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Why Disney Paid A Billion Dollars For A 33% Stake In This Unheard Of Tech Company

Why Disney Paid A Billion Dollars For A 33% Stake In This Unheard Of Tech Company

Watch out Netflix, Amazon, and Hulu. The mouse is coming for you.

Disney (NYSE: DIS) has been faced with a daunting problem. A multi-billion dollar problem, in fact.

Technology has disrupted the company’s traditional movie, television, and theme park businesses. But Disney’s biggest division, its $24 billion television operation anchored by ESPN and the Disney Channel, has experienced accelerating consumer cord cutting at a much faster rate than expected.

As live viewing for Disney’s children’s programming has been in free fall, streaming services like Netflix, Amazon, and Hulu have been experiencing astounding growth.

Faced with this, Disney decided to double down on streaming, and bet its future on a little-known tech company, BAMTech.

BAMTech has developed streaming platforms for several major names including the MLB, NHL, and WWE. In 2014, HBO turned to BAM after failing to build in-house its own streaming service. For $50 million, BAM completed the network’s HBO Now streaming service just in time for the Season 5 premiere of “Game of Thrones.”

“They were nothing short of herculean for us,” said HBO’s chief executive, Richard Plepler.

With Disney’s streaming future in mind, the entertainment giant paid $1 billion in 2016 for a 33% stake in BAMTech with an option to buy controlling interest in the company in 2020. But this past August, Disney announced it would acquire an additional 42% stake in the streaming infrastructure provider for $1.58 billion, valuing BAMTech at $3.75 billion.

With its 75% ownership in BAMTech, Disney now has the power to shift into the fast-growing streaming market. The company even admitted the move was “an acceleration of that timetable for controlling ownership” as consumer adoption of streaming services over traditional TV has accelerated at a breakneck speed.

BAMTech will be building two new subscription streaming services for Disney. One focused on sports programming with the ESPN app, which will arrive next spring. And the other will be centered on movies and TV shows from Disney, Pixar, Marvel, and Lucasfilm, with plans to debut the platform in late 2019.

The second poses a rather major threat to Netflix in particular as Disney will pull its namesake programming, and Pixar, Marvel, and Lucasfilm properties from the streaming giant, taking consumers along with it.

“We’re going to launch big, and we’re going to launch hot,” said Bob Iger, Disney’s Chief Executive and Chairman, at an investor conference. And BAMTech will play a huge roll.

The expense for Disney’s shift to direct-to-consumer streaming services is unknown, but the company has signaled it will be massive. Analysts expect that marketing for the new platforms alone could top $150 million annually.

Disney has not yet said how much it will charge for subscriptions to its new services, but odds are that they’ll be in the range of $5 to $9 a month.

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