Episode 37: BAMTech, Disney and "the Biggest Media Company You've Never Heard Of‪”‬

In episode 37 of Acquired, hosts Ben Gilbert and David Rosenthal dissect Major League Baseball's 2015 spinout of Bamtech and Disney's 2016 minority investment in the company. They explore how Bamtech, initially an in-house tech team for MLB's website needs, evolved into a powerhouse in sports tech, pioneering live game streaming with MLB.tv and securing rights to stream major sports leagues and esports. The episode delves into the strategic implications of Disney's investment, positioning Bamtech as a potential ESPN of the Internet age and a direct-to-consumer platform that could reshape the future of television. The hosts also consider the broader context of technology acquisitions, IPOs, and the ongoing unbundling and rebundling of digital content.

• Major League Baseball's 2015 spinout of Bamtech and Disney's 2016 minority investment into Bamtech are significant events in sports tech history.
• Bamtech is a hidden tech giant within a sports league, with advanced streaming technology predating other major services.
• The significance of Bamtech extends beyond sports, impacting the future of television and technology.

"Not only is this one of the most interesting sports tech deals that's happened in the last decade plus, but this is actually, I think, really important to understand from just a pure technology standpoint."

The quote emphasizes the importance of understanding Bamtech's role in sports technology and its broader implications for the tech industry.

• MLBAM, also known as Bam, was created in 2000 to centralize the creation of websites for MLB teams.
• Initial outsourcing of website development to a consulting firm was unsuccessful, leading to a decision to build an in-house tech team.
• MLBAM's headquarters are located in the Chelsea Market in New York.

"Major League Baseball, the sports league, had the foresight to start a new division within the league... they called it Major League Baseball advanced media."

The quote outlines the creation of MLBAM and its purpose to unify the online presence of MLB teams.

• MLBAM's first initiative to stream audio of games for Ichiro Suzuki's Japanese fanbase was a financial failure.
• The partnership with Ticketmaster to sell game tickets online provided MLBAM with an upfront cash flow of $10 million.
• MLBAM's pivot to streaming video in 2002 was a response to the demand for visual content over audio.

"They stream, the first game that they stream is in late August. They stream a Texas Rangers and New York Yankees game online."

The quote marks the beginning of MLBAM's venture into streaming live video, a pioneering move in 2002.

• MLB.TV was launched in 2003, offering the streaming of every out-of-market game for a seasonal fee.
• This service was innovative, coming years before YouTube and Netflix's streaming services.
• MLBAM capitalized on the growing trend of video streaming and mobile device usage, often being featured in Apple's major product launches.

"By the start of the 2003 season, they launch, do a full launch of MLB tv. And for $80 for the whole season, you, you can stream every out of market game on the Internet."

The quote describes the successful launch of MLB.TV, which allowed fans to watch live baseball games online.

• MLBAM developed expertise in streaming live video, handling the complexities of real-time broadcasting.
• The focus was on providing a consistent viewing experience across multiple devices, ensuring seamless transitions.
• Despite occasional technical hiccups, MLBAM's streaming service grew in popularity and revenue.

"They really become one of the best, one of the best technology teams in the business in terms of bringing video to consumers devices wherever they are."

The quote acknowledges MLBAM's reputation as a leading technology team in the streaming video industry.

• MLBAM's revenue grew significantly over the years, with MLB.TV's price increasing and subscriber base expanding.
• By 2012, MLBAM was reported to make about $620 million in annual revenue.

"Bowman is quoted as saying that BAM makes about 620 million in annual revenue."

The quote highlights the financial success of MLBAM, demonstrating the lucrative nature of its streaming service.

• MLB was initially promised to be capitalized with $120 million.
• They took only $77 million from the teams after a Ticketmaster deal.
• Generated $8 million in revenue from 100,000 subscribers in the first season.
• They managed the league's finances effectively, benefiting the teams.

"I mean, they were promised to be capitalized with 120 million. It was an interesting stat that they only ended up taking 77 million from the teams after the Ticketmaster deal and then that $8 million in revenue from that 100,000 subscribers in that first season."

• This quote highlights the financial strategy of MLB and its effective capital management, which resulted in taking less than promised capital from the teams and generating significant revenue from subscribers.

• MLB built expertise in streaming video, especially live video.
• In 2010, they began a partnership with ESPN to power ESPN3, ESPN's Internet streaming site.
• This partnership marked the beginning of MLB's expansion into streaming sports beyond baseball.

"And so back in 2010, they make kind of the first move that starts setting them down another path, which is not just streaming baseball and Major League Baseball, but they do a deal with ESPN, and they become the technology provider that powers ESPN three, which is ESPN's new site that they launched then that covers all of their Internet streaming."

• This quote explains MLB's initial foray into becoming a technology provider for other sports streaming services, starting with ESPN3.

• In 2014, Bamtech announced a partnership with WWE, expanding its services beyond baseball.
• Bamtech's partnership with WWE marked the diversification of sports content on its platform.
• The cable industry began to worry about cord-cutting as live sports started to move online.

"This is a big deal because for the first time now, you have multiple sports, multiple sports leagues putting their content powered by the same back end onto the Internet."

