On the surface,
com’s $8.5 billion deal for MGM Holdings is puzzling. In absolute terms, it’s a big acquisition—Amazon’s second-largest ever, behind only its $13.4 billion purchase of Whole Foods in 2017. But MGM doesn’t own an especially compelling set of assets. So why is Amazon paying up?
For one thing, the e-commerce giant (ticker: AMZN) can afford it. With a market value of $1.6 trillion, $9 billion is a drop in the bucket.
MGM brings a library of 4,000 films and 17,000 TV episodes. The biggest prize is the complete collection of James Bond films—and the right to make more of them. Amazon also gets second-tier franchises, including the Pink Panther, Rocky, RoboCop, Legally Blonde, Tomb Raider, and The Addams Family. MGM’s TV production arm produces scripted series, such as The Handmaid’s Tale and Fargo, and unscripted shows, such as Shark Tank and The Voice. MGM also runs the Epix subscription movie service. As Bernstein analyst Mark Shmulik wrote in a research note this past week, MGM’s library is hardly a game changer. “What would you pay for an MGM+ subscription?” he asks. “Probably not a lot.”
The library was long ago stripped of its most iconic films. In 1986, Ted Turner bought MGM and quickly sold the studio, while keeping the rights to many of its historic movies. Those flicks are now controlled by Turner Classic Movies, part of
(T) WarnerMedia. So Amazon won’t get The Wizard of Oz, or Gone With The Wind, or Singin’ in the Rain. (You can watch any of those on HBO Max right now.)
And yet, there are merits to this deal. It locks up access to some old but familiar content at a time when that’s getting harder to do.
(VIAC) and WarnerMedia have all created their own streaming platforms. Over time, they’ll keep their libraries in-house, limiting the content choices for Amazon’s platform.
But now Amazon can play the same game. As Citigroup analyst Jason Bazinet pointed out in a research note last week, MGM produces seven shows for Disney, four for Comcast, four combined for WarnerMedia and
(DISCA), three for ViacomCBS, and one or two each for
(AMCX), and Fox. Those include some popular shows that could eventually show up on Amazon Prime, including ABC’s Shark Tank, NBC’s The Voice, CBS’s Survivor, and AMC’s Real Housewives.
MGM has been generating about $1.5 billion in annual revenue, but much of that will disappear as licenses expire and Amazon shifts the content to its own platform. For Amazon, the point is to find ways to mine MGM’s library for new content. Maybe the world needs a Mystic Pizza remake, or a Hot Tub Time Machine sequel, or another Weekend at Bernie’s.
“The acquisition’s thesis here is really very simple,” Jeff Bezos, Amazon’s chairman and its outgoing CEO, said at the company’s annual meeting last week. “MGM has a vast and deep catalog of much beloved intellectual property, and…we can reimagine and develop that IP for the 21st century.”
MGM hasn’t had the resources to do that on its own—the company has spent just $6 billion on new and acquired content since 2011, an almost trivial amount in the new world of streaming. Amazon spent $11 billion on movie, TV, and music content in 2020, up from $7.8 billion in 2019—and the total keeps growing, including a new 10-year deal to air Thursday Night Football for a reported $1 billion annually. Netflix expects to spend $17 billion on content this year alone. Disney says its content spending will reach $16 billion annually by 2024. Discovery and AT&T’s WarnerMedia expect to spend $20 billion a year on content once their merger closes.
Ultimately, Amazon will have more than one way to squeeze value out of MGM. More content should boost the appeal of Amazon Prime Video, which could reduce churn for Amazon Prime customers, and, thus, spur more online shopping.
Amazon also operates an advertising-supported on-demand video service called IMDB.TV, which needs catalog content to survive. And then there’s Amazon Fire, the streaming video platform that competes with
(ROKU); it could fill multiple new streaming channels with MGM content. One could imagine Amazon creatively mining its new trove to create not just new movies, but also television series, games, and podcasts, while loading up IMDB.TV with deep catalog content, such as Tank Girl, Rollerball, and Bio-Dome.
Lightshed Partners analyst Rich Greenfield told me this past week that there is “a war for time and attention…and MGM owns a lot of IP.” Greenfield says that Amazon has spent a lot of money on movies and television content in recent years without a lot to show for it in terms of “high-profile, visible hits.” The additional properties from MGM, he says, gives the company more opportunities to improve its streaming performance.
Netflix might have The Queen’s Gambit but just imagine what James Bond could do with a chess board.
Write to Eric J. Savitz at email@example.com