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

[0] Frickin Forbes.

[1] God, I hate these quotes of the day.

[2] Most annoying website ever.

[3] Welcome back to episode 37 of Acquired, the podcast about technology acquisitions and IPOs.

[4] And today, spinouts.

[5] I'm Ben Gilbert.

[6] I'm David Rosenthal.

[7] And we are your hosts.

[8] So today, David and I are continuing our journey along sports and technology by diving into Major League Baseball's 2015 spin -out of a company called BAM Tech from their advanced media or MLB -A -M group and the 2016 minority investment into BAM Tech by Disney.

[9] So, David, I'm ridiculously pumped for this episode.

[10] Oh, me too.

[11] Not only, and for listeners, even if you don't care about sports, you should keep listening because not only is this one of the most interesting sports tech deals that's happened in the last decade plus.

[12] But this is actually, I think, really important to understand from just a pure technology standpoint, you know, when it comes to the future of television and things we've talked about on this show a lot with Twitch and Amazon and YouTube and even Snapchat.

[13] So stay tuned for this one.

[14] Yeah, it's like there was a secret, like big tech company hiding inside of a sports league for like a decade and a half.

[15] and they had more foresight and more premonitions than the best streaming services out there and had better technology and I mean reading into all this I really couldn't believe it like we give a lot of credit to a lot of these other companies um Netflix being one of them for for being these sort of digital pioneers and baseball is making bets five years earlier totally uh totally agree this is going to be fun to dive into yeah well before we uh before we get to it a couple of administrative things as usual.

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[47] Thanks, ServiceNow.

[48] So, David, I think we're ready to dive in.

[49] Let's do it.

[50] History and facts.

[51] Okay, so question number one, I bet on many listeners' minds, is what is Bamtech?

[52] So Forbes calls this the, calls Bamtech, the quote, biggest media company you've never heard of.

[53] And this story is, you know, as Ben alluded to, they are probably as much as Netflix and Amazon and Twitch doing as much to shape the future of television in America and around the world than any other company.

[54] Well, it's funny.

[55] I, you know, I bet a lot of our listeners haven't heard of Bamtech.

[56] There's some out there that are probably not in their heads that have heard of it.

[57] I'd come across it in a lot of research I was doing for some of the things we're working on at Pioneer Square Labs.

[58] But it really took kind of like diving in for, you know, a few hours yesterday to really understand how the structure of this whole thing works and how the timeline lays out.

[59] And there's a lot of cool stuff in here.

[60] Yeah.

[61] And I knew it because I have been a baseball fan for a long time and a subscriber to MLB .tv, which is where Bamtech gets its origins.

[62] So all the way back in the year 2000, Major League Baseball, the sports league, um, had the foresight to start a new division within, within the league.

[63] And they called it major league baseball advanced media.

[64] And the mission that they gave this new division was to build and operate a website for each of the 30 teams in the league, uh, rather than saying, you know, the Mariners and the giants and the Yankees, you guys all go off and build your own websites.

[65] Uh, we're going to centralize the, uh, we're going to centralize this in the league.

[66] Which is kind of brilliant in its own right, right?

[67] Like when you think about in that era what the worst website would have been of 30 sort of random owners who are hiring random web development firms to do the contract work for that, it's probably a good thing they centralize that function.

[68] It certainly, it certainly is.

[69] But it kind of got off to an inauspicious start because the league and BAM itself made the same poor decision.

[70] right off the bat, and they, like any super corporate IT department, because this is basically, you know, Major League Baseball's IT department, they decide to outsource the website building to a consulting firm and pay them a ton of money.

[71] And, you know, as expected fashion, the consulting firm basically fails to deliver, and the websites totally suck.

[72] So Robert Bowman, who was the newly appointed CEO of Major League Baseball Advanced Media, which we're just going to call BAM for the rest of the episode.

[73] He quickly made the decision, which ends up being probably the best decision that Major League Baseball has ever made to build a tech team in -house, bring on really good developers, and start owning and building out all the technology inside of BAM.

[74] Yeah, pretty interesting.

[75] Yeah, very interesting.

[76] So that was...

[77] And also probably, I mean, for anyone out there that, you know, our audience is probably mostly a tech audience, but for people that don't work at tech companies, it's probably actually hard to know what the right things to hire for are in this area.

[78] I mean, not only is it web development, but they're looking to do things in ticket rights and they're looking to do things not yet in streaming, but very shortly thereafter.

[79] And thinking about, like, you know, how do people that have backgrounds in sports, sports law, you know, contract negotiations, media, how does it, how do they build like a, a strong tech team inside.

[80] Cudos alone to them for that.

[81] Yeah.

[82] And Bowman really, he really reinvents himself.

[83] So he had been before becoming the CEO of BAM within Major League Baseball, he hadn't been a tech guy either.

[84] He was the COO and the CFO of a big conglomerate called ITT.

[85] It was funny reading about this.

[86] I remembered all those commercials growing up for, you know, ITT Technical Institute.

[87] Oh yeah.

[88] Same thing.

[89] So that's where Bowman came from.

[90] He also, he'd been the treasurer of the state of Michigan and had thought about running for governor.

[91] And much earlier in his career, he was an investment banker at Goldman Sachs.

[92] So, you know, he's not, he's not your typical Silicon Valley executive.

[93] No. But this was also, you know, relatively early days for the internet and kind of in the middle when they start of the first tech bubble.

[94] So he figures it out along the way.

[95] And they pretty quickly start doing a lot of really innovative things with this team that they build.

[96] In New York, the headquarters of BAM are actually really cool.

[97] They're in the Chelsea market in New York, this amazing building.

[98] And pretty quickly thereafter, once he brings it in house, so in 2002, the season before, Ichiro Suzuki had joined the Mariners from Japan.

[99] And oh man, Ichiro is so much fun to watch.

[100] And his first season, he had won the rookie of the year and the AL MVP.

[101] And of course, he had this huge following in Japan, you know, pretty much the whole country was and still is obsessed with Ichiro.

[102] And they wanted to follow, they wanted to follow his games.

[103] And so Bowman decided and Bam decided that they were going to start streaming audio of the Mariners games on the internet so that people in Japan could, could follow Ichero.

[104] And unfortunately, though, that also doesn't go too well.

[105] They spend millions of dollars building all the tech to do this, millions of dollars advertising it.

[106] And they only get about a thousand subscribers.

[107] So we're two years into BAM at this point, and they kind of have two fails.

[108] They made the wrong call on outsourcing the websites, and then they sunk a ton of money into streaming audio, and that failed.

[109] And David, it's probably worth talking about the way that the agreement is structured between BAM and the teams, because Major League Baseball, I believe, is owned by the owners of the teams.

[110] Each team has committed $1 million.

[111] for four years, for a total of, between the 30 teams, for a total of $120 million to capitalize this project.

[112] And so, you know, they draw their first $30 million, they draw their second $30 million.

[113] Here we are, 2002, big failure.

[114] They've drawn $60 million from the teams that they've promised, you know, this is going to be a, I think they've actually said this is going be a revenue generating organization within major league baseball and like big flop 60 million dollars in yep and so this is where this is where things start to turn around and where you know I have to imagine Bowman really kind of gets forged through the fire into you know learns how to be a great executive and technology executive so he makes one really good decision later in 2002 and that's that he realizes that because of as you were saying Ben this uh the way the deal was struck between Bam and all the teams that they have the rights to sell tickets to games online via the company's website.

[115] And so they do, Bowman does a deal with Ticketmaster in mid -2002 to partner with them to power the sale of tickets on the team's websites.

[116] And still to this day, if you go to the Mariners or the Giants or the Yankees website to buy a ticket, it's done in partnership with Ticketmaster.

