Aurora Magazine

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Amazon Buys MGM

Published 01 Jul, 2021 10:26am
Why the deal is more about potential than about performance.
Photo: The Economic Times
Photo: The Economic Times

Amazon, the trillion-dollar ubiquitous online retail giant announced at the end of May 2021 that it was acquiring Metro-Goldwyn-Mayer (MGM) studios, the iconic US movie maker for a reported $8.45 billion. The MGM stable includes a plethora of classics ranging from Rocky, The Silence of the Lambs to The Wizard of Oz, Robocop and the James Bond movie franchise, long thought to be the third highest grossing such franchise in the world.

Additionally, the MGM also has a stable filled with over 4,000 plus movie titles and a whopping 17,000 plus TV shows. Given that digital streaming is now a big part of the global entertainment business, a process velocitised greatly by the global pandemic; and Amazon’s current status as an “also ran” with its Prime Video streaming service in what is becoming a very crowded marketplace, the idea of getting a huge library of must-see content seems like a natural fit. It is either that or Jeff Bezos simply decided to save around three weeks worth of his over $400 million dollars a day income and decided to buy out yet another iconic piece of the American cultural landscape.

Given that the US media industry is undergoing a period of consolidation on the back of digital distribution with smaller companies coming together to better compete with the domineering giants of the day in the sector such as Netflix and Disne and with many others like Discovery, Paramount, NBC and others launching their own streaming services, industry insiders claim it is only a matter of time that smaller players like Lions Gate and Viacom will also be acquired by the larger players over time.

So there is definitely a business case for the acquisition. From the standpoint of valuation, the case is stronger – more so for MGM. The studio has been on the selling block for a couple of years now with other players in the entertainment industry making a play for the movie business. The company was valued last year at around $5.5 billion including debt and previous bids made for MGM reportedly by both Apple and Comcast was around six billion dollars. So the deal is a definite winner for MGM.

From the standpoint of Amazon, the immediate benefits of the deal are less apparent on the face of it, considering all the strings attached of the assets that MGM crosses over with. For Amazon, MGM represents its second biggest acquisition after the $13.7 billion buy-out of Whole Foods in 2017.

The devil of the deal is as always in the details. While it is clear that the strength of the MGM franchise lies in its intellectual property (IP), the true potential for Amazon may lie in what it can do with the IPs in the future as opposed to the catalogue of what has already been created. This is where things get truly interesting. MGM being in business for nearly a century has tied its content in a variety of rather restrictive circulation deals. For example, in 1985 the media mogul Ted Turner brought out MGM and then subsequently sold its production and distribution assets. What he did retain was the entire MGM library of films that was produced before 1986 (making it over 2,000 titles including classics such as the Wizard of Oz and Singin’ in the Rain). That entire library was subsequently acquired as part of the sale of Time Warner Media to AT&T and therefore all those titles are now digitally available exclusively on AT&Ts digital streaming service HBO Max rather than Amazon’s Prime Video.

So in terms of must-watch exclusive content that would bring customers through the door, there isn’t much that will help the case of Amazon Prime with customers in its competitive landscape. If not exclusive content, then what is MGM worth to Amazon (other than the memorable Roaring Lion intro and the classy “Ars Gratia Artis” – Art for Art’s Sake – the corporate motto of the company).

Industry insiders as well as Amazon executives have been open about the fact that for Amazon, the real opportunity with the MGM deal is how they can shape the future of the IPs they are getting as a result of the deal. While Time Warner may control many of the signature features made by MGM in the past, Amazon can direct any remakes, spin-offs and reinterpretations of the entire stable of many iconic MGM properties. Think maybe a feature around a young Dr. Hannibal Lecter in his teenage years, a female Bond or even a remake of any number of classic movies. Also, as part of the deal Amazon gets access to MGM’s experienced team in content creation. This aligns well with the ambition of Amazon to become a major force to be reckoned with in Hollywood, a goal that has eluded the company so far. While Prime Video has some great content, it has often had to rely on external studios and third-party distribution deals (such as for Sasha Baron Cohen’s Borat) to get award winning content that resonates with customers on scale. So ultimately, while the MGM deal will bring some exclusive content of the past on to Prime Video, it is what Amazon truly does in re-imagining MGM’s IPs that will truly earn dividends for the company in the long term.

Also, not all content tie-ins that MGM has made over the years are restrictive, some even have great potential to fuel the growth of Prime Video. One such example is the Cable Premium Channel EPIX. The channel is owned by MGM through a subsidiary and has over 85 million subscribers. While that number on itself wouldn’t make Amazon salivate anytime soon, but EPIX has a deal with Paramount studios to be the first to release much of their content on digital distribution so seeing Paramount content as early release on Prime Video could be a great coup-de-grace for Amazon, especially since Paramount has invested considerably in creating Paramount+ their new digital streaming service recently.

There are however major glitches to be resolved in this new model. For example, many MGM properties such as James Bond, long considered the biggest Golden Goose in MGM’s stable has its own content creation challenges. Creative control of 007 lies with Eon Productions (more specifically the son-daughter duo of legendary Bond movie producer Albert B. Broccoli). How much will these generational custodians of the Bond brand let Amazon hold sway over the super-spy is anybody’s guess but the financial implications on ROI of the deal for Amazon would be significant.

The bottom line is that the canvas to grow for both Amazon and MGM as a result of this deal is huge and all signs point to the fact that Amazon is looking at the growth of its entertainment business as a major growth channel for the future. Amazon announced that Jeff Blackburn, a former top lieutenant of Jeff Bezos will run a global entertainment and movie business and the company has never been shy about spending big in order to create great content for Prime Video, which now has over 200 million subscribers around the world.

Ultimately for Amazon, everything about what it does is to bring customers on to the website and make sure that you spend more and more time (also money) on Amazon. The company in the past has wired all its businesses into the Prime core (think Whole Foods, Kindle and AWS), so adding MGM as another spoke in its flywheel of success seems like a natural growth area.

Many in the industry feel that acquiring MGM for Amazon at a higher valuation may ultimately be the same model that one its biggest competitors Disney pursued in its acquisition of Marvel. Disney paid four billion dollars for Marvel but since then has made over $23 billion just at the box office and not including other revenue streams like merchandising and parks. If Amazon can wire MGM similarly to its fly-wheel of success, then the MGM can probably be yet another roaring success for retail behemoth in the years ahead.

Tariq Ziad Khan is a US-based marketer and a former member of Aurora’s editorial team.