Disney has completed a deal with MLB to acquire a one-third stake in BAM Tech for $1B, with the deal designed to both jumpstart the MLBAM spinoff serving third-party entities and pave the way for a variety of new Disney digital offerings. Disney and BAM Tech will collaborate on an ESPN-branded, OTT multisport network due to debut by the end of this year. It will be sold directly to consumers. “Our goal is to ensure that our brands, notably ESPN, remain strong, vital, and relevant in a totally changed media landscape,” Disney Chair & CEO Bob Iger said. “We obviously need this capability (of BAM Tech) to take ESPN, Disney and other Disney IP onto similar platforms.” The $1B will be paid in two installments, now and in January ’17, and Disney also holds an option to acquire majority control ofBAM Tech. The deal values BAM Tech at $3B, and the $1B paid by Disney is more than 10 times the original startup funds invested into MLBAM at its ’00 formation. MLB owners last year formally approved the spinoff of BAM Tech, which works with a wide variety of clients including the NHL, HBO, PGA Tour and WWE.
LONG-SOUGHT DEAL: The league has actively sought a BAM Tech spinoff for much of the past year. “This gives us a real opportunity to grow BAM Tech to the greatest possible extent,” MLB Commissioner Rob Manfred said. “Disney was very cooperative and (MLB President of Business and Media) Bob (Bowman) worked really hard on it.” The deal is by far Disney’s largest single investment in digital content and distribution. Specific content for the subscription-based OTT network has not yet been disclosed, but it is designed to not be duplicative of ESPN’s linear network and will instead leverage existing content rights held by ESPN and BAM Tech, including MLB, NHL, college football and basketball, tennis, rugby and cricket. Iger said additional content rights will not be acquired for the new network. “The goal is not to take product off ESPN’s current channels, but to use sports and product that ESPN has already licensed that’s not appearing on the channels,” Iger said. “We view this as a complementary service to what ESPN is already providing.” Consumer pricing for the venture has not been disclosed, though Disney is considering some type of variable pricing depending on levels of consumption (Eric Fisher, Staff Writer). Goldman Sachs and Evercore Partners "advised MLB" on the deal (FINANCIAL TIMES, 8/10).
PRICE CHECK: Iger said though a price has not been determined, "a lot of people are looking at products like this and thinking about what the monthly fee will be." Iger: "Ultimately you’re going to see a lot of dynamic pricing and products like this. Meaning, the consumer will ultimately be able to determine what sports they're interested in, what packages they want to buy over what period of time and I think there will be a lot of flexibility provided to the consumer so there will be a lot of variables in that regard.” More Iger: "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 that can potentially either replace it or supplant it and that's really important" ("Closing Bell," CNBC, 8/9).
LOOKING TO THE FUTURE: In L.A., Daniel Miller writes for Disney, this is a "bold step to secure the digital future of ESPN" (L.A. TIMES, 8/10). In N.Y., Brooks Barnes notes Disney most likely sees this acquisition "as furthering its interest in building a Netflix-style streaming service" (N.Y. TIMES, 8/10). The WALL STREET JOURNAL's Fritz & Ramachandran note ESPN has "lost 3.7 million cable subscribers in the past year" and now reaches about 88.8 million U.S. homes (WALL STREET JOURNAL, 8/10). In N.Y., Claire Atkinson writes Iger is "trying to walk a fine line while seeking a balance between keeping Disney’s hugely profitable cable programming business in growth mode and exploring ways to get into online-only delivery of his myriad TV assets, a move that can easily lead to an erosion of the company’s core business" (N.Y. POST, 8/10).
BUNDLE OF JOY? CNBC's Julia Boorstin said this is "important because there’s been a lot of concern that these new, smaller over-the-top bundles would not include ESPN and ESPN2 which are obviously big moneymakers for Disney.” The Wall Street Journal's Dennis Berman added, "Long-term I think it’s a smart bet for Disney because the straight cable provider as we know is changing and BAM Tech is, in a lot of ways, the future” (“Closing Bell,” CNBC, 8/9). Elevation Partners co-Founder Roger McNamee: "This was a really smart move for Disney. ... But I think the transition is likely to be murky and it's going to scare people." He said, "For the last 50 years the television networks have been the ones that the sports leagues turn to for new technology." Iger said, "In today’s world having the ability to stream on a scaled basis live sports and live programming is a competitive advantage" ("Squawk Alley," CNBC, 8/10).
DISH SERVED COLD: DEADLINE's David Lieberman noted Iger was "less enthusiastic about a new skinny bundle being offered by Dish Network, called The Flex, that offers ESPN as an extra-pay add-on -- not in the core package." Iger: “We really don’t believe it has a great future because it’s lacking some of the most attractive channels that are out there. ... If you don’t have some of the best ones, it’s pretty hard to see significant adoption of the service" (DEADLINE.com, 8/9).
EARNINGS REPORT: Disney yesterday "reported quarterly profit that beat analysts' profit projections, as strong performances from films including 'Captain America: Civil War' and 'Finding Dory' countered a challenging period for TV and consumer products" (ADAGE.com, 8/9). USA TODAY's Roger Yu noted Disney's Q3 "showed slowing growth at the cable networks business." Cable networks' revenue in Q3 "remained relatively flat, up 1%" to $4.2B. Revenue for the broadcasting business, including ABC, rose 5% to $1.7B as "higher affiliate fees helped offset a decline in ad sales" (USATODAY.com, 8/9). Iger noted on an "adjusted basis, it was our 12th consecutive quarter of double-digit growth" ("Squawk Alley," CNBC, 8/10).