[117] And as part of that deal, ticket master pays bam $10 million up front and that's really the moment where things start to turn around and they can now invest that money they stop drawing money down from the teams they now have their own revenue stream and can start to do even more innovative stuff yeah it's some nice cash flow yeah so towards the end of that same season in 2002 so they've had this horrible failure with audio but what they learned from that is that audio failed because people really wanted to watch the game, you know, that's why people watch baseball on TV and live.

[118] They didn't just want to hear it.

[119] They wanted to see it.

[120] So unlike most of these sort of like online media failures, you think about, the technology didn't fall down or anything.

[121] It was actually just insufficient.

[122] Like they didn't have enough people willing to pay for just the audio.

[123] Yep.

[124] So again, and this is where, you know, it's really impressive by the end of the season, same season in 2002, they start experimenting with streaming video online.

[125] And nobody's doing this in these days.

[126] This is 2002, three years before YouTube, they stream, the first game that they stream is in late August.

[127] They stream a Texas Rangers and New York Yankees game online.

[128] The quality is terrible, but people love it.

[129] And then they kind of race to build a product around this.

[130] And by the end of the season, they sell a nine game pennant race package.

[131] So streaming games online, people are paying for this.

[132] And then they sell a $20 postseason package, and people love it.

[133] And so then they scramble during the off -season.

[134] season.

[135] And by the start of the 2003 season, they launch up to a full launch of MLB .tv.

[136] And for $80 for the whole season, you can stream every out -of -market game on the internet.

[137] And this is huge.

[138] You know, until this point, whenever people wanted to watch baseball, they had to turn on, you know, ESPN or or their local sports, you know, regional sports network.

[139] And they could only watch what was being shown.

[140] Now all of a sudden, you pay $80 directly to Major League Baseball.

[141] And you can watch every out -of -market game, you know, whenever you want at any time on the internet.

[142] It's pretty awesome.

[143] Yeah.

[144] And the speed at which they were able to do that is pretty laudable and the way that they were able to do it because you sort of think in a business that's dangerously cyclical and seasonal like this where you sort of only have one shot per year to introduce something new for the season, the idea that they did their first little test with just streaming one game and then another little test with a postseason package you can buy and then came out with the real deal for that, you know, $80 full season package, which I think got 100 ,000 subscribers.

[145] So like 8 million in revenue from that first, you know, season that went fantastically well.

[146] I mean, that's, that's errative development.

[147] And they were able to do it even within the constraints of this, you could, you could very easily see management saying, well, you know, we're going to try that for next year.

[148] Yeah.

[149] And I think what's super impressive, like two things.

[150] One, this is 2003.

[151] You know, Again, we're years before YouTube.

[152] Nobody else is really doing streaming video at this time.

[153] It's four years before Netflix went online.

[154] Yep, absolutely.

[155] No streaming Netflix.

[156] And like you said, they get 100 ,000 subscribers right off the bat.

[157] That's $8 million in subscription revenue.

[158] But then they're also selling ads on top of the game.

[159] So this pretty quickly becomes a really interesting high margin business for Major League Baseball.

[160] And they're building, bam, is building all this.

[161] expertise, you know, this is hard.

[162] They're streaming, you know, 15 games every single day all around the world.

[163] They're building all this expertise in streaming live video and not, and not just, you know, live video, but live video where it matters that, you know, it can't be 10 minutes delayed because if the score changes and you hear about it, you know, somewhere else, and you're delayed watching the game, people get upset about that.

[164] Yep.

[165] And a big selling point for them is is effectively handling that multi -platform handoff because for them, I was just listening to a podcast that will throw in the show notes where the commissioner of Major League Baseball is on one of Fortune's podcasts.

[166] And he's mentioning that one big, you know, core asset to this, it's not just the raw sort of like video encoding and fallbacks and relationships with the CDNs to distribute the video files themselves.

[167] It's actually the expertise of, hey, I'm watching this on my TV or my call it my Apple TV and I switch over to my phone, it better pick up exactly where I left off and it can't pick up like in the middle of the next inning where I accidentally see the score.

[168] Like that's a huge, that destroys the experience.

[169] So they have sort of like developed expertise in this thing that is initially quite specific to their use case.

[170] But then we'll see in the future, you know, as as it becomes more important to be able to stream live events in sort of this real -time way, cross -device over the internet, that's a huge asset.

[171] Absolutely.

[172] And they really ride the wave, not, you know, as Ben, as you point out, not only of video growing on the internet over the next 10 years, but also of mobile and devices.

[173] Major League Baseball's app gets featured by Apple at basically every major developer announcement.

[174] So when they announce the app store for the iPhone, Major League Baseball is one of the first, partners and first apps featured on stage with Steve Jobs during the announcement, featured during the launch on stage during the launch of the iPad, on stage during the launch of the Apple Watch.

[175] They really become one of the best, one of the best, you know, technology teams in the business and in terms of bringing video to consumers' devices wherever they are.

[176] Yeah.

[177] Boy, and I'll say, I do, so far I've just been incredibly praiseworthy and it's good to be a little bit more balanced.

[178] I totally remember sometimes call it eight -ish years ago where I was like tuning into a game on the streaming service and like it did have some weird hiccup and like I saw I think actually the use case was I was watching like an hour delayed or something and then it flashed forward to the real time and then I saw the score and then I think that actually I seem to remember that bug being pretty widespread because I remember it sort of blowing up on Twitter as a big problem.

[179] But like they've totally had these hiccups all in the way where they've had to learn how to be really good at this, uh, this sort of ensuring a consistent experience, quote -unquote, live viewing.

[180] Yep.

[181] Good point.

[182] It definitely did not happen overnight.

[183] But the business keeps growing year over year.

[184] They eventually do raise prices from $80 a year for, for MLB .tv.

[185] They raise that over time.

[186] But the subscriber base keeps growing to the point where in an In the interview in 2012, Bowman is quoted as saying that BAM makes about 620 million in annual revenue, which is really meaningful for the league.

[187] Yeah.

[188] So think about this.

[189] I mean, they were promised to be capitalized with 120 million.

[190] It's an interesting stat that they only ended up taking 77 million from the teams after the ticket master deal and then that $8 million in revenue from, you know, that 100 ,000 subscribers in that first season.

[191] And so, you know, they really, they did really well by the teams of the league.

[192] Yep.

[193] And along the way, as we've been saying, they build all this expertise in streaming video, in particular live video.

[194] And so back in 2010, they made 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 ESPN3, which is ESPN's new site that they launched then that covers all of their internet streaming.

[195] So you still have to be an ESPN subscriber via your cable service, but it's now BAM and Major League Baseball in the background that's powering all sports that ESPN is streaming online.

[196] And so they do that for a couple years just as the technology backend provider.

[197] and then in 2014 a bunch of really interesting things happen so one that's the year that amazon buys twitch as we've talked about which obviously is another form of sports in e -sports and live video streaming on the internet but bam makes a pretty big move so they announce a partnership with wwe the worldwide wrestling uh i forget what it stands for now it's it's not the worldwide wrestling Federation.

[198] It's wrestling entertainment or something like that.

[199] It's one of my favorite rebrands ever because the WWF, the World Wildlife Federation, had the trademark.

[200] And then the WWE had to get off of it.

[201] They sued them, right?

[202] I think so.

[203] Also, WWE is like world wrestling entertainment.

[204] But like it needs a, it needs an organization or like, like you even just said, the World Wrestling Yeah, it's awkward.

[205] Entertainment organization, because entertainment's not a noun.

[206] Right, right.

[207] Anyway, the point is 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.

[208] And this is when cable companies and media companies are really starting to worry for the first time.

[209] It's been going on for years, but about cord cutting.

[210] And the only thing that's holding the cable bundle together at this point really is live sports.

[211] And so this is the first crack you can start to see in the seam of the live sports cable bundle package that it could actually be coming online.

[212] Yep.

[213] And then in 2015, early the next year, BAM kind of continues that trend.

