Amazon Welcomes James Bond
Amazon’s $8.45 billion purchase of MGM is complete. The studio is now part of the e-commerce giant, marking the second largest acquisition in Amazon’s history, and adding thousands of films and television episodes to its platform. Amazon purchased MGM in May 2021 but was waiting on approval from government regulators before the deal could be finalised. The deal finally received clearance from the European Union’s antitrust regulator. Amazon has also moved forward with the transaction after the mid-March deadline for the U.S. Federal Trade Commission to challenge the merger had expired.
MGM is one of several companies Amazon has acquired in recent years, but the $8.45 billion deal is second to Amazon’s $13.7 billion purchase of Whole Foods in 2017. MGM is well known for its films made in the 1930s through 1960s, including classics like “Singin’ in the Rain and Gone with the Wind”. The acquisition demonstrates a significant investment in Amazon’s entertainment division as the tech giant fights to compete with streaming rivals like Netflix and Disney Plus. MGM had faced many financial setbacks in the past, for example, declaring bankruptcy in 2010, however with this acquisition, MGM has been given a solid financial injection to help give the studio a massive distribution arm through Amazon.
“MGM has a nearly century-long legacy of producing exceptional entertainment, and we share their commitment to delivering a broad slate of original films and television shows to a global audience,” Mike Hopkins, the Senior Vice President of Prime Video and Amazon Studios, said in a statement. “We welcome MGM employees, creators, and talents to Prime Video and Amazon Studios, and we look forward to working together to create even more opportunities to deliver quality storytelling to our customers.”
Projections and Assumptions
Netflix is at the forefront of the streaming industry have managed to maintain their majority market share by creating their own original shows and films, for example, Stranger Things which has now surpassed 1 billion hours of watching time. This experience that MGM Studios will bring will help improve Amazon’s production capabilities and ultimately increase members in the long term.
In its official announcement, Amazon noted it would “help preserve MGM’s heritage and catalogue of films and provide customers with greater access to these existing works.” In the long-term this catalogue of films will allow Amazon to produce further remakes and maybe spin-off series, noting the budget is much higher and this influx of cash may open the opportunity to revive old classics such as Tomb Raider and Robocop.
Furthermore, what also must be noted is that Amazon Prime is not the main service that Amazon offer (unlike Netflix), investors will see this as an important step in reducing risk through their diversification strategy. This is crucial for success as by expanding their investments across a range of industries Amazon can bolster their profits whilst also managing risk.
Risks and Uncertainties
Due to the recent Covid-19 pandemic, cinema has fallen as a commercially attractive distribution channel for the film industry. This is because social distancing led to fewer customers, creating lower demand, and threatening film companies which relied on the cinema as their primary distribution channel. Moreover, the uncertainty brought to the film and TV industry by the pandemic forced studios to delay new releases for when there were fewer social regulations and hence fuller movie theatres. For example, MGM was delayed its release of ‘No Time to Die’ from April 2020 to September 2021. MGM put itself up for sale primarily because of these changes in the industry brought about by the Covid-19 pandemic.
What must also be considered is that Covid-19 has caused an increase in subscriptions to streaming platforms. For instance, in 2020, Netflix’s share price rose by 30%. This increasingly profitable and super-competitive internet TV market means the price of content and IP is also increasing, which is the reason behind Amazon’s acquisition of MGM. Amazon knows it needs content to remain competitive, and MGM knows streaming platforms will pay high prices for the competitive advantage its content can provide. As a result, with the future in mind, the biggest advantage and USP that Amazon will have over its competitors, will be the availability to create remakes of old classic MGM-produced films, which I believe could heavily benefit subscription rates for Amazon Prime, along with increased purchases of classic and remake movies on the streaming service itself.