1. James Bond shooting into Amazon Prime
MGM owns the James Bond franchise, and amongst other great entertainment like The Real Housewives, Shark Tank and Survivor. An acquisition by Amazon means we should be able to start seeing this content on Amazon Prime. As a subscriber myself, I have always felt Amazon Prime struggled to compete with Netflix and Disney in terms of offerings. Now, there have been some hits like the Tom Clancy franchise and some other great series like Borsch, but it has never been exciting as a platform if I really had to trim my subscriptions. It was really just cheap and allowed me to access Amazon Prime Delivery (more on that later).
2. Provides ready talent and access to take on the competitors
Amazon has been a technology company from ground up, though last year it hired Mike Hopkins, former Sony Television and Hulu senior executive to head up Prime Video and its movie and production studios. That said, a core leadership team can only do so much without the entire creative and production apparatus. The MGM acquisition completes this with both the technology might of Amazon and the creative magic of MGM.
3. Amazon Prime is not Netflix
First time subscribers of streaming video platforms sometimes compare Netflix, Disney, and Amazon Prime, based on their movie selections, but in reality, their subscriptions give you a hint of the intent. In some places like Singapore, Netflix is the most expensive monthly, followed by Disney and then Amazon Prime. Notwithstanding this pricing strategy, Netflix needs to monetise only based on their content, whereas Disney and Amazon have a web of monetisation opportunities. For Amazon, this new acquisition would make it a better proposition to enter into more homes, and turning more homes into Amazon VIP customers automatically.
4. Did Amazon overpay for MGM?
M&A advisors would have crawled all over this valuation, and probably got to an acceptable value for both parties at US$ 8.45 billion. When we look at it from Amazon’s Free Cash Flow of $25.9 Billion or last year’s Net Income of $11.59 Billion; this purchase price does not require Amazon to sweat too much. Ultimately, the purchase is a commitment by Amazon to the video streaming business, and on that with the ready talent, infrastructure, and in-built media library- makes this a great platform for new Amazon monetisation.
Is it a buy?
It is definitely very interesting whenever companies create new opportunities for their ecosystem. There is a question of execution risk, but presumably, MGM would probably run on its own, save for the general corporate oversight – unless Jeff decides on a next career to play James Bond?
I like Amazon for their series of interesting acquisitions, that they have largely absorbed well into their ecosystem and extended their reach. This is another feather to their cap.