Amazon closed its deal to buy MGM's many content brands for $8.5 billion, and Michael Pachter, a managing director at Wedbush Securities, joined Cheddar News to discuss the e-commerce giant's second-largest acquisition to date and how he thinks it will all pay off. "To make a movie today, you just can't even think about it for less than 30 million bucks, so 4,000 movies, I mean that's several billion dollars worth of assets," he said, noting how it would also add to Amazon's little-known ad-supported IMDb TV service. "I don't know that the IMDb TV guys actually talk to the Amazon Prime Video guys, but a lot of content, it makes the value of a Prime subscription much, much greater, and people are far, far less likely to churn even if they're only buying one package every three months." 

Closing Bell

Michael Pachter Weighs In on Amazon Acquisition of MGM for $8.5 Billion

Welcome back to closing bell here on Cheddar news. So amazon finished buying MGM for $8.5 billion this week. The move will give prime video more content, including more than 4000 films and the James bond franchise. But the question is, will this purchase payoff? He got to discuss his million director at Wedbush Securities, Michael Pachter and Michael, this is a big buy for. Amazon is the second largest acquisition ever behind whole foods. Do you think the deal will ultimately pay off for the company? I do, I mean 4000 movies? Uh, you know, to, to make a movie today, you just can't even think about it for less than 30 million bucks and you know, so 4000 movies, I mean that's several billion dollars worth of, of assets. Um, 17,000 hours of tv shows. None of it's really that, you know, impressive, but it's, it's good content. And if you remember the amazon prime model, you know, you get it free. Prime video is free with your subscription for free delivery. Um, so you pay them $139 a year for free delivery and you get movies and TV thrown in. Um, I'm not sure that Amazon's different units actually talk with one another, but they have a unit that nobody's heard of called imdb tv and that is ad supported broadcast or on demand television. Um, it's, it's similar to be, you know, similar to the Roku channel. Uh, and that would be great content for Roku tv. So I think that I'm sorry for imdb tv. They could convert people who are not yet prime members by hooking them in to watch ads and then say, hey, are you tired of ads for 100 and 39 bucks, free delivery plus, you get all this content for free. So you know, I think that this is a good step. I don't know that the imdb tv guys actually talked to the amazon prime video guys, but a lot of content, it makes the value of a prime subscription much, much greater and people are far far less likely to churn even if they're only buying, you know, one package every three months. So one thing that we thought was interesting here at cheddar is the acquisition of MGM gives amazon control of franchises like James Bond and Rocky. Do you think amazon can now produce more content around these franchises in the future? So they could kind of strengthen their place in the streaming wars, much like how Disney plus did with all the star wars movies and the marvel movies and now the series, the series you find on Disney plus can yes, will try sure will succeed. I don't know. Um, Disney is a special place and you know, it's not like George Lucas was a slouch, you know, with, with monetizing the Star wars franchise, but suddenly we have, you know, the Mandalorian and boba fett. Um, and so you know, they're suddenly creating all these spinoffs on the marvel side, you know, tv shows like Loki were so good that I actually think they're going to turn that into a film franchise, so Disney is just a special place and then they create these characters like Grover, do you know Baby Yoda? Um and suddenly they're selling figurines, so will amazon try to do that? Yes, um Jennifer salke is kind of the head of content at amazon. She's really good and really accomplished. I think they need a few more people. So I expect that with 8.5 billion invested, they'll hire the right people and I think that they will do their best to exploit those franchises. Um there certainly will be other James Bond movies and remember amazon spent something like 350 million bucks to, to develop the Lord of the Rings as the television franchise. You know, they're trying to emulate game of Thrones, so they're certainly willing to throw money at proven properties, I think they will definitely do that with the proven stuff, you know the rocky, I mean, Sylvester Stallone is getting a little old but creed and uh and James Bond. Alright, so MGM also produces Tv shows like the Handmaid's Tale, which is distributed by Hulu plus other shows that live on streaming services other than Prime video, so will amazon have access to these properties to, or how does it work? Well, contractually, probably not for a while um they tend to, you know, essentially fund the production costs by licensing into the streaming outfit. So it's sort of like game of Thrones or Ozark are owned by media rights capital. But netflix has exclusive rights for distribution and as long as there creating new content and paying for it, they get all the library and it can't show any place else. So I expect that Handmaid's Tale is under that type of a contract with Hulu, but you know, will it be on, on prime video 10 years from now? Sure. Again, the library value is enhanced with each new season. You look at a show like Seinfeld or a show like The Office and those, you know, self for something like four or 500 million bucks in syndication. So for sure if they ever have anything that's a huge hit, you know, that has hundreds of episodes. Yes, it's got tremendous value. We'll see, We'll see if they exploited. I think that At a minimum the consumer wins and we'll see if Amazon spends more money than they should try to exploit some of this stuff have about maybe 45 seconds. I want to ask you, is there an acquisition that no one is looking at, they should be looking at perhaps a studio or a franchise that one of these streamers should be buying up. And what would it be? I mean, Lions Gate is the last great, uh, you know, batch of assets and they own lots and lots and lots of uses that also, several 1000 films. Um, and they actually are pretty good and the stock is cheap, but I don't know that anybody is looking at them in earnest. MgM has much bigger brands. All right, Michael Pachter, managing director of Wedbush Securities. Michael, Thank you as always.