Disney Launching New ESPN Streaming Service; Buys Majority Stake In BAMTech
Disney is buying a majority stake in BAMTech for $1.58B, accelerating its prior deal with MLB in both size and timetable. The deal will pave the way for the debut of an ESPN-branded video streaming network early next year, followed by a Disney-branded OTT service in ’19. Both of which will be supported by BAMTech technology. The deal follows one a year ago in which Disney acquired a third of BAMTech for $1B. That original agreement included an option for Disney to eventually acquire majority control, and the company has now boosted its equity stake from 33% to 75%. The latest deal values BAMTech at $3.76B, up from its prior $3B valuation. MLBAM will retain a stake of slightly more than 15% of BAMTech, while the NHL has slightly less than 10%. “We have to look at both of these (OTT services) as huge priorities for the company,” Disney Chair & CEO Bob Iger said on an analyst call yesterday. “This is an extremely important shift for us. ... I would put this at the top of our list of the company’s strategic priorities in the next couple of years.” The deal has immediate and seismic impacts across Disney, MLB and digital media at large. The ESPN multisport OTT network will have more than 10,000 live events per year, and will include MLB, NHL, MLS, Grand Slam tennis and college events. It represents the return of NHL hockey to ESPN after departing in ’04. The service is designed not to be duplicative of the content that will run on the linear ESPN channels. “It will be even more robust than the one we had anticipated,” Iger said. Pricing for either network has not yet been set.
BIG MOVE: The planned OTT networks also help to act as a hedge against Disney’s cable operations that continue to decline, with revenues falling 3% and operating income down 23% during the most recent quarter. With the heightened BAMTech relationship, Disney is also pulling its new release movie titles off of Netflix by ’19, a move that immediately sent Netflix stock sharply downward last night in after-hours trading. Iger during the analyst call went to great lengths to credit the technological capabilities of BAMTech, particularly with regard to video streaming, ad serving, customer management and data collection. “We felt that having control of a platform we’ve been very impressed with after buying 33% of it a year ago would give us control of our destiny,” Iger said. BAMTech CEO Michael Paull in a statement said, “We’ve merely scratched the surface of what can be accomplished in a future where we combine Disney and ESPN’s world-class IP and our proprietary direct-to-consumer ecosystem.” With the deal Paull will report to Disney Senior Exec VP & Chief Strategy Officer Kevin Mayer. Iger will lead the BAMTech BOD, with MLBAM and NHL maintaining board seats as minority shareholders. ESPN President John Skipper will manage the new ESPN-branded OTT network (Eric Fisher, Staff Writer).
WHAT ABOUT FOOTBALL AND HOOPS? AD AGE's Anthony Crupi noted ESPN will "not be streaming live NFL or NBA games via the new OTT service, or at least not in the early going" (ADAGE.com, 8/8). FBR Captial Markets Senior Analyst Barton Crockett said the ESPN streaming service is “going to be a niche sports network." Crockett: "It’s not going to be the flagship ESPN. It’s going to be the stuff that can’t make the cut on ESPN. It’ll appeal to sports enthusiasts ... but that is something that is a complement to ESPN, not something that’s a replacement for it” ("Squawk Box," CNBC, 8/9). Disney said that the service "won’t be spun out into a new app, but rather it will live inside the existing ESPN app, which is accessible on a number of devices like smartphones, game consoles, and streaming TV boxes." The company added that those who "pay for cable will be able to access additional content, like direct feeds of ESPN’s live cable broadcasts, by authenticating through a provider" (THEVERGE.com, 8/8).
BREAKING IT DOWN: Iger yesterday said Disney "felt that it was time for us to take a bigger step in that (app/OTT) direction to offer ESPN-branded live sports on a service that we control, that can be bought over the top and sold direct to consumer on a platform." Iger said BAMTech has "really impressed us in terms of its live streaming capability, its ability to manage customer services on basically a soup-to-nuts basis, meaning from registration and customer acquisition to customer attention and cred card management. And they also have a very strong ad tech service and an ability to mine user data, so this is a very robust platform, perfect for what we want to do with it for ESPN." Iger added the "model of the multi-channel ecosystem" is still "very robust in terms of its profitability to the company and to ESPN." Iger: "We don't have right now a need to necessarily break it out from that, but this certainly gives us the optionality if we get to a point where that business model is no longer serving the needs or the interest of the company and the shareholders and ESPN. This gives us the ability to go direct with what is the ESPN linear service, but this is not an announcement in that direction right now. The technology platform and the user interface that we're buying and that we'll continue to manage certainly gives us that ability though" ("Closing Bell," CNBC, 8/8).