Disney Bets on Streaming, Joining With Major League Baseball


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The opening ceremony at Shanghai Disney Resort in China in June.

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Aly Song/Reuters

LOS ANGELES — The Walt Disney Company, facing stiff challenges in the traditional television business, is making a $1 billion bet on video streaming.

After months of speculation, Disney said on Tuesday that it had concluded a deal to spend that amount for a 33 percent stake in BamTech, Major League Baseball’s fast-growing streaming division. As part of the agreement, Disney has the option to buy a controlling interest in BamTech in the coming years.

BamTech, which handles streaming for baseball teams and Time Warner’s HBO, among others, will work with Disney to introduce an ESPN-branded subscription streaming service, Disney said. Robert A. Iger, Disney’s chief executive, told analysts that the unnamed service would be introduced “probably by the end of the year” and include offerings like baseball, hockey, tennis, cricket and college sports — mostly rights that are already owned by ESPN but not televised.

Current content on ESPN’s roster of cable networks will not appear. Perhaps with an eye toward Disney’s cable-provider partners, Mr. Iger was careful to say that the service would be “complementary” to ESPN’s traditional networks. Keeping those channels healthy is “our top priority,” he added.

Mr. Iger declined to say how much subscriptions to the new ESPN service would cost, except to say that Disney planned to use a “dynamic” model, with viewers able to pay based on how much they watch.

Disney, like other media conglomerates, has long relied on steadily climbing cable subscriber fees as an engine. But cable networks have been losing viewers to online media, which has slowed growth, and Wall Street has responded unfavorably.

Disney said separately on Tuesday that operating profit for its vast cable division, which includes ESPN, Disney Channels Worldwide and A&E Networks, totaled $2.37 billion in the most recent quarter, essentially flat from a year earlier. Disney shares fell slightly in after-hours trading.

In addition, Disney most likely sees the BamTech acquisition — its largest since the 2012 purchase of Lucasfilm for $4.4 billion — as furthering its interest in building a Netflix-style streaming service. The company has repeatedly said it was not ready to introduce a broad direct-to-consumer service in the United States. But Disney has been testing the waters in Europe with DisneyLife, which streams Disney-branded movies and shows for a monthly fee.

Mr. Iger described DisneyLife as an “experiment” in the company’s previous earnings conference call. The service, introduced late last year, also offers e-books, music and games. In particular, Mr. Iger said, Disney hoped to use DisneyLife to learn “whether the technology platform that we created for it would work.”

Disney has more sources of growth than most of its media competitors. In mid-June, the company opened the $5.5 billion Shanghai Disney Resort, which is designed to stoke demand for Disney products in China. Disney is also pouring hundreds of millions of dollars into new park attractions in Florida and California.

Mr. Iger has also aggressively defended the health of ESPN, insisting that the sports television behemoth is indispensable to consumers, and will remain so.

But many investors and analysts have remained focused on upheaval in the television business. Viewership via satellite and cable services is declining as streaming options proliferate, and ESPN, the naysayers contend, is particularly exposed to a slowdown because Disney has locked itself into long-term payments for sports rights. Its ability to keep profit intact by cutting programming costs in the near term is limited.

BamTech has been part of MLB Advanced Media, which was founded by Major League Baseball in 2000 to build websites for teams. Since then, MLB Advanced Media, based in a former Manhattan cookie factory, has grown into a company with more than $900 million in annual revenue that powers numerous streaming services. CBS Sports has relied on it for its N.C.A.A. men’s basketball tournament infrastructure, and the National Hockey League recently signed a six-year deal with the company.

MLB Advanced Media has been working to spin off BamTech for more than a year. The goal is even-faster video growth.

“We are looking for a partner to help us double or triple this business,” Bob Bowman, MLB Advanced Media’s chief executive, said in an interview last year with the Verge, a technology site owned by Vox Media. “Things have been going fine, but to not move on this now, we lose the opportunity to get really, really big.”

Disney also reported its fiscal third-quarter earnings on Tuesday. Profit totaled $2.6 billion, or $1.59 a share, compared with $2.5 billion, or $1.45 a share, a year earlier. Disney had revenue of $14.3 billion in the quarter, a 9 percent increase.

The biggest contributor to growth was Walt Disney Studios, where operating income soared 62 percent, to $766 million, primarily because of the blockbuster releases of “Captain America: Civil War,” “The Jungle Book” and “Finding Dory.” Disney’s theme park business also had a strong quarter. Ticket price increases contributed to $994 million in operating income, an 8 percent increase.

Mr. Iger told analysts that, so far, Walt Disney World in Florida had seen no impact in bookings because of a concern over an outbreak of the Zika virus in Miami. Attendance fell 4 percent at Disney’s domestic parks, a decline Disney partly attributed to the timing of Easter vacations this year compared with 2015.

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