Amazon is acquiring film studio MGM for $8.45 billion, it announced Wednesday.
Amazon's acquisition of MGM Studios could mean a big expansion of Amazon Prime's streaming inventory to include MGM's big-name movies and TV shows. These include the James Bond, Rocky, Creed, and Pink Panther franchises, alongside "Legally Blonde" and "A Star Is Born." Its TV shows include "The Handmaid's Tale," "Fargo," "Shark Tank," and "The Real Housewives."
"The real financial value behind this deal is the treasure trove of IP in the deep catalog that we plan to reimagine and develop together with MGM's talented team," Mike Hopkins, senior vice president of Prime Video and Amazon Studios, said in a press release.
Amazon said that completion of the transaction was subject to regulatory approvals.
Industry sources told Insider that Amazon had been at the table for months. One person close to talks also said another major media company had made a lower bid and had been rejected from the process last week.
The Wall Street Journal reported in December that MGM was exploring a sale. The company had already started a formal sale process, and prospective buyers had been expressing interest since last spring, per The Journal's report, which also cited people who said the company had a market value of $5.5 billion.
Other companies were also in the running to acquire MGM, including ViacomCBS and Sony Pictures Entertainment, per the report. One person close to talks also said a major media company had made a $6 billion bid and had been rejected from the process last week.
Jeffrey Wlodarczak, principal and entertainment and interactive subscription services analyst at Pivotal Research Group, said that Apple and Comcast were also "logical" other bidders, in an analyst note seen by Insider.
MGM's catalog would bolster up Amazon's portfolio
Like the rest of the film industry, MGM was hit by the coronavirus pandemic, and it had to push back the release of the next Bond installment, "No Time To Die."
Its revenue dropped 3% year-over-year to $1.5 billion in 2020. Its film segment was the worst hit, with an 83% fall in revenue from theatrical releases, as movie theaters closed or operated at lower capacity.
But the company was saved by its deep catalog, which includes about 4,000 films and 17,000 TV episodes, and its chief operating officer, Christopher Brearton, said in the company's third-quarter earnings announcement that 2021 could be its biggest-ever year for new content.
Amazon has been knuckling down on investment in its media division as demand for streaming has boomed during the pandemic.
Last month, Amazon's streaming service surpassed 200 million Prime members worldwide — 175 million of whom streamed Prime Video content in the past year, according to Amazon CEO Jeff Bezos, who said streaming hours were up more than 70% year-over-year.
The company said it made $7.6 billion — or about 7% of its total net sales — from its subscription services in the first quarter of 2021.
One Hollywood executive told Insider that thanks to Amazon's distribution deal with premium TV and movie service Epix, which was acquired by MGM, "Amazon Prime Video has data on every movie played in the eco-system and they know how Bond, Creed, and Rocky perform."
"They know on a household basis, on a geographic basis what titles are popping in 40 million-50 million households," the executive said. "And that was the valuation equation that drove the price up." In the end, price back and forth price negotiations meant Amazon's deal came in a little lower than the $9 billion figure suggested in early reports.
Wlodarczak said in the Pivotal Research Group note, sent before the deal was finalized, that Amazon was "massively overpaying," but that this investment was needed to stay competitive with Netflix.
"Amazon Prime's originals hit rate appears dramatically below Netflix since launching in 2013, with frankly pretty limited hit success rate," he said. He said that hits are important because they drive usage of Prime, which in turn creates "stickier" customers for Amazon's other services.
Wlodarczak said that by acquiring MGM, Amazon would get a "decent but in my view tired" catalog.
He said that, adjusted for inflation, James Bond is the third-highest grossing film franchise of all time behind Marvel and Star Wars, but that "recent results have been trending in the wrong direction." Of recent releases from the franchise, only Daniel Craig's 2012 "Skyfall" has made it to the top 10 Bond box office results, adjusted for inflation, he said.
MGM only owns half of the Bond franchise. Producers Barbara Broccoli and Michael G. Wilson still have final say on the franchise's direction, Insider's Travis Clark reported, meaning there won't be a Prime Video Bond TV series without their approval.
The sale to Amazon is a stunning finale for a studio brand that a decade ago was deeply in debt. MGM sold to Sony and a group of investors including private equity firm Providence Equity for $3 billion plus $1.9 billion in debt back in 2004.
