You can buy almost anything on Amazon.

And Amazon can buy almost anything it wants — Which is why it should come as no surprise that they just went ahead and bought MGM (Metro Goldwyn Mayer) — the iconic Hollywood studio for a whopping ~$8.5 billion.

So in today’s Finshots, we look at the deal and ask — “What is Amazon trying to do with its latest acquisition”

The Story

You don’t have to look far to understand the motive here. Jeff Bezos, the founder of Amazon, once said this while discussing Prime Video —  “When we win a Golden Globe, it helps us sell more shoes.”

He’s alluding to the obvious here.

Amazon can only turn consistent profits when people stay loyal to the brand. However, loyalty isn’t a feature of the e-commerce industry. People now have equal access to most platforms and they’ll choose a provider that offers them the base value for the buck. So what do you do? Well, perhaps the only solution then is to induce loyalty by tying customers to your brand perpetually. Amazon does it by leveraging Amazon prime memberships. You get faster shipping, free delivery on certain items, and a whole load of other perks. All you have to do is pay the entry fee and become a priority customer.

Once you make that investment, however, there is no going back. You’ll keep buying from Amazon, come what may. So if Amazon could only get you to try out the membership once, they’ll likely tie you down for life. But it isn’t easy to get you to shell out Rs. 1000 every year.

Unless that is, you were also offered access to Prime Video — Amazon’s amazing content library. In fact, you can’t access the video library by subscribing to the service separately. You have to buy the Prime Membership to access Prime Video. And since the content is so appealing, maybe you’ll just subscribe, even if you didn’t want all those other perks (including free shipping).

Bottom Line — If Amazon were to produce a movie so successful that it won the golden globe, that would likely help them get more Prime subscribers on board. Maybe it’ll help them sell more shoes, as well. Get it?

But to make Prime Video more appealing, Amazon needs content and lots of it. They’ve already spent a fortune in licensing deals and producing original shows. Last year they spent a cool $11 billion. This year, they’ll likely spend more. Why?

Well, that’s the only way they can stay competitive. Netflix has been in the streaming business for ages now. Disney and HBO have also been around for decades and they have inherited copious amounts of legacy content that will drive subscriptions for years to come. The only way to stay competitive is to keep updating your library with new content. If they don’t, then Prime Video becomes a fringe offering that won’t drive subscriptions. The shoes won’t sell themselves. So this is the only way out.

And MGM — well it fits the bill just right. The studio has a treasure trove of content — Thousands of episodes of television and hundreds of blockbuster movies. It has an impressive catalog of film franchises including, money-spinners such as James Bond and Rocky. And while at it, Amazon also gets access to MGM’s intellectual properties. They can keep churning out as many James Bond sequels* as they like.

And for MGM, this was a deal they simply couldn’t pass up. The studio had already lost its way long ago and it was being shipped off to prospective investors who simply wanted to flip it and make an extra buck or two. Unfortunately, this didn’t pan out well for the company. And while the current owners have tried to steady the ship a bit, everybody knew that the money was simply too good this time around, especially considering the impact Covid has had on traditional movie studios. So yeah, considering Amazon’s ambition and how expensive it is to make or acquire content, ~$8.5 billion for a century’s worth of movies and TV shows doesn't seem like a bad deal at all.

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* The rights to the movies still partly reside with Eon Productions. So they'll only be able to create new movies in conjunction with Eon.