Tue. Nov 30th, 2021

Amazon.com Inc.’s

desire to acquire the fabled MGM movie and television studio in a deal valued at $9 billion with debt is the latest sign that the e-commerce giant is renewing its emphasis on entertainment and seizing an opportunity to jump up in weight class.

Some industry analysts and observers see the expected MGM purchase, one of the tech industry’s biggest buys in Hollywood, as a recognition inside

Amazon

AMZN 0.43%

that it can’t create enough content fast enough to win subscribers on its own and compete with streaming entertainment rivals Disney+ and

Netflix

Inc.—an assertion that Amazon insiders reject. The possible acquisition builds on Amazon’s existing investments in sports and TV.

“Streaming is a massive scale business,” said Evercore ISI analyst

Mark Mahaney.

“You probably need to be willing to spend $10 billion a year on content.”

The Wall Street Journal reported that Amazon could announce a deal to purchase MGM as early as this week, according to people close to the situation, assuming the talks don’t fall apart at the last minute.

In pursuing MGM, Amazon is borrowing a page from the playbook of traditional media companies, which have been consolidating to expand their content platforms. Buying a studio with a massive portfolio like MGM gives Amazon a way to fast-track growth for its video-streaming offerings.

MGM properties include ‘The Pink Panther.’



Photo:

Everett Collection

Walt Disney Co.

’s Disney+ and Hulu streaming services are bolstered by Disney’s recent acquisition of the 20th Century Fox entertainment assets. Last week,

AT&T Inc.

and Discovery Communications Corp. agreed to combine their assets into a new company, in large part to bolster their respective streaming services HBO Max and Discovery+.

Amazon has also acquired streaming rights to sports in the U.S. and abroad as it sees live content as a huge potential driver for its service. In March, Amazon agreed to pay more than $10 billion for exclusive rights to Thursday night football games for its Amazon Prime Video streaming platform over 11 years. The price Amazon agreed to pay was roughly double what previous rights holder

Fox Corp.

was paying.

The company is also spending $465 million to make a  TV series based on “Lord of the Rings,” and that is on top of the $250 million it spent to acquire the rights to the story, according to people familiar with the transaction. It has also spent hundreds of millions of dollars acquiring would-be theatrical releases from major studios, like Paramount Pictures’ forthcoming “The Tomorrow War” starring Chris Pratt.

Amazon has acquired would-be theatrical releases from major studios such as the forthcoming ‘The Tomorrow War.’



Photo:

Amazon/Everett Collection

The aggressive spending on entertainment strays from what longtime Amazon observers said has been a disciplined approach to acquisitions. Analysts said given the company’s deep pockets, it is in a position to take big swings in the entertainment space in ways other companies cannot.

The recent deal-making by Amazon also stands in contrast to streaming rival Netflix’s approach, which has to date avoided major acquisitions such as studios and production companies to focus primarily on making and licensing content.

The potential deal is “a shortcut to doing what Netflix has done, which was to invest double-digit billions of dollars a year for the past five years to build a library,” Wedbush Securities analyst

Michael Pachter

said, adding, “it will take Amazon 90 years to catch up if they don’t do something quick.”

In MGM, Amazon would gain control of a vast movie and television library including the “James Bond” and “Rocky” franchises. Other MGM properties include “The Pink Panther” and “Robocop.” Amazon is likely to try to create new content from the material, analysts and industry executives said.

Still, Amazon will have to invest yet again to develop and generate successful new franchises out of the intellectual property it may acquire.

Not all MGM content would immediately surface on Amazon’s Prime Video platform. MGM has licensing deals throughout the industry that lock up much of their content for several years. Such agreements would at least, though, serve as revenue generators for Amazon.

Amazon would likely also have to forge a relationship with producers Michael Wilson and Barbara Broccoli about future “James Bond” projects. The duo, who are half-brother and half-sister, essentially control the creative and business direction of the franchise.

Some observers have said that $9 billion would be a big price tag for the privately traded MGM, which was valued at $5.5 billion. Both numbers include MGM’s debt.

But for Amazon, a company whose market capitalization exceeded $1.6 trillion as of Tuesday, “it’s a pittance,” said Forrester Inc. analyst

Sucharita Kodali.

“That’s actually a relatively small price for the valuation of Amazon and what they get, which is a huge burst to their media portfolio.”

Amazon’s foray into entertainment has been bumpy at times. Initially many of its original movies and television shows were seen as lacking broad appeal. Oscar winner “Manchester by the Sea” and the TV series “Transparent” were beloved by critics, but none were huge hits such as Netflix’s “Stranger Things” or Disney+’s “The Mandalorian.”

In 2018, Amazon brought in former NBC Entertainment President Jen Salke as head of its original content with a mandate to make big broad shows and movies. Among the deals she made to expand the content’s appeal was the acquisition of “Borat Subsequent Moviefilm” and “Coming to America 2” as well as the original movie “One Night in Miami.”

She also pushed through some of the successful shows on Amazon now including “The Boys” and “Underground Railroad.” She also wooed some big name talent to the company such as Donald Glover, Michael B. Jordan and Nicole Kidman.

There have been some misfires as well, including “Modern Love” and “Tell Me Your Secrets.”

Write to Joe Flint at [email protected] and Sarah E. Needleman at [email protected]

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By rahul