Disney Steps Up to Digital Plate With $1B BAMTech Investment

Despite the fact that its movie studio posted a spectacular third quarter, with revenue soaring 40%, Walt Disney Co.’s earnings call with Wall Street analysts was once again dominated by a single topic: ESPN’s OTT plans.

Seeking to head off renewed criticism of complacency amid video subscriber erosion, Disney preceded its Aug. 9 earnings release by confirming long-rumored reports it would invest in Major League Baseball’s video streaming unit. The company said it acquired 33% of BAMTech for $1 billion, with the option to acquire a majority stake in the coming years.

Disney will use the new asset, which it hopes will prove as transformative as recent acquisitions such as Marvel and Lucasfilm, to launch a new direct-to-consumer OTT app for ESPN. No launch date, pricing or specific programming has been confirmed, but Disney chairman and CEO Bob Iger said the service would “probably” launch by the end of this year.

BAMTech, which launched in 2000 as Major League Baseball Advanced Media, pioneered sports streaming beginning in the presmartphone days when watching games online was far from the norm. It has since used its knowhow to spearhead the launch of OTT services for the likes of HBO, WWE and many others, with products reaching a combined 7.5 million paid subscribers. One of its clients is the National Hockey League, which netted a small stake in BAMtech under a separate arrangement.

Iger said the deal would not entail any additional outlay in terms of spending on sports rights. “We have a lot of rights that are already purchased to put product on this platform,” he said. “Long-term, there may be an opportunity to purchase rights to put on this platform.”

Exactly what will appear on the OTT platform remains unclear, but programming will include content licensed by MLB as well as things Disney has acquired, including college football and basketball, tennis, rugby and cricket. “The goal is not to take content off ESPN’s current channels but to use product that’s been licensed but is not currently on the channels.” Iger described the OTT as a “complementary service” to the linear ESPN networks.

With the value of rights continuing to rise sharply as live sports remain beacons of live-viewing prosperity amid a shift toward on demand viewing, Iger said it would continue to be a priority to stay in the sports game. “Our best interest as a company is to invest more in the total pie, even if it means fragmentation” given the consistent viewer appetite for sports, he said. “We can’t look you in the eye and say that costs are going to go down because it’s still among the most valuable assets out there.”

The ad load for the ESPN OTT will “basically be the same” as the linear network, Iger told analysts. The sales team will be the same one selling ads on linear and other platforms.

For the quarter, which ended July 2, Disney reported revenue of $14.28 billion, paced by success in animation with Finding Dory, effects-driven remake The Jungle Book and Marvel’s Captain America: Civil War. Operating income gained 8% to $4.46 billion.

Cable and broadcast held fairly steady. Revenue in the media networks unit inched up 2% to $5.9 billion (a bit below Wall Street’s consensus forecast for $6 billion), while operating income was flat at $2.37 billion. ESPN lost subscribers but also gained higher subscription fees in the period, while the company took a hit for the cost of the launch of Viceland (via co-owned A+E Networks) and lower ad sales at Disney Channel and Freeform. Broadcast revenue rose 5% to $1.7 billion, while operating income dipped 6% to $282 million. Results were hurt by lower ad revenue and ratings at ABC, plus higher marketing and programming costs at Hulu.

Iger said there were no new developments on the company’s succession plan, which has been a focus of shareholder scrutiny since anointed CEO-in-waiting Tom Staggs was forced out of Disney last spring.

Disney shares gained a couple of dollars on the news to crack $97 by the end of last week, though that still left them down about 7% for 2016 to date.