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Amazon Shakes Up Streaming With MGM Acquisition

By Gary Symons

TLL Editor in Chief

MGM’s roaring lion is now purring happily in the Amazon stable, after the eCommerce giant acquired the historic film studio in a critical, $8.45 billion deal.

That sum makes the MGM acquisition the second largest in Amazon’s history, but Jeff Bezos and crew are betting their investment will pay off as part of the company’s strategy to become a giant in the world of home and theatrical entertainment. Amazon’s only investment larger than the MGM acquisition was the buyout of the Whole Foods grocery chain for $14 billion in 2017.

Like the Whole Foods deal, adding the MGM label to Amazon’s corporate empire was done due to synergies in the business model. Amazon is investing heavily in making its Prime streaming video service a top competitor in the streaming wars against other powerful entities like the current champion Netflix, the world’s largest entertainment conglomerate in Disney, tech rival Apple, and putting it head to head against other streaming upstarts like AT&T’s HBO Max/Discovery conglomerate, and Paramount+, among many others.

In that competition the key coin of the realm is content, and that’s where the money is going as corporate giants vie for the biggest slice of a large and rapidly growing pie.

“MGM has a vast catalog with more than 4,000 films—12 Angry Men, Basic Instinct, Creed, James Bond, Legally Blonde, Moonstruck, Poltergeist, Raging Bull, Robocop, Rocky, Silence of the Lambs, Stargate, Thelma & Louise, Tomb Raider, The Magnificent Seven, The Pink Panther, The Thomas Crown Affair, and many other icons—as well as 17,000 TV shows—including Fargo, The Handmaid’s Tale, and Vikings—that have collectively won more than 180 Academy Awards and 100 Emmys,” said Mike Hopkins, Senior Vice President of Prime Video and Amazon Studios. “The real financial value behind this deal is the treasure trove of IP in the deep catalog that we plan to reimagine and develop together with MGM’s talented team. It’s very exciting and provides so many opportunities for high-quality storytelling.”

Amazon also says it’s going to take a somewhat hands-off approach to its new property. “Amazon will help preserve MGM’s heritage and catalog of films, and provide customers with greater access to these existing works,” the company said in a statement. “Through this acquisition, Amazon would empower MGM to continue to do what they do best: great storytelling.”

According to research by Statista, revenues in the Streaming Video On Demand (SVOD) industry is expected to reach $71.2 billion this year, with an annual growth rate of 11% raising that total to $108.3 billion by 2025. Most of that revenue at present is generated in the United States, which is expected to account for $32.1 billion this year, but as other markets grow, streaming services already have their eyes firmly set on a much larger global market.

The reasoning for the high value deal is simple from Amazon’s point of view. Its Prime service now has more than 200 million members globally, but the company faces intense competition for content. Disney+ rocked the industry when it decided to move its content off of competing streaming services and to open its own SVOD, which includes content from Pixar, Disney, Hulu and Marvel. Netflix responded by upping its spending on new and original content, and most analysts say the early entrant into the streaming wars still remains on top in terms of content and viewers. As well, as reported earlier this week in TLL, AT&T has merged its WarnerMedia property with Discovery in a $43 billion deal that, for now, will see Discovery+ and HBO Max operating as a combined entity.

The acquisition of MGM would go a long way to putting Amazon at par with the competition, as MGM owns one of the world’s largest catalogs of premium film and TV content. MGM has more than 4,000 film titles in its library, including premium properties like the James Bond collection, The Hobbit, the Rocky and Creed series, The Terminator, the RoboCop and Pink Panther franchises, as well as hit movies like The Silence of the Lambs, The Magnificent Seven and Four Weddings and a Funeral.

Timing is good for Amazon as well, as the latest and long delayed installment of the popular James Bond franchise, No Time To Die, is due to be released this year.

That also brings up another critical point, as Amazon to date has been focused on streaming, but the acquisition of MGM means the company can also count on box office returns from one of Hollywood’s most successful studios.

The company’s catalog of TV properties is equally impressive, featuring approximately 17,000 episodes of programming, including several highly popular hits. The Handmaid’s Tale is a massive hit in the US and around the world, as is the new Fargo series, but MGM has literally hundreds of other hit programs from the past and present, including the various Stargate series, Vikings, Get Shorty, Condor, American Gladiators, The Voice, Survivor, Shark Tank, and many more.

MGM is also a profitable company for the most part, with the exception of 2020 when the collapse of box office receipts during the pandemic led to a sharp decline in revenues. MGM Holdings lost $12.1 million in the first quarter of 2020, but the company is showing it can bounce back, as its quarterly report for Q1 this year shows a 27% increase in revenue to $403.3 million, and the company reported net income of $29.3 million.

MGM was reportedly looking for a buyer for some time, asking for a reported $9 billion, and the company’s chair Kevin Ulrich said he’s pleased with not only with the financial side of the deal, but with Amazon’s stated policy that it will encourage MGM’s experienced team to continue developing content as the company has always done.

“I am very proud that MGM’s lion, which has long evoked the Golden Age of Hollywood, will continue its storied history, and the idea born from the creation of United Artists lives on in a way the founders originally intended, driven by their talent and their vision,” Ulrich said. “The opportunity to align MGM’s storied history with Amazon is an inspiring combination.”

While the MGM deal is pricey, for Amazon the price tag would appear to be eminently affordable. As compared to the $8.45 billion price on MGM, Amazon spent $11 billion on content acquisition in 2020, an increase of 40% from the previous year.

 

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