After years of waiting, predictions that a tech giant would buy a legacy film and TV studio are finally coming true.
Amazon said Wednesday it is acquiring Metro-Goldwyn-Mayer Studios for $8.45 billion — snapping up a library of more than 4,000 movies and storied franchises including "James Bond," "Rocky" and "The Pink Panther" — a watershed moment in the collision of Hollywood and big tech.
The deal is the Seattle online retail giant's second-largest purchase ever, and its biggest since its $13.7-billion acquisition of Whole Foods in 2017.
It comes at a pivotal time as competition ramps up among streaming services like Netflix, Disney+ and HBO Max, where hit shows are key to driving consumers to subscribe. MGM's library includes 17,000 episodes of TV programming and a stable of film properties that could be mined for reboots, and some of which already have.
Amazon already has a studio of its own, based in Culver City and run by former NBC executive Jennifer Salke since 2018. It has produced a handful of acclaimed programs, such as "The Marvelous Mrs. Maisel," and has released some popular movies including "Borat Subsequent Moviefilm." The studio, which earlier won awards for such arthouse fare as "Manchester by the Sea," was nominated for 12 Oscars with films including "Sound of Metal," "Borat" and "One Night in Miami."
But many of Amazon's biggest hits were films that the company didn't actually make. For instance, "Coming 2 America," a big draw for Amazon Prime Video this year, was acquired from ViacomCBS' Paramount Pictures. And if Amazon wants to stay competitive it has to ramp up production.
People close to Amazon who were not authorized to comment said the MGM acquisition fits Amazon CEO Jeff Bezos's plan to grow Amazon's entertainment business more aggressively to better compete against Netflix and others.
"This gives them the opportunity to acquire talent that has a better expertise at creating movies and hits," said Brian Yarbrough, a consumer research analyst with Edward Jones.
Streamers are looking to build their own library of intellectual property for series, as more companies are launching their own rival platforms instead of selling to others. Amazon's acquisition of MGM increases its catalog of content and gives it a prolific TV production engine. Beverly Hills-based MGM is responsible for shows such as "The Handmaid's Tale," "Vikings" and "Fargo."
"Clearly Amazon is in full throttle in terms of spending on programming," said Brahm Eiley, president of the Convergence Research Group, based in Victoria, British Columbia. "That's the only way that you are going to reduce churn and keep eyeballs on your programming at the end of the day."
The deal comes after years of speculation that one of the large tech players — Apple, Google, Facebook or Amazon — would buy a proper studio after years of either dabbling in entertainment or trying to build their own production pipelines.
Apple, for example, has long been rumored to as a buyer for a production company like A24 and MGM to supercharge its content machine for Apple TV+. But so far the Cupertino, Calif.-based company has chosen to make or license movies and shows for Apple TV+, such as "Ted Lasso," produced by Warner Bros. and Universal.
Instead, it's Amazon that's taking the plunge.
Bezos's decision to step down as CEO of Amazon led some to question whether the company he founded would maintain its commitment to the entertainment business. The billionaire's replacement, Andy Jassy, currently runs Amazon Web Services, the company's cloud computing arm, and has little familiarity with Hollywood.
But Amazon recently announced that longtime executive Jeff Blackburn would return to the company to run entertainment and media properties, including Amazon Studios and Prime Video, signaling that Amazon was looking to improve its position in the space.
"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," said Mike Hopkins, senior vice president of Prime Video and Amazon Studios in a statement. "It's very exciting and provides so many opportunities for high-quality storytelling."
Amazon spent $11 billion on music and video content in 2020, up from $7.8 billion in 2019, according to the Convergence Research Group. That amount is expected to grow to $15.5 billion this year, the research firm forecasts. Amazon's "Lord of the Rings" series alone is estimated to cost $465 million for one season.
Paying nearly $9 billion for MGM represents a significant step up. Hollywood executives who have kicked the tires questioned whether MGM was worth the purchase price — valuing the company at closer to $6 billion. However, Amazon, with a market cap of $1.6 trillion, can clearly afford it.
"The MGM library is very well regarded," said Corey Martin, a managing partner at Granderson Des Rochers, a law firm that specializes in entertainment and media. "There are titles there that are award winning, titles that are culturally relevant. The gravitas that would come with that would certainly further legitimize what Amazon is seeking to accomplish in the content sector."
