Analysis: With its mega US$8.45bn acquisition of MGM, can Amazon nab prime spot in streaming wars?

Dishing out US$8.45 billion dollars, Amazon has confirmed the acquisition of MGM where it promises to now help preserve MGM’s heritage and catalogue of films, and provide customers with greater access to its existing works. According to Amazon, the acquisition was set in motion with the intention of Amazon empowering MGM to continue to do what it does best - focus on great storytelling.

According to Mike Hopkins, senior vice president of Prime Video and Amazon Studios, while MGM has a vast catalogue with more than 4,000 films and 17,000 TV shows, the real financial value behind this deal is the "treasure trove of IP in the deep catalogue" that Amazon now plans to reimagine and develop together with MGM’s talented team. "It’s very exciting and provides so many opportunities for high-quality storytelling," said Hopkins.

Kevin Ulrich, chairman of the board of directors of MGM added that the opportunity to align MGM's storied history with Amazon is an inspiring combination, He added: "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 the talent and their vision.”

Despite the massive acquisition, the impact on Amazon's shares has barely moved since the announcement. What the deal does signify is Amazon's intention to stake its claim on the hyper-competitive streaming market against the likes of Netflix and Disney+ which both have extensive content libraries and have committed to beefing up licencing of content and original content creation. The news of the acquisition also comes hot on the heels of AT&T's WarnerMedia recently merging with Discovery, combining CNN, HBO and Warner Bros with Discovery's home, cooking, nature and science shows into a media streaming giant. Meanwhile, the merger also comes after Amazon's change in leadership earlier this year in February, where CEO Jeff Bezos said he was stepping down to focus his energies and attention on new products and early initiatives.

According to Forrester principal analyst Jim Nail, the acquisition of MGM is an interesting choice because it has a relatively small library with only a handful of compelling franchises. Nonetheless, the Bond franchise is definitely the crown jewel, and its international popularity could be a boost to Amazon's international growth plans for Prime.

“With new entrants to streaming from all the major studios and TV networks, Amazon has to increase its commitment to video or risk losing engagement, and thus undercutting the value of Prime in members' eyes,” he said, adding that Prime is a key driver of engagement, revenue, and profitability for Amazon. Currently, Prime Video is one of the most-watched streaming services, so consumers highly value video as part of their Prime membership.

Nail added that the real driver of streaming is, however, originals. He said:

Amazon has had a couple of hits in the past but hasn't produced the kind of consistent stream of popular programmes that Netflix has and that other media companies have a long history in doing.  

"With the MGM purchase, Amazon gets some talented executives with track records of success in spotting and producing popular movies and TV series. This would plug the hole in Prime Video's ability to consistently create compelling original programming,” he added.

Agreeing with Nail was Ranga Somanathan, co-founder of RSquared Global Ventures, who added that in spite of the scale advantage, Amazon Prime has not stacked up to rivals in Netflix and the emerging Disney+ in terms of hits and "sequel-able" productions.  

"The acquisition of MGM gives Amazon the much-needed licence to fight the competition. With much consolidation happening in the content creation and streaming business, many of the non-original content in the current Amazon suit has the risk of being ring-fenced and made inaccessible to their subscribers," he said. The MGM purchase, the second biggest for Amazon after Whole Foods, will not only secure quality content for itself but also block other streaming operators from hosting it, Somanathan explained.

However, challenges might occur given MGM is owned by a group of private equity firms which are reported to be exploring a sale for a few months now. Unlike an individual-owned brand such as Lucas Films, the sellers here would potentially prioritise extracting the maximum value of their investments than protect any legacy, Somanthan said. According to him, a potential curveball for Amazon would be a competitive bid that could turn this into a hostile and expensive proposition.

From a marketing perspective, Somanathan pointed out:

With many of these platforms operating with a subscription powered model, commercial time from advertising powered environment such as television and AVOD platforms will be lost.

Nonetheless, while this sucks out advertising inventory, it also provides brands with the opportunity to reengage with content via meaningful integrations and experiences. Meanwhile, Ramakrishnan CN, Entropia's partner, integration added that the deal is a “prime example” of the extreme lengths that streaming houses will go to, to win the streaming wars. “The streaming wars are getting hotter, and it is probably the best time to be a content creator, as the investments in original programming are getting hotter and hotter,” he said.

The tech players have now realised that the people who matter in making exciting content are in the studios, so apart from buying IPs, they need to buy the full machinery to win the next few rounds and be the one with the golden gun. 

“With the Bond franchise adding to the Prime line-up, it adds a significant uplift to the time spent on the platform for Amazon, and reportedly, an Amazon Prime member spends double of a non-Prime member annually, so the time lock-in does provide a significant upside here,” he said.

Moreover, the Bond franchise cuts across all demographics which is also helpful. As such, despite most of the creative control still being with producers of the franchise, the Broccolis, Amazon has paid a premium for this, he explained.

“Amazon is paying much higher than what any other buyer would have probably paid, and hence it is clear that this deal cannot be judged by the standard M&A parameters in the industry. The barely perceptible movement in the Amazon stock is probably due to this 'overpriced' factor,” Ramakrishnan added.

With additional reporting from Lau Lay Hian.

Photo courtesy: 123RF

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