[214] And they do a deal with golf with the PGA tour.

[215] And they announced that they're bringing golf online too.

[216] And so the momentum is kind of continuing.

[217] And then later in 2015, and this might have been, if you've heard of BAM Major League Baseball Advanced Media before, this might have been where you've heard of it if you're not a baseball fan.

[218] They do a major partnership with HBO.

[219] And HBO decided to bring their own sort of cord -cutting service online for the first time.

[220] You had been able to watch HBO shows on the internet, but again, only if you were a cable subscriber.

[221] They do their first direct to - And that was HBO Go.

[222] That was HBO Go.

[223] they announce HBO now, which is you're able to subscribe as a non -cable subscriber directly to HBO.

[224] And it's, and it's Bam in the background that is powering all of that.

[225] Yeah, and fans of Game of Thrones who had HBO now will remember that there was some some big issues with HBO building out their own, their own in -house streaming.

[226] And they actually draw, like, there was an episode of Game of Thrones where there's too many concurrent viewers and you basically just couldn't, couldn't watch it.

[227] And people were furious and Twitter's blowing up and people had to wait till the next morning to watch it and yada, yada, yada.

[228] And I, you know, they popped their head up and looked around and said, we're not willing to take a chance on this for our true over the top product and, uh, and outsourced it to MLBAM.

[229] Yep.

[230] That's what advanced media has been gotten really good at over the past decade.

[231] So that was in April of 2015.

[232] And then in, uh, later in 2015, the first really big other big four professional sports league does another deal with BAM and this is the NHL.

[233] And so the NHL announces that they're going to contract with BAM to power all of their streaming.

[234] But what's interesting here, and this is this is where really the cable industry really starts to get nervous, is it's not just powering the back end, but they actually do a rights deal.

[235] So the NHL takes a, rumored to be about a 7 to 10 % equity stake actually in BAM in a major league baseball advanced media.

[236] And in return, BAM promises to pay them a certain amount of money each year and then they get to monetize all of the contents.

[237] So the subscriptions that people pay to subscribe to NHL, that's BAM that's monetizing that, just like it's ESPN that gets the cable subscription fees.

[238] and all the advertising that they run on top of it, this is really a watershed moment where BAM starts to look like a cable provider, like a next generation cable provider itself.

[239] Yeah, you can totally see why this is, this makes you nervous.

[240] Because if you're, if you're an ESPN or any sort of rights acquirer, your whole business model is taking a look and saying, okay, well, if we, uh, if we buy these rights, what can we get for them, uh, you know, in terms of, uh, of the advertisements we're going to show viewers and the subscriptions, whatever vehicle you want to use to monetize that, like, okay, I'm going to pay hundreds of millions of dollars up front for these rights for X years.

[241] I really hope we can architect a business that's going to generate more than that.

[242] And I think, you know, that on its own feels kind of like a tenuous business model.

[243] But as that moves closer and closer to the source of the actual rights holder, you can see that that totally looks like it's going to do.

[244] misintermediate you as someone whose business it is to take on the risk of buying those rights and monetize it if those organizations themselves are getting better and better at monetizing their own unique IP rather than potentially licensing it out to you to figure out.

[245] Yep.

[246] This is disruption of the middleman.

[247] This is the internet at work here.

[248] Yep.

[249] And so when this, when this happens, the verge actually, so the verge does a really great long piece that we'll we'll link to in the show notes, covering kind of the history of BAM that we've taken a lot of this history from, and they say this is a quote from them, the new approach moves BAM beyond just being a white label service provider, putting them in position to become an ESPN of the internet age, competing against the likes of Netflix, Hulu, and Amazon, where they have the one thing that those services lack live sports.

[250] And Bowman himself is actually quoted as saying, we knew we wanted Bamtech over the long term to be not just a vendor but also a rightsholder exactly what you're saying Ben and that also being a buyer of rights was the best business model so getting these rights has obviously been important so this is something that they were working on kind of for many years and this is the vision of this next generation like what is the ESPN of the internet look like and and bam is so well positioned totally and in that Rob Manfred um uh podcast I mentioned earlier, Rob Manfred's the commissioner of Major League Baseball, he mentions that they look at this in three different ways.

[251] One is the obvious way that, hey, baseball is going to be broadcast.

[252] Right now it's broadcasting cable bundles as that gets, you know, skinnier and skinnier and live sports provides more of the value.

[253] This is a hedge against that, right?

[254] It's just a simple, you know, we need to have a little bit of option value for the future on how we, our content gets distributed and this is kind of our own way to do that instead of outsourcing it.

[255] Two is hey, this is actually a really great technology company that happened to be invented inside Major League Baseball.

[256] That could be a services organization for other content plays, which is what we saw with the PGA, with W .E and potentially more to come.

[257] And then what we saw with the NHL is their sort of third business model of actually being that rights holder and monetizing other people's rights.

[258] And that, you could imagine a scenario, this is getting into themes later, but like, what if baseball declines in popularity, but Major League Baseball on its own, or BAM, is an even more valuable organization because they own the rights to many other forms of entertainment and they own the pipes to distribute it?

[259] That's kind of a crazy future.

[260] That is kind of a crazy future.

[261] But it's also one that, and this is the next thing that kind of happens in the history and facts here.

[262] One that doesn't make a lot of sense.

[263] Like, it doesn't make sense for the collective 30 teams of Major League Baseball to own basically the future of Internet television.

[264] Totally.

[265] And that hamstrings them, right?

[266] Because they can't really issue stock to employees.

[267] They can't, they don't control their own destiny as much.

[268] And this has become, you know, a tech company at this point.

[269] And so they're competing with engineers and executives with, you know, Facebook and Amazon and Netflix, you know, all of whom are issuing stock competition.

[270] But BAM, BAM can't do that.

[271] So they realized they need to fix this.

[272] And so immediately after the announcement of the NHL deal, Major League Baseball announces that they're spinning advanced media out into its own separate company called BAM Tech and that they're going to start talking to investors to buy a stake in the company and finance it.

[273] And they'll retain a large equity stake.

[274] Major League Baseball will, but it'll finally become its own independent company.

[275] And so they work on that deal.

[276] It takes a whole year.

[277] And then finally in August of 2016, it's announced that they have found that partner, that investor that's going to help spin the company out.

[278] And it is surprise, surprise, Disney, which of course owns ESPN and ESPN, which for 20 years at this point has been the largest part of Disney.

[279] yeah almost dangerously so in this era too yep and and so disney announces this is august of 2016 that they're going to acquire a one -third stake in the company for a billion dollars so they're valuing bam tech at three billion dollars and then they also have the option to acquire a majority stake in the future and this is just classic disney you know similar thing happened with ESPN you know Disney doesn't own 100 % of ESPN they own 80 % of ESPN and actually the Hearst Corporation owns a minority stake.

[280] Oh, they do currently?

[281] Yep.

[282] Oh, I thought ESPN was wholly owned.

[283] Nope, not wholly owned.

[284] So Disney is very happy to do deals like this.

[285] And this is one of the reasons, I'm sure, why they end up sort of winning the investment here and becoming the partner.

[286] They're happy, you know, Major League Baseball, as we were talking about, this is such a valuable asset.

[287] They, I'm sure, want to retain their equity stake.

[288] And Disney says, as long as we have a path to controlling this, yeah, we're happy to have minority shareholders.

[289] Yep.

[290] And boy, Disney gets great option value here too.

[291] I mean, they just get to see how, I don't know, every source I've read says over the next few years to decide if they want to buy another third to give them a majority share of the company.

[292] But yeah, it's not public exactly what the deal is, but it has been announced they have an option to acquire a quote majority stake in Bamtech.

[293] Yeah.

[294] And I think could it have been anyone else?

[295] Like, we're going to get into that in another section.

[296] But like, Disney is just the absolute perfect partner for this, right?

