Understanding OTT’s the Amazon Way
Updated: Apr 6
Amazon, last week, bought more than 100 years worth of history and legacy from MGM Studios. The e-commerce juggernaut paid an exorbitant price of $8.45 billion for the company, including debt, which is considerably higher than conservative estimates set at around $5 billion. What’s even crazier than the insane premium paid by Amazon is the fact that this is the second deal in this sector in less than a month. Yes, the second deal of which the other one was also a mega-sized deal.
Amazon is one of the most successful users of the M&A playbook with the juggernauts rise entirely and entirely due to that corporate strategy. The MGM Studios deal is one of the largest in the firm’s history second only to Whole Foods which was valued at just over $13.1 billion. The deal’s 10 figure check size is emblematic of the growth potential in the OTT industry as in paying that sum the company is announcing their confidence in the field’s opportunities to give them sizeable returns in the future. Even the most liberal valuations of the studio ballpark somewhere around $5 billion excluding debt which makes the price paid by Amazon seem ginormous. While that is there, we also have to agree that Amazon wouldn’t have paid that price had they not see the value in the company or the sector.
Amazon’s acquisition has brought light to the bottomless pockets of the firm which has over $72 billion in cash and equivalents besides a founder worth over a hundred billion dollars. Bezos has encashed his multi-billion stock options multiple times to fund his ventures like BlueOrigin and we can expect the same for Amazon too. The huge financial overlay of Amazon has been constantly touted to be Amazon Prime Video’s biggest advantage in the capital intensive OTT sector. The purchase of the studio signals Amazon’s unwavering commitment to the industry financially and, otherwise, as a key part of its future expansionary agenda. This, further, also intensifies the competition in the industry as apart from the newbies we have Netflix- the long-established king-, Prime Video- the loaded Richie Rich, with both the toys and the money-, Disney Plus- the legacy studio-, and HBO Max + Discovery- the largest, and most diverse library of content. All candidates stand apart from each other, with their different strengths, and this diversification is going to make the competition between all even more interesting.
Lastly, the acquisition of the studio is symbolic of Hollywood’s newfound bittersweet relationship with Corporate America. Amazon isn’t the first big-wig to buy out a major studio, and it is certainly not going to be the last. With content being the secret sauce of success every OTT provider is doubling down on expanding their library. Amazon did it with this acquisition, HBO Max did it by merging with Discovery, Netflix did so by scaling their in-house production company and Disney has done so by leveraging the prowess of their Disney and Star Wars characters. Every major provider has committed itself to this, irrespective of the financial requirements. This, in turn, is a strong indicator of the way the burgeoning OTT industry will shape Hollywood in the coming years. Hollywood is being forced to release on, produce with or sell to these OTT services as without the OTT services they lose on a huge consumer base. Theatres, once the centre of Hollywood, are slowly being phased out to the sidelines, not entirely, with companies prioritizing the potential in the internet game.
To conclude the next decade in Media will be defined by the length, breadth and depth of the OTT industry. The industry is brimming with potent competition, all of which bring different strengths to the table. Amazon’s purchase of MGM has shown the upper hand lying with Prime Video as no matter the legacy or library, cash is king in this business. This, certainly, makes Apple TV+ seem like a worthy competitor of the big 4, but that is something to be seen keeping in mind the lacklustre performance and vision of the provider. They have made the headlines, they have taken the world by force and are rocking the world of traditional media, ladies and gentlemen that is the OTT industry for you.