MLBAM and the Future of MLB’s Revenues

With the announcement of its partnership with the National Hockey League, and rumors that a potential spinoff of it’s streaming technology arm might be worth $5 billion, Major League Baseball Advanced Media (MLBAM) has moved past being the The Biggest Media Company You’ve Never Heard Of. The base of the deal with the NHL, though relatively small compared to many television rights deals at $100 million per year for six years for control of the NHL’s digital media rights, comes after a whirlwind of activity as well as speculation about MLBAM’s present and its future. MLBAM’s increasing diverse clientele and the partnership with NHL signifies MLB’s digital media arm is prepared to be a player outside of baseball. The move represents part of the slowly changing landscape of consumer consumption, although the potential spin-off could have ramifications the new companies devotion to MLB as well on the next collective bargaining agreement as owners attempt to separate baseball revenue from potentially significant non-baseball revenue.

Close to 15 years ago, MLB owners agreed to invest $1 million each per year for four years to create a digital arm to stay on top of technological advances as the internet. In the years since, the business has created incredible growth for MLB. From mlb.com, online ticketing, MLB AtBat mobile app, and mlb.tv to Pitch f/x and the recent unveiling of Statcast, MLBAM has changed the way fans watch, interact, and appreciate the game.

At the Verge, Chris Pepper has written a very good, detailed piece on where MLBAM has been, their opportunities now, and their potential for growth. A very interesting aspect to MLBAM’s rise outside of baseball is based on what the company has been forced to do inside the game. When viewers watch Netflix, they are watching a pre-created form of entertainment and they are choosing from such a wide variety of options, viewers are not all demanding to watch the same program at the same time. For MLB.tv to work, it had to develop a product that would broadcast simultaneously to the event’s production, and withstand all viewers attempting to view the event at the exact same time.

While MLB.tv is far from perfect (anybody following the game on twitter while watching on television at home can sympathize with spoilers sometimes ruining live action), MLBAM’s product, and the ability to ramp up that product quickly has put them in demand for those airing live broadcasts digitally. Sony and ESPN are clients of MLBAM. TechGraphs has been following the exploits of MLBAM for awhile, and in February, they noted the ambitious schedule so far this year that included launching Playstation’s Vue, streaming March Madness, WWE’s Wrestlemania, and the premiere of Game of Thrones on HBO Now, the network’s digital only offering. They have since added broadcasting non-televised portions of PGA Tour events. The HBO work came after the network had trouble launching HBO Go and could not meet viewer demand. MLBAM’s work reportedly saved nearly a billion dollars and three years of development time for HBO, and like their new deal with the NHL, MLBAM’s ability to develop solutions quickly has put it ahead of competitors.

The deal with the NHL is different from HBO in that MLBAM is paying for the rights as opposed to simply servicing a client. Similar to their MLB.tv product, MLBAM will be a content creator with the potential to reap the benefits should the venture be profitable. They are positioning themselves for a post-cable world where consumers get the product directly from those providing the content. Where this deal gets interesting is the confirmation that MLBAM is separating its non-MLB product from it’s MLB features, and giving the NHL a small stake in the non-MLB company (likely called BAM Tech). There was talk of going public at some point and discussions of worth perhaps nearing $5 billion, but MLBAM has opted instead to seek strategic partners to grow the business. Some of those potential partners might currently be clients, and they may find themselves in competition with clients they formerly served should they opt to buy more digital rights or create more content. David Temple speculated that BAM Tech could eventually compete with Sling TV as a lower cost television option that would include sports.

Currently, MLBAM is owned by the MLB franchises, and the MLB-related aspect of MLBAM will remain the same, but as the Verge piece indicates, resources devoted to streaming will be going with BAM Tech.

If BAM can pull off its plan to spin out as a stand-alone tech company, it could…focus on its core capabilities. “All the things that are related to baseball that aren’t streaming would stay behind at MLB,” says Bowman. Instead of the utility infielder juggling a dozen different jobs, BAM Tech would focus solely on the streaming business, trying to stake a major claim in the rapidly shifting media market.

Overall, this move appears to be a positive one for owners and the health of the game, but whether the benefits trickle down to fans and players is less clear. The move should ensure that fans get the best possible product, and slows some concerns about the health of the sport as consumers move away from the current cable model, but any move of this magnitude is not without some reservations. Any separation of personnel and resources or changes in priorities could reduce efficiency or the emphasis on improving MLB.tv. Even with the added business, MLB is still the major source of revenue for MLBAM. Should the revenue and profits move to the non-MLB side, it is not certain priorities will remain the same, especially when dealing with partners who have little to no stake in MLB’s growth.

While still more perception than reality at this point, the union is likely to view BAM Tech as an attempt to shield even more revenue from the players, which could present itself as a problem in the next negotiations for the Collective Bargaining Agreement. As revenues have soared, players have received a significantly smaller piece of the pie. The union will not likely care for any arguments that revenue is not as high as they believe it to be when money is still going into the owners’ hands. Franchises reportedly received less than $10 million per team last year from all of MLBAM’s revenues so gigantic dividends are not in the immediate future, but the billion-dollar spinoff has the potential to enrich the owners significantly as they enter deeper into the space of digital media and technology. Different parts foresight, luck, and necessity have made MLBAM an industry leader. They have already capitalized within the sport, and they are beginning to realize gains in an industry much bigger than their own.