The deal detail
E-commerce giant Amazon (ticker: AMZN) has confirmed that it will spend US$8.45 billion to acquire film production company MGM Holdings (ticker: MGMB), which is the second acquisition of Amazon in history, second only to Whole Food Market, which was acquired in 2017 for US$13.7 billion. According to data from Parrot Analytics, in the United States, 8 of the 200 TV series with the highest demand since the beginning of 2020 belong to MGM.
MGM was established in 1924, and the company currently owns the following intellectual property rights:
- With more than 4,000 movies and 17,000 TV festivals, it has won 180 Oscars and 100 Emmy Awards in history.
- Own EPIX pay TV network.
- James Bond series, Rocky series, Tomb Raider series, RoboCop, The Hobbit , Legally Blonde series, The Addams Family, Pink Panther, The Silence of the Lambs, Vikings series and other movies.
- The Handmaid’s Tale, Fargo, Shark Tank, and Survivor TV series. In addition, MGM also produced some famous shows and series for other video platforms, such as NBC’s The Voice, AMC’s Real Housewives.
However, this transaction does not include MGM’s early classic works that were stripped in 1986, including The Wizard of Oz, Gone With The Wind, Waterloo Bridge; these works are now in the hands of AT&T’s Time Warner (ticker: T). This can be regarded as a shortcoming in this transaction.
Why Amazon acquires MGM?
The advantages of Amazon’s acquisition of MGM are as follows:
- Amazon can provide more opportunities to watch MGM’s works for the use of Prime Video, its own streaming video service. In addition to the free delivery service in Amazon’s paid membership service Prime, another reason for attracting members to pay is that they can watch the Prime Video online video streaming service for free. Prime Video previously had more than 200 million paid members worldwide; as of 2020, more than 175 million Prime members have used this service to watch TV and movies. In terms of the number of subscribers, Amazon is the world’s second-largest paid streaming video media service company. Although Prime Video’s total number of subscribers lags slightly behind the 207 million subscribers of Netflix (ticker: NFLX), it far exceeds the total number of subscribers of 146.1 million subscribers to all video platforms of Disney (ticker: DIS), and AT&T’s Time Warner has 79 million subscribers (64 million on the HBO video platform, plus 15 million on Discovery Channel).
- Helps MGM fight the three major media forces in the market: Netflix, Disney, and AT&T’s Time Warner (readers can refer to my blog article “The key factors that determine the valuation of AT&T and Verizon stocks“). In 2020, Amazon has invested a total of US$ 11 billion in media content. During the same period, Netflix’s investment in media content was US$ 11.8 billion. This shows the ambition and determination of Amazon in the media. Content investment causes anyone involved in the media industry to burn a lot of money, but this is a necessary investment, both in the Eastern and the Western countries. Mainland China belongs to the three major video streaming platforms of iQiyi (ticker: IQ) under Baidu (ticker: BIDU), Tencent Video under Tencent (ticker: TCEHY), and Youku under Alibaba (ticker: BABA). No one company is currently making money, because the content investment is too expensive.
- This transaction can also be used to strengthen Amazon’s advertising business, such as the use of advertising to maintain the operation of IMDB service. According to eMarketer’s market survey in 2020, Amazon is already the third largest digital advertising vendor in North America, with a market share of 10%, third only to Google’s 28.9% and Facebook’s 25.2%.
- At last, on the media puzzle, Amazon has achieved an important achievement ahead of the four major competitors of Apple, Alphabet, Microsoft, and Facebook-owning its own film production company in this media content. It’s a biggest advantage.
- Don’t forget that in the field of TV sticks or digital set-top boxes, Amazon is also one of the four leading manufacturers in the market: Roku (ticker: ROKU), Amazon FireTV, Google Chromecast, and Apple’s Apple TV. Two of them, Roku and Amazon combined, account for 70% of the U.S. market. After completing this transaction, Asia will be the only company with content production capabilities among all manufacturers in the TV stick or digital set-top box field.
Amazon is a media powerhouse
Hollywood studios have undergone many changes. In the 1960s, independent production companies were acquired by a diversified consortium; in the 1980s, production companies joined a comprehensive media group; now streaming media is just a new reshuffle in the industry. MGM formally filed for bankruptcy in 2010 and was seeking a buyer in the second half of 2020.
This time, it finally found the most beneficial merger and acquisition for the company’s long-term development. For this transaction, the mainstream view in the industry is that Amazon paid too much, but in general it is definitely a win-win transaction. Bezos stated that in this transaction, Amazon was fancying MGM’s intellectual property rights and future. Many people may not know that the movie “Manchester by the Sea”, which won the 89th Academy Awards in 2017, was produced and released by Amazon.
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