Amazon – MGM Acquisition

WAS IT A GOOD DECISION?

Presented by – PINAKI TIKADAR

 Amazon – The Tech Giant Amazon revenue breakdown in the year 2020-21
4% 6%
 Main Focuses :
7%
E-commerce
12%
Cloud computing
51%
Digital streaming
Artificial intelligence
 It is one of the Big Five companies in the U.S. IT 21%
industry, along with Google, Apple, Microsoft, Facebook
 In 2015, Amazon acquired Whole Foods Market for
13.4bn USD, which helped Amazon to increase its Online Stores Third-party selling services Amazon Web Service Subscription service

footprint substantially in the Physical Retail Market. Physical stores Others

 The company made 21% more revenue after the

acquisition of MGM Studios
Notable acquisitions by Amazon
GROWTH OF AMAZON OVER THE YEARS 16
13.7
469.82 14
500 12
450 386
Net revenue (bn US $)

400 10
8.45
350 280.52 8

Deal Price (bn US $)

300 232.89 6
250 177.87
200 135.99 4
107.01
150
61.0974.4588.99 2 1.2
0.545 0.753 0.775 0.58 0.97 0.839 1.2
100 24.51 34.2 48.08
0
50 os si s h uq ke
t ng ck ox
pp id em itc So ar Ri Pa Zo GM
0 Z a Qu st Tw M Pi
ll M
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Sy ds
va oo
Ki F
Year le
ho
W
Amazon Prime subscription and competition
Added advantages of prime membership
 Amazon with its prime subscription provides benefits of • Prime videos
downloading and streaming video, music, and audiobooks • Ad-free music
through its Prime Video, Amazon Music, Twitch, and Audible • Prime reading
subsidiaries.
• Free 1 or 2 day delivery of online purchases on eligible
 It has more than 200 million prime members. orders and addresses
 Amazon registers 25.21bn USD in annual revenue from retail • Customer reviews
subscription fees. • Exclusive access to special deals and discounts
 Sales during the prime day in the year 2020 – 10.4bn USD
 Sales during the prime day in the year 2021 – 11.79 bn USD
Growth of major OTT platforms over the years
250

Market share of different OTT platforms

203.66 Netflix
200 20%
Number of subscribers (million)

167.09 Others
43%
150 139.25
142.5
110.64 124 Amazon Prime
100 89.09 112.1 20%
99.7 103.6
70.83
54.47 70.3
65
50 54
40
Disney Hotstar
0 17%
2014 2015 2016 2017 2018 2019 2020

Netflix Amazon Prime Disney Hotstar

 Total Revenue by MGM over last few years
1.8
1.6
Metro Goldwyn Mayer (MGM) 1.4
1.2
1
0.8
 Being formed in the year 1924, it is one of the oldest studios in 0.6
Hollywood 0.4
 It has produced many iconic movies and animated series like ‘James 0.2

Bond’, ‘Rocky’, ‘Pink Panther’, ‘Vikings’ and so on 0

2016 2017 2018 2019 2020
 MGM owns studios like Orion Pictures, Samuel Goldwyn Co., and TV
networks like Epix Amount of debt over the years by MGM
250 studios
 It lost its stability by changing hands too frequently. Few of its
previous owners include Drink magnate Edgar Bronfman, the Las 200

Vegas casino billionaire Kirk Kerkorian and the founder of CNN, Ted
150
Turner
 It was reportedly valued at 5.5bn USD, including the debt at the end 100

of the year 2020

 MGM was declared bankrupt in the year 2010 50

0
2016 2017 2018 2019 2020

2004
1959 2010 2020
Acquired by a
Beginning of the break up of the Forced into bankruptcy. Began to explore
consortium including
company The creditors took over potential buyers for the
Sony Pictures (MGM
the company company
Studios)
 WHAT IS IN THERE FOR AMAZON AND FOR MGM
Amazon is taking over MGM for 8.45 billion USD
Amazon
 The company is getting the rights of more than 4000 movies, 17,000 episodes of TV library and
the right of Epix cable network in addition to it
 Amazon is getting the rights of some world-famous franchises like ‘James Bond’, ‘Hobbit’, ‘Rocky’,
and so on
 This step can help Amazon to expand its market with more Prime subscribers and to hold a
strong position in the OTT market
 The company is going to get more in-house content for its OTT platform to expand the library of
Amazon Originals
 Amazon is getting a huge number of Hollywood executives that are very well connected to this
market and subsequently help the company to grow further
 As an immediate impact of this deal, the share price of Amazon (AMZN) rose by 1.3% to a weekly
high to 3295 USD on that day
Share Price of Amazon (AMZN) MGM
3300
3295.73
 The company is getting approximately 40% more than the
3290
3280 3279.82
valued amount as well as the offers made by other
3270 prospective buyers
3260
3250
3257.95 3260.35
 The company is going to get great financial stability
3247.99
3240 because of this deal
3230
 Through this deal, MGM is making an entry into the
3220
24th May 25th May 26th May 27th May 28th May
digital distribution market
 INORGANIC GROWTH OPTIONS FOR

 Primary motives
Amazon never shares the number of Prime subscribers that avail of the Prime video service. But there are
more than 200 million subscribers who pay for prime membership which provides them faster delivery and other
perks. So this deal might be helpful to capture the OTT market as well along with the huge existing retail
market
 Financing options
The deal of 8.45 billion USD might seem to be a little steep, but given the healthy balance sheet of the
company-
a. The company currently holds 73 billion USD in cash and equivalents
b. Operating cashflow has been increasing sharply over the past several years
c. This 8.45 billion USD can easily be raised through issuance of 2.5 million shares of equity at the
current market place.
 INFERENCES

Short term synergy or • The deal might seem to be a lucrative offer due to the short term synergy, but
Long term it cannot be denied that there is a possibility of potential loss in terms of long
term sustainability
sustainability
• Analyst Sara Henschel says, “ This move could induce streamers and other
Industry response small studios to strike their own deal to not to be left out.”

• This acquisition gives Amazon, not only the potential to expand its market
Beyond OTT viewership share in streaming but also to increase its customer base in online retail

Ticket for expansion in • Amazon prime has its presence across 19 countries as of now, but with the
century-old background of MGM and its large viewership across the globe, it
multiple countries gets to enter the potential future markets
THANK
YOU