Disney’s big bet on its streaming future
Media giant turns to Bamtech, little-known company who has produced big results
For two days in late June, Disney’s board of directors gathered at Walt Disney World in Florida to wrestle with one topic: how technology was disrupting the company’s traditional movie, television and theme park businesses, and what to do about it?
The most startling presentation came from Disney’s biggest division — a $24 billion television operation anchored by ESPN and Disney Channel. Cord cutting was accelerating much faster than expected. Live viewing for some children’s programming was in free fall. At the same time, streaming services like Netflix were experiencing explosive growth.
With Disney’s board exhorting speedy action, Robert Iger, Disney’s chief executive and chairman, proposed a legacy-defining move. It was time for Disney to double down on streaming.
And that was how the Disney board came to bet the entertainment giant’s future on a wonky, little-known technology company housed in a former cookie factory: BamTech.
In August, Disney announced that it would introduce two subscription streaming services, both built by BamTech. One, focused on sports programming and made available through the ESPN app, would arrive in the spring. The other, centered on movies and television shows from Disney, Pixar, Marvel and Lucasfilm, would debut in late 2019.
Disney had experimented with building a streaming platform on its own, to mixed results. It also toyed with the idea of buying Twitter.
But Iger was impressed with BamTech. Based in Manhattan’s Chelsea Market, a former factory for the National Biscuit Co., the 850-employee company has a strong track record — no serious glitches, even when delivering tens of millions of live streams at a time. BamTech also has impressive advertising technology (inserting ads in video based on viewer location) and a strong reputation for attracting and keeping viewers, not to mention billing them.
BamTech grew out of Major League Baseball Advanced Media, or BAM for short, which was founded in 2000 as a way to help teams create websites. By 2002, BAM was experimenting with streaming video as a way for outof-town fans to watch games.
Soon, BAM developed technology that attracted outside clients, including the WWE, Fox Sports, PlayStation Vue and Hulu. HBO went to BAM in 2014 after failing to create a reliable stand-alone streaming service on its own. Could BAM get HBO up and running — in just a few months?
BAM built HBO Now for roughly $50 million, delivering it just in time for the Season 5 premiere of Game of Thrones, which went off flawlessly.
In 2015, BAM decided to spin off its streaming division, calling it BamTech. With an eye toward its own direct-to-consumer future, particularly with ESPN, Disney paid $1 billion in 2016 for a 33 percent stake and an option to buy a controlling interest in 2020. To run the stand-alone company, MLB and Disney recruited Michael Paull, 46, from Amazon, where he oversaw Prime Video and the introduction of Amazon Channels.
Disney started talking about the inevitable shift toward streaming in 2006, according to Kevin Mayer, Disney’s chief strategy officer. But the world’s largest entertainment company had to be careful: It could not embrace a new business model at the expense of its still highly profitable existing one — at least not until it saw a tipping point.
When Iger decided in June that the time had come to reposition Disney’s television division for growth by offering its sports, movies and television programming directly to consumers, he asked BamTech to accelerate Disney’s option to take a controlling interest. By early August, Disney had agreed to spend an additional $1.58 billion to bring its BamTech stake to 75 percent.
To stock its own offerings, Disney plans to pull content from other services — Disney, Pixar, Marvel and Lucasfilm movies will eventually disappear from Netflix — eliminating an enormous, reliable revenue stream.
Michael Nathanson, a media analyst, estimates that Netflix pays Disney $325 million annually to license those films. Also moving to one of the services will be reruns of Disney Channel shows, which generate roughly $500 million annually in third-party licensing fees, according to Doug Mitchelson, an analyst at UBS.
There has also been some sniping about how much Disney paid for BamTech. Speaking at a Goldman Sachs conference last month, Leslie Moonves, chief executive of CBS, boasted that his company’s All Access and Showtime streaming services had been built internally.
“We didn’t go buy BamTech for a zillion dollars,” he said.
Disney contends that a big part of BamTech’s value has been overlooked. Down the road, as other media companies move toward streaming, BamTech intends to sign them up as clients.
“That’s going to be a massive business, and BamTech is going to be a massive winner in it,” Mayer, Disney’s chief strategist, said in an interview.