M+E Daily

Media industry analysts gave a thumbs up to Disney’s decision to pay $1 billion for a 33% stake in video streaming company BAMTech, calling it a long-term positive investment. The investment, along with Disney’s decision to make its core TV networks available to the upcoming DirecTV Now streaming service, represent the latest over-the-top (OTT) initiatives by Disney, following pacts with Sony on PlayStation Vue and Dish Network on Sling TV.

The BAMTech investment includes an option for Disney to buy majority ownership in BAMTech down the road, Disney said. Through the investment, Disney will launch a new direct-to-consumer, ESPN-branded, multi-sports subscription streaming service “probably by the end of the year,” Disney CEO Robert Iger said Aug. 9 on the company’s earnings call for the third quarter, ended July 2. As the market focuses on things that include the tough comparison that Disney’s Studio business will face in 2017, the company is “obviously thinking further down the road on new opportunities,” MoffettNathanson Research analyst Michael Nathanson said in a research note Aug. 10.

The BAMTech investment will allow Disney to “build new products to monetize incremental consumer spending on sports rights and, eventually, entertainment,” he said.

Although Disney’s ESPN has “no business rationale to unbundle its sports networks” from the current multichannel video programming distributor (MVPD) offering, Nathanson said he believed the new ESPN service “can find incremental demand as sports viewership fragments.” Also, factoring in all the content that Disney has on the Netflix streaming service, it “would seem logical that Disney would go direct-to-consumer in a few years,” he said.

Iger said on the call that the programming his company plans to include on the new ESPN service is not currently on the traditional, linear ESPN channels. What is even more significant, Stifel Research analyst Benjamin Mogil said in an Aug. 9 research note, is that the planned programming involves rights that ESPN already owns, but that Iger told analysts ESPN doesn’t have sufficient broadcasting capacity to air now.

“We view the step as an evolutionary one and over time, we can see such DTC as replacing niche sports channels as the bundle continues to fray,” Mogil said. “Longer-term this is positive for the company as it can likely continue to have the leverage to have ESPN and ESPN2 fully distributed while to ease MVPD friction allows DTC to be a potential outlet for some of their other channels,” he said.

As Disney looks at its businesses and the marketplace, Iger said on the call, “two things are clear.” One is that the multichannel bundle “delivers the most value to us and remains a great value proposition to consumers,” so the company’s number one “priority is to support it and to do what we can to maintain or enhance its value to customers.”

But he added: “We also know that new platforms and new entrants in the digital video space are offering consumers more flexibility in variety with exciting new products and impressive user experiences. And we must create or take advantage of these new opportunities in ways that are complementary to the multichannel offering.”

That’s why Disney made the BAMTech investment, Iger said, adding the investment provides his company with the “technology infrastructure to quickly scale and monetize our streaming capabilities at ESPN and across our entire company.” The pact “will enable us to make a major leap into the direct-to-consumer video space and will also provide countless new opportunities to expand into this space as the marketplace evolves,” he said. Iger added that Disney’s “goal is to ensure that our brands, notably ESPN, remain strong, vital and relevant in a totally changed media landscape.”

By placing Disney’s TV networks on the various OTT services, those platforms “stand a chance of growing faster than they would have without” those networks, especially ESPN, Iger said. He again pointed to PlayStation Vue getting a significant boost in subscribers after ESPN was added to it.

It’s not yet clear if there will be a “huge shift” to OTT services and away from traditional TV services as a result, Iger conceded. “The consumer is largely going to dictate that, but I think it’s important to point out that by us being on these platforms at prices that make sense to us, we’re really quite neutral in terms of shifting from a traditional MVPD consumer to an over-the-top consumer,” he said. Also important is that the better the user interface is on the OTT services, “the better it is for us because we think the customer’s going to be more engaged and is likely to consume at higher levels,” he said.

ESPN also recently announced a new arrangement with the Atlantic Coast Conference (ACC) allowing ESPN subscribers to stream more than 600 exclusive live ACC college basketball events through ACC Network Extra on ESPN3, WatchESPN and the ESPN app starting this month. In 2019, Disney will also launch a dedicated linear channel “covering all things ACC,” Iger said.

Disney, meanwhile, set new film industry records this year by hitting $2 billion in domestic box office and $5 billion in global box office faster than any studio before, CFO Christine McCarthy said on the call. Disney has four of the top five domestic releases so far in 2016, including “Finding Dory,” which is number one with $475 million, and the top four global releases with “Captain America: Civil War” (about $1.2 billion), “Zootopia” (more than $1 billion), “The Jungle Book” ($940 million), and “Finding Dory” ($875 million), she said.
Disney still has three major Hollywood releases planned for 2016: the animated “Moana,” Marvel’s “Doctor Strange” and “Rogue One: A Star Wars Story,” Iger said. The company also recently finished filming “Star Wars: Episode VIII,” started production on “Star Wars: Episode IX,” and work on two other standalone “Star Wars” movies is “well underway,” he said.

Not mentioned on the call was the Disney release “The BFG,” which opened theatrically in the U.S. July 1, one day before the end of Disney’s third quarter and bombed at the box office despite mostly good reviews from critics.