If you think about the images of Hollywood, California movie studios will likely be in one of the image you consider. There is very good reason for that image to come to your mind, with the invention of sound, the movie industry found a home in Hollywood and still many studios are to be found in the LA area. Similar to all movie studios, MGM has gone through a number of cycles and is still a respectable studio. At one time MGM was the biggest studio in LA and America and the world lined up at cinemas to see the movies. Some of the older movies include: Singin’ in the Rain, the Wizard of Oz, Gone with the Wind. The rights to those movies were sold some time ago to Warner Bros Entertainment.

MGM has a stable of movies including James Bond, Thelma & Louise, Rocky and others you will see when the Lion roars at the start of the movie.

The owners of MGM (Anchorage Capital of New York) had put up the studio for sale because streaming service providers are the method people prefer to see movies. Many groups came to kick the tires including Apple, Comcast and the winner was Amazon.

In an article by Brooks Barnes and Nicole Sperling of the New York Times News Service, tries to answer why would Amazon pay 40% more than the competition wanted to pay?

The first reason is it can. The company has $71 billion in cash and market capitalization of $1.64 trillion.

The second reason is the Prime membership program.

According to Morgan Stanley, people pay $119 a year to Amazon or $13 a month for free shipping and other perks including Prime Video streaming service. The average household with Prime membership spends $3,000 a year on Amazon, which is twice what households without Prime spend. About 200 million people pay for Prime memberships. (200 million x $119 is $23.8 billion in cash flow for Amazon).

According to Mr. Bezos as Prime Video turns 10 years, over 175 million Prime members have streamed shows and movies over the past year which is up over 70%. Prime Video needs content and because of streaming services such as HBO Max, Disney+, and Paramount+ the movie studios are less willing to license their libraries of films to outside companies. Amazon Prime needed content and the best method to ensure content was buy a studio. Amazon also owns cloud computing giant AWS which fits into streaming movies.

Linking to dividend paying stocks, industries evolve and assets are seen differently by companies and individuals. An individual may see a movie and if they relate to it find the movie to be good. A company sees the movie as a method to sell something else to the consumer. Amazon sells Amazon Prime to people buying things needed to be shipped, they also add movies for added value. The added value becomes important to the consumer and to ensure the Amazon Prime is renewed every year, the content of the streaming needs to improve. The company wins and the consumer wins, which is a win win situation.

There are more questions than answers, till the next time – to raising questions.