Why Amazon is paying nearly $9 billion for MGM and James Bond

Update, March 17, 10 am: Amazon’s $8.45 billion deal has closed, and the company announced that MGM will be joining Prime Video and Amazon Studios.

Big tech companies have been eyeing big media companies for years — but they’ve never gotten together before. Now it’s finally, probably happening: Amazon is getting ready to pay $9 billion for MGM Holdings, the Hollywood studio that brings you James Bond and a smattering of other stuff, like the Pink Panther movies and The Handmaid’s Tale TV show.

Which leads to some questions. Why now? Why Amazon? Why MGM? And, just as important: Will regulators let it happen?

Short answers here: The media world is consolidating and there aren’t many targets left for a would-be acquirer. Amazon has spent many billions on video without much to show for it, and thinks owning a studio — and, crucially, the rights to the intellectual property the studio owns — could help it create Really Big Movies and TV Shows You Really Want to Watch. Not so much because it wants to own streaming, but because it wants you to keep coming to Amazon. MGM, meanwhile, has been trying to sell itself for years.

And the way regulators respond to this will be fascinating: Amazon will claim that it’s too small in video for this to pose a competitive threat. On the other hand, Amazon is already in regulators’ cross-hairs. In theory that’s for running a marketplace and selling its own items in the same marketplace, but really just for being so ... big. So this is akin to waving a red flag in front of the likes of Sen. Amy Klobuchar and daring her to charge.

Now that we’re done with the CliffsNotes, a little context about Amazon and Hollywood, which remains one of the weirder media stories of the last decade:

Amazon has been making and buying its own TV shows and movies since 2013 — the same year Netflix got into streaming its own stuff with House of Cards. But you probably don’t remember Amazon’s first shows — Alpha House? Betas? — and you probably can’t think of many Amazon shows at all, except for Transparent and a few others. Which gives you a sense of how all over the place Amazon’s efforts to break into Hollywood have been, despite the fact that Jeff Bezos has spent a lot to make it happen.

Bezos is still trying, though: Amazon is sinking at least half a billion dollars into a Lord of the Rings TV show, and $10 billion over 10 years to show an NFL game once a week. And now, probably, another $9 billion for MGM.

So does that mean Amazon is finally getting ready to take on the streaming heavyweights — Netflix, Disney, and maybe WarnerMedia/Discovery?

Amazingly, the answer is no: The company is indeed more serious than ever about video. But it’s playing a different game than the “real” streamers. Amazon doesn’t want to compete with Netflix or the other biggies for watch time and subscriber dollars. It just wants you to watch some video and spend some money.

That’s because all of Amazon’s “premium” video is bundled into its Amazon Prime subscription offer, which gives you free shipping and other goodies. It is Amazon’s most powerful weapon. For years, Bezos has said that giving you stuff like Transparent made you that much more likely to stick around and order a pair of shoes — or at least keep paying for Prime.

What Amazon says less frequently but is also true is that it has built a really nice business selling subscriptions to other people’s video services — services like Discovery+, for instance. Amazon sells those subscriptions via its “channels” offering, and it keeps a big slice of the money you pay for those every month. In order to do that, it’s helpful to have stuff like Jack Ryan, the series starring John Krasinski as Tom Clancy’s analyst/action hero, to get people watching video on Amazon. Come for the free shows, then maybe buy some other ones.

So Amazon doesn’t want to dominate Hollywood. It just wants a toehold. But even that toehold has been hard to get, and Bezos has been adamant for a while that the way to get it isn’t via niche shows like Transparent anymore — it’s by buying or making big blockbusters that lots of people will watch.

That explains The Lord of the Rings and the NFL, and that explains MGM: It gives Amazon one giant movie brand everyone has heard of and still wants to watch — James Bond — and then a bunch of other stuff that could turn into something, maybe, one day. MGM owns the rights to Rocky, for instance, which has already turned into multiple movies, but maybe there’s a way to do a Rocky Extended Universe.

What the hell is a Rocky Extended Universe? No one knows! But that’s been the conventional wisdom in Hollywood for the last few years. No one knew you would want to watch movies about the Guardians of the Galaxy, or a TV show about Wanda Maximoff and Vision. But now that Disney owns Marvel, it has been mining the company’s store of obscure superheroes and turning them into giant, popular spectacles. That’s the playbook.

And that playbook, by the way, requires owning the stuff instead of renting it. It used to be that Disney and Comcast and all the other big media companies were fine letting streamers like Netflix and Amazon borrow their old TV shows and movies, but those days are over. Meanwhile, finding other studios that will make big movies and TV shows for you is getting harder, too. Sony, for instance, which used to make stuff for everyone, is now off the table because it has long-term deals with Netflix and Disney. Amazon needed to buy ... something.

So: Amazon is betting billions — if the deal goes through, it will be the company’s second-biggest purchase, after it paid $13 billion for Whole Foods — on a Hollywood acquisition that might give it the ability to become somewhat more competitive, in a side business, against people who compete very seriously in only that business. If regulators allow it.

Amazon’s argument to the Klobuchars of the world, by the way, will be straightforward: They’re a small player in entertainment, and the acquisition won’t reduce consumer choice.

On the other hand: If you didn’t like the fact that Amazon runs a store that sells batteries and sells its own batteries in that same store, you might see similar parallels to running a movie store and selling your own movies. Or, you might simply have a problem with one of the most powerful companies in the world using its billions to buy anything at all. We’ll find out.