Amazon/MGM May Not Get US Challenge; Lawmakers Concerned

Federal regulators are likely looking closely at possible antitrust action against Amazon, but the company's $8.45 billion buy of MGM announced Wednesday isn't expected to face federal or state antitrust challenges, experts told us. Lawmakers we interviewed questioned the potential monopoly power of Amazon while wanting the deal scrutinized.

The combination may not hurt viewers, and so U.S. rejection isn't a given, experts said. Analysts said the deal helps Amazon add to its video content in a competitive streaming sector.

“I'm really struggling with how consumer choice would be harmed,” said Loyola Marymount professor David Offenberg. MGM is perhaps the No. 9 studio, and Amazon is a midsize streaming service and content producer, he said. With Amazon having a $1.65 trillion market value, this takeover is less than 1% of its worth, he said. He said the regulatory default is to allow companies to continue innovating until they start creating consumer harm, and the transaction shows Amazon arguably is continuing to innovate. Offenberg said the DOJ and FTC might also consider pursuing a challenge here a distraction from the bigger picture where Amazon is arguably causing consumer harm. O'Melveny's Katrina Robson said the deal likely will be presented to antitrust regulators as a complementary combination almost vertical in nature.

“All large organizations attract the attention of regulators, and we welcome that scrutiny,” an Amazon spokesperson emailed. “But large companies are not dominant by definition, and the presumption that success can only be the result of anti-competitive behavior is simply wrong.”

“MGM has a vast, deep catalog of much-beloved intellectual property,” Amazon CEO Jeff Bezos told the company’s virtual annual meeting Wednesday. Also including Amazon Studios, “we can reimagine and develop that IP for the 21st century,” he said. “People who love stories are going to be the big beneficiaries.” Bezos is stepping down as CEO July 5, the date Amazon was incorporated in 1994, and handing the reins to Amazon Web Services CEO Andy Jassy (see personals, March 25 issue).

Whether DOJ, with movie transaction expertise, or the FTC, which has been responsible for Amazon, would be in charge of the review wasn't clear, experts said. The FTC declined to comment; DOJ didn't respond to a query.

Anything Amazon does attracts antitrust attention, but the deal doesn't seem to pose serious antitrust issues and its acquisition of more content should make it and the streaming market more competitive, said Penn State law professor John Lopatka. “You might have a potentially different issue if this was Netflix.” Lopatka said the FTC is likely to bring antitrust action against Amazon at some point, but it would likely focus elsewhere, such as on Amazon's online retail platform. A market expansion like Amazon/MGM is “not going to be the entryway the FTC or DOJ would use,” he said. Lopatka said states also are unlikely to challenge the deal.

The deal is “a stunning act of arrogance while [Amazon] is under intense antitrust scrutiny,” said Public Citizen. “Amazon is prioritizing monopolizing content for the streaming service while completely failing to address the real concerns of workers, small businesses, and regulators. This massive dominant monopoly needs to be broken up,” the group said: The FTC and DOJ “should do everything within their power to stop this offensive acquisition.”

Lawmaker Red Flags

Legislators want the deal scrutinized, they said in interviews.

Amazon is “big, and they’re just going to get bigger. They won't be satisfied until they control everything,” said Sen. Chuck Grassley, R-Iowa. “I’ve got concerns when there’s any mergers like that.”

“Obviously, something of that size is going to go through antitrust” review, said Sen. Thom Tillis, R-N.C. “Then you have the separate issue of Big Tech getting very big. I haven’t seen any of the terms of the deal, but it’s definitely something that’s going to have some scrutiny.”

This transaction “certainly adds to the storm clouds and reason for scrutiny,” said Sen. Richard Blumenthal, D-Conn. “You know the saying, If it looks like a duck and walks like a duck, I’d say Amazon is pretty much looking and walking like a monopoly.”

“I expect them next to try to buy the United States of America or at least a couple of states,” said Sen. John Kennedy, R-La. He noted a potential $10 billion amendment in the U.S. Innovation and Competition Act (see 2105200066) that would reportedly benefit Bezos and his space exploration company Blue Origin. Senate Commerce Committee Chair Maria Cantwell, D-Wash., is reportedly proposing the amendment. Blue Origin is based in Cantwell’s state. Introduced as the Endless Frontier Act, Kennedy called it the “endless spending act.” Sens. Bernie Sanders, I-Vt., and Josh Hawley, R-Mo., want the provision removed. Most Americans don’t think the U.S. should “be providing $10 billion to the wealthiest guy in America” or that a “handful of billionaires” should dominate space travel, Sanders told reporters. Hawley said Amazon/MGM shouldn’t be allowed.

Amazon Prime

James Bond figured into reaction from multiple lawmakers. The character is part of the MGM franchise.

“As long as it doesn’t screw up the James Bond release, I’m OK with it. I don’t know. I have to think through it,” said Sen. Lindsey Graham, R-S.C., of the potential deal. Amazon “could be” a monopoly, but “let me think about it.”

Amazon Prime Video is known for its “huge library,” Parks Associates analyst Steve Nason told us. MGM adds access to top movie franchises and IP, which Amazon is likely to “spin forward” into more sequels and TV series to better compete with Netflix, Disney and HBO Max, he said. The MGM catalog “gives Amazon options” for how it wants to distribute new releases, whether direct-to-consumer, to theaters only, in a hybrid model or in a licensing deal, said Nason. “It’s really all about flexibility, and that’s what Amazon was missing.”

Other analysts' notes to investors were generally positive on the buy. S&P Global noted Amazon consistently expands Prime subscriptions by more than 30% annually and thinks “Amazon will continue to invest in its entertainment offerings and delivery capability to attract new subscribers.” Amazon Prime Video is second to Netflix in penetration among U.S. streaming subscribers at 51.1% vs. Netflix’ 57.4%, noted Cowen's John Blackledge.

House Antitrust Subcommittee Chairman David Cicilline, D-R.I., and ranking member Ken Buck, R-Colo., raised concerns. Buck agreed with Hawley that the purchase shouldn’t be allowed. He noted that Amazon Q1 revenue increased 44% to $108.5 billion, “the company’s fastest growth in almost 10 years.” It’s “critical that mergers and acquisitions involving monopoly companies experiencing tremendous and exponential growth are met with a greater level of scrutiny,” Buck wrote. “They are laser-focused on expanding and entrenching their monopoly power,” tweeted Cicilline.

“This is a major acquisition that has the potential to impact millions of consumers,” Senate Antitrust Subcommittee Chair Amy Klobuchar, D-Minn., said in a statement. She said DOJ “must conduct a thorough investigation to ensure that this deal won’t risk harming competition.”