Taking over TV

The future of Major League Baseball is not just about baseball

June 6, 2014
June 6, 2014

Just across the street from Google’s imposing New York headquarters, where the search giant’s unmistakeable logo is emblazoned across the side of an art deco building, are the offices of one of New York’s fastest growing media and technology companies.

This business, whose products and services touch the lives of countless Americans each day, employs more than 700 people. It is on track to generate about $800 million in revenue this year. It has been profitable for about a decade, paying its owners a rising dividend for most of that time. It counts some of the world’s most important media companies, like the Disney-controlled sports behemoth ESPN, among its growing client list.

It is not the brainchild of a visionary programmer and has no funding from the venture capital industry. Instead, what has been described as New York’s top tech startup of the last decade is an offshoot of America’s oldest professional sports league: Major League Baseball.

MLB Advanced Media is a fascinating company run at arm’s length from America’s so-called national pastime, and owned by the 30 major league baseball teams rather than the league itself. It runs the websites for all MLB teams, and is responsible for the league’s social media operations and its hugely successful smartphone and tablet apps. Its nondescript headquarters also house the league’s review operations center, where official umpires review video of contentious in-game calls for matches all around the country.

But BAM, as its employees and people in the industry call it, it is best known for its online video streaming services—most notably mlb.tv, which lets its subscribers watch every Major League Baseball match except those involving the team from their home market (more on that in a bit). Remarkably, it is now making a significant chunk of its money from sources outside of the sport that spawned it, by selling the technology behind its online TV service to other content companies—like ESPN, World Wrestling Entertainment (WWE), and Sony.

No other sports organization I can think of has a thriving business essentially unrelated to the actual game it exists to run. Not only that, but MLB Advanced Media is arguably the market leader in providing the infrastructure that supports live online video streaming, a market still in its infancy that could grow enormously.

Perhaps most remarkably of all, MLB’s dominance in this market happened pretty much by accident.

“I wish I could say it was a clairvoyant vision on my part,”MLB Advanced Media CEO Bob Bowman tells Quartz in a wide ranging interview. “I wish I could say there was a lot of resistance [from owners to develop a third party business] but my eloquence won the day. But both of those would be a lie. The fact is, we got called by a really important client of ours, [who asked] would we think about doing some backend streaming for them? So we got into the business that way.”

Rich history

The existence of MLB Advanced Media stems from a decision made back in June 2000, when the dot-com bubble was in the process of bursting. At the time, MLB franchises were concerned about the costs of running websites and streaming matches over the internet, so they decided to pool resources and invest the same amount ($1 million a year for four years) to centralize their digital operations, and split any profits evenly.

That was a surprisingly egalitarian step for what is arguably—in financial terms at least—America’s least egalitarian sport. Unlike in basketball and American football, there is no salary cap in baseball preventing teams from outspending each other, although there is a “luxury tax” levied against teams with high payrolls and distributed to poorer franchises.

To Bowman, therefore, the fact that his service puts all teams on a level playing field is one of its great strengths. With BAM’s products, “a Milwaukee Brewer fan or a Kansas City fan gets the same experience as a Yankees fan.” Each subscriber to mlb.tv, in other words, gets broadly the same service.

Within barely three years the business was already cashflow positive and by 2005 investment bankers were sniffing around for a possible IPO that would value the company at up to $2.5 billion. But the business has since gone from strength to strength. The company has adroitly managed the growth of mobile devices like smartphones and tablets: Last year, MLB’s “At Bat”app was the top grossing paid iOS sports app for the fifth straight year. (The app lets users instantly replay video on their phones, listen to audio broadcasts, generate realistic digital renderings of game action, and play with a trove of statistics.) BAM also has a fast-growing ticketing division, that helps baseball clubs—as well as other sports and venues—manage their ticketing inventory with all the sophistication of an airline booking portal. It is even getting into video game development.

Yet streaming TV remains its biggest and best known activity.

A battle for the future of television

For a long time, BAM’s live-streaming technology has been considered the best in the business. Despite some complaints this season, mlb.tv is still reckoned to be superior to the online products offered by rival American sports leagues in terms of the content it offers, the quality of the streaming, and the special featuers it provides (such as split screens for watching multiple games at once, and—its newest feature in game statistics—an in-game player tracker).

The infrastructure needed to support this is expensive. All 30 MLB ballparks are linked up to a fiber optic network, and BAM has multiple data centers around the country (in New York, north Texas, Omaha, Nebraska and, soon, San Francisco). So selling its technology to other content owners is completely logical from a business perspective, Bowman argues.

