Walt Disney Co. took a bold step to secure the digital future of ESPN, acquiring a stake in BAMTech, a video streaming company created by Major League Baseball.
Confronted with investor unease over a slowdown in growth at the lucrative sports TV network, Disney announced Tuesday that it would pay $1 billion for a 33% stake in BAMTech.
The company will be tapped to create and distribute a new ESPN-branded, multi-sport subscription streaming service that will be sold directly to consumers.
Disney has the option to acquire majority ownership in BAMTech, which had been a part of New York-based MLB Advanced Media, the league's digital arm.
The pact gives Disney, based in Burbank, a major position in the sports streaming business at a time when consumers are migrating to online viewing options and in some cases leaving their televisions behind.
On a conference call with analysts, Disney Chief Executive Bob Iger said the company aims to launch the service "probably by the end of the year."
The offering will include live regional, national and international sporting events, but it will not include content from ESPN's TV channels. Instead, the service will include content that BAMTech has already licensed from Major League Baseball and the National Hockey League, and other programming that ESPN has the rights to, such as college sports, Iger said.
"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," Iger said. "And so we view this as a complementary service to what ESPN is already providing."
Pricing details were not disclosed.
The deal could pave the way for an eventual offering of the complete slate of ESPN content via a streaming service, analysts said.
"In the early days of this product, this is something they are going to learn a lot from," said Jason Moser, an analyst for the Motley Fool. "It is more about learning how to do it well and discovering what people want."
Disney has been under pressure to address a slowdown in subscriber growth at ESPN, the cash cow of its media networks unit. ESPN needs to grow its revenue base to keep up with the escalation of sports rights costs at a time when its traditional source of revenue — cable affiliate fees — is under threat by so-called cord cutters and the move to smaller cable bundles.
This year, Nielsen Co. said ESPN lost 1.2 million subscribers in 2015.
BAMTech developed Major League Baseball's popular streaming service and handles similar services for HBO and the National Hockey League, among others. As part of the deal, BAMTech was separated from MLB Advanced Media.
The BAMTech acquisition was announced as Disney reported a 5% increase in fiscal third-quarter earnings, buoyed by the release of three blockbuster films, including "Captain America: Civil War."
Disney delivered a profit of $2.6 billion for the three months ended July 2. Its earnings per share of $1.62 narrowly beat analysts' expectations of $1.61, according to investment research firm Zacks. Revenue rose 9% from the same quarter a year ago to $14.3 billion, exceeding the $14.2 billion that analysts had predicted.
For Disney, the results marked a return to normality after the company failed to meet expectations last quarter for the first time since it reported earnings in May 2011.
Shares of Disney rose about 1% to $96.67 on Tuesday.
Disney's film studio led the strong quarter with operating income of $766 million, up 62%.
During the quarter, Disney released "Captain America: Civil War," which has grossed $1.15 billion worldwide; "The Jungle Book," which has taken in $941 million worldwide; and "Finding Dory," which has tallied receipts of $875 million. Also, "Zootopia," which was released in the previous quarter but did significant business during the most recent one, has grossed $1.02 billion.
Those hits easily made up for a box-office disappointment, "Alice Through the Looking Glass," which grossed $290 million worldwide, but cost an estimated $170 million to make and many millions of dollars more to market.
"Even with the one dud, they still had a tremendous studio quarter," analyst Robin Diedrich of Edward Jones Research said.
Disney's media networks unit posted operating income of $2.372 billion, essentially flat compared with the same quarter a year ago, when operating income was $2.378 billion.
The broadcast division, which houses ABC, posted operating income of $282 million, down 6%.
And the cable division, which includes ESPN, recorded operating income of $2.09 billion, up 1%, reflecting advertising revenue growth at the sports network.
The company debuted a landmark theme park project during the quarter: the $5.5-billion Shanghai Disney Resort, which opened its gates June 16.
The company's parks and resorts division delivered operating income of $994 million, up 8% from the same quarter a year ago.
Disney said its international theme park operations produced lower operating income because of higher pre-opening costs for the Shanghai development. Walt Disney Imagineering recently laid off some of the designers and builders who conceive the company's attractions.
Disney's consumer products and interactive division posted operating income of $324 million, down 7%. The company attributed the decline partly to a decrease in merchandise licensing.
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5:30 p.m. This article was updated with more details.
3:25 p.m. This article was updated with additional details.