Walt Disney agreed to acquire a one-third stake in the video-streaming unit of MLB Advanced Media, in a deal that values the business at about $3.5 billion, according to a person familiar with the matter.
Disney, the owner of ESPN and ABC, will also obtain a four-year option to buy an additional 33% stake in the digital arm of Major League Baseball, said the person, who asked not to be identified because the information isn't public. WME-IMG, the parent of William Morris Endeavor and the owner of media properties including the Miami Open tennis tournament, was among the bidders for a stake in the business, the person said. A final accord hasn't been executed.
The deal underscores the importance of the video-streaming business to the future of ESPN, which has been losing viewers and advertising dollars to online media. ESPN has toyed with the idea of selling web-only packages outside of the traditional cable-TV package, and Disney Chief Executive Officer Robert Iger is making deals to offer ESPN on internet services such as Sling TV.
"You see the biggest sports media company moving to greater digital delivery," said Chris Russo, a former National Football League executive who now heads sports investment banking at Houlihan Lokey in New York. "It really shows they're trying to get ahead of the digital phenomenon rather than being left behind it."
The unit of MLB, which is jointly owned by the 30 baseball teams, is poised to grow as online viewership increases and more sports leagues and content owners like ESPN look to offer their programming directly to fans in an online format. It already handles video streaming for WatchESPN, where cable-TV subscribers can see live broadcasts and other content online. It also runs World Wrestling Entertainment's WWE Network, a $9.99-a-month online service.
"MLBAM has some great assets that could help ESPN build a robust over-the-top offering," said Bernard Gershon, a media consultant based in New York.
Disney could use the technology to offer more of ESPN's content online, particularly for niche sports like track and boxing, which typically don't draw a big viewing audience on the cable-TV network.
For the team owners, the deal generates cash and puts a value on what has become a lucrative sideline to the business of running baseball franchises.
MLB spokesman Matt Gould and ESPN spokesman Mike Soltys declined to comment.
-- Bloomberg News