advanced Media, the interactive media and internet unit of Major League Baseball. A year ago, Disney acquired a 33% stake in BAMTech for $1 billion under an agreement that included an option to acquire a majority stake.

Disney’s acquisition of a controlling stake gives BAMTech a valuation of $3.75 billion. MLBAM will retain a 15% stake in the company.

“We’re very proud of the content distribution innovations driven by MLBAM and BAMTech over the past 15 years,” MLB commissioner Rob Manfred commented. “Major League Baseball will continue to work with Disney and ESPN to further grow BAMTech as it breaks new ground in technologies for consumers to access entertainment and sports programming.”

The BAMTech transaction is subject to regulatory approval. Once the deal closes, Iger will serve as chairman; MLBAM and NHL will continue as minority stakeholders in BAMTech, with seats on the board.

BAMTech CEO Michael Paull — a former senior video exec at Amazon who joined earlier this year — will report to Kevin Mayer, Disney’s senior executive VP and chief strategy officer. Disney said that John Skipper, ESPN president and co-chairman of Disney Media Networks, will manage the new ESPN-branded service.

“This is an exciting validation of our team, its achievements and the customer-centric platform it’s built,” Paull said in a statement. “Yet, we’ve merely scratched the surface of what can be accomplished in a future where we combine Disney and ESPN’s world-class [intellectual property] and our proprietary direct-to-consumer ecosystem.”

Currently, BAMTech designs, develops, and delivers direct-to-consumer streaming services for partners including HBO Now, MLB, NHL, MLB, PGA Tour, WWE Network, and Riot Games’ “League of Legends.” Through a partnership with Discovery Networks, BAMTech Europe will provide technology services on the continent, including Eurosport’s digital products.

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