- Amazon to buy MGM Studios in $8.45 billion mega-merger…
- Latest step in Amazon’s expansion of entertainment business…
- Online retail giant facing fresh antitrust scrutiny…
Amazon (AMZN) is extending its reach into the entertainment business despite a fresh antitrust lawsuit filed against the tech giant.
Amazon and MGM Studios officially announced an $8.45 billion acquisition deal today.
This is the second-largest acquisition deal in Amazon’s history after it paid $13.7 billion to buy Whole Foods in 2017.
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Online Retailer Looks to Boost In-House Production
Amazon says the acquisition of MGM Studios is part of its effort to bolster its own in-house production company Amazon Studios, as it looks to compete with giants like Netflix.
“Amazon will help preserve MGM’s heritage and catalog of films, and provide customers with greater access to these existing works. Through this acquisition, Amazon would empower MGM to continue to do what they do best: great storytelling.”
The deal will also give the tech giant exclusive streaming rights for MGM’s library of more than 4,000 films and 17,000 TV shows, which includes the James Bond franchise.
Mike Hopkins, Senior Vice President of Prime Video and Amazon Studios, said, “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. It’s very exciting and provides so many opportunities for high-quality storytelling.”
MGM’s Chairman Kevin Ulrich said, “The opportunity to align MGM’s storied history with Amazon is an inspiring combination.”
Amazon’s streaming service is linked directly to its Prime program, which gives members faster shipping speeds on the site.
In his April letter to shareholders, Amazon CEO Jeff Bezos said its Prime program had 200 million paid subscribers worldwide.
That puts the streaming service on par with industry leader Netflix which had 207.64 million paid subscribers around the world in the first quarter.
This deal follows a recent trend in media and entertainment, creating conglomerate companies to compete in the space.
In mid-May, AT&T announced it was spinning off its media group WarnerMedia in a merger with Discovery.
AT&T said that new company brings together more than “100 of the most cherished, popular and trusted brands in the world under one global portfolio, including: HBO, Warner Bros., Discovery, DC Comics, CNN, Cartoon Network, HGTV, Food Network, the Turner Networks, TNT, TBS, Eurosport, Magnolia, TLC, Animal Planet, ID and many more.”
Is Amazon Overpaying for MGM?
The $8.45 billion acquisition deal looks like a big win for MGM Studios.
Variety reports other companies that had considered buying the studio in recent months had valued it around $5 to $6 billion.
But the massive price tag on the merger is chump change for Amazon.
In the first quarter of 2021, the online retailer reported net income of $8.1 billion.
Amazon Ramps Up Focus On Entertainment Business
The merger with MGM studios is just one of many recent steps Amazon has taken to expand its entertainment business.
Earlier this month, it was announced that Jeff Blackburn would return to Amazon to take over a new position as Senior Vice President of its new Global Media & Entertainment division.
In an internal memo, incoming CEO Andy Jassy said, “Jblack’s interest in returning to Amazon presented us with a good opportunity to combine our entertainment businesses in a single org under a leader who knows them well.”
Blackburn’s return comes after he took a brief hiatus from Amazon, stepping down in mid-February from his position as senior vice president of the company.
The executive will take over his new position on June 7, overseeing Prime Video and Amazon Studios, Music, Podcasts/Wondery, Audible, Games, and Twitch.
One key project overseen by Blackburn will be Amazon’s new Lord of the Rings series.
That series was announced in 2017 and production of the first season is now underway in New Zealand after a delay due to COVID-19 in 2020.
The first season of the blockbuster series has a massive budget of $465 million.
That’s sharply higher than similar shows like Game of Thrones, which cost about $100 million per season.
Amazon’s new entertainment division will also include a partnership with the NFL.
Amazon Prime Video reached an exclusive deal with the NFL to exclusively broadcast 15 Thursday Night Football games on its platform starting in 2023.
The 10-year agreement is the NFL’s “first exclusive national broadcast package with a digital streaming service.”
