Amazon buys MGM, raising competition in streaming sector
The rumors that started a few days ago were true. Amazon is starting to make use of the immense availability of cash it has and has made the second most important acquisition in its history within the streaming industry.
The growth of streaming and the high projections it has for the coming years seem to have been enough pressure for the technology giant to make this move. The American company has agreed to buy MGM Film Studio for 8.45 billion dollars. Which puts this purchase behind the one made to Whole Foods for 13.7 billion dollars. Beyond the high amount of the acquisition, during 2020 alone, the company had made investments of $11 billion in its video and music streaming services.
This transaction will give Amazon access to more than 4,000 movies and 17,000 episodes of television series. Among some of the names of programs that MGM retains and are very well known are "James Bond", "The Handmaid's Tale", "Rocky" and "Vikings", among others. Regarding James Bond, one of the public's favorite movies and one of the main sources of income for MGM, it is expected that the movie will continue in theaters for the time being. In this case, it is important to mention that the renowned production will only be partly owned by Amazon.
Since, the Broccoli family holds 50% of the rights and are committed to the upcoming releases of the saga. Therefore, the U.S. company's control over this particular production will not be immediate. However, it is estimated that in the future it will obtain complete control and it will be one of its main cards to attract the public.
Read more about the impact within the streaming sector
This operation is part of a strategy to obtain audiovisual content and in the short term be able to offer a larger catalog of products to compete with Netflix, HBO or Disney. However, it is understood that the real added value of this operation lies in the purchase of intellectual property. That which will allow the company to reinvent part of the current catalog and develop new programs within the streaming sector. Consider that MGM has been an icon of the Hollywood industry for almost 100 years and its catalog could lead to a potential demand for all its streaming content.
The deal secured by Amazon could force competitors in the streaming sector to pursue acquisitions of other studios. For example, Sony and Lionsgate are among the current favorites to be acquired. This move could force the market leader, Netflix, to have to modify its very quiet M&A strategy in order to continue leading the industry. If we consider that the purchase of MGM represents an estimated 24 times MGM's expected 2021 EBITDA (USD 345 million); a potential acquisition of Lionsgate could be in the region of USD 10 to 12 billion considering this year's expected EBITDA of USD 475 million. A clear demonstration of the growing value that content ownership may begin to have for the industry giants.
As mentioned at the beginning, the global streaming market is in a phase of exponential growth. Over the next seven years, the annual growth rate (CAGR) is estimated at 21%. Growth that would give it a value of approximately US$190.3 billion.
The impact of the acquisition?
It is difficult to determine what may happen in the streaming market in the next few years. However, we can mention that many of the major players in the previous industry (such as movie theaters and MGM) are closer to the starting line. Competition will not be defined solely by the in-house productions that may be developed by the big players in the streaming sector, such as Netflix, Disney, Amazon, Apple and YouTube, among others. This type of operations can increase the capacity of companies in terms of content and diversification of their portfolio to add value to their subscribers.
In the specific case of Amazon, we believe that the acquisition will not have an immediate effect on the company's share price. However, it is part of a growth scheme to diversify and develop new business models. In this way, the company could gain market share through the platform in an accelerated manner.
We believe that this is a very intelligent way of developing businesses and that this was now the case with MGM. However, Amazon at any time, due to its economic capacity, could acquire new companies that would allow it to gain a competitive advantage. As well as strategic penetration into different sectors that go beyond the main core of the current business.