While most streaming rivals and studios consider content to be their main business, Amazon Studios and Prime Video were both set up as a way to draw more users to the larger Amazon Prime retail subscription service.
That membership, which costs $119 a year, also includes other perks like free shipping on products on Amazon's retail site and streaming music on Amazon Music Unlimited. Consumers can also choose to subscribe just to Amazon Prime video for $8.99 a month.
Still, the track record of outside companies succeeding in Hollywood is weak. Other outsiders, including telecommunications giants, soft-drink makers, booze sellers, utility giants and manufacturing conglomerates, have tried to make a go of show business only to leave in defeat, partly due to the unusual difficulties of making hit movies and shows.
It was long predicted that a Chinese conglomerate would buy a historic studio, but other than Dalian Wanda Group's purchase of Legendary Entertainment, that didn't happen. Chinese companies have largely beat a retreat from American entertainment deals and are now focused on building studios at home.
Last week, AT&T said it would spin off WarnerMedia into a new combined entity with Discovery. AT&T acquired the Time Warner assets for $85 billion in 2018 with the aim of using content and mobile connectivity to create a bigger whole. But with a massive debt load, AT&T couldn't spend what it needed to stay competitive in streaming and telecommunications.
Owning a studio won't be easy for Amazon, and MGM comes with unique challenges. The studio's biggest property, the James Bond franchise, is one it shares with "007" producers Barbara Broccoli and Michael G. Wilson, who wield enormous control over the series through their British production company Eon.
Barbara Broccoli is highly protective of the legacy of her father, Bond producer Albert R. "Cubby" Broccoli. People familiar with the Broccolis say they expect the family would demand a global theatrical release for any Bond movie and have long resisted the idea of building out the franchise for episodic television.
The next "007" film, "No Time to Die," hits theaters in October after more than a year of delays because of COVID-19. The super-spy series is at a crossroads, as Daniel Craig has said "No Time" will be his final outing as the agent with a license to kill.
Then there's the library, which includes titles like "Legally Blonde," "The Addams Family" and "Stargate." Many of MGM's properties have already gotten the reboot treatment, with mixed results. "Creed," an extension of the "Rocky" series, was a commercial and critical success. "RoboCop" (2014) was neither.
Further, MGM's vault has both diminished and expanded over the decades since its heyday as a dominant studio through multiple changes in ownership, with overlords including Kirk Kerkorian (several times), Ted Turner and Italian financier Giancarlo Parretti.
Known for its roaring lion logo, MGM was formed in 1924 with the combination of Metro Pictures Corp., Goldwyn Pictures and Louis B. Mayer Productions. In its early era, the studio's releases included such classics as "Gone With the Wind" and "The Wizard of Oz." However, those titles, along with many earlier MGM productions, were cleaved from MGM decades ago and have been owned for years by Warner Bros. It was Kerkorian who orchestrated the `1997 deal for MGM to acquire Orion Pictures.
On the TV side, Amazon will have to deal with the successful and sharp-elbowed MGM Television chairman Mark Burnett, known for producing reality programs including "Survivor," "Shark Tank" and "The Voice." Those shows, while popular, air on other broadcast networks, limiting the benefit to Amazon, which wants to grow Prime.
MGM has explored a sale for months, as speculation of potential buyers loomed due to the size of the company's debt and its delay of its latest 007 movie due to the pandemic. Private equity firm Anchorage, run by Kevin Ulrich, has been a major shareholder since MGM emerged from Chapter 11 bankruptcy protection in 2010.
The studio has recently operated under an unusual management structure. It has been run by an "office of the CEO" since the firing of Gary Barber in 2018. Barber was ousted after holding preliminary talks to sell MGM, a move that Ulrich opposed at the time. MGM also owns the premium pay television network Epix, a smaller competitor of HBO and Starz.
The pandemic has accelerated the consumer shift toward streaming on demand content, putting pressure on cable companies and movie theaters that are struggling to deal with the fallout. While some studios and media companies have launched rival streaming services such as Paramount+ or Peacock, their user numbers pale in comparison to larger players like Netflix.
Schuyler Moore, a partner at Greenberg Glusker, said he expects to see more consolidation. In the past, studios had so much power because they controlled distribution, but that's changed in the streaming world, where studios have become production houses for streamers.
"The truth is, whoever controls distribution wins," Moore said. "Content is not king. Distribution is king."
