Disney's big move into online video

The Walt Disney Co reported third-quarter results that reflected tough times for its TV business and said it's taking big steps in online video to adapt to changing consumer viewing habits.

The world's largest entertainment company said on Tuesday it will pay $1 billion for a one-third stake in BAMTech Inc, a technology and streaming business formed by the Major League Baseball, and launch a new web-based ESPN service this year.

The company also said networks including ESPN and the Disney Channel will be part of a new online video service planned by AT&T Inc's DirecTV division.

"This is a whole new world where distributors are going into the content space and content owners are going into the distribution space," Disney Chief Executive Officer Bob Iger said in an interview on Tuesday. "We are looking at a marketplace that is so dynamic."

The changing market for pay television, marked by a drop in subscribers for conventional cable and satellite services, is forcing companies like Burbank, California-based Disney to rethink how they offer programming.

TV channels including ESPN, the Disney Channel and the ABC network are the biggest contributors to Disney's sales and profit. The company said ESPN continued to lose subscribers in the quarter that ended on July 2.

Just how concerned investors are about those businesses was apparent after Disney reported fiscal third-quarter results. Despite beating analysts' estimates on higher profit from motion-picture hits and theme parks, Disney fell as much as 1.9 percent to $94.80 in late trading.

The cable TV unit's results help explain why. The division registered a narrow 1 percent increase in third-quarter earnings and sales. Higher TV programming costs and subscriber losses countered rising advertising and affiliate fees in the cable division, the company said.

Third-quarter profit excluding some items rose to $1.62 a share, Disney said in a statement.