Why Amazon is buying MGM holdings and James Bond for $8.45 billion

Update, March 17, 10am: Amazon’s $8.45 billion deal has closed, and the company announced that MGM will join Prime Video and Amazon Studios.

Big tech companies have been watching big media companies for years, but they’ve never met before. Now finally, it’s probably happening: Amazon is preparing to pay $9 billion for MGM Holdings, the Hollywood studio that brings you James Bond and a handful of other things, like the Pink Panther movies and The Handmaid’s Tale TV show.

Which leads to some questions. Because right now? Why Amazon? Why MGM? And, just as important: will regulators allow it to happen?

Short answers here: The media world is consolidating and there aren’t many targets left for a potential buyer. Amazon has spent many billions on video without much to show for it, and believes owning a studio, and more importantly the intellectual property rights the studio owns, could help it create movies and TV shows. really big ones that you really want to see. Not so much because he wants to own the stream, but because he wants you to keep coming back to Amazon. Meanwhile, MGM has been trying to sell itself for years.

And how regulators respond to this will be fascinating: Amazon will claim that it’s too small on video for this to pose a competitive threat. On the other hand, Amazon is already in the sights of regulators. In theory, that’s to run a market and sell your own items in the same market, but really just because it’s so…big. So this is like waving a red flag in front of people like Senator Amy Klobuchar and daring her to charge.

Now that we’re done with CliffsNotes, a little background on Amazon and Hollywood, which remains one of the weirdest media stories of the last decade:

Amazon has been making and buying its own TV shows and movies since 2013, the same year Netflix started streaming its own stuff with house of cards. But you probably don’t remember the first Amazon shows: alpha house? betas? – and you probably can’t think of many Amazon shows, except for Transparent and a few others. Which gives you an idea of ​​what Amazon’s efforts to break into Hollywood have been like, even though Jeff Bezos has spent a lot to make it happen.

However, Bezos is still trying: Amazon is investing at least $500 million in a Lord of the Rings TV show and $10 billion over 10 years to show an NFL game once a week. And now probably another $9 billion for MGM.

So does that mean Amazon is finally gearing up to take on the streaming heavyweights: Netflix, Disney, and maybe WarnerMedia/Discovery?

Surprisingly, the answer is no: the company takes video more seriously than ever. But he’s playing a different game than the “real” streamers. Amazon doesn’t want to compete with Netflix or the other big boys for watch time and subscriber dollars. He just wants you to watch a video and spend some money.

That’s because all of Amazon’s “premium” video is included in its Amazon Prime subscription offer, which gives you free shipping and other perks. It is Amazon’s most powerful weapon. For years, Bezos has said that giving you things like Transparent made it much more likely that you would stick around and order a pair of shoes, or at least continue to pay for Prime.

What Amazon says less often, but is also true, is that it has built a really good business selling subscriptions to other people’s video services, services like Discovery+, for example. Amazon sells those subscriptions through its “channel” offering, keeping a large portion of the money you pay for them each month. To do that, it’s useful to have things like Jack Ryan, the series starring John Krasinski as Tom Clancy’s analyst/action hero, for people to watch videos on Amazon. Come to the free shows, and then maybe buy others.

Amazon does not want to dominate Hollywood. He just wants a foothold. But even that foothold has been hard to come by, and Bezos has insisted for a while that the way to get it isn’t through niche shows like Transparent more: it’s by buying or making big blockbusters that a lot of people will watch.

that explains The Lord of the rings and the NFL, and that explains MGM: it gives Amazon a giant movie brand that everyone has heard of and still wants to see, James Bond, and then a bunch of other things that could become something, maybe, some day. MGM owns the rights to Rockyfor example, that it’s already been made into several movies, but maybe there’s a way to do a Rocky Extended Universe.

What the heck is a Rocky Extended Universe? Nobody knows! But that has been the conventional wisdom in Hollywood for the past few years. No one knew you’d want to see movies about Guardians of the Galaxy or a TV show about Wanda Maximoff and Vision. But now that Disney owns Marvel, he has been mining the company’s store of dark superheroes and turning them into giant, popular shows. That’s the playbook.

And that playbook, by the way, requires owning the stuff rather than renting it. It used to be that Disney and Comcast and all the other big media companies were fine with letting streamers like Netflix and Amazon borrow their old TV shows and movies, but those days are over. Meanwhile, finding other studios that make great movies and TV shows for you is also getting harder. Sony, for example, which used to make things for everyone, is now off the table because it has long-term deals with Netflix and Disney. Amazon needed to buy…something.

So: Amazon is betting billions (if the deal goes through, it will be the company’s second-biggest purchase, after it paid $13 billion for Whole Foods) on a Hollywood acquisition that could give it the ability to become something more competitive, in a side business, against people who compete very seriously only in that business. If the regulators allow it.

Amazon’s argument for the world’s Klobuchars, by the way, will be simple: They’re a small player in entertainment, and the acquisition won’t reduce consumer choice.

On the other hand: If you didn’t like the fact that Amazon has a store that sells batteries and sells its own batteries in that same store, you might see similar parallels with running a movie store and selling your own movies. Or you may just have a problem with one of the most powerful companies in the world that uses your billions to buy anything. We’ll find out.

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