When the Walt Disney Co. (DIS, Financial) launch Disney+ in November 2019, it marked a serious escalation of the so-called "Streaming Wars."
The House of Mouse is hardly the only company hoping to supplant Netflix Inc. (NFLX, Financial) as the industry leader, yet few streaming companies can boast a content library anything like Disney's, which is perhaps the most valuable portfolio of creative intellectual property in the world.
For those platform owners not blessed with Disney-like IP, one solution has been to turn outward, building content libraries through acquisitions. Such has been the case for Amazon.com Inc. (AMZN), which has increasingly looked to content acquisitions, even as it has expanded the scope and scale of in-house content development for its Prime Video service. This week saw Amazon's biggest plans for content acquisition yet with the announcement that the e-commerce behemoth intends to buy MGM Studios for $8.45 billion.
The name's Bezos, Jeff Bezos
An Amazon-MGM merger was not on many investors' radars before it was revealed on May 26. On a call with analysts shortly after the announcement, Amazon CEO Jeff Bezos made his case to the market:
"The acquisition's thesis here is really very simple. MGM has a vast, deep catalog of much-beloved intellectual property, and with the talented people at MGM and the talented people at Amazon Studios, we can reimagine and develop that IP for the 21st century."
While the $8.45 billion price tag may look steep at first glance, the deal gives Amazon access to MGM's storied content library, which the venerable studio has developed over the course of nearly century-long existence. With more than 4,000 feature films, including the "Jame Bond" franchise, as well as about 17,000 television series in its library, MGM will be adding a wealth of content to Amazon's growing streaming service.
After its initial courtship efforts were rebuffed by MGM, Amazon turned to Mike Hopkins, a media industry veteran it had hired in February 2020 to manage both Prime and Amazon Studios, to close the deal. One might forgive Hopkins if he wanted to take a vacation after orchestrating such a massive deal, but I doubt that is on the cards for him. With his division suddenly awash with fresh content, sorting and integrating the new IP into Amazon's strategy looks set to be a lengthy task.
Momentous moment or banal bolt-on?
Unsurprisingly, the announcement of Amazon's latest mega-deal was not met with universal enthusiasm. CNBC's Alex Sherman, for example, bemoaned the acquisition as "underwhelming" even as he acknowledged its historic significance:
"It finally happened. After years of waiting, a large technology company finally acquired a significant legacy media company...So why does it feel so underwhelming? Perhaps it's because this is, in essence, a bolt-on acquisition for Amazon. There's nothing about the MGM deal that's particularly revolutionary or leans into cutting-edge technology. Rather, Amazon needs more content for Prime Video to stay relevant against Netflix, Disney+, Hulu, HBO Max and the many other streaming services competing for eyeballs. Perhaps it's because the essence of this deal isn't about media or technology at all. Amazon is playing a different game than every other entertainment company. The primary rationale behind buying MGM is getting more consumers to pay for Prime."
The criticism that the deal is about content rather than technology is true, so far as it goes. Yet Amazon never denied that. Indeed, Hopkins told analysts on May 26 that IP was the prime motivator of the acquisition:
"The real financial value behind this deal is the treasure trove of IP in the deep catalog that we plan to reimagine and develop together with MGM's talented team. It's very exciting and provides so many opportunities for high-quality storytelling."
My take
Amazon is a vast and profitable enterprise that is more than capable of absorbing the necessary costs of building an expansive content library for Prime Video. Given its enormous content budget, which exceeded $11 billion in 2020, Amazon seems quite comfortable spending money to make money. So to speak.
As other streaming players react to Amazon's big move, I would not be surprised to see a spate of similar acquisitions. Many storied content libraries remain unclaimed by the streaming giants. Some may find fresh suitors calling. If so, the next phase of the Streaming Wars could well be marked by a revival of merger mania.
Disclosures: No positions.
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