Why the marriage of big tech and entertainment is built to last

Amazon’s decision to buy MGM shows how serious it is about creating new, original content for Prime customers. Here’s what it means for the future of the streaming market, and how viewers can expect their experience to evolve in the years to come.

Pending regulatory approval, Amazon is poised to buy Metro Goldwyn Mayer (MGM) Studios for $8.45 billion in a giant media deal. Most notable for being the Hollywood studio behind the James Bond, RoboCop and Rocky franchises, MGM boasts a library of over 4,000 movies and over 17,000 shows, including such classics as Gone with the Wind and 12 Angry Men, as well as modern TV shows like The Handmaid’s Tale and Vikings.
But unlike other big Hollywood studios, MGM, which is currently owned by a handful of hedge funds and investment groups, hasn’t yet seen the golden age of franchising. While its competitors have used their existing intellectual property rights to create new TV shows and movies, MGM has instead sold their rights to other studios or have simply let them sit unused. Why then did a tech company like Amazon spend billions acquiring a studio that seems to have seen its most glorious days?

A smart move for Amazon

First of all, precisely to do what hasn’t been done yet. With this purchase, Amazon can not only put old shows and movies on Prime for viewing, but also develop new, original content from MGM’s intellectual property. This capitalization on old content can be a key differentiating factor in the ongoing streaming war, as Hollywood analyst Lucas Shaw puts it in his newsletter, Screentime. “Despite its size, Amazon has only had a fraction of the hits of Netflix, which has attracted subscribers with buzzy shows such as “Stranger Things” and “Bridgerton,” he writes. “The idea is to mine that intellectual property to create new hits.”
Jeff Bezos has indeed been quite open about his intentions. “MGM has a vast, deep catalogue of much beloved intellectual property,” he told shareholders at the company’s annual meeting. “We can reimagine and develop that IP for the 21st century.”
Secondly, provided the deal actually happens, Amazon could then access MGM’s marketplace, which is designed to make it easy for its customers to watch, access and license its vast library. This underlying technology, which, since February 2021, is complemented by the blockchain start-up Eluvio Content Fabric, can prove very useful to Amazon, as the company is already a powerhouse of video management through AWS. It is a powerful platform, even by Amazon’s standards.
Finally, the potential deal would give Amazon a presence in Hollywood. Having access to MGM’s iconic production lots, which are part of cinema history, is also very valuable.

More consolidations to come

The question that logically comes to mind is thus, what’s next? Will Amazon’s acquisition of MGM spur studio M&A by its big tech streaming competitors, such as Netflix and Apple TV, whose first blockbuster, Foundation, has just been released?
In my opinion, they would be wise to do so. The conversation in the entertainment industry right now, in the context of the streaming war, is centered around keeping the pace of quality production. Which involves proper resources, acquiring intellectual property, establishing partnerships with content creators, and so forth. A company like Apple is really immersed in content production, as they have invested a lot of money to hire the right people and be able to create their own content. However, they lack their own production studio, which is as key in the entertainment industry as is owning a stadium in the sports industry.
“Apple has made a major strategic mistake not buying a Hollywood studio while Amazon, Disney, Netflix and others run away with content,” according to Wedbush analyst Dan Ives. “Content is king, and Apple built a mansion with hardly any furniture in it. MGM was a no-brainer acquisition for Apple, and they missed a huge opportunity.”
AT&T’s $43 billion deal to merge WarnerMedia with Discovery, along Amazon’s MGM buy, underscores the “intensifying streaming wars as a potential catalyst for the next wave of industry consolidation, with some of the big tech companies increasingly seen as potential acquirers,” CFRA Research analyst Tuna Amobi says.

Understanding viewers

Cinema began in movie theaters. Then we had TV, and next VHS. After that we moved on to DVDs and now to online streaming. Each step was a step closer to the consumer, with streaming now allowing for a direct connection. This brings us to the last key component in the entertainment industry, audience engagement.
In addition to creation and distribution, there’s a third part, which is connecting with the audience, getting to know your viewers. Streaming offers a fantastic opportunity here. Platforms such as Roku and Fire Stick will play an important part in making sure that the user doesn’t get lost in all the content options.

Data analytics is also opening up a whole new range of possibilities in this domain, by analyzing how and what viewers are watching and how they are engaging with the content. This will highlight the power of companies like Adobe, whose acquisition path over the last few years, including the recent buying of collaborative video software maker Frame.io, has been very wise. They are betting on the fact that entertainment companies will want to put out their own forms of programming to get a better understanding of their audience tastes and preferences. This is where the real value lies in this whole ecosystem, and that’s why I believe that the next round of mergers and acquisitions involving tech and entertainment will be centered around developing new methods of fostering audience engagement, which means knowing who they are and how they interact.

The mergers and acquisitions involving tech and entertainment will be centered around developing new methods of fostering audience engagement

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About Allan McLennan
Head of Media &Entertainment in North America
Allan McLennan is a senior market realization executive and global media technology analyst who for over 25 years has been dedicated to the advancement of the global media/entertainment market and connected device revolution. This focus has enabled him to contribute to and work with companies, inventors, scientists, technologists, accomplished executives and high performing companies such as Ericsson; Siemens; Microsoft; Spielberg; APPLE and Disney. He is now Head of Media & Entertainment in North America at Atos.

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