[297] Yeah, to Bam and to baseball, yes, because they have a history of, and it's kind of what we saw with Lucasfilm, right?

[298] You know, it was really important to George Lucas, who the buyer of Lucasfilm was going to be.

[299] And for Major League Baseball, even though they have a different set of motivations, you know, they are very motivated to want to retain an equity stake over time.

[300] And Disney can say, yeah, we've done that many times.

[301] times.

[302] We're happy to do that.

[303] And so concurrently with the announcement that Disney's going to invest and have this path towards control ownership of BAM, they also announced that they're going to start working on a direct -to -consumer ESPN subscription service powered again by BAM tech.

[304] But this is huge.

[305] This is going to be the first time, you know, ESPN, the first time that ESPN is going to be available directly to consumers outside of a cable bundle.

[306] And it's really, you know, it's been at this point years that ESPN is the only reason so many people continue to subscribe to cable.

[307] So this is Disney saying, okay, we, now is finally the time we're going to move past linear television.

[308] Yeah.

[309] So, David, I saw that too, but there's this weird, like, thing that they also followed that with that sounds like it's hamstringing the deal.

[310] And it's got to be to just like ease the concern of, of, uh, the cable.

[311] companies, yeah.

[312] So they're not going to include any current ESPN content, but, you know, the door is open as, and I'm sure the other reason for that is that all these rights deals have already been negotiated for the next several years and are locked up.

[313] But as those rights deals come up, you can bet for sure that Disney's going to be moving large portions of their content into their direct -to -consumer service.

[314] Yep.

[315] And actually this, we keep having this like very serendipitous timing with episodes.

[316] We definitely didn't know anything about the ESPN layoffs that were coming.

[317] But, you know, this last week, there were very large -scale layoffs inside of ESPN, particularly around a lot of baseball tonight's programming.

[318] And one really interesting thing that Ben Thompson pointed out in Stratecre this week is that the internet and the availability of instant replay all the time has really taken away a lot of the initial value.

[319] prop of sports center.

[320] I mean, you'd have to wait to go see highlights on sports center, um, you know, the next morning after the sporting event occurred.

[321] And that's really just not necessary now.

[322] I mean, if, if I, I freaking can find, well, it used to be vines, I can find, you know, tweets with embedded videos or gifts of that insane diving save seconds after that it happens.

[323] Yeah.

[324] I mean, remember growing up when like, you know, staying up till 10 or 11 p .m. to, you know, to, you know, to, to, to, watch what the frantic editors had put together.

[325] in a couple of hours since the game.

[326] Yeah.

[327] So the point I'm driving at here is that like, you know, maybe it doesn't matter that much that ESPN's current content is not going to be repurposed for this, you know, direct over the top service and that it's much more like, who cares?

[328] Because their current content isn't what's going to matter in five years.

[329] Yeah.

[330] And don't forget, you know, BAM by now is not just, you know, direct TV style streaming.

[331] It's all of the apps, you know, they're on every device.

[332] with all different types of experiences from highlights to, you know, stats overlays and data through to full video.

[333] Yep.

[334] And I want to make two points here that I think I just want to make sure before we move on.

[335] One is I don't know if we disclosed the enterprise value of Bamtech at Spinnout when Disney bought a third of it was $3 .5 billion.

[336] So think about that.

[337] Initially capitalized with $77 million inside of Major League Baseball, you know, spun out.

[338] at a value of three and a half billion dollars.

[339] And the other thing that I want to clarify is we keep talking about this over -the -top service.

[340] A lot of listeners are probably familiar, but that basically refers to the idea that number one, I think OTT is like the stupidest name of all time.

[341] But everyone's talking about the move to OTT services.

[342] This is like my doctrine, my doctrine that it's not a wave as long as, you know, you have a, you have a title for it that that your average person doesn't understand.

[343] Exactly, exactly.

[344] But basically it refers to the idea that everyone has a set top box, and that set top box is controlled by their cable company, and that cable company sells them a cable bundle.

[345] And then that cable bundle consists of a whole bunch of affiliate or carriage fees that are charged to the cable company by the channels, basically.

[346] And what over the top does is basically saying, we don't need your set top box.

[347] We're going over the top with it, and we're going direct.

[348] Exactly.

[349] Direct to consumer.

[350] Yeah, this is serious.

[351] This is the business model innovation I was talking about in the Clippers on our last show.

[352] Okay.

[353] So August 2016, the spinoff happens.

[354] Disney is the partner.

[355] Very shortly thereafter in November of 2016, BAM announces that they're expanding beyond the U .S. And they're coming to Europe.

[356] They're partnering with Discovery Communications, the media company that owns the Discovery Channel and many other, many other forms of content.

[357] to buy the rights to stream the Olympic Games in Europe.

[358] So big announcement, they're going global.

[359] And then shortly thereafter in December, and this is really interesting going back to Twitch, they do a direct rights deal with Riot Games, the owners and publishers of League of Legends, for BAM to have the rights to stream all official League of Legends competitions through 2023.

[360] Yep.

[361] And that is a big, big deal.

[362] that is a guaranteed $50 million per year deal that Bamtech is going to pay Riot.

[363] And in the e -sports space right now, we're all wondering what does this mean?

[364] Because right now, you go and you can watch a lead championship series game with millions of other people for free that's ad -supported on either Twitch or YouTube.

[365] And there's this company, Bamtech, that's paying $50 million to riot per year.

[366] and so far nothing.

[367] They have these rights, but we haven't seen anything with it.

[368] And we're really going to see something, I would assume, in the next six months, where there's a direct offering that is built by Bamtech, that is maybe the one and only way to go and watch these League of Legends matches.

[369] And I think we will probably get into e -sports in future episodes, but that Disney slash Bamtech is making these like big bad.

[370] throughout their history on things that are before their time.

[371] And that's shown here yet again with a big purchase of these rights.

[372] In fact, some of the biggest dollars that are moving around in the entire esports space, probably years before most people have any idea that that's even a thing.

[373] Yeah.

[374] And this is something, you know, for BAM to be able to start to do this, they really need a partner.

[375] You know, this is another reason why Major League Baseball, he couldn't finance doing this.

[376] but with Disney and the, you know, the balance sheet that Disney brings to this, they can really start to be a player in this right space.

[377] Yep.

[378] So the last thing that happens, just a couple months ago in February 2017, Bowman, after a 17 -year run as CEO of BAM, steps back from day -to -day operations as CEO, and they hire a man named Michael Paul to be the new CEO.

[379] And this is really interesting.

[380] Paul had been the VP of Video at Amazon, and was the person responsible for the development of Prime Video with Amazon's Netflix competitor and, of course, was super involved with Amazon's acquisition of Twitch.

[381] And before Amazon, he'd been a TV exec at Sony and Fox and Time Warner.

[382] But this is really interesting.

[383] When you think about the rest of Disney's streaming catalog, Netflix is obviously a big partner of theirs, as is Apple and others, but, you know, Pixar, Lucasfilm, Marvel, all the Disney videos and now you have the guy coming from Amazon who built their Netflix competitor.

[384] You can start to see how Bam and Disney together could really be the full service, you know, a very compelling full service video provider to consumers over the top on the internet.

[385] Absolutely.

[386] Absolutely.

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[405] Should we move on to category?

[406] Yeah.

[407] That couldn't have been the more perfect segue.

[408] Because originally, as I started doing this research, I was thinking, oh, a technology acquisition, or not quite an acquisition, but a technology investment.

[409] Because it's, you know, the best technology that provides these services to anyone that wants to do their back -end streaming.

[410] But really, I mean, they've been expanding and they've been kind of taking over a much more significant part of a business here where they're actually the rights holder and they're actually distributing this content on their own.

[411] So I mean, I think they're really their own business line here at this point that Disney so far has invested in and we will see what they continue to do with it.

[412] Yeah, I totally agree.

