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MGM too costly for Netflix, a bad fit for Apple

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Management at MGM appears ready to sell the company. There have reportedly been exploratory talks held with Netflix and Apple to gauge interest in purchasing the company. MGM could certainly help both companies but would be a stretch for both.

MGM a treasure trove of content and expertise

MGM has a large library of movies including titles like Legally Blonde and Tomb Raider. The studio also owns franchises such as 24 James Bond movies, and the Stargate movies and TV shows. It also has an extensive TV catalog spanning everything from serious drama, cartoons, and reality TV.

[Update: A conscientious reader (see comment below) pointed out the MGM sold most of its pre-1987 library to Turner. I corrected the story to reflect that fact.]

MGM retains extensive production facilities and staff. It makes movies and shows to release both under its brand and for others. For example, it made both seasons of The Handmaid’s Tale appearing on Hulu and Get Shorty for Epix.

The company is reportedly worth north of $10 billion.

Is MGM a good fit for either Apple or Netflix? To properly leverage the full value of the studio will require both Silicon Valley companies to do things neither has ever done before.

Netflix

MGM production facilities and expertise would be a welcome addition to Netflix. The company is committed to producing 95 movies in 2020, and a prestigious production company like MGM could help achieve that goal with high quality and production values.

As well, the television library and production expertise should be a good fit for Netflix. As a general entertainment service, everything from serious drama like Handmaid’s Tale to reality TV like Survivor will fit right into the service.

However, locking up MGM’s extensive library exclusively inside of Netflix would likely under-monetize the value of the catalog. Netflix would almost certainly need to continue to license titles across the various outlets MGM currently uses. In other words, Netflix would be licensing content to competitors like Amazon, HBO, and many others.

Finally, spending $10+ billion to acquire MGM would be a massive commitment for Netflix. It would likely have to borrow most of the money to do it. The company is already borrowing extensively to finance the $17 billion it will spend on content this year. Buying MGM might stretch Netflix too far, especially if there is a bidding war.

Apple

MGM would begin to solve the problem Apple has with its Apple TV+ service. Though it is reported to already have 33 million subscribers to the service, most pay nothing for it. Apple offers a free year with the purchase of a new device. The TV+ content library is so thin that it is hard to imagine Apple retaining any of those customers when their free year is up.

Carefully curating the extensive MGM library