Shares of The Walt Disney Company (DIS - Free Report) gained nearly 1.5% in morning trading Wednesday after the company reported better-than-expected earnings and revenue after the closing bell yesterday. Disney’s latest report included some encouraging signs, but it was another announcement that the company made which could really have a long-term impact.
Alongside its third-quarter report, Disney announced that it purchased a minority stake in BAMTech, a video streaming company originally created by Major League Baseball. The media giant will spend $1 billion for 33% of BAMTech, with the option to purchase a majority stake at a later date.
Disney says that it will use BAMTech to create an ESPN-branded, over-the-top video streaming service that will cover a variety of sports. Investors that follow Disney, ESPN, or the sports media business in general will immediately recognize how important this plan is. For those that don’t, let’s take at how the new Disney-BAMTech relationship could change television forever.
The cord-cutting phenomenon has put a serious strain on Disney, which relies on it cable networks, especially ESPN, for a majority of its revenue. As people switch to streaming services like Netflix (NFLX - Free Report) , Hulu, and Amazon’s (AMZN - Free Report) Instant Video, they leave traditional TV channels like ESPN behind.
With its new stake in BAMTech, Disney will now be able to offer an ESPN product to cord-cutters. This isn’t just a Band-Aid on a major problem; this is the big solution that Disney investors have been calling for over the past year or so.
Changing the Industry
More importantly, Disney’s new ESPN subscription service promises to change the sports media industry permanently. For the longest time, the only drawback to cord-cutting was the lack of sports coverage on video streaming platforms. This new service is a massive step in a new direction.
Of course, Disney isn’t the first to realize the potential of online sports streaming. We’ve even seen non-traditional platforms like Twitter (TWTR - Free Report) partner with sports leagues to offer free online streaming of certain games.
Disney’s new ESPN service will not include content from its existing TV channels, but it will include BAMTech-licensed content from Major League Baseball and the National Hockey league, as well as other programs that ESPN has the rights to, such as collegiate athletics.
While the streaming service is not simply a direct-to-consumer version of ESPN, it does promise to be the most content-rich sports streaming option out there. This will attract cord-cutters that have had to say goodbye to high-quality live sports productions.
The New Normal
Disney’s deal with BAMTech comes in the wake of several other moves in the media industry that all highlight the same idea. As a response to the cord-cutting phenomena, traditional giants in the business are being forced to shift their focus to video streaming and fresh original content.
Just last week, Time Warner announced that it purchased a 10% stake in Hulu, a streaming service with investments from 21st Century Fox (FOXA - Free Report) , Comcast (CMCSA - Free Report) , and Disney.
(Also Read: Here’s How the Cable Industry is Adapting to Cord Cutting)
Even Verizon’s (VZ - Free Report) purchase of Yahoo shows that major players in the broader communications business are looking for new sources of revenue.
To the naked eye, Disney’s latest move creates at least two winners. Disney investors win because the company has seemingly patched a major hole in its business that has caused serious concerns recently, and cord-cutters win because there is now a major sports streaming service.
Since the onset of ESPN and 24/7 sports networks, fans have consumed their beloved sports coverage in a certain way. With this new service, Disney changes that in a big way.
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