[413] business line and right now it's sort of a mirroring the ESPN business line for for Disney and and their hedge against the decline of of the cable model to be the ESPN of the internet age but as we talked about when you think about all the content that Disney has there's really potential here to be business model disruption for the whole company and how they their relationship to consumers of that content you know right now all Disney content is mediated.

[414] through a movie theater or through cable or through Netflix or some other distributor, this is really a way for Disney for the first time for their content to start to have a direct relationship with customers.

[415] Yep.

[416] And the magic of these internet business models is shortening value chains where when we start to say, oh, it's sort of the Disney of the, or I'm sorry, the ESPN of the internet era, well, it's the ESPN and the cable company of the internet era.

[417] Yeah, the ESPN and the Comcast of the internet era.

[418] Right.

[419] Right.

[420] Because in these previous.

[421] previously, you just need so many more steps because distribution is hard.

[422] Like offline distribution is hard.

[423] And so these cable companies have an incredible moat around them against other cable companies, but not against low -end disruption from internet -based services.

[424] Where, you know, in that old world, the model is content, and then they sell that to a rights holder.

[425] And then the rights holder gets a carriage fee from selling that into or distributing it through a cable company.

[426] and then it goes to consumer.

[427] But you really combine those middlemen here with the internet and have the ability to go much more direct.

[428] And that happens in every business.

[429] Yep.

[430] And it's so ironic here.

[431] This is, I believe, over 10 years ago at this point, Comcast actually once made a hostile takeover offer for Disney and tried to buy Disney.

[432] And fate is a cruel mistress here.

[433] And it's Disney that's making the play to not, you know, not buy Comcast, but just, you know, just obsolete them.

[434] Yep.

[435] I mean, it's the smiling curve, right?

[436] I think, I feel like half of my life is informed by Ben Thompson right now, but that piece was so great about, about self -driving cars and making the reference that way upstream, you have the kind of component makers, or in our case, the content producers, way downstream, you have the actual, whoever goes direct to the consumer, and everyone in the middle, their value gets diminished over time.

[437] So if you're a net Netflix and you're effectively, all you have is distribution.

[438] Well, like, the internet changes that, right?

[439] The internet makes it so you become much less valuable.

[440] And if you're the content producer, Disney, you've dramatically grown your value.

[441] And if you're in the middle, the Comcast, you've dramatically lessened it.

[442] Yep, yep.

[443] And Netflix, of course, gets this.

[444] And this is why they and Amazon, too, were investing so much in producing their own content.

[445] But, you know, it'll be interesting now that Disney, the 800 -pound gorilla, has really also stepped in as a direct competitor in this space?

[446] Yep.

[447] Okay, so what would it happen otherwise?

[448] Yeah.

[449] So I really like, I'll just kick it off with this one excerpt that I grabbed from that Verge article that I thought was really great.

[450] Bam has been flirting with the idea of a spinoff since 2005 when it made the round with investors and bankers, but its revenue at the time was under 250 million and streaming video was far from mainstream.

[451] A decade later, BAM is on pace to earn $900 million, and it's been turning a steady profit.

[452] And so it's really interesting to think about MLB for the longest time, you know, over a decade now, has known that this thing's probably different enough from what we do and serves us as one customer, but is really a horizontal that could serve a lot of customers or, in fact, be a rights holder itself, that we got to get this thing out of here.

[453] But it sort of took until now for them to find the right part.

[454] partner and make it a big enough business on its own to make it happen.

[455] And I wanted to get your thoughts on that.

[456] You know, why couldn't they do it any sooner?

[457] Yeah, I mean, I think the opportunity here is so much larger than just being the streaming service for Major League Baseball, but that you actually could build the television network for the internet.

[458] Yeah.

[459] Yeah, absolutely.

[460] So, yeah, in terms of, you know, who else do you think could have been, could have been the investor here for the spinoff.

[461] I mean, we talked about why Disney was in many ways a perfect fit.

[462] Is there anybody else?

[463] Maybe Netflix, but like they have so much duplication with Netflix.

[464] Like when you think about the people that are really good at this in the world, this sort of video content distribution right now, it's Bamtack.

[465] And they historically have been more back end because they sort of, they sort of white label their front end, whereas Netflix really aggregates all users into one front end.

[466] But it, uh, they, um, they sort of white label their front end.

[467] Um, whereas Netflix really aggregates There are differences between that, but the people that are really good at this streaming technology and have all the right agreements and infrastructure in place across all the different, you know, CDNs and everything necessary to distribute this content are Bamtech, Netflix, Amazon.

[468] Yep.

[469] Can you think of any others?

[470] Maybe Verizon.

[471] Well, Twitch, obviously, is part of Amazon.

[472] And I mean, Verizon's sort of like one layer deeper in the stack when you actually start to go look at the telcos.

[473] But they actually own the pipes where this gets distributed.

[474] So you can see that being an interesting partner.

[475] Yeah, I mean, Google and YouTube, but I, you know, the only, the one that comes to mind for me, and I'm sure they must have looked really hard at it.

[476] And quite honestly, I'm surprised they didn't, didn't really try to make a run and how bid Disney, because I think Disney probably got a pretty good deal, valuation -wise here, relative to the potential, is Amazon.

[477] And especially with Michael Paul coming over to be the CEO.

[478] I mean, clearly he had been thinking about this.

[479] But if you look at Amazon and then they were so prescient in the acquisition of Twitch, and maybe the path that they're taking is that they want to broaden out Twitch and compete directly here, too.

[480] But again, the rights are so important for physical sports.

[481] I'm very surprised that Amazon didn't try and make a harder run at buying BAM here.

[482] Yeah.

[483] And maybe they did.

[484] I mean, maybe there was some kind of bidding war.

[485] We don't know.

[486] I mean, it's not a crazy enterprise value for the spinout, right?

[487] If they're generating $900 million in revenue to have sort of a three and a half four X multiple on that.

[488] I mean, that's really very reasonable relative to other tech company valuations.

[489] I guess the only thing I can think of is that, you know, historically, Amazon is pretty cheap when it comes to M &A.

[490] And so maybe they just weren't willing to go higher.

[491] But I have to imagine, given the.

[492] huge investment that Amazon has made in video over the last few years.

[493] And, you know, Bezos talks about it potentially being, he always talks about how he's looking for the, looking for the fourth pillar for Amazon that's going to be the next big business unit and that video could be that.

[494] Again, I'm very surprised that they let this get acquired by somebody that can, can threaten them as much as Disney.

[495] Yeah.

[496] And we're sort of going to, we're bridging here.

[497] Let's just call a spade and say that we're into tech themes.

[498] Tech themes, per usual.

[499] Yeah, yeah.

[500] I think one thing that I've been thinking about is did MLB screw up in giving Disney the option to buy the whole thing at some point, or at least buy a majority share?

[501] Because you look at the growth of this business and you look at the potential ahead and the very clear wave that they're surfing on and going over the top and actually starting to own a lot of these rights.

[502] the very least do a lot of the distribution for the important content out there for live sports specifically like i if i major league baseball like or if i major league baseball's shareholders and this is probably where the nuance comes in i would love to own that for the next 20 years and maybe this is all sort of a artifact of the fact that major league baseball is not a publicly traded company it's a i i think i keep saying this i'm pretty sure i'm right because that's the way it doesn't another league.

[503] It's actually owned by all of the owners of the teams.

[504] Yep, it is.

[505] And so maybe, you know, you don't have the same sort of investor pressure because a lot of these owners of baseball teams aren't really in the business of owning an asset that needs to appreciate over the next 20 years in a very high growth tech company way.

[506] Like, that's just not the business they're in.

[507] And if they were going to do that, they are going to invest elsewhere other than their, you know, 1 30th ownership in a league.

[508] Yeah, as we talked about it before, there was no way that BAM was going to be able to realize its full potential, you know, being fully owned by Major League Baseball here.