• The quote captures the significance of Bamtech's expansion into powering multiple sports leagues' content online, signaling the beginning of a shift in how sports content is consumed.

• In 2015, the NHL contracted with Bamtech to power all of its streaming content.
• The NHL also took an equity stake in Bamtech, marking a shift in Bamtech's business model to include rights holding.
• Bamtech began to resemble a next-generation cable provider, causing concern among traditional rights acquirers.

"So the NHL announces that they're going to contract with Bam to power all of their streaming. But what's interesting here, and this is where really the cable industry really starts to get nervous, is it's not just powering the backend, but they actually do a rights deal."

• This quote highlights the NHL's unique deal with Bamtech, which not only involved streaming services but also an equity stake and rights holding, showcasing a major shift in the sports broadcasting landscape.

• MLB recognized the need to spin off Bamtech into a separate company to compete effectively.
• Bamtech became a tech company, requiring the ability to offer stock compensation to compete for talent.
• In August 2016, Disney acquired a one-third stake in Bamtech, valuing it at $3 billion.

"Major League Baseball announces that they're spinning advanced media out into its own separate company called Bamtech, and that they're going to start talking to investors to buy a stake in the company and finance it."

• The quote explains MLB's strategic decision to spin off Bamtech as a separate entity, allowing it to operate independently and attract investment, leading to Disney's significant stake purchase.

• Disney's investment in Bamtech included an option to acquire a majority stake in the future.
• Disney and Bamtech planned to create a direct-to-consumer ESPN subscription service.
• The partnership aimed to navigate the transition away from traditional cable bundles.

"Disney announces, this is August of 2016, that they're going to acquire a one third stake in the company for a billion dollars."

• This quote indicates Disney's strategic move to invest in Bamtech, signaling confidence in the future of streaming sports content and the potential to control a significant share of the market.

• In November 2016, Bamtech expanded to Europe, partnering with Discovery Communications to stream the Olympic Games.
• Bamtech secured a deal with Riot Games for streaming rights to official League of Legends competitions.
• The deal with Riot Games was valued at $50 million per year, a significant investment in esports.

"In November of 2016, BaM announces that they're expanding beyond the US and they're coming to Europe."

• This quote marks Bamtech's move into the global market, partnering with a major media company to deliver content for a significant international event like the Olympic Games.

• In February 2017, Michael Paull became the new CEO of Bamtech.
• Paull's previous experience included developing Prime Video at Amazon.
• The leadership change aimed to further strengthen Bamtech's position in the streaming industry.

"And they hire a man named Michael Paul to be the new CEO. And this is really interesting. Paul had been the vp of video at Amazon and was the person responsible for the development of Prime Video with Amazon."

• The quote discusses the strategic hiring of Michael Paull as CEO of Bamtech, leveraging his experience at Amazon to advance Bamtech's position in the competitive streaming market.

• Disney's acquisition of Bamtech and hiring of a former Amazon executive indicates a strategic move into streaming.
• The executive's experience with Amazon's Netflix competitor and previous roles at Sony, Fox, and Time Warner provides valuable industry insights.
• Disney's comprehensive catalog, including Pixar, Lucasfilm, and Marvel, combined with the new executive's expertise, positions Disney as a full-service video provider over the Internet.

"And now you have the guy coming from Amazon who built their Netflix competitor. You can start to see how Bam and Disney together could really be the full service, a very compelling full service video provider to consumers over the top on the Internet."

• The quote highlights Disney's potential to become a leading video provider on the Internet by leveraging their acquisition of Bamtech and the hiring of an experienced executive from Amazon.

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• Disney's investment in Bamtech is not just a technology investment but an expansion into owning and distributing content directly.
• Bamtech mirrors ESPN's business line for Disney, providing a hedge against the decline of the cable model.
• Disney's content has the potential to be distributed directly to consumers, bypassing traditional intermediaries like movie theaters, cable, and other distributors.

"Business line. And right now it's sort of mirroring the ESPN business line for Disney and their hedge against the decline of the cable model to be the ESPN of the Internet age."

• The quote discusses the strategic alignment between Disney's investment in Bamtech and its existing ESPN business line, emphasizing the shift towards direct-to-consumer content distribution.

• The Internet business model shortens value chains, allowing content producers like Disney to distribute directly to consumers.
• The traditional model involved multiple intermediaries, but the Internet enables content producers to bypass these and enhance their value proposition.
• Disney's approach could potentially make traditional cable companies like Comcast obsolete.

"Right. Because in these previous, previously, you just need so many more steps because distribution is hard, like offline distribution is hard."

• The quote explains the complexity of traditional distribution and how the Internet simplifies direct distribution, which is advantageous for content producers.

• Amazon's investment in video and acquisition of Twitch showed foresight in streaming and content distribution.
• There is speculation about whether Amazon considered bidding for Bamtech, given its strategic fit and Amazon's focus on video as a potential fourth pillar of their business.
• Disney's acquisition of Bamtech at a reasonable valuation raises questions about Amazon's M&A strategy and willingness to compete in this space.

