Amazon's $8.5B MGM Buy Could Support Prime's Expansion: S&P

Amazon's proposed $8.45 billion MGM buy, announced Wednesday, will bolster its proprietary content stash for Prime membership “and support the program's continued expansion,” S&P Global wrote investors Wednesday. Amazon has consistently expanded its Prime subscriptions by more than 30% annually, said S&P: “We believe Amazon will continue to invest in its entertainment offerings and delivery capability to attract new subscribers.” Transaction size is “manageable,” given Amazon's “sizable cash balance” of $73.3 billion as of March 31, it said.

Amazon shared in its release little about when the transaction is expected to close, how it's funding the buy or how ownership of the MGM content portfolio will affect Prime Video subscribers. Commenting on the purchase at the company’s virtual annual shareholder’s meeting Wednesday, CEO Jeff Bezos said, “MGM has almost a century of film-making history and a deep catalog, over 4,000 different titles.” He cited the James Bond series, Thelma & Louise, Creed, Robocop, Raging Bull and Tomb Raider, plus the studio’s 17,000-plus TV shows, including The Handmaid’s Tale, Vikings and Fargo.

“The acquisition’s thesis, here, is really very simple: MGM has a vast, deep catalog of much-beloved intellectual property,” Bezos said. With the combination of the “talented people” at MGM and 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 also announced he will step down as CEO (see report, this issue) July 5, the anniversary of Amazon's 1994 incorporation, and hand the reins to Amazon Web Services CEO Andy Jassy.

Cowen viewed the deal as positive for Amazon, with analyst John Blackledge saying in a Wednesday investor note that it adds another layer to the Prime Video offering for Prime members. Prime members also will have access to NFL Thursday Night Football and the upcoming Lord of the Rings series currently in production, he noted. Amazon Prime Video is second to Netflix in user penetration among U.S. streaming subscribers at 51.1% vs. Netflix’ 57.4%, said Blackledge. Disney is third at 28.6% and HBO Max fourth at 23.4%. MGM's library content and future releases should boost Prime Video engagement globally, said the analyst.

Amazon Prime Video is already known for its “huge library of back catalog content,” 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. Amazon will also have merchandising opportunities from high-profile franchises such as James Bond and Rocky, he added.

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 before they got MGM.” Compared with other studios, MGM’s catalog “isn’t huge, but it has a very rich history,” Nason said.

Buying a studio with a deep catalog is the first time Amazon showed it’s taking its video streaming service “really seriously,” Nason said. Though Amazon Prime Video has been competing and doing “very well” as one of the top streaming services, “this is really them staking a claim in video much more seriously than they have before.” He noted that Bezos highlighted Amazon’s 175 million Prime Video viewers in February, saying it was “the first number they’ve ever released in the history of Prime Video.”

On how Amazon’s newfound content power could play out with streaming platform competitors Roku and Google, Nason doesn’t see issues on the platform side, saying “in a strange way, they all kind of work off each other -- whatever gets the most reach and, obviously, revenue.” On the service side, companies are becoming much more competitive and are “looking to steal share away.” Amazon’s free, ad-based IMDb streaming service could benefit from the acquisition, Nason noted: “If they decide to trickle down some of that content, it could really help that service.”

It wasn’t clear Wednesday how the deal might affect MGM’s Epix subscription VOD service, whether it will exist alongside Prime Video as a separate premium service, or whether its original content will be absorbed into Prime Video. Epix didn’t comment. The transaction is subject to customary approvals. Industry watchers surmised Wednesday that antitrust regulatory authorities are unlikely to challenge the deal.