[509] Right, but could they have found a partner where like they, they weren't at risk of losing the majority of this business?

[510] Yeah.

[511] But, you know, again, in this, I think probably comes down to, we weren't privy to the negotiations, but I have to imagine that Disney ended up being the perfect partner in that they're very willing to let Major League Baseball retain a minority ownership stake in the future, which even though, you know, it's not a majority ownership stake, but they're going to realize, be able to participate in the economic benefits here without having to control it.

[512] And again, like we talked about, the control structure was definitely hampering, hampering, bam, you know, from realizing its potential.

[513] Right.

[514] I also wonder, too, like what is, maybe there just will be a fantastic return.

[515] and let's say Disney takes their option in two years and it's doubled by then or maybe in three years and it's doubled by then.

[516] I mean, if it's a $7 billion, you know, $7 billion company and Disney's buying another third.

[517] Like, you know, maybe MLB is like, wow, awesome.

[518] Like, great.

[519] We got, actually, what do they, what do they do with that money?

[520] You pay it as a distribution out to, well, and again, think about, you know, who is MLB, right?

[521] Like, they're a bunch of rich, you know, people who own baseball teams, right?

[522] Like, what, uh, they're not, you know, maybe some of them are tech investors, but, you know, certainly not, uh, they're not living this and thinking it every day.

[523] Like, we are here unacquired, you know?

[524] And it's, it's much older money, too, than, than the NBA.

[525] I, um, this is going to be, actually, I'm going to dance forward to follow up and then come back to tech themes here.

[526] But, um, my follow up is going to be, boy, do I wish I had listened to that Bill Simmons, uh, interview with Steve Ballmer.

[527] Oh, yeah, so good.

[528] record of the last episode.

[529] And the good news is I'm not like radically changing any of my thinking.

[530] I think it reinforces a lot of the same points.

[531] But it was just super enjoyable to listen to.

[532] Balmer's incredibly candid.

[533] And I think that, and Bill's obviously an amazing interviewer, but you really get a sense of who the owners are in different leagues.

[534] Like in, in, Balmer says, it talks about the NFL, but I think the MLB is the same way.

[535] It's a lot of older money from sort of varying industries that families may have.

[536] own the team, things like, things like that.

[537] And when you look at at the NBA, it's like a bunch of hedge fund managers, investment bankers, tech, uh, tech billionaires.

[538] And like, they're sort of looking at these businesses in a, in a very different way.

[539] And I really think that, you know, if, um, owning a majority share of Bamtech as it grows as a tech company through your one 30th ownership of major league baseball by the nature of you owning a team, it's just not the thing they're optimizing for.

[540] Like, it's a lot of old money.

[541] They, they're not dumb by any means, but it's just not, it's not why they own the team.

[542] Yep.

[543] Totally agree.

[544] But then coming back, I have this, this other question that baseball, so the MLB is growing year over year.

[545] It's, it itself, even after the Bamtech spin out, is a great growing business.

[546] And I'm a little bit, I have a little bit of dissonance here because it seems like of all the major sports baseball seems to be declining.

[547] And so, you know, with baseball, the MLB posting record earnings and teams getting more and more valuable, in fact, the average Major League Baseball team is more valuable than the average NBA team.

[548] The sport itself doesn't seem to be growing.

[549] So I'm a little bit, maybe listeners can help us out with this in the Slack and we can talk about it as feedback in the next episode.

[550] But I'm trying to figure out why I feel like baseball is.

[551] less prevalent in my generation than it was in my parents' generation, and yet the teams continue to appreciate and value and are even more valuable than other sports leagues, save the NFL.

[552] Without being an expert on this by any means, you know, my hypothesis would be that there really is a difference here between the game on the field and innovation and interest growing or waning there and business model innovation.

[553] And this is, you know, we talked to.

[554] about this on the Clippers episode and the NBA has their own streaming tech with league pass that maybe maybe they will you know think about outsourcing to Bamtech or selling the rights to Bamtech in the future but I think it's this business model innovation and developing again collapsing the middleman taking an internet based business model approach and developing a direct relationship with your customer direct paid subscription relationship with your customer that's probably accounting for a lot of the increase in value here.

[555] Yeah, I agree.

[556] Do you think that Disney's going to take their option in the next couple of years and buy another third?

[557] I mean, I don't see how they don't, right?

[558] I mean, I guess this is bleeding into grading a little bit, but working on through this episode, both in our discussions and the research, you know, I kind of had this aha moment like we talked about when we were introducing the episode that what we're talking about here is the future of television.

[559] we're not talking about just sports and that is so core to everything that Disney is I mean their cable networks division and which is of which ESPN is the crown jewel has been the vast majority of the profits the EBITDA and you know accounts for the vast majority of the market cap of the entire Walt Disney company for for the past 20 years yeah so then I'll pose this to you so if Bamtech so you say it's all it's all about television well television is a a bundle of live and pre -recorded content.

[560] So let's say that the cable bundles in X number of years don't exist or are unimportant.

[561] For Disney, Bamtech is their replacement for live.

[562] Rather than selling into the bundle and taking a carriage fee, like Disney is able to put all their live content directly through Bamtec.

[563] Right now, all their pre -recorded content is locked up in deals with, Netflix and others, and I think those go through 2019, 2020.

[564] Will Disney renew those agreements with those other content aggregators and keep all of their non -live content going out through those channels?

[565] Or are they going to try and build a direct -to -consumer offering through Bamtech where they're actually a portal?

[566] And they're aggregating live or bundling live and on live together in a way that consumers want going direct to the content owner.

[567] Yeah, this is super interesting.

[568] And we were alluding to this at the end of history and facts.

[569] But I think this is the question, right?

[570] My mind is coming back to superior consumer experiences here.

[571] And I wonder if there is some danger in the path that Disney is taking here from a consumer perspective that are they just recreating that case?

[572] bundle online and doing it with better economics for themselves.

[573] But what consumers hate about cable, right, is you get all this, you have to pay for all the stuff you don't want.

[574] It's a much better experience really in the current world that we live in for consumers where you can choose, you know, hey, if I care about baseball, I'll subscribe to baseball.

[575] If I care about basketball, I'll subscribe to League Pass.

[576] You know, if I care about movies, I'll subscribe to Netflix and TV shows.

[577] Are we going to see a re -bundling here that actually would be negative for consumers?

[578] Well, it's like that Jim Barksdale quote, right?

[579] There are two ways to make money in business.

[580] You can unbundle or you can bundle.

[581] And I mean, I really think like if your entire business strategy is read what consumers will want in the next five to 10 years and unbundle or bundle appropriately, like if you can execute on that, you're going to do well.

[582] And right now what consumers want is unbundling.

[583] but big open question to when all the content is too disparately scattered around everywhere and we have, you know, like, you remember like 10 years ago when every network had their live TV or their like ABC had lost available to watch on ABC .com and some other company, you know, NBC had the office available on NBC .com and like it took Hulu and then Netflix and like these rebundling all this content back together in a way that you want to view.

[584] it, maybe right now what we want is unbundling and to be able to nicely get content directly from the source.

[585] But at some point, we're going to have fatigue of that.

[586] And there's going to be a rebundling.

[587] And who's going to do that?

[588] How many subscriptions are you going to have?

[589] Do you really want to pay Netflix and MLB and League Pass and and and and?

[590] Or could a really compelling, you know, I don't know, $20 a month, $30 a month, $40 a month package from Disney that includes all of that.

[591] that could be very compelling as well.

[592] All right, let's grade the thing.

[593] Let's do.

[594] Before we do one quick tech theme, I wanted to tack on, we've talked about this so many times in other shows, but I just think this is another really good example of a kind of lesson for me in terms of building companies and for entrepreneurs.

[595] Bam started by solving a real problem.

