Even Disney can’t ride out the digital transformation of broadcasting

SUMMARY:

It’s the biggest entertainment company in the world, but Disney is as subject to the disruptive forces in the broadcasting industry as anyone else, hence its investment in proprietary streaming tech.

Disney_World_01Here at Diginomica, we’ve paid attention to the digital transformation of broadcast and network television, both through the rise of on demand technologies, such as the BBC’s iPlayer, or the disruptive revolution sparked by the rise of Netflix.

The battle for who ends up dominating in this new age of broadcast is far from over, but it’s one that involves a vast array of challengers and incumbents, up to and including  the world’s largest entertainment company, Disney.

Acknowledging its need to rethink how it offers programming, Disney recently announced it would pay $1 billion for a one third stake in technology and streaming business BAMTech and launch a new web-based ESPN service later this year.

The stake in BAMTech gives Disney a proprietary streaming platform already used by other entertainment companies, including HBO Now and the National Hockey League, and an option to acquire a majority stake in the business at a later date. It will pay $1 billion in two installments, now and in January.

The company also said networks including ESPN and the Disney Channel will be part of a new online video service planned by AT&T Inc.’s DirecTV division. BAMTech will also become a partner for Disney in the delivery of future digital products, including the new ESPN service, while future content offerings seem likely to exploit the Marvel, Pixar and Star Wars franchises.

All told, it’s a big roll of the dice by Disney, admits CEO Robert Iger, but a necessary one:

As we look at our businesses and the marketplace, two things are clear. The multi-channel bundle delivers the most value to us and remains a great value proposition to consumers. Therefore, our top priority is to support it and to do what we can to maintain or enhance its value to customers.

We also know that new platforms and new entrance in the digital video space are offering consumers more flexibility in variety with exciting new products and impressive user experiences. We must create or take advantage of these new opportunities in ways that are complementary to the multichannel offering.

Hence the initial 33% stake in BAMtech, he adds:

Like many others, we’re very impressed with the BAM Tech platform and investing and joining forces with the BAM Tech team will enable us to make a major leap into the direct-to-consumer video space and will also provide countless new opportunities to expand into this space as the marketplace evolves.

Our goal is to ensure that our brands, notably ESPN, remain strong, vital and relevant in a totally changed media landscape. BAM Tech is a critical component of this strategy.

Iger said that Disney is particularly impressed by BAMtech’s business model:

I love the quality of what they’ve created, largely from a technology perspective/ You’re looking at an industry-leading platform. We did a fair amount of due diligence on this, speaking with people who have been clients of their service. And also, we did our own due diligence, in the sense that we’ve been clients of competing services. And we concluded that what they’ve got is really robust.

As we consider that and we look at the marketplace and we look at general growth in Internet-delivered video, particularly live, we think this is a really smart investment for the company. And we really think it’s smart strategically because we obviously need this capability to take product like ESPN, Disney and other Disney IP onto similar platforms.

There’s a loose timeline in place regarding what happens next, according to Iger:

The goal is to launch the ESPN-branded service probably by the end of the year, but we’re not saying specifically what date it will launch. It will include content that BAM Tech has already licensed for Major League Baseball and the National Hockey League, and we will add content that ESPN has licensed like college sports, football and basketball, tennis, rugby, cricket etc.

The goal is not to take product off ESPN’s current channels, but to use sports and product that ESPN has already licensed that’s not appearing on the channels. So we view this as a complementary service to what ESPN is already providing as part of their multi-channel package, obviously in an over-the-top, direct-to-consumer fashion.

Not that Disney is putting all of its eggs in one basket. Two streaming platforms are launching later this year from DTV and Hulu and Disney will have a presence on both. Iger confirms that Disney sees its brand as being something that those will benefit from:

The inclusion of Disney product, particularly ESPN, on these OTT services is quite meaningful. Sony certainly had that experience when it launched Sony Vue without ESPN. Then it included it later after the launch and it saw its subs go up substantially.

So clearly, we believe that by putting our product on these platforms, the platforms stand a chance of growing faster than they would have without it. Whether it will result, I guess, in a huge shift, I don’t know. I think the consumer is largely going to dictate that, but I think it’s important to point out that by us being on these platforms at prices that make sense to us, we’re really quite neutral in terms of shifting from a traditional MVPD consumer to an over-the-top consumer.

These platforms provide – will provide great user interface and functionality. And the better the user interface, the better it is for us because we think the customer’s going to be more engaged and is likely to consume at higher levels, which could only be good for us. So I’d say look, it’s meaningful probably that we’re going to be on these platforms. What it means in terms of the distribution of them, we can’t say yet, meaning its impact on a shift from traditional to more modern forms of distribution.

My take

Disney’s reasoning here is pragmatic and clear – using BAMTech’s platform, it can take its global IP directly to consumers as traditional subscriber-based cable businesses feel the pressure from the rise of video streaming services. With the kind of brands that Disney brings with it, the likes of Netflix have one more pressure to deal with. The digital transformation of broadcasting is well-underway. 

Image credit - Disney World