ESPN is Launching an ESPN Streaming Service That Isn’t ESPN. Mmmm, what?

Try wrapping your head around this, sports fans: ESPN is launching an ESPN-branded subscription service that won’t include any current ESPN content — no Major League Baseball, no Southeastern Conference football, no SportsCenter, no 30 for 30.

ESPN owner Disney said it plans to launch the new service later this year with live regional, national and international sporting events, but without ESPN’s current programming. Last week’s announcement didn’t include any specifics on what the programming would be, either.

Is competitive jump-roping the next big thing? Or maybe man-vs.-bear hotdog eating? Will people call the new service The Ocho and start petitioning for dodgeball tournaments?

From Disney’s announcement, the service sounds like it’s going to be an ESPN in exile — a break-glass-in-case-of-emergency service that ESPN can quickly relaunch as a freestanding ESPN app if the rate of cord-cutting suddenly accelerates above the 1 percent a year that most industry analysts project into the foreseeable future.

“If the business model that is supporting these great media properties starts to fray in any significant way,” Disney CEO Bob Iger said last week on CNBC, “we have the ability to pivot quickly and put out a direct-to-consumer product to potentially replace it or supplant it. It’s our hope that doesn’t happen, but this certainly puts us in a great position should it happen.”

Disney and ESPN don’t yet know themselves what the new ESPN service will be or how its investment in BAMTech — more on that below — fits into their long-term plans, but they see an unstoppable shift in the market from cable to streaming and are stocking up on the technological infrastructure that will aid in that transition. Also, a $1 billion IT investment is a relatively small deal for Disney at less than 2 percent of annual revenue.

DISNEY’S DEAL FOR MLBAM

The new streaming service is part of ESPN’s $1 billion investment in BAMTech, a streaming technology startup that spun off earlier this year from MLB Advanced Media (MBLAM), the media arm of Major League Baseball.

MLBAM is collectively owned by Major League Baseball’s 30 team owners, who started it in 2000 to manage the league’s websites. Over the last 16 years, MLBAM has morphed into a full-fledged sports media company that runts the MLB.TV streaming service, online tickets and the league’s websites, plus many of the backend streaming services for PGA Tour Live, WatchESPN, FOX Sports, HBO NOW, Playstation Vue, and other streaming services.

In February 2015, MLB Commissioner Rob Manfred told the Wall Street Journal that the MLB owners were looking into spinning off the streaming operation into a new entity in partnership with big media companies like Time Warner and Sony who were already using MLBAM’s streaming services. The spin-off company, Manfred said, “has the capacity to become a real leader in the technology space generally — not just in the video streaming business.”

In August 2015, MLBAM started referring to the to-be-spun-off company as BAM Tech and announced a six-year deal to manage all of the National Hockey League’s digital assets with the NHL becoming an equity investor in the streaming venture. In a long and beautifully reported piece that profiled MLBAM and BAMTech that same month, The Verge’s Ben Popper surmised that BAMTech could have a valuation “north of $5 billion.”

Soon after BAMTech announced the NHL deal in August 2015, it began gravitating more toward a deal with Disney than with a broader consortium of media companies. In April 2016, Recode’s Peter Kafka reported that Disney was in advanced talks to purchase an equity stake in BAMTech with an option to take a controlling interest down the road. That’s essentially the deal announced Tuesday: Disney will make a $1 billion investment for a 33 percent stake in BAMTech with an option to buy a majority stake.

SO WHAT’S THE PLAN WITH ESPN?

ESPN makes its money the way most cable channels do — charging per-subscriber fees to satellite and local cable providers and selling advertising on ESPN, ESPN2 and its other channels. Those providers pay ESPN an average of $6 per month per subscriber — triple the cost of any other channel — and will pay $8 a month by 2018 due to annual escalators built into those contracts. Providers would love to convert ESPN to a premium service and pass that savings to the 56 percent of subscribers who would rather have the $8 than ESPN.

In August 2015, while MLBAM was hatching its BAMTech business plan, investors were pummeling Disney’s share price due to concerns about ESPN losing 7 million subscribers in the previous two years. Financial analysts started shifting from talk about whether ESPN would launch a freestanding service but when. ESPN is part of Sling TV and Playstation Vue’s cable-killer streaming services, and will be on the DirecTV service that’s launching later this fall.

But if ESPN launches its own service to try and recapture cord-cutters, it risks losing the much bigger share of its revenue stream that satellite and cable providers are paying to include ESPN in their base plans. That’s because Dish Network, Comcast and other providers would fall under intense pressure from their pitchfork-bearing, non-sports-watching subscribers to drop ESPN since it’s now available a la carte.

As ESPN President John Skipper said at Recode’s Code/Media conference in February: “We don’t sell it alone right now because we generate more revenue by being in a larger package, being ubiquitous across the households in this country, in which we can sell advertising.” That didn’t suddenly change Tuesday when Disney announced a $1 billion investment in BAMTech.

“Ninety percent of all live viewership is sports,” Piper Jaffray analyst Stan Meyers said Tuesday on CNBC’s Power Lunch, “so I think overall ESPN remains a critical component of TV consumption today. But I think Disney is slowly taking on digital platforms. It’s layering in that new subscriber growth from those platforms, and starting to take on those digital platforms as well.”

As long as satellite and local cable providers are losing only 1 percent of subscribers a year and virtual services like Sling TV and Playstation Vue are providing an alternative way to subscribe, there’s no reason to expect ESPN to rush out a standalone version of its current service unless that changes. If you want to cut the cord and ESPN is deal-breaker, just think of Sling TV as a $20-a-month ESPN streaming service — plus 20 other channels.

That’s as close to a freestanding ESPN service — or one with ESPN’s current live-sports lineup — as we’re going to see for a while.

Scott Porch writes about the streaming-media industry for Decider. He is also a contributing writer for Signature and The Daily Beast. You can follow him on Twitter @ScottPorch.