NFL Commissioner Roger Goodell said, “Thursday Night Football will be our first-ever digital package and we are thrilled to exclusively partner with Amazon to bring our games to more fans on more platforms. NFL football drives passionate viewers and Amazon will enable us to continue to grow our fanbase in innovative and compelling ways.”
The merger deal between Amazon and MGM Studios is subject to regulatory approval and that might prove to be a problem for the online retailer which has faced a string of recent antitrust scrutiny.
DC Attorney General Files Antitrust Suit Against Amazon
The latest antitrust suit was filed against Amazon on Tuesday by the attorney general of Washington, D.C.
Karl Racine alleges the online retail giant is violating antitrust laws by requiring its third-party sellers not to offer lower prices for an item on another platform besides Amazon.
Third-party sellers on Amazon are required to abide by the company’s business solutions agreement.
A prior version of that agreement included a “price parity provision” but the retailer removed that requirement in March 2019 amid ramped up antitrust scrutiny from lawmakers.
One of those lawmakers was Connecticut Senator Richard Blumenthal, who praised the move in a tweet saying, “Amazon made a wise & welcome decision to remove abusive anti-competitive clauses from its contracts with sellers.”
But Racine’s suit alleges the practice of price parity never ended despite Amazon removing the clause from its contract.
The AG’s suit takes issues with Amazon’s Marketplace Fair Pricing Policy which says:
“Pricing practices that harm customer trust include, but are not limited to:
- Setting a reference price on a product or service that misleads customers;
- Setting a price on a product or service that is significantly higher than recent prices offered on or off Amazon; or
- Selling multiple units of a product for more per unit than that of a single unit of the same product.
- Setting a shipping fee on a product that is excessive. Amazon considers current public carrier rates, reasonable handling charges, as well as buyer perception when determining whether a shipping price violated our fair pricing policy.”
Racine’s suit is focused on that second item: “Setting a price on a product or service that is significantly higher than recent prices offered on or off Amazon.”
The fair pricing policy says, “Amazon can remove the Buy Box, remove the offer, suspend the ship option, or, in serious or repeated cases, suspending or terminating selling privileges” if a seller is found to violate that policy.
The AG also says Amazon’s fees, which can be as high as 40% of the total item price, could force third-party sellers on the site to raise their prices on other platforms to ensure Amazon’s price is the lowest.
Racine says this practice creates “an artificially high price floor across the online retail marketplace.”
In response to the suit, Amazon accused the AG of misunderstanding the policy.
A spokesperson for Amazon said in a statement, “The DC attorney general has it exactly backwards — sellers set their own prices for the products they offer in our store. Amazon takes pride in the fact that we offer low prices across the broadest selection, and like any store we reserve the right not to highlight offers to customers that are not priced competitively.”
Although that suit is focused on Amazon’s retail practices, the announcement of a mega-merger the next day isn’t sitting well with leaders on these issues.
New York Times reporter Brooke Barnes says the top Republican on the House Subcommittee on Antitrust told her upon hearing about the deal, “I’m deeply concerned by Amazon’s acquisition of MGM Studios. It’s critical that mergers and acquisitions involving monopoly companies experiencing tremendous and exponential growth are met with a greater level of scrutiny.”
In October 2020, that subcommittee released a 449-page report on whether tech giants Amazon, Apple, Google, and Facebook were violating antitrust law.
That report concluded, “By controlling access to markets, these giants can pick winners and losers throughout our economy. They not only wield tremendous power, but they also abuse it by charging exorbitant fees, imposing oppressive contract terms, and extracting valuable data from the people and businesses that rely on them.”
Committee member Representative Val Demings said, “Our investigation revealed an alarming pattern of business practices that degrade competition and stifle innovation. Competition must reward the best idea, not the biggest corporate account. We will take steps necessary to hold rulebreakers accountable.”
Now, this merger with MGM Studios could be another chance for the DOJ and Congress to ramp up their antitrust scrutiny against Amazon.
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