Walt Disney Co. just bought a $1 billion present for its favorite child.
The $157 billion entertainment conglomerate confirmed Tuesday (after months of news reports) that it's purchasing a third of BAMTech, the video-streaming company that was carved out of Major League Baseball's digital side. It also has the option to buy a majority stake "in the coming years."
The primary reason for investing in BAMTech is so that it can stream ESPN, the sports network that generates the majority of Disney's affiliate fees but is losing traditional TV subscribers and doesn't yet have its own streaming service. While Disney has also inked a deal to be on AT&T's DirecTV over-the-top service, Bob Iger, speaking on CNBC, stressed the importance of owning versus "renting" a spot on these types of services as younger generations switch from cable and satellite TV. Hence, buying a piece of BAMTech. It also owns a stake in Hulu alongside 21st Century Fox, Comcast's NBCUniversal, and now Time Warner.
It's a smart move for Disney to get ahead of negative sentiment surrounding ESPN's subscriber numbers. As it was, last summer's evidence of a slowdown at the sports network roiled media stocks. The special attention ESPN requires, coupled with its unique value proposition, made me even wonder if it would make sense to split ESPN from the rest of Disney (and also if that'd make it easier to find Iger's successor).
This deal is a step in the right direction for ESPN and should appease Disney shareholders who were becoming concerned that it was beginning to lose momentum.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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