“It’s just a way to take that and scale it and make it more useful. Like any other piece of real estate you are going to make more money if you are open 24 hours a day than if you are open 16 hours a day,” he explains. “Our philosophy is, the more that’s out there that’s being streamed live, the better off we all are. The better off baseball is, because we have a live streaming product, the more people come to expect live streaming, the more people will come to baseball’s live streaming. While it seems to be somewhat competitive, we don’t view it that way. We think a rising tide lifts all boats.”

This year, when WWE decided to launch its own online network, it chose MLB Advanced Media as its partner. Wall Street is worried that the $10-a-month service, which offers access to all of the WWE’s pay-per-view specials like Wrestlemania as well as archived footage, will cannibalize wrestling and entertainment income from the existing cable and broadcast network. But reviews of the service and the technology that underpins it remain highly positive. Bill Simmons, the founder of sports site Grantland, gushed about it. So did the editors at CNET,  who rate the WWE service “excellent.” Bank analysts are equally effusive in their praise.

Part of BAM’s success in winning third-party business comes down to a lack of obvious competition. Twitch TV, a company that streams video games live, attracts enormous audiences, but—at least to Bowman’s knowledge—it is not out there seeking third-party business. A lot of content owners try to build and develop their own streaming TV platforms, but “the people who hire us are the people who want to make money, because it’s a complicated process,” he says.

BAM’s first third-party streaming client was ESPN. Another notable win was the Blaze TV online network founded by Glenn Beck, a provocative right-wing pundit. And BAM is now providing the back-end technology for a “virtual” pay TV service Sony is currently developing. Not much is yet known about the product, but in a recent interview with Deadline, Bowman gave a hint about what it might look like:

It will be the linear feeds of the networks. I’m not party to the conversations Sony is having with the networks. But whatever’s on that network, we’re going to capture, encode, and deliver to devices [that are] inside the home already: the PS3, the PS4, and the Blu-ray player…They have an installed base in the tens of millions. That’s obviously going to be their target environment.

Such a service could shake up the industry quite a bit. It would make Sony the first notable device manufacturer to start selling an internet pay TV service, perhaps paving the way for Apple to do the same.

But another reason BAM’s growing influence matters is that sports coverage is crucial to the survival of existing pay-TV businesses. These companies depend heavily on bundling—i.e., making consumers pay for a package of channels of which they may actually watch only a few. Live sports are often among the “must-watch” channels in a bundle. And as consumers increasingly demand—and obtain—TV on-demand over the internet, it undermines the bundling model.

That’s why BAM doesn’t currently stream games in a subscriber’s home area. Ending that “blackout policy” would jeopardize lucrative deals between local TV networks and baseball teams. Still, Bowman is hopeful that it won’t be long before local broadcast restrictions are removed and all baseball matches will be available on mlb.tv, no matter where a viewer is located.

Given BAM’s significance as an emerging player in television, Bowman’s thoughts on the future of the medium carry considerable weight. “In the end, the pay TV model’s not going anywhere, cable is going to exist, satellite is going to exist,” he tells Quartz. “But I think what WWE is showing is, and what MLB is showing us is, you have to have some over-the-top [i.e., internet TV] content. It may be extra, it may be sliding in as a supplementary, complimentary, but you have to have an over-the-top strategy, because there are going to be increasing numbers of people who are [internet TV] only.”

For love of the game

It’s ironic that America’s oldest and most tradition-rich sport is the most innovative when it comes to television and the internet. But baseball is also the American sport best suited to the internet, and to mobile devices in particular. There are more games in a regular season (each team plays 162 regular season games, for a total of 2430 games, excluding playoffs), which makes it nigh-on impossible to watch all of them. So it’s perfect for on-demand streaming and mobile access.

The nature of the sport—its quantifiable number of outcomes and lengthy history—also makes it well suited to statistical analysis, the other pillar of BAM’s products. The game has spawned countless data obsessives, from the writer Jack Kerouac, to Bill James and the Oakland A’s manager he inspired, Billy Beane (of Moneyball fame) and most recently Nate Silver, founder of the journalism site FiveThirtyEight.

Other sports are not as outward-thinking. (The NFL has an award-winning film unit, but despite dabbling in live music video content, has since retreated). Bowman says the operation has been guided by a simple philosophy. “We fail plenty here, but we fail fast. We are not nostalgic. If it doesn’t work, it doesn’t work, so don’t waste our consumers’ time.”

If the business was thought to be worth $2.5 billion nearly a decade ago—about the same as the current valuation of the New York Yankees, baseball’s most valuable team—it is surely worth far more now. But Bowman rules out an IPO; BAM does not need fresh capital, he says, and its owners have already been paid back (and then some) for their original investment.

Either way, its impact is destined to be felt far beyond baseball.  “I think it’s not only one of the great stories in American sports business in the past 12 years,” the most powerful man in baseball, MLB commissioner Bud Selig told Fast Company in 2012, “but one of the great stories in American business.”

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