Decoding Bezos Next Master Game Plan Behind MGM Acquisition
Amazon has recently acquired MGM, Does this acquisition impact Netflix?
Let’s analyze the recent acquisition of MGM by Amazon because most of the commentary you will read around the case is “Amazon acquired MGM because they wanted to compete against Netflix or Disney. That might be one part of the story, but I have a deeper analysis that would hopefully convince you that Amazon is not all looking to compete with Netflix or Disney.”
Is Amazon even looking to compete with Netflix or Disney?
Amazon acquired MGM for a deal of approximately eight billion dollars. MGM is a digital studio, and it had produced films like Rocky, James bond etc., which are massive hits.
So the apparent reaction here by the internet community is that Bezos wants to go door to door with Netflix because Netflix generates content, and amazon, after the acquisition of MGM, would be able to get into the streaming game more prominently.
But we all know that Bezos is not a very simple man and this theory looks super simplistic. But, of course, if you look at this deal on the very surface, you will see that Netflix has approximately 208 Million subscribers right now, and Amazon Prime, a competing service, has 175 million subscribers.
So, if Amazon has acquired MGM, it has probably done it to get more subscribers and surpass Netflix. But that is a straightforward commentary, and this is not how the business world works. And well, if this is the primary reason for this deal, then Bezos would not be the most prominent businessman of this era.
Netflix is a content generation company that spends an insane amount of money on building up excellent content, distributing it via the platform, and making money via the subscription model. An exciting point here is that if you compare this business model with Amazon Prime, you would say that even Amazon prime is doing the same.
But the significant difference is that according to a Bloomberg report, Netflix spent approximately 16 Billion dollars in generating content last year. In contrast, Amazon spent roughly 7 Billion dollars, which is just less than 50 % of the money that Netflix spends.
So the point is Netflix is very considerate about the content quality and wants to be known as a quality content platform that has already produced high impact shows like Money Heist, Narcos, and many more.
Now people might say Netflix has been a market leader in content creation, but what stops Amazon from getting into this content generation game?
The answer is straightforward that Amazon is not in the business of content creation. Here is a fascinating survey published by Digital commerce 360, and it is when they asked people, what are the top five reasons they shop on Amazon? 51 % of the customers said, “I’m a prime member and receive free shipping on most items and this is the best reason for me to be on prime.”
Approximately 46 % of people said that having a prime membership gives them the ability to find products quickly. So the point is that Amazon Prime offers convenience in the form of buying value to most customers.
Even the charges of Amazon Prime are resultantly low because Amazon wants their customers to buy the product from their main website.
On the flip side, Netflix is producing quality content as a market leader, which is the goal of Netflix. So the bottom line is Netflix wants you to consume quality content, whereas Amazon wants to redirect the customers from prime to their official website.
So why did Bezos acquire MGM? The most obvious answer is that MGM gives them the ability to make new movies and new films, but an important aspect is an intellectual property that comes with the MGM deal.
The senior vice president of prime video and Amazon studios said, “the real financial value behind this deal is that treasure trove of intellectual property in the deep catalogue that we plan to reimagine and develop together with MGM’s talented team.” He would not reveal all the deal details and wouldn’t explain what Amazon will do next. What’s the secret behind this deal?
Amazon is going to utilize this deal and intellectual property to build and generate new businesses. Before discussing the new business models that Amazon will develop. First, we need to understand the history of Amazon a little bit and try to find out what kind of company Bezos wants to build. Because whatever next business he is going to develop, it will be based on similar business philosophy.
In the past, Amazon started as a simple book selling store, but it eventually became a seller for everything. So market dominance comes naturally to Bezos, and he understands that building an ecosystem of selling products can get him to the next stage. Bezos is also very famous for thinking long term and he is very much aware of new technologies that are coming up and how these can be applied into the Amazon ecosystem.
You might have heard of Amazon web services, which is one of the most profitable business lines for Amazon. So it’s very obvious that Amazon wants to remain and retain its business position as a technology company. Now the question is how this MGM deal can impact Amazon’s new business line?
MGM has many international resorts, a Las Vegas-based hotel and a casino company created in 1973 as a division of MGM. So casino business in the U.S is very prominent and more and more of it is going digital. With Amazon technology and MGM brand value and network of hotels and resorts, there is a good chance that Amazon will be able to remain top of this business line.
The second line is that Amazon will get into the short term digital content creation. MGM has something called the United Artist brand, a digital production and distribution company aimed at creating original motion pictures, Television programs, short term content and digital series, and building upon MGM’s existing IP for distribution across digital platforms. United Artist brand is a very prominent digital place for a company like MGM and now Amazon using this brand again has become one of the competitors for Youtube shorts.
Recently Youtube has budgeted an insane amount of budget for Youtube shorts. Youtube realizes the importance of getting into short-form content after the success of Tiktok. Similarly, if Amazon gets into this game, it can be the tough competitor of TikTok.
And finally, this is where it gets really interesting because I genuinely feel that Amazon will get into the NFT creation business.
So let me give you a quick explainer on what NFT are and how Amazon can get into it. For example, there is a painting called the Mona Lisa, which is expensive and its physical painting is preserved in a Museum in France. Now, this painting has a bunch of issues. It has to be maintained, clean and preserved. It needs high security and maintenance cost. But, there are other fake paintings too.
So if a buyer wants to buy it, there is no guarantee that he will get the actual painting. This painting might get replaced while transporting. There are a bunch of security and fraud constraints around it therefore this Mona Lisa painting can be converted into digital art and can be stamped as an original and can be sold. Jack Dorsey recently sold a tweet for 2.9 million dollars.
There is a company called Christie’s and it is one of the world’s leading auction houses which auctions paintings and a bunch of antiques. Recently, Christie’s sold an NFT for 69 million dollars. NFTs are the next wave of digital art and they can define and create an entirely new industry.
Recently a leading VC investor says “creating digital scarcity like NFTs becomes a compelling business model to giant companies like Disney,” so more of them will create in this space.
Companies with popular brands need to create current economic relationships instead of clear sales.
Conclusion
Will Amazon recent acquisition over MGM impact Netflix?
No, it won’t impact Netflix cause it has a very different business model compared to Amazon Prime.
On the flip side, this new acquisition will give Amazon a new power across different domains. They can get into businesses similar to Disney Park, creating NFTs and short-form content. They can turn the Amazon Platform into an eBay type of platform where NFTs can be traded. So this acquisition could be an inception stone of what Amazon could look like in future.
