Amazon, MGM, and the Triumph of New Hollywood

Amazon is coming for you, James Bond.

According to numerous reports, Amazon is negotiating to buy MGM for $9 billion. The acquisition, if It succeeds, would add more than 4,000 MGM movie titles to Amazon’s burgeoning film library available to subscribers of the Amazon Prime Video streaming service. Those titles include many James Bond films (of which MGM owns partial rights) and many other popular movies such as Silence of the Lambs. Although the news has triggered a predictable “Amazon is getting too big” reaction, the bigger story here is really the triumph of New Hollywood.

Why MGM Is for Sale

The COVID-19 pandemic has been cruel to Old Hollywood studios such as MGM. Movie theaters around the world have teetered on the edge of collapse because of declining attendance and closures during lockdowns. As a result, studios have been denied an essential revenue stream to recoup the cost of making films that they’d already teed up for release in 2020.  For example, the cost of the latest MGM James Bond movie, No Time to Die, exceeded $300 million, saddling MGM with a heavy burden. MGM reportedly attempted to sell the movie to streaming services unsuccessfully. With revenue streams drying up, MGM put itself on the sale months ago. 

Why Amazon Wants to Buy MGM

Amazon has emerged as an important player in New Hollywood, which is led by the major streaming operations including Amazon, Disney+, and Netflix. New Hollywood streaming companies, unlike Old Hollywood, have been succeeding amid the rise of the stay-at-home economy during the pandemic. 

Amazon has been scooping up film titles for its 13,000-strong movie library and producing original content of its own to attract more Amazon Prime Video subscribers. The strategy is giving Amazon both prestige and subscribers. At the 93rd Academy Awards, Amazon movies garnered 12 nominations, including One Night in Miami and Sound of Metal. Amazon ended up winning two – but rival Netflix won seven. 

But the more important number is 200 million – which is how many people around the world pay more than $119 a year to be members of Amazon Prime. Among the benefits of being a Prime member: a subscription to Amazon Prime Video. Amazon says that 175 million Prime members actually watch Prime Video – a sizable number (versus more than 200 million for Netflix). 

Buying MGM is all about building up those Prime membership numbers even higher. Owning MGM would expand the Amazon Prime Video library with 4,000 film titles, on top of the estimated 13,000 films available on Amazon Prime already, thus giving people more of an incentive to join and renew their Prime memberships. (By contrast, Netflix's film library numbers anywhere from 3,800-4,000 according to estimates.) More Prime members mean more revenue for Amazon from all the product purchases made by those Prime members. Indeed, Prime members spend reportedly 133 percent more annually than non-Prime members. As Jeff Bezos once said, “When we win a Golden Globe, it helps us sell more shoes.”

By contrast, the other big streaming players lack this card to play. Amazon’s acquisition strategy is all about playing to the company’s strengths.

The New Hollywood Advantage

The New Hollywood giants are getting more competitive as the fight for subscribers intensifies. Both Disney+ and Netflix recently reported a slowdown in subscriber growth. To keep pace with each other, the New Hollywood leaders will need to create more original content (exhibit A: Amazon is spending $465 million on a Lord of the Rings series), build stronger libraries, and figure out new revenue streams (such as Netflix’s fashion collaboration with Halsted). Part of this strategy will include New Hollywood will feast off Old Hollywood by:

• Buying titles from Old Hollywood studios, as they did in 2020 – which is essentially what Amazon is doing at scale by making a run at MGM.
• Attracting talent. For instance, Director David Fincher recently signed an exclusive four-year deal with Netflix. Fincher, responsible for prestigious titles such as Fight Club and Zodiac, released his Academy-Award nominated movie, Mank, on Netflix in December 2020 following a brief theatrical run. 
• Expanding film distribution beyond streaming to start capturing audiences as they return slowly to theaters, as Netflix is doing with its new Zack Snyder film, Army of the Dead. As I’ve speculated before, I could also see Amazon buying some cash-strapped theaters, where Amazon could hustle its private-label brands in the lobbies and offer special rewards for Amazon Prime members. 

Meanwhile, the Old Hollywood studios are going to remain in recovery mode for quite some time. Movie theater re-openings and the loosening of safety-mask restrictions will certainly help bring people back to theaters, but we’re still in the early stages of sorting through the wreckage caused by the pandemic. All the studios (including New Hollywood) have been hurt by delays in film production and distribution during the pandemic. According to The Wall Street Journal, film production delays and the sales of titles to streaming services are going to trigger a shortage of new programming for theaters that will last at least three years. 

Truth be told, the Old Hollywood distribution system was already changing. In 2019, ticket sales in North America totaled $11.4 billion, down 4 percent from 2018. As Brooks Barnes and Nicole Sperling of The New York Times reported in March 2020, even before the pandemic, major studios were starting to route smaller dramas and comedies toward streaming services instead of theaters. And now viewers, as they return to theaters, will have fewer options. 

Advantage: New Hollywood. And there’s no turning back.

Note: I invest in Amazon, Disney, and Netflix.