The Good, The Bad and The Bezos: Amazon acquires Hollywood Studio MGM for $8.45bn

Streaming Services

Victoria Dominiczak

Victoria Dominiczak is a second year BSc Economics at University College London (UCL), and an aspiring consultant. Her main topics of interest include sustainable finance, economic policymaking, and behavioural economics. In her free time, Victoria works with The Economist’s Society secondary school Outreach Programme and running.

1st November 2021

Nicholas J Leclercq


On 26 May 2021, Amazon announced its acquisition of the iconic Hollywood studio Metro Goldwyn Mayer (MGM) for $8.45bn to increase its vast streaming content library. MGM is a crucial acquisition for Amazon, with 4,000 film titles under its name and 17,000 TV shows. Having produced some of the largest global blockbusters, including the Bond franchise, “The Hobbit” and “The Wizard of Oz”, MGM’s acquisition is a strategic move for Amazon to gain an edge over long-term rival Netflix and illustrates the growing trend of M&A deals in the entertainment industry (Bamford et al., 2021). The deal generated moderate confidence from investors; Amazon’s stock price rose gently from the previous day, peaking at $3,295.73 and closing at $3,265.16 on Nasdaq (graph 1) (Nasdaq, 2021). However, Amazon will have to convert this short-term buzz into a long-term competitive strategy, for instance through utilising MGM’s resources to generate new original content, if it wants to make sustained gains in the entertainment industry. Hence, through conducting situational and industry analyses, this article will analyse the acquisition’s primary motives and its strategic benefits to explore the extent to which this deal enhances Amazon’s competitive position.


Graph 1

Amazon Share Price Nasdaq


Overview of Prime Video

Amazon launched “Prime Video” in 2006, originally known as “Amazon Unbox”, in the United States as a video distribution service in which users could download television shows and movies from major studios such as Paramount, Warner Bros, and Fox. After its growing success in the U.S., Amazon Unbox began pursuing an ambitious international growth strategy by acquiring the UK-based streaming DVD-by-mail service “Lovefilm” in 2011 for £200m, which entailed entry to European markets (Bradshaw & Birchall, 2011). This acquisition coincided with market leader Netflix’s own international expansion plans and rapid transformational change of distribution channels to a subscription-based platform (ibid). In response to technological changes in the external environment, which rendered the DVD rental model obsolete, and growing rivalry from Netflix, Amazon Prime Video underwent significant structural changes to its business model.

Firstly, Amazon changed its distribution channel to its own online web film service in 2011 with 5,000 titles available to users, later converting Prime Video into a streaming service to compete with Netflix (Garrahan, 2011). Amazon’s early entry into the video-on-demand (VOD) market enabled the company to capitalise on the decline of cable television and satellite services (Wayne, 2017), but ultimately Netflix’s first-mover advantage and a wider range of shows and movies meant that Netflix’s market leader status was unrivalled.

Secondly, in 2013, Amazon Prime Video debuted its original content exclusively to Prime members, further enhancing the rivalry with Netflix after it decided to produce ‘Netflix Originals’ in the same year (Spangler, 2013). As a result, original content has now become a key focus for Amazon. In early 2020, Amazon announced that it would spend $7bn on content production for the year, but this budget was still less than half of Netflix’s 2020 content budget (Klebnikov, 2020).  However, ultimately Amazon Prime experienced larger gains than Netflix in terms of subscriber base in 2020 despite lower content spending: Netflix gained 36 million subscribers in 2020 (Rushe, 2021) compared to Amazon’s 50m (Faulkner, 2021). The data illustrates that for larger subscriber bases, there is not a strong correlation between content production expenditure and subscriber gain; consumers perhaps place a value on other factors for streaming services such as user interface, to which Amazon are taking significant steps to improve.

The COVID-19 pandemic arguably spurred the most significant changes for Amazon’s Prime Video and the whole streaming market. National lockdowns, social distancing measures and temporary closure of public facilities have led to a surge in the usage of streaming services, placing enormous pressure on Amazon, and its competitors, to produce original content that will develop loyal subscribers, which in turn has fuelled a streaming war between the streaming giants. 


Overview of the global subscription VOD streaming service industry

Chart 1 shows that the global subscription VOD streaming service industry is intensely competitive. Dominated by Netflix, the first mover in this industry with 204 million subscribers, Amazon Prime Video is the second largest VOD streaming service with 150 million subscribers (Business of Apps, 2021). Disney, however, can equally be considered as just a serious threat to Amazon’s market share as Netflix: launching in November 2019, Disney Plus can be considered a late entrant in the VOD streaming industry but has quickly built up a subscriber base of 87 million (ibid) and overtaken several incumbents due to its strong brand recognition. The same can be said for newcomer Apple T.V., which snapped up millions of subscribers and has generated exclusive deals in a short period. It can be deemed a significant threat to Amazon Prime Video due to its large capital resources, spending $6bn already on original content production. 

Operating in this oligopolistic market structure, Amazon needs to further build upon its brand loyalty in the streaming industry, or it could face being overtaken by competitors in the near future. For VOD streaming services, consumers place greater emphasis on non-price factors, including platforms’ ability to generate new and original content, user interface and innovation. In this case, it would appear that the potential cost-savings gained from MGM’s acquisition are not as valuable to Amazon as the availability of new titles on Prime it offers. 


