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Amazon on Wednesday announced its intention to buy MGM Studios for $8.45 billion.
Why does Amazon run a streaming video service? Why does it run a Hollywood movie studio? Businesses generally try to make money. We don’t know that to be the case for Amazon’s streaming, and its film and digital production, because film and television are not broken out as separate revenue streams. Prime Video comes with an Amazon Prime account, and in its earnings releases, digital video revenue (like rentals) is bundled in with all the other subscriptions the company sells, including Prime. Amazon Studios, which does theatrical releases and produces shows for Prime Video and other networks, doesn’t split out its earnings either.
In 2020, Amazon spent $11 billion on film and TV production, along with licensing music for both its programming and its music streaming service. It’s literally impossible to know whether it’s recouping those costs. In the meantime, Amazon is plowing more money into entertainment. It just announced its intent to purchase MGM, a legacy studio that has fallen behind some of the other behemoths (like Disney) but still remains a “mini-major,” for $8.45 billion.
While this would make sense for a company trying to survive in a cutthroat streaming space where everyone else is consolidating, we have no real idea what Amazon is up to. It’s good for Prime Video to grab onto the James Bond franchise, and build out its viewing library, which now will include The Pink Panther, Rocky, and RoboCop films, and 4,000 movies in all. (Older MGM films are actually now in the hands of AT&T, through its purchase of Time Warner, which had purchased Ted Turner’s media empire, which once owned MGM but kept the pre-1986 library when it sold MGM off. It’s a long story.)
But Amazon is spending at the level of Netflix for an ancillary business that seems to be designed to flatter company executives’ longing to be creative artists (Bezos thinks he has distilled the 12 components of every piece of storytelling), and draw customers to buy Prime memberships and use the Amazon.com website so they can be sold socks. We don’t know how much The Marvelous Mrs. Maisel drives Prime subscriptions over and above the desire for cheap socks; indeed, there’s no way to know.
What we do know is that a company that’s able to snap up a good-sized movie studio for what amounts to loose change, a company that can thoughtlessly buy up Sundance favorites and Thursday Night Football, reboot franchises like Coming to America, and acquire the rights to Pulitzer Prize winners like Colson Whitehead’s The Underground Railroad is setting a price in the marketplace. As a (potentially) cross-subsidized content devourer, Amazon puts pressure on Netflix and HBO and Comcast and Disney, bidding up in-demand projects. That can certainly be good for producers, though everyone else will probably end up seeing it in their monthly streaming bills.
But it’s something different when Amazon, for which film and TV is a vanity project and a seventh-rate priority at best, is doing this bidding. They have hundreds of billions of dollars to pull from all their other moneymakers to effectively punish these other streaming companies. And the goal seems to be to make competing products more expensive, to push people away from them and back into the waiting arms of Amazon.com.
That’s not exactly what D.C. Attorney General Karl Racine is arguing in the antitrust lawsuit against Amazon he filed on Tuesday, but it’s a pretty close analogue. Racine is targeting Amazon’s price agreements with third-party sellers, which he says force prices up across the internet for e-commerce. It should be a familiar argument to Prospect readers, as Shaoul Sussman made the case that Amazon was engaging in this practice in a 2019 story.
As Sussman explained, Amazon demands in contracts that brand-name products on its marketplace must sell at the lowest cost anywhere on the internet. These companies could sell elsewhere for less, because they don’t have to deal with Amazon’s exorbitant third-party fulfillment fees or free Amazon Prime shipping. So the “artificially high price,” as Racine explained to CNBC, includes Amazon’s commission. Third-party sellers have the choice to either not sell on Amazon, the number one e-commerce site, or raise their prices elsewhere to match the Amazon price. “Sellers who sell to multiple outlets admit that the prices of the products they are selling could have been lower [elsewhere], but due to Amazon’s price-matching scheme they are higher,” Sussman wrote.
That’s the heart of Racine’s complaint. By prohibiting Amazon sellers from offering lower prices on other sites, Amazon creates “an artificially high price floor across the online retail marketplace,” harming consumers who pay those balances. Under the current iteration of antitrust law, which is all about consumer welfare, this is one of the slicker ways to get at Amazon’s monopoly power in a way that a judge might accept.
Amazon wants to control all economic activity in the United States and the world. It wants a cut of every transaction.
Amazon appears to know this, because in 2019 it excised a clause in its contracts with third-party sellers known as the “price parity” provision, which explicitly stated that sellers could not sell on other online outlets at a lower price. But it replaced that clause with a “fair pricing policy” that enables Amazon to sanction sellers that do offer lower prices elsewhere. As those sanctions include placing products further down in Amazon search results, rendering it impossible for sellers to make sales, Amazon merely made the explicit implicit, with the exact same effect of raising prices across the online marketplace.
Amazon has responded that they’re allowed to “not highlight offers” that are not “priced competitively,” but anyone with a cursory understanding of how the internet works knows that websites can make links invisible with relative ease. It’s not just putting certain options on a high shelf or in the back of the store, it’s burying them 100 feet underground. And only because Amazon has monopoly power on online commerce does this compel sellers to raise their prices at other websites.
You can see the MGM purchase as a corollary to Amazon’s goal of controlling prices, whether on online goods or for streaming services and film and television production costs. By drawing on its nearly limitless resources, Amazon can make business more costly on Netflix and Disney and Paramount and HBO, which could lead to increasing prices for those services. This race for scale to “win” the streaming wars has been going on for a couple of years now. But Amazon has no price on its streaming service, as it’s bundled in with Prime. If the MGM deal has the effect of increasing prices elsewhere to make Amazon look more favorable, than it’s indirectly doing the same thing it does through its third-party seller agreements, the focus of the D.C. lawsuit.
In addition, Amazon sells other streaming services on its website, and having a robust streaming service of its own puts customers in the mindset of watching TV on Amazon, which gooses those sales. Amazon also sells Fire TV, a device that shows streaming video, and to the extent that a beefed-up Prime Video can affect behavior on other streamers, it can control carriage rates and other revenues, like selling advertising within Disney or HBO programs shown on its devices.
The usual suspects have condemned Amazon’s proposed purchase of MGM, saying it is “trying to take over another sector of the economy” or that it’s “monopolizing content for the streaming service.” That’s not really accurate: MGM is a mini-major, and Amazon isn’t, nor is it trying to be, a giant of the streaming world. I think you have to look at the deal more in the context of Amazon’s prime directive. It wants to control all economic activity in the United States and the world. It wants a cut of every transaction. And that means squeezing its suppliers and competitors, to funnel more and more of those transactions its way. That’s ultimately what’s happening with the MGM purchase, and with the conditions on third-party sellers. It’s just the flexing of market power, and it’s about time someone, in this case Karl Racine, is attempting to hold them accountable for it.
