(Adds comment from Time Warner CEO)
By Liana B. Baker and Lisa Richwine
Oct 6 (Reuters) - The NBA’s agreement on a more than $20 billion multi-year contract with broadcast partners Walt Disney Co and Time Warner Inc was overshadowed by news that Disney’s ESPN is joining the basketball league to create an Internet sports channel available without a pay TV subscription.
A new streaming channel planned by ESPN, which sources familiar with the plans said would be widened to include other sports, is an early step that could upend the traditional cable and satellite companies if it leads to more consumers cancelling their pay TV service.
Cable and satellite providers pay Disney and Time Warner richly for their sports-heavy content. ESPN executives insist they are committed to the current pay TV system, and that any programming sold directly to consumers will complement rather than compete with the content available through pay TV packages.
But others said the streaming channel could have the same kind of transformative effect on sports programming that Netflix Inc has had on dramas and sitcoms.
“This is the first crack in the structure of the television business that has been in place for decades,” said Forrester analyst Jim Nail.
Under the new deal, ESPN will make a limited number of regular season NBA games available on the streaming channel, the sources said. The offerings will be expanded to include other sports, they said. The sources could not speak on the record because terms of the deal were not public.
ESPN said in May that it was considering selling online access to live Major League Soccer games to consumers without pay TV subscriptions.
The network said in a statement on Monday it has a framework in place with the NBA for the streaming service, and that the league would have an equity interest in the product.
ESPN offered the equity interest to the NBA as an incentive for the league to choose the streaming service - rather than a new programming partner such as Fox - for certain games, the sources said. The games being made available are those not already being shown on television ESPN and Turner as part of the rights renewal package, they said.
Disney and Time Warner Inc’s Turner Broadcasting System will more than double their annual payments to the NBA under the new nine-year deal, people familiar with the matter said.
Starting in the 2016-17 season, the two networks will pay more than $2.5 billion, an increase from $960 million per year in the past agreement. Over nine years, the deal could be worth upwards of $22.5 billion.
ESPN paid a bigger share than Turner because its deal includes international and radio rights, as well as WNBA games, according to people familiar with the matter.
“It is really good economically for the company,” Time Warner Chief Executive Jeff Bewkes said at a conference hosted by Hollywood website The Wrap.
“As I watched the market today, I think they got it wrong,” Bewkes said. Time Warner shares fell 1.2 percent on Monday to close at $73.82.
The agreement comes just days after satellite provider DirecTV agreed to pay $1.5 billion a year to extend its exclusive contract to sell its “Sunday Ticket” package of National Football League games.
Both deals are a reminder of the unique allure of sports programming for TV networks, whose non-sports lineups have been losing viewers to streaming services such as Netflix or are being watched on digital video recorders that allow users to skip commercials.
ABC and ESPN, both owned by Disney, will televise 100 regular-season games per year, and TNT, which is owned by Turner Broadcasting, will televise 64, the NBA said. (on.nba.com/1vGYHDX)
ESPN said it will increase its NBA-focused programming with 750 new hours of content. (es.pn/Z8TgTM)
The NBA’s current eight-year deals with ABC/ESPN and TNT expire at the end of the 2015-16 season. (Additional reporting by Jennifer Saba and Sai Sachin R; Editing by Sriraj Kalluvila, Dan Grebler, Bernard Orr and Ken Wills)