"I'm very surprised that Amazon didn't try and make a harder run at buying Bam here."

• The quote expresses surprise that Amazon did not make a stronger attempt to acquire Bamtech, given its strategic investments in video and content distribution.

• Discussion about whether Major League Baseball (MLB) should have retained more control over Bamtech.
• MLB's unique ownership structure, being owned by team owners, may have influenced the decision to partner with Disney.
• The potential for Bamtech's growth raises questions about the future valuation and the strategic decisions made by MLB.

"Like I, if I major league baseball like or if I major league baseball shareholders... I would love to own that for the next 20 years."

• The quote reflects on the potential missed opportunity for MLB to retain a larger share of Bamtech's future growth.

• Disney's current content deals with Netflix and others will expire in the near future, raising questions about future distribution strategies.
• The possibility of Disney creating a direct-to-consumer offering through Bamtech for both live and pre-recorded content is considered.
• The strategy of bundling live and non-live content directly could redefine consumer experiences and disrupt traditional cable bundles.

"Will Disney renew those agreements with those other content aggregators and keep all of their non live content going out through those channels? Or are they going to try and build a direct to consumer offering through Bamtech where they're actually a portal and they're aggregating live or bundling live and non live together in a way that consumers want going direct to the content owner?"

• The quote questions Disney's future strategy in content distribution and the potential shift towards a direct-to-consumer model that bundles live and pre-recorded content.

• Consumers currently favor unbundling services to subscribe only to content they care about.
• There's a trend towards subscribing to specific services for specific interests, such as sports or movies.
• There is speculation about whether a rebundling of services might occur, which could be negative for consumers who currently enjoy the choice and specificity of unbundled services.

"Are we going to see a rebundling here that actually would be negative for consumers?"

• The quote reflects a concern about a potential shift back to bundled services, which could limit consumer choice and control over their media consumption.

• There are two primary strategies to make money in business: unbundling and rebundling.
• Companies must read consumer desires and strategically choose between unbundling and rebundling.
• Current consumer preference is towards unbundling, but there's an open question about the future if content becomes too scattered.
• A rebundling phase might follow consumer fatigue with managing multiple subscriptions.

"There are two ways to make money in business. You can unbundle or you can bundle."

• This quote summarizes the two fundamental business strategies for generating revenue, emphasizing the importance of aligning with consumer preferences.

• Content was once available directly from the networks, such as ABC and NBC, on their websites.
• Services like Hulu and Netflix helped rebundle content, making it more accessible in a single location.
• There might be a cycle of unbundling and rebundling based on consumer fatigue with the current state of scattered content.

"It took Hulu and then Netflix and like these, rebundling all this content back together in a way that you want to view it."

• The quote explains how services like Hulu and Netflix aggregated content from various networks, creating a more convenient viewing experience.

• The discussion addresses the issue of subscription fatigue from having too many individual subscriptions.
• A bundled package from a company like Disney that includes various content could be compelling to consumers.
• The cost-effectiveness of a bundled package is considered a potential advantage over individual subscriptions.

"Do you really want to pay Netflix and MLB and league pass and, and, and, or could a really compelling, you know, $20 a month, $30 a month, $40 a month package from Disney that includes all of that."

• This quote highlights the dilemma consumers face between managing multiple subscriptions versus the appeal of a single, comprehensive bundled package.

• Companies should focus on solving real problems for consumers, starting with small issues and expanding over time.
• The example given is BamTech, which evolved by solving a series of problems for sports teams and fans.
• This approach is contrasted with trying to invent the future without addressing immediate needs.

"Bam. Started by solving a real problem."

• The quote emphasizes the importance of addressing real-world problems as a foundation for building a successful company.

• Companies must be careful not to get entangled in vertical versus horizontal conflicts, especially if they provide services and also have their own core business.
• Major League Baseball did not restrict BamTech from serving MLB's competitors, which is highlighted as a positive aspect.
• The discussion includes the careful negotiation process involved in aligning owners' interests and the strategic positioning of such business decisions.

"You have to make sure you don't get into a vertical versus horizontal mess there."

• This quote warns about the complexities of operating a business that serves both as a service provider and competes in its own core business.

• Disney's acquisition of a minority investment in BamTech is debated in terms of its strategic value.
• The acquisition is seen as a low-cost opportunity relative to typical technology multiples and a significant move for Disney's future in long-form video customer relationships.
• Disney's historical strategy, the "Disney flywheel," is referenced as a model for leveraging direct customer relationships.

"This feels like a great purchase to me."

• The quote expresses confidence in Disney's strategic acquisition of BamTech and its potential to shape the future of Disney's digital content distribution.

• BamTech's history within a larger conglomerate is seen as an advantage for its integration with Disney.
• The potential for increased equity compensation and an innovative culture is discussed as a benefit for BamTech employees post-acquisition.
• The fit between BamTech and Disney is considered from a people perspective, emphasizing the importance of company culture in successful acquisitions.

"So I wonder if, from a people standpoint, the company is also well positioned to succeed here."

• This quote contemplates the potential for successful integration of BamTech into Disney, considering the organizational and cultural aspects of the acquisition.