Why People Don’t Understand Amazon’s MGM Acquisition

Amazon recently agreed to purchase MGM for over $8 billion, and the reaction has been skeptical.

Critics of the deal argue that Amazon overpaid for the MGM catalog, especially in comparison to Disney’s (admittedly brilliant) trio of acquisitions: Star Wars ($4 billion), Marvel ($4 billion), and Pixar ($7 billion). But this is allow hindsight to color our judgment. When Disney bought Marvel in 2009, it had only released two movies: Iron Man, which was a hit, and The Incredible Hulk, which was not. This was not yet the Avengers-driven juggernaut we know today (which presumably will be adding the Juggernaut from the X-Men universe soon). When Disney bought Lucasfilm in 2012, it had been seven years since Revenge of the Sith, and the only active Star Wars presence in popular culture was the animated Clone Wars television show. Only Pixar was at the height of its powers at the point of acquisition, having recently released The Incredibles, and with Cars coming out a few months after the acquisition.

I’m not predicting that the MGMCU, which includes Legally Blonde, Rocky, and Tomb Raider (with the Real Housewives on TV) will equal or exceed the MCU, Pixar, or Star Wars tentpoles, but we could very well be surprised. And don’t forget that Amazon also has its own mega-IP coming, in the form of The Lord of the Rings and The Wheel of Time.

What I am going to argue is that people are evaluating the MGM acquisition in the wrong way. The analysis might be correct if the acquirer were Netflix or Warner Discovery, but Amazon is a different beast.

What sets Amazon apart from every other acquirer is that it doesn’t need to convince people to sign up for its streaming service, it just needs to convince them to use it.

Amazon Prime Video is included with every Amazon Prime subscription (and indeed, the Yeh family is a subscriber). There are 200 million Amazon Prime subscribers around the world, roughly the same as the number of Netflix subscribers around the world. Amazon just needs to convince more of them to use a service that they are already paying for.

This means that the friction to “acquiring” a new Amazon Prime Video user is so much less than for any other streaming service. You don’t need to convince people to pay for a new subscription. You just need them to develop the habit of using Amazon Prime Video.

MGM may not turn out to be a Marvel or Star Wars. But if it helps Amazon convince just 10-15% more of their Prime subscribers to start using Amazon for video content, it will have been worth it.

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