Amazon.com Inc. today announced a landmark $8.45 million deal to acquire MGM Holdings Inc., the storied film studio with more than 180 Academy Awards to its name.

The acquisition will buy Amazon the rights to more than 4,000 films and 17,000-plus TV shows created over the course of nearly a century. It will enable the company to expand the content catalog available via its streaming services and, as a result, give more customers more reason to sign up to its Prime subscription offering. Prime includes access to Amazon’s streaming services as well as other benefits such as free two-day delivery.

Prime is a key component of the online retail giant’s strategy to continue its revenue growth. In his final shareholder letter last month, Chief Executive Officer Jeff Bezos disclosed that Prime has reached 200 million Prime subscribers, up from 150 million just a year ago. By providing benefits such as free two-day shipping, the subscription program gives customers an incentive to spend more in Amazon’s e-commerce marketplace.

The addition of MGM’s sizable content catalog should only enhance the value proposition of the service. “The real financial value behind this deal is the treasure trove of IP in the deep catalog that we plan to reimagine and develop together with MGM’s talented team,” said Mike Hopkins, the senior vice president of Prime Video and Amazon Studio.

The acquisition’s $8.45 million price tag surpasses the $7.8 billion Amazon spent on streaming in all of 2019. However, it doesn’t exceed Amazon’s 2020 content budget. The company upped spending on this part of its business to $11 billion last year, a sum that could very well be exceeded again in 2021 thanks to the MGM deal.

The storied film studio changed ownership more than a half-dozen times over its nearly 100-year history. MGM is currently owned by a consortium of investment firms that acquired the company following its 2010 bankruptcy. Several of Amazon’s competitors, including Apple Inc., reportedly considered buying MGM as well at one point.

Amazon’s big content investments are paying dividends. According to Cowen & Co. research, Amazon Prime Video boasts the second-highest number of monthly active users in the U.S. behind market leader Netflix Inc., which was ahead by an estimated 6% as of April. In Japan, the U.K. and Germany, Amazon Prime Video is believed to lead Netflix.

Like the rest of the company’s business operations, Amazon Prime Video relies on Amazon Web Services cloud infrastructure. MGM is an AWS user as well. MGM entered a partnership with Amazon’s cloud unit last year to use its infrastructure to manage its media supply chain.

“We view the deal positively for Amazon, as it furthers their efforts to add new content to the Amazon Prime Video offering, which includes the upcoming Lord of the Rings series (currently in production), as well as the recently signed NFL Thursday Night football,” Cowen analysts told clients in a note today.

Amazon acquired the rights to stream NFL Thursday Night football through a 11-year deal worth $1 billion annually. The upcoming “Lord of the Rings” series, in turn, is believed to be one of the most expensive TV series ever made, with a first-season budget of $465 million.

Competitors are also investing billions of dollars to expand their streaming catalogs. Amazon rival Netflix disclosed to shareholders recently that it plans to spend over $17 billion on content this year, while Apple had reportedly allocated $6 billion for the same purpose in 2019 to boost its Apple TV+ service. 

Image: MGM