Rumors have been floating around the media industry for some time about Walt Disney Co.’s interest in the video-streaming unit of MLB Advanced Media, the digital arm of Major League Baseball. Now, according to one report, the entertainment conglomerate’s interest has escalated to the point where it is ready to write a big check for a stake in the company.
To be specific, sources told Recode that Disney is prepared to spend as much as $1 billion for a third of the MLB Advanced Media operation, known as BAM Tech, provided that the ownership agreement allows it the option to eventually acquire a controlling stake.
What exactly is it about the MLB’s streaming operation that has Disney (DIS) so excited? There are a number of things, but the bottom line is that BAM Tech would fit more or less perfectly into the media and entertainment company’s portfolio of assets, filling a number of holes that are growing larger and more troubling by the day.
MLB Advanced Media was set up by Bob Bowman in 2000. It started out as the technical arm of the baseball broadcaster, handing website development and eventually the league’s streaming of games, as well as the development of its mobile apps and services. The company also does online ticket sales for all the league’s events.
Over time, the operation expanded to the point where it started to handle streaming services for other companies as well, such as HBO Now and Glenn Beck’s The Blaze TV. In 2015, it signed two major deals to handle the streaming of all major events put on by the National Hockey League and the Professional Golf Association.
Sign up for Data Sheet, Fortune‘s technology newsletter.
In a nutshell, the video unit of MLB Advanced Media has become a powerhouse when it comes to live-streaming sports with a market value that has been estimated at between $3 billion and $5 billion. Last year, the league started discussing a potential spin off of BAM Tech as a separate company, expressing interest in finding partners that could help it do so.
Sources say Disney jumped at the possibility of acquiring a stake in the new company, and the Mouse House started negotiating in earnest earlier this year about what form such an investment might take. One problem for Disney is that it’s not the only one interested. Private-equity fund Silver Lake Partners is also said to be considering an investment, and both Time Warner and Sony have reportedly expressed interest in the past.
For Disney, the biggest hole that BAM Tech could help fill exists at ESPN, the sports network that generates a substantial amount of the company’s operating income—close to 55% or so. Until recently, ESPN was seen as almost impervious to broader industry shifts in viewing behavior, because of its control over the future broadcasting rights for a host of sporting leagues, including the NBA and NFL.
Over the past year, however, ESPN has seen a fairly sharp decline in the number of subscribers who are willing to pay for the network, even as its costs for licensing all of those sports broadcasts have crept higher and higher. ESPN still has about 92 million subscribers, but the downward trend seems inescapable.
Netflix stock is still falling. Watch:
Where does that leave Disney? ESPN’s chief executive, John Skipper, has talked about offering an over-the-top streaming service as a way of fighting the cord-cutting trend. But even if the network did so, it’s not clear that enough people would pay enough money for such a service to make it worth doing. Meanwhile, MLB Advanced Media has already built and is running what amounts to a streaming version of the sports network.
Taking control of the MLB video unit would give Disney a significant hedge against the erosion in ESPN’s market share in sports. It would also generate a substantial amount of streaming revenue, and the service could be extended to other sports that BAM Tech doesn’t currently have the rights to, and it could help Disney offer over-the-top streaming packages direct to the consumer in a variety of ways.
Whether it’s in digital, streaming form, or on a traditional television broadcast, sports programming continues to be one of the few things for which viewers seem willing to pay. Buying BAM Tech would allow Disney to gradually de-emphasize the traditional TV part of that equation and focus more on the streaming side. That’s probably worth at least a couple of billion dollars.