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MarketWatch First Take

What the ESPN streaming service will offer

Disney will still require cable subscription to view content on ESPN channels, offer access to MLB, NHL and MLS streaming services

College sports could be a big part of ESPN’s new direct-to-consumer streaming service.

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The Walt Disney Co. will launch an independent ESPN streaming service in 2018, but viewers will still need a subscription to a cable bundle to access content airing on ESPN channels.

In effect, Disney US:DIS will build out the current WatchESPN streaming app to include access to other subscription streaming packages, and sell access to some content not airing on its ESPN networks on a subscription basis. Disney Chief Executive Robert Iger suggested Tuesday afternoon that viewers will be able to pay to stream specific games and potentially new packages that ESPN builds.

“Consumers who are pay-TV subscribers will also be able to access the ESPN television networks in the same app on an authenticated basis,” Iger said in a conference call. “Ultimately we envision this will become a dynamic sports marketplace that will grow and be increasingly customizable, allowing sports fans to pick and choose content that reflects their personal interests.”

Currently, cable subscribers receive access to WatchESPN, which includes streams of content ESPN is showing on its channels, as well as other content to which ESPN owns the rights but is not actively airing, collectively referred to as “ESPN3.” The extra events include college sports of all stripes, professional tennis, esports and other offerings, which will likely be bundled in some manner into the over-the-top ESPN streaming offering to which both cable subscribers and cord-cutters can subscribe, and could be offered on a full a-la-carte basis.

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“So you’ll watch a highlight, and if you want to buy maybe part of a game that’s going on live, if you want to buy that game, you’ll be able to buy it directly through the app or subscribe to the service directly through the app,” Iger explained. “It’s basically a one-stop shopping for the consumer and it’s one-stop shopping for us in terms of our ability to manage the consumer that wants to consume sports through ESPN.”

Disney has been developing and speaking about an independent ESPN streaming service for a year, since spending $1 billion on a stake in BAMTech, a startup spun out of Major League Baseball’s tech division that was an early leader in streaming sports content directly to consumers. The company announced Tuesday that it will spend another $1.58 billion to increase its stake in BAMTech from 33% to 75%, making it the controlling owner.

Partners in BAMTech include MLB as well as the National Hockey League, and both of those sports leagues, as well as Major League Soccer, will offer their streaming services on the new ESPN platform. In this way, it will in some ways resemble its own sports-focused “skinny bundle,” with subscribers to the different services able to access them in one ESPN-branded platform.

“In the first year of operation, it should offer consumers approximately 10,000 additional live sporting events over what ESPN offers on its linear networks,” Iger said of the ESPN package. “This is a combination of the contribution of the partners, as well as what BAMTech has licensed, as well as what ESPN will provide and has also licensed to BAMTech.”

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Disney had planned to launch the service this year, as a response to declining subscriber numbers for ESPN that have scared investors, but it will now debut next year. Until it does, two big questions loom for potential subscribers that Disney still has not answered: What content specifically will be offered directly to consumers without cable subscriptions, and what will it cost? Iger said Tuesday the price is still to be determined.

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The answers to those two questions are likely to determine the success of the direct-to-consumer offering, but the overall platform is expected to be malleable, giving Disney more flexibility as consumers’ tastes change. For instance, if the cable bundle system completely falls apart, it wouldn’t be a stretch to see Disney begin offering the ESPN service as a complete stand-alone subscription offering.

“If we see changes in the distribution model, if we see either greater erosion or bigger opportunity to migrate the linear networks to a more direct-to-consumer proposition, we certainly have the technology to do it, and it can be done under relatively seamless circumstances,” Iger said. “But we’re not currently anticipating doing that as we launch this new app.”

Disney shares fell about 4% in late trading Tuesday after the announcement, which included quarterly earnings information that showed revenue was slightly lower than expected. The stock has struggled somewhat amid questions about ESPN subscriber losses and layoffs, gaining 11.7% in the past year as the S&P 500 index US:SPX has increased 13.5%.