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Amazon's MGM buy could be 1st of many in movie studio space – analysts

Amazon.com Inc.'s planned purchase of MGM Holdings Inc. for $8.45 billion could be part of a bigger push by the e-commerce company to buy up other movie studios to further bolster its streaming library, retail analysts say.

The e-commerce company on May 26 agreed to buy the legacy film and television company, which operates the studio Metro-Goldwyn-Mayer Inc. If approved, the deal would add thousands of TV episodes and movies, including the marquee James Bond franchise, to Amazon's Prime Video library.

But MGM is likely far from the last such movie house deal for Amazon.

Dan Romanoff, an analyst with Morningstar, said he expects Amazon to purchase additional film studios, especially given the growing consolidation within the media industry. The pending deal to combine AT&T Inc.'s Warner Media operations with Discovery Inc., as well as The Walt Disney Co.'s 2019 purchase of 21st Century Fox Inc. for $71 billion, puts pressure on Amazon to add to its content coffers sooner than later, Romanoff said.

He noted that the film industry has been under pressure during the pandemic, potentially making studios more willing to be acquired by Amazon for the right price.

"It wouldn't surprise me at all if they were looking at other properties, other studios as well," Romanoff said. "If Amazon wants to remain a relevant player in live streaming video, they have to expand their content library. They have done a nice job producing some material in house, but frankly, it just wasn't enough."

With a market cap of more than $1.6 trillion, Amazon has "extremely deep pockets" that could allow it to easily snap up other movie studios, such as Lions Gate Entertainment Corp., said Tuna Amobi, media and entertainment analyst with CFRA Research. "If any other companies come up in the market, they are going to be among those looking," Amobi said.

The MGM deal is significant in that it is Amazon's second-largest acquisition ever, following the 2017 purchase of Whole Foods Market Inc. for a gross transaction value of $14.62 billion.

Both the MGM and Whole Foods deals are far larger than Amazon's past acquisitions, including the company's $1.30 billion buy of autonomous vehicle startup Zoox Inc. in 2020 and its $1.01 billion purchase of online shoe retailer Zappos.com LLC in 2009. Amazon purchased video gaming platform Twitch Interactive Inc. for $842 million in 2014.

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Romanoff said Amazon has historically nibbled at smaller deals that add to or enhance the company's existing offerings, but noted that the purchase price of $8.45 billion for MGM, while large in the media industry, is not that big for a company of Amazon's size.

"In the tech world, it's just not huge," Romanoff said. "But it does show that they are willing to make a splash. They are willing to spend some money and invest in strategic areas of their business."

Any content gained from MGM and future deals will be used to help keep Amazon's more than 200 million Prime members engaged, Romanoff said, adding that new content may justify a hike in Prime membership fees within a couple of years.

"Those Prime members at Amazon are so important because [members] buy more frequently, they spend more money with Amazon," Romanoff said. "You have to have a library that entices more users to come into the fold."

An Amazon Prime membership costs $12.99 per month, not including taxes, or $119 per year. Alternatively, users can opt for just a Prime Video membership costing $8.99 per month.

By comparison, Walt Disney's Disney+ streaming service costs $7.99 per month or $79.99 per year, while the basic Netflix Inc. plan costs $8.99 per month and the standard plan costs $13.99 per month.