Disney to launch streaming service

In a move that will eventually see it end its distribution agreement with Netflix, The Walt Disney Company has agreed to acquire majority ownership of direct-to-consumer streaming technology and marketing services, data analytics, and commerce management specialist BAMTech, announcing plans to launch its ESPN-branded multi-sport video streaming service in early 2018, followed by a new Disney-branded direct-to-consumer streaming service in 2019.

Under terms of the transaction, Disney will pay $1.58 billion to acquire an additional 42 per cent stake in BAMTech from MLBAM, the interactive media and Internet company of Major League Baseball. Disney previously acquired a 33 per cent stake in BAMTech under an agreement that included an option to acquire a majority stake over several years, with Disney’s further acuisition marking an acceleration of that timetable for controlling ownership.

“The media landscape is increasingly defined by direct relationships between content creators and consumers, and our control of BAMTech’s full array of innovative technology will give us the power to forge those connections, along with the flexibility to quickly adapt to shifts in the market,” said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney Company. “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.”

The ESPN-branded multi-sport service will offer what Disney describes as “a robust array” of sports programming, featuring approximately 10,000 live regional, national, and international games and events a year, including Major League Baseball, National Hockey League, Major League Soccer, Grand Slam tennis, and college sports. Individual sport packages will also be available for purchase, including MLB.TV, NHL.TV and MLS Live.

The new service will be accessed through an enhanced version of the current ESPN app. In addition to the multi-sport service, the ESPN app will include the news, highlights, and scores that fans enjoy today. Consumers who are pay TV subscribers will also be able to access the ESPN television networks in the same app on an authenticated basis. For many sports fans, this app will become the premier digital destination for all their sports content.

The new Disney-branded service will become the exclusive home in the US for subscription-video-on-demand viewing of the newest live action and animated movies from Disney and Pixar, beginning with the 2019 theatrical slate, which includes Toy Story 4, the sequel to Frozen, and The Lion King from Disney live-action, along with other highly anticipated movies. Disney will also make a significant investment in an annual slate of original movies, TV shows, short-form content and other Disney-branded exclusives for the service. Additionally, the service will feature a vast collection of library content, including Disney and Pixar movies and Disney Channel, Disney Junior and Disney XD television programming.

With this strategic shift, Disney will end its distribution agreement with Netflix for subscription streaming of new releases, beginning with the 2019 calendar year theatrical slate.

Plans are for the Disney and ESPN streaming services to be available for purchase directly from Disney and ESPN, in app stores, and from authorised MVPDs.

“We’re very proud of the content distribution innovations driven by MLBAM and BAMTech over the past 15 years,” said Commissioner of Baseball Robert D. Manfred, Jr. “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.”

“This is an exciting validation of our team, its achievements and the customer-centric platform it’s built,” said Michael Paull, Chief Executive Officer of BAMTech. “Yet, 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.”

The BAMTech transaction is subject to regulatory approval, and upon closing, Iger will serve as Chairman of the BAMTech Board. MLBAM and NHL will continue as minority stakeholders in BAMTech, with seats on the Board.  Paull will report to Kevin A. Mayer, Senior Executive Vice President and Chief Strategy Officer, The Walt Disney Company. John Skipper, ESPN President and Co-Chairman, Disney Media Networks, will manage the new ESPN-branded service.

The BAMTech transaction is expected to be modestly dilutive to Disney’s earnings per share for two years. Additional dilution as the Company implements its direct-to-consumer strategy will be dependent on the Company’s licensing approach and the level of investment in original programming.

“Disney has been a relatively late player to the online video landscape,” notes Paolo Pescatore, Vice President, Multiplay and Media, CCS Insight. “Though its arrival was expected, this is still big news. Fundamentally, the company doesn’t want to cannibalise its existing core revenue streams.”

“However, not even a media giant like Disney can ignore the opportunity to distribute its wealth of franchises and content to new audiences via the Internet. Video is proving to be a battle ground for all providers as underlined by recent announcements from the likes of Amazon et al and it is apparent that the future of delivering video will be via the Internet. Furthermore, we believe that the move to internet delivery of TV programming will see a return to large bundles of content.”

“The move squashes any rumours of Disney acquiring Netflix. But it is a huge compliment to the success Netflix has achieved within a short period of time and a strong validation of its strategy. Removing Disney content will be a setback for Netflix, but expect other content and media owners to follow Disney in removing their programming on Netflix to differentiate their own offerings. If anything, this places more importance on Netflix’s own investment in original content and puts into context Netflix’s recent acquisition of comics publisher Millarworld.”

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