The Next Chapter in the Streaming War: Media Merger Mania

– By John Engle

When the Walt Disney Co. (NYSE: DIS) launched Disney + in November 2019, it marked a serious escalation of the so-called “Streaming Wars”.

The House of Mouse isn’t the only company hoping to supplant Netflix Inc. (NASDAQ: NFLX) as an industry leader, but few streaming companies can boast of a library of content like that. from Disney, which is perhaps the world’s most valuable creative intellectual property portfolio. the world.

For platform owners who aren’t fortunate enough to have a Disney-style IP, one solution has been to look outward, creating libraries of content through acquisitions. This was the case for Amazon.com Inc. (AMZN), which has increasingly turned to content acquisitions, while expanding the scope and scale of in-house content development for its Prime Video service. This week saw Amazon’s biggest plans for content acquisition with the announcement that the e-commerce giant was planning to buy MGM Studios for $ 8.45 billion.

The name is Bezos, Jeff Bezos

An Amazon-MGM merger was not on the radar of many investors until it was revealed on May 26. In a call with analysts shortly after the announcement, Amazon CEO Jeff Bezos made his point about the market:

“The acquisition thesis here is really very simple. MGM has a large and rich catalog of highly regarded intellectual property, and with the talented people at MGM and the talented people at Amazon Studios, we can reinvent and develop this intellectual property. for the 21st century. “

While the price tag of $ 8.45 billion may seem steep at first glance, the deal gives Amazon access to MGM’s historic content library, which the venerable studio has developed over a life of nearly a century. With over 4,000 feature films, including the “Jame Bond” franchise, as well as nearly 17,000 TV series in its library, MGM will add a wealth of content to Amazon’s burgeoning streaming service.

After its initial attendance efforts were pushed back by MGM, Amazon turned to Mike Hopkins, a media industry veteran he hired in February 2020 to manage both Prime and Amazon Studios, in order to close the deal. Hopkins could be forgiven if he wanted to take a vacation after orchestrating such a transaction, but I doubt that’s on the cards for him. With its division suddenly inundated with fresh content, sorting out and integrating the new IP address into Amazon’s strategy seems like a long-drawn-out task.

Memorable moment or banal bolt-on?

Unsurprisingly, the announcement of Amazon’s latest mega-deal did not meet with universal enthusiasm. CNBC’s Alex Sherman, for example, lamented the acquisition as “disappointing” even as he acknowledged its historical significance:

“It finally happened. After years of waiting, a big tech company finally acquired a big legacy media company … So why is it so disappointing? ‘This is, in essence, a targeted acquisition for Amazon. There is nothing in the MGM deal that is particularly revolutionary or relies on cutting edge technology. On the contrary, Amazon needs more content in order for Prime Video remains relevant to Netflix, Disney +, Hulu, HBO Max, and the many other streaming services competing for eyeballs. Maybe that’s because the essence of this deal isn’t a deal at all. media or technology issue. Amazon is playing a different game than all other entertainment companies. The main reason for buying MGM is to get more consumers to pay for Prime. “

The criticism that the deal is about content rather than technology is true, as long as it is fading. Yet Amazon has never denied this. Indeed, Hopkins told analysts on May 26 that intellectual property was the primary motivator for the acquisition:

“The real financial value of this deal is the treasure trove of intellectual property in the comprehensive catalog that we plan to reinvent and develop with the talented team at MGM. It’s very exciting and offers plenty of high quality storytelling opportunities.

My catch

Amazon is a large, profitable business that is more than able to absorb the costs involved in building a large library of content for Prime Video. Given its huge content budget, which exceeded $ 11 billion in 2020, Amazon seems pretty comfortable spending money to make money. Therefore, to say.

As other streaming players react to Amazon’s big move, I wouldn’t be surprised to see a series of similar acquisitions. Many libraries of historic content are not claimed by the streaming giants. Some may find new suitors calling. If so, the next phase of Streaming Wars may well be marked by a revival of fusion mania.

Disclosures: No position.

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This article first appeared on GuruFocus.


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