Chart 1

Streaming Services Subscribers


However, it is uncertain whether MGM’s variety of blockbuster titles will enable Amazon to sufficiently compete with the popularity of Netflix’s original content. In chart 2, we can see that ‘Netflix Originals’ are nearly five times as popular globally than Amazon Prime’s Originals. This data illustrates the significance of generating original content for streaming services because it attracts loyal subscribers. It is important to note that Netflix invests far more in content production than Amazon Prime Video (Klebnikov, 2020), a strategy that Netflix has adopted to retain loyalty. Amazon should therefore use the acquisition of MGM as an opportunity to release new content that appeals to mass audiences, utilising MGM’s talent network and extensive resources, instead of relying on the existing loyalty of Bond franchise fanatics. In doing so, Amazon Prime’s Original series’ stand a better chance of outcompeting Apple T.V.’s growing content library and Disney Plus. It could even make a dent in Netflix’s share in the VOD streaming services market. But again, Amazon’s success depends on how well Amazon can utilise MGM’s talent pool to retain existing MGM fans and capture new audiences.


Chart 2

Demand Share Streaming Services

Source: Parrot Analytics


The acquisition of MGM further highlights the major market consolidation in the VOD streaming service industry over the past few years, the rate of which is likely to accelerate post-pandemic. In April 2021, Sony signed an exclusive $3bn deal with Netflix. Scott Stuber, Head of Global Films at Netflix, stated that the deal “allows [Sony] to bring their impressive slate of beloved film franchises and new I.P. to Netflix in the U.S., but also establish a new source of first run films for Netflix movie lovers worldwide” (Netflix, 2021). Indeed, while churning out content is one of the primary motives detailed above for M&A in the VOD industry, intellectual property or “I.P.” is equally significant. Sourcing the rights to distribute films and series onto streaming services can be particularly challenging in this industry as only the most high-profile streamers are likely to undergo successful M&A, which increases barriers to entry for this industry. Amazon’s acquisition of MGM can be considered a strategic move because I.P. access increases Amazon Prime’s market power and hinders the ability for new entrants that threaten the company’s market share. The long-term value of this is perhaps reflected in the final price of the deal – Amazon paid $3.45 bn more than the original asking price in December 2020 (Sweney, 2020).


Concerns over Anti-trust Policy

Amazon has made it clear that it wants to filter out any sign of competitive threats, but this strategic acquisition has received immense scrutiny from policymakers. U.S. Senator Elizabeth Warren asserted that the acquisition might harm consumers and extend Amazon’s market dominance beyond an acceptable level. Her concern is that Amazon will “go cheap, kill competition and control the market”, probing an antitrust investigation over Amazon’s business practices from The Federal Trade Commission (FTC) (Lewis, 2021). The news also comes as the Biden administration moved last week to place mergers under much greater scrutiny, bringing together multiple federal agencies tasked with regulating competition and consumer protection. Added governmental pressure is likely to increase the FTC’s approval time for this acquisition, hence in the short term, Amazon will not improve its competitive position in the streaming market. However, MGM is one of the smallest with approximately 1% of the total 2020 box office gross in North America, compared to the top five distributors Sony Pictures, Universal, Warner Brothers, Walt Disney/20th Century Fox/20th Century Studios, and Paramount Pictures, who have a five firm concentration ratio of 80% (ibid). Given MGM’s small market control, it is unlikely that Amazon could “kill competition” in the streaming industry, so the antitrust concern is relatively low. 


Outlook of Amazon Prime post-acquisition

It is fair to say that the acquisition has put Amazon in a comfortable position, both in terms of financial returns and market power, before Bezos exited his CEO position on 5th July 2021. Amazon can expect an increase in operating profit due to a combined resource pool of Amazon Studios and MGM as well as revenue gains from new Prime Video subscribers, rewarding shareholders through healthy rises in stock prices. However, this acquisition’s short-term finances are not the primary goal, especially for a multibillion-dollar tech giant. Amazon hopes to gain greater service differentiation through exclusive titles and squashed competition due to the acquisition of I.P., which raises barriers to entry. It is important to note that the acquisition itself is not guaranteed to improve Amazon’s market share in the VOD industry. In addition to content generation, Amazon arguably needs to focus on improving its user experience to attract more users. Amazon Prime Video’s user interface can be considered inferior to Netflix’s due to lack of innovation. For instance, Netflix introduced ‘Netflix Party’ to connect subscribers when social distancing measures were enforced and used lockdown as an opportunity to experiment with the platform. Amazon needs to be bolder in its approach to succeed and grow its market share. 

If Amazon wants to settle the score with its largest rival, the acquisition of MGM is a good place to start. Coupled with further investment into research and development for the platform, Amazon’s Prime Video could be closer to taking the top spot in the VOD streaming service industry.

However, its competitive stance in the streaming market is ultimately dependent on the FTC’s approval of the acquisition (which is still yet to be decided on); tighter antitrust policy, coupled with governmental pressure, could mean that Amazon misses a key opportunity to grow its market share against Netflix in the streaming wars. 




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