DIS Walt Disney Co

It will pay $1 billion to acquire 33% stake in BAMTech, created by Major League Baseball

By Ben Fritz and Shalini Ramachandran 

One year after its shares began a 12% slide driven by concerns over ESPN's growth trajectory, Walt Disney Co. has come up with an answer for Wall Street: The media giant said Tuesday it will spend $1 billion to acquire a 33% stake in BAMTech, the streaming media unit created by Major League Baseball.

As part of the deal, ESPN will later this year launch a new digital service, separate from the traditional cable bundle, that will include games the sports network doesn't air on its linear channels, Disney Chief Executive Robert Iger said on a conference call with analysts to discuss the company's financial results. The new service will show professional baseball and hockey as well as college football and basketball.

It will include a mix of rights already controlled by ESPN and BAMTech, meaning they will likely be games not popular enough to air on TV. Costs for consumers have not yet been set, but Mr. Iger said they could vary depending on how much people want to watch.

"We view this as a complementary service to what ESPN is providing in the multichannel package," Mr. Iger said, referring to traditional cable and satellite television programming bundles.

ESPN has lost 3.7 million cable subscribers in the past year, according to Nielsen data, and now reaches about 88.8 million households. That figure excludes streaming services like Dish Network Corp.'s Sling TV and Sony Corp.'s PlayStation Vue.

Concern about cord-cutting and young people who never subscribe to cable in the first place has driven investor anxiety about cable television in general, but particularly ESPN, which has long been a cash cow for Disney. It is the most expensive U.S. cable channel, according to SNL Kagan, charging cable and satellite companies an average of $7.21 per monthly subscriber.

The BAMTech deal could also enable digital offerings from other Disney networks such as ABC, the company said.

Nonetheless, Mr. Iger said that maintaining the value of the multichannel bundle remains a "top priority" for Disney, implying that the programming currently airing on TV likely won't be available without a subscription to multiple networks anytime soon.

As part of the deal, Major League Baseball said it would spin off BAMTech from its broader digital business known as MLB Advanced Media. BAMTech powers direct-to-consumer streaming services and apps for a number of companies including HBO and serves nearly 7.5 million total paid subscribers to all its clients' streaming products.

The deal announced Tuesday gives Disney the right to eventually acquire a majority stake in BAMTech. Mr. Iger said he wanted to "walk before we run" when it came to integrating the technology firm.

The purchase of the minority stake will result in a "very slight dilution" in earnings for Disney, the CEO said.

Disney also said it's struck a deal for seven of its networks, including ESPN, ABC, Freeform and Disney Channel, to be carried on all the plans offered by AT&T Inc.'s forthcoming DirecTV Now streaming service. Getting his company's channels into new "skinny bundles" offered over the internet has been a priority for Mr. Iger, who noted Tuesday that he is "neutral" on how consumers access Disney networks, as the media giant receives similar subscriber fees regardless. Total revenue for Disney grew 9% in the quarter ended July 2 to $14.3 billion, while net income rose 5% to $2.6 billion.

Revenue at Disney's film studio grew 40% to $2.85 billion and operating income surged 62% to $766 million on the strength of "Star Wars: The Force Awakens" and "Zootopia" DVD and digital sales, as well as the box-office performance of blockbusters "The Jungle Book," "Captain America: Civil War" and "Finding Dory."

Disney shares rose 1% to $96.67 before financial results were released and were down 1% in after-hours trading, as earnings came in slightly below analysts' expectations.

Write to Ben Fritz at ben.fritz@wsj.com and Shalini Ramachandran at shalini.ramachandran@wsj.com

(END) Dow Jones Newswires

August 10, 2016 02:48 ET (06:48 GMT)

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