[596] They didn't start out by trying to invent the future of television.

[597] They started out with like the teams needed websites.

[598] And they solved that problem poorly at first and then better.

[599] And then the problem was, you know, a lot of fans in Japan wanted to see Ichiro.

[600] And they solved that problem poorly at first and then better.

[601] You know, and then the problem was, well, there are a whole bunch of other, you know, folks on the internet that folks that have live content that want to stream it on the internet.

[602] And well, bam had a good solution to that problem.

[603] And then it was, you know, consumers wanted a new way, a new relationship to, to sports and wanted to have the final reason to cut the cord and bam solved that problem and i think it's just a great example of stair stepping your way up into a enormous company by by solving real problems kind of one at a time and the the counterfactual to that or more just the the counter uh ethereal to that is yes it's a really great way if you want to become a platform to solve one problem first and then figure out what under there you can serve other people by doing.

[604] But boy, do you have to make sure you don't get into a vertical versus horizontal mess there and then be both the services provider and care about your own core business that utilizes the services provider.

[605] And this is like, this is, I don't think we anticipated this being a theme when we started acquired, but boy, has it sure become one, especially hot on the heels of the Oculus episode.

[606] Absolutely.

[607] Interestingly enough, like, it doesn't really seem to be an issue in this case.

[608] Like, Major League Baseball isn't trying to hamstring Bamtech by not allowing Bamtech to serve Major League Baseball as competitors.

[609] And until now, it made entire, it made tons of sense for, for Bam tech to prioritize or for Bam to prioritize the needs of MLB because that was an early customer.

[610] And so with this spin out, I mean, it's really like a great way to solve for that problem.

[611] And I hadn't quite thought about it.

[612] I mean, you've been right to be asking this question and bringing it up throughout the episode.

[613] I think this might be why the deal took a year to get done.

[614] You know, they announced that they're going to spend it out in August of 2015.

[615] The Disney deal doesn't happen until August of 2016.

[616] Man, that must have been such a negotiating process to wrangle all 30 owners and get everybody's interests aligned here.

[617] And I'm sure not everybody, you know, Ben is going to take the rational, you know, thoughtful approach that you just out, you know, laid out about why this should be a horizontal play, not a vertical play.

[618] Yeah.

[619] Well, it seems like they've got the incentives lined up right now, especially if Disney in pretty short order here buys the rest of it, and then it's really a non -issue.

[620] Yeah.

[621] All right.

[622] Should we grade it?

[623] Yeah.

[624] So listeners, David and now we're having a debate before this show over, over I message of whether we were going to grade, like whether this episode was going to be grading the spinout or grading Disney's minority investment with the option to buy a majority share later.

[625] And I was kind of pushing for like, well, you know, I think the thing that's fairly well understood is the spin -out and it's highly speculative to talk about the future purchase.

[626] But like the spin -out is so clearly like, I'm, David and I were like, uh, no -brainer.

[627] Like that's an A. That's a great decision.

[628] Why wouldn't they do that?

[629] On the part of Major League Baseball to spin it out.

[630] Yeah.

[631] Like they totally would have hamstrung that thing by keeping it in a house.

[632] And it's just like value destruction to not spend the thing out.

[633] So what we've decided is we're going to grade it from the Disney perspective, which I actually, David, I want to hear your thoughts first on that.

[634] Okay.

[635] I'll go first.

[636] I think this is an incredible acquisition by Disney.

[637] You know, we're somewhat hamstrung in grading it as thoroughly as we would like, given that we don't know exactly how much revenue is coming along with.

[638] Bamtech versus staying with major league baseball.

[639] But let's just say for argument's sake, sort of the latest number we have is kind of 900 million in revenue.

[640] And of course, they have to pay a lot for rights to go along with that revenue.

[641] But still, they're essentially paying, what is that, for $3 .5 billion enterprise value, you know, call it four times, just under four times revenue for this.

[642] Think about that relative to, you know, the multiples that we typically see in the technology space that's very low.

[643] And then think about that relative to the massive opportunity that Disney has here to really have a have a credible shot at building the future of long form, you know, video customer relationships on the internet.

[644] This feels like a great purchase to me. And then I also wanted to, you know, think about this through, if you go back to some of our earlier episodes on Disney, you know, Pixar and Lucasfilm and Marvel, we talk a lot about the Disney flywheel and the playbook that Walt Disney, you know, so many years ago laid out that really was the forefather of the Bezos flywheel and how Disney is going to be able to take all of their, all of their other activities and pieces of content that they have throughout the rest of the company and start to push it through this direct customer relationship that they've now just acquired for the first time really in company history.

[645] And I think the potential is enormous here.

[646] So, so both.

[647] Is it a direct customer relationship?

[648] Like, Bamtech doesn't have any audience.

[649] Well, Bamtech doesn't have any audience, but they're managing the subscription for relationship with the consumers.

[650] So consumers are paying them, both for MLB .tv and NHL and anything they do in the future now, right?

[651] Oh, yes.

[652] I see.

[653] But on a in a siloed basis.

[654] Yeah, yeah, right.

[655] They don't necessarily have some consumer eyeball portal where Disney can plug their content in and get that distribution.

[656] No, BamTech itself isn't a consumer portal, but through it, Disney, Major League Baseball and the NHL and now Disney can operate a direct consumer relationship where consumers are paying them a subscription for the content that in the past, Disney had to mediate everything through, you know, whether.

[657] that was Comcast or movie theaters or Apple or Amazon or whomever.

[658] Now there's finally a vehicle that consumers can, you know, over the internet, just pay, pay Disney directly.

[659] Yep.

[660] And I think it's a brilliant hedge by Disney.

[661] I mean, I think, I'm assuming you're driving in an A there.

[662] Oh, yeah.

[663] I said everything except the actual grade.

[664] Yeah.

[665] A. This is, this is, I predict we'll go down as one of the most important, most transformative acquisitions in Disney history, uh, of which we already covered several that they've done and it's only in process we'll have to revisit this when they buy the rest of it yeah yeah i think i agree with you i also am giving it an a and um i think the biggest thing is their mastery of positioning to me it's sort of a hedge like it's a hedge that oh what if cable bundles decline but like cable bundles are going to decline they already know that they don't currently own their highest value content and that will come in the future and that will come through a lot of the rights that that Bamtech already owns and that this is a bet on whatever their future content and this this distribution mechanism to go direct to consumers is.

[666] Yep.

[667] And one last thing I throw in.

[668] It's kind of been a while here on Acquired since we've talked about the people aspects of acquisitions, which going back to our early shows, we focus so much on.

[669] And so many of our guests talk about all, you know, Bamtech as an organization has this history of operating within a, you know, not as a startup, as a part of a much larger conglomerate, which it now will continue to as part of Disney.

[670] So I wonder if, you know, a lot of times you see startups get acquired by a large company and then, you know, the mojo gets lost and, you know, equity compensation isn't as much as it once was.

[671] In this case, there's going to be more equity compensation and probably a more innovative culture that Bamtech will be joining versus, you know, baseball.

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

[673] Yep.

[674] I think that's right.

[675] Okay.

[676] Should we move on to follow -ups?

[677] Yeah, let's do it.

[678] So I mentioned it earlier.

[679] I'll just call it out one more time.

[680] If you liked the last episode or you want to hear more or you just want to hear from a very honest and clear thinker about the current state of the NBA and how he operates his basketball team, go listen to Steve Balmer on the Bill Simmons show.

[681] yeah it's a great episode and uh um you know hear him say uh unfortunately he doesn't do a um doesn't do a uh you know head coaches head coaches head coaches chant but the the classic the classic bomber enthusiasm is is on display as always yeah a bunch of real quick ones from me a whole lot has happened in the last couple weeks we won't analyze any of these but just to to list out and and would love to jump in the slack and chat about them with folks uh some of this has already been talked about in the Slack.

[682] Apparently, a lot of publishers are now abandoning Facebook instant articles for a whole bunch of reasons.

[683] Two, Microsoft is killing Wonderlist.

[684] Very, very sadly.

[685] It is my to -do list app.

[686] I love it.

[687] And I'm bummed that it's going away.

[688] Three, Instagram is on fire.

[689] Growth is just continues to accelerate.

[690] They announced that they past 700 million MAUs this past week, which is, you know, they're starting to rival, you know, the same size as the parent company as Facebook.

[691] Yeah, I mean, Instagram is just crushing it at being Snapchat.

[692] Nobody does Snapchat better than Instagram.

[693] Next, the Echo Look.

[694] So Amazon announced an actually big shout out to our good friend Zoe in Seattle who had a big role in playing and developing the echo look.

[695] So now you can not only talk to Alexa, but Alexa can watch you in your home.

[696] And I don't know, I can't decide if it's creepy yet or awesome, probably both.

[697] As with everything.

[698] I mean, as with everything.

[699] And the, you know, as I record this episode in my apartment in Capitol Hill in Seattle, like my Alexa is listening to the entire thing.

[700] So listeners, if you're at Amazon and, you know, you have the encryption keys, then you get a first look at this episode.

[701] At first look at the episode, right?

[702] Which they don't.

[703] We're just joking.

[704] But it is one of those things like it.

[705] I think a lot of people will think this seems creepy right now, but I bet it will be surprised at how quickly it becomes normal.

[706] Yeah.

[707] Next, two more real quick ones.

[708] One, Cloudera priced their IPO yesterday at $15 a share, enterprise value market cap of about just under $2 billion, which is sort of flat from their, well, actually it's half of their last private raise, but the last private raise was more of a secondary that Intel did.

[709] So big enterprise IPO happening.

[710] Which is what the fifth or six of this year, the March goes on.

[711] Yeah, the march goes on.

[712] The IPO window is open.

[713] And then finally, follow up on our Uber Didi episode.

[714] Obviously, there's been lots of Uber news over the past couple weeks, but D .D. yesterday raised $5 .5 billion in the largest private company fundraising round ever.

[715] B, $5 .5 .5 billion in one fundraising round.

[716] Man, if, you know, if you are on Team Uber and you thought that we talked about this on the show with Brad Stone, but if you thought that doing the quote -unquote merger with D .D. meant that the war was over, you know, and you didn't have anything to worry about, like, guess again the DD giant is and this 5 .5 billion dollars specifically was raised to expand internationally.

[717] D .D. is coming and gunning to be a competitor to Uber and everyone else in the space.

[718] So watch what happens in the future.

[719] Yep.

[720] Carvouts.

[721] Carvouts.

[722] Okay, real quick, I have a real quick carve out that will take many hours to read and I'm still not done.

[723] But the latest Wait But Why was months in the making and is just fascinating, all about the new Elon Musk company Neuralink that Wait But Why refers to as the quote wizard hat.

[724] I won't even get into it here, but it's very worth reading and very thought -provoking.

[725] I feel like Elon companies at this point are like the blockbuster hit of the summer.

[726] Like coming this July.

[727] It's like the new Star Wars movie.

[728] Yeah.

[729] It's all coming full circle here.

[730] It is.

[731] And while you chose one that is largely about the future of humanity and incredibly important, mine is quite trite but fun.

[732] So the New York Times operates a Twitter account called the NYT Fourth Down Bot, NYT4TH down bot.

[733] And it basically crunches a whole bunch of numbers.

[734] And I'm sure I haven't really looked into the, at these days, these days I just assume something has a data scientist doing machine learning behind it.

[735] And that that is just like, oh, oh yeah, well, everything that involves data is surely machine learning now, but basically it's really just a man behind the curtain.

[736] Yeah, somebody applying 20 -year -old mathematics and statistics to pop this out.

[737] But basically, it tweets for every NFL game, what decision they would make on fourth down.

[738] And it is awesome because there's this non -data -driven, basically there's this trope going around that NFL owners play it safe and punt because that's the accepted wisdom and they don't want to risk it and go for fourth more often than is generally accepted go go forward on fourth down rather than punting or going for a field goal more often than is commonly accepted because they will if they fail faith face the wrath of fans and potentially the owner which we were lamenting on the last episode and in the slack right but you know but if you if you quote unquote money ball it and if you really you know look at all the data that you possibly can um coaches should go for it on fourth much more often than they do and so the this uh this is a live uh actually working bot that analyzes um every NFL game and and every decision on fourth down so i followed it it's a fun uh so great and actually uh i saw it and found out about it you you you might have to do in the slack so thank you to everyone for uh for posting about it yeah yeah our sponsor for this episode is a brand new one for us stat sig So many of you reached out to them after hearing their CEO, Vijay, on ACQ2, that we are partnering with them as a sponsor of Acquired.

[739] Yeah, for those of you who haven't listened, Vijay's story is amazing.

[740] Before founding Statsig, Vijay spent 10 years at Facebook where he led the development of their mobile app ad product, which, as you all know, went on to become a huge part of their business.

[741] He also had a front row seat to all of the incredible product.

[742] engineering tools that let Facebook continuously experiment and roll out product features to billions of users around the world.

[743] Yep.

[744] So now Statsig is the modern version of that promise and available to all companies building great products.

[745] Statsig is a feature management and experimentation platform that helps product teams ship faster, automate A -B testing, and see the impact every feature is having on the core business metrics.

[746] The tool gives visualizations backed by a powerful stats engine, unlocking real -tax.

[747] time product observability.

[748] So what does that actually mean?

[749] It lets you tie a new feature that you just shipped to a core metric in your business and then instantly know if it made a difference or not in how your customers use your product.

[750] It's super cool.

[751] Statsig lets you make actual data -driven decisions about product changes, test them with different user groups around the world, and get statistically accurate reporting on the impact.

[752] Customers include Notion, Brex, OpenAI, Flipkart, Figma, Microsoft, and Cruise Automation.

[753] There are, like, so many more that we could name.

[754] I mean, I'm looking at the list, Plex and Versel, friends of the show at Rec Room, Vanta.

[755] They, like, literally have hundreds of customers now.

[756] Also, Statsig is a great platform for rolling out and testing AI product features.

[757] So for anyone who's used Notions' awesome generative AI features and watched how fast that product has evolved, all of that was managed with Statsig.

[758] Yep.

[759] If you're experimenting with new AI features for your product and you want to know if it's really making a difference for your KPI's STATSIG is awesome for that.

[760] They can now ingest data from data warehouses.

[761] So it works with your company's data wherever it's stored.

[762] So you can quickly get started no matter how your feature flagging is set up today.

[763] You don't even have to migrate from any current solution you might have.

[764] We're pumped to be working with them.

[765] You can click the link in the show notes or go on over to statSig .com to get started.

[766] And when you do, Just tell them that you heard about them from Ben and David here on Acquired.

[767] All right.

[768] Well, listeners, that is all we've got for you today.

[769] Thank you so much, as usual, for joining us.

[770] And if you've been a long -time listener or if you're just joining us, we would love a review.

[771] Seriously, if you've got two minutes right now and you're bored on your phone and you have, you're trying to decide what app to open next, please open.

[772] Actually, it's actually not iTunes reviews anymore.

[773] We're technically on Apple Podcasts.

[774] So, you know, open up Apple Podcasts and leave us a review.

[775] And thanks so much.

[776] We'd love for you to join the Slack and help us decide how to pick the next episode.

[777] We will likely continue on kind of the sports tech trend for maybe one or two more episodes.

[778] And then there's plenty of other great stuff to cover.

[779] So.

[780] Oh, yeah, plenty.

[781] Plenty, plenty.

[782] It's an embarrassment of riches ever here required.

[783] Thanks, everyone.

[784] We'll see you next time.