Disney, ESPN, BAMTech: Weathervanes for sports media
Disney, the owner of ESPN, recently increased its stake in BAMTech to 75%. This article demonstrates why it might be wise for sports media companies to benchmark Disney and invest more in their digital streaming experiences beyond typical content consumption.
"The world of TV has been disrupted," Bob Iger said during a recent Bloomberg interview, "and we feel we need to adjust accordingly. And that's what we're doing by launching a streaming service. And that's why we invested in BAMTech. And that's why we're making available all these extra sports on a streaming direct-to-consumer basis."
Disney and BAMTech, a match made in media-heaven’s fragmenting landscape
Disney has recently positioned itself to capitalize on direct-to-consumer (DTC) media. On August 8th, Disney paid an additional $1.58 billion for a majority stake in BAMTech, which creates infrastructure for delivering digital video directly to consumers on various platforms, like iOS, Android, Web, and Connected Devices. A subsidiary of MLB Advanced Media, BAMTech already partners with MLB, HBO, NHL, PGA Tour, and WWE to design and develop their streaming services. With plans to offer a branded streaming service in the future, Disney will terminate its contract with Netflix in 2018, and create its own DTC platform on top of BAMTech’s infrastructure.
The most obvious effects, however, will be seen in sports.
Disney will offer an enhanced version of ESPN’s current app with 10,000 live events not already offered on its pay-TV package. To avoid cannibalizing its TV subscriptions, Disney will only stream content that isn’t already available on TV. That means the most popular sports, NFL and NBA, will only be viewable with a TV subscription.
Disney’s further acquisition of BAMTech is a prognosis for sports media
ESPN has lately expressed symptoms of strain. They have been slowly but steadily losing TV subs and laid off 100 personnel just prior to the NFL draft. With the injection of BAMTech’s technology, ESPN will maintain its pay-TV subscriptions, while demonstrating its readiness to pivot to digital content.
This is an important prognosis for sports media.
According to a recent FreeWheel report, the median age of OTT viewers is 23 years younger than linear TV. This could be Disney and ESPN’s answer to the recent discussion around engaging Millennials. By maintaining TV, mobile, and OTT streaming, ESPN will engage both older audiences, who favor Linear TV, and millennial audiences, who prefer digital platforms. In other words, Disney and ESPN are working to expand access to both older and younger audiences by maintaining OTT and pay-TV subscriptions at once. At the same time, as media distribution fragments and digital distribution grows, Disney will be able to meet audiences with the media channels they actually use. But it isn’t a pivot yet.
If Disney and ESPN are any signals, it is probably safe to assume most sports media companies are already quietly moving to take their digital experiences to the next level, providing more engaging features for fans and heavily investing in future marketing channels.
“An entirely new growth strategy”
Disney’s Q3 2017 report indicates the immensity of this strategy for direct-to-consumer content.
“Today we announced a strategic shift in the way we distribute our content. 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.”
So why did Disney accelerate its acquisition of BAMTech? According to Nielsen, US adults spend an average of about 4 hours each day watching TV. And TV consumption among adults decreased only 7 minutes, from 4:13 (Q3 2014) to 4:06 (Q3 2016). But Disney made this move because mobile viewing proves the potential for growth: it more than doubled from 0:58 to 2:10.
Disney's quarterly report indicates that while ESPN is losing subscriptions, it is gaining more revenue from affiliate fees, likely as networks compete for sports content. Remember that sports account for 40% of TV-subscription prices, and they’ll only continue to increase if ESPN tries to offset declining subscriptions with higher affiliate fees. This could push viewers even closer to cutting the cord.
ESPN is also losing advertising revenue. This is directly related to losing subscriptions because the size and segment of the audience determine the cost of ads.
This is a tipping-point for sports TV and media. And, like Disney, we need to read the portents of the future as they are: the opportunity for growth lies in direct-to-consumer digital streaming.
But this isn’t exactly cutting-edge technology. As more audiences move to streaming, they will be looking for more engaging experiences beyond the typical DTC streaming content. But it’s good news, too. Improving digital streaming experiences could also lead to better marketing or advertising opportunities.
Yet, since Disney will divide its sports content across its ESPN platforms, giving pay-TV the NFL and NBA and DTC the rest, it will be interesting to see how each option performs. Will audiences sign up for a digital subscription without paying for TV, if it means that they give up the chance to watch the most popular sports (NFL and NBA)? And perhaps less likely, will the digital platform be priced competitively enough to drive pay-TV subscribers to cut the cord?
As sports media content transitions from a market dominated by the extreme desire for exclusive broadcasting rights to a more fragmented media landscape, Disney is predicting the future when it hedges its distribution among live TV, mobile apps, OTT platforms, and the web. And it will look to engage its audiences in novel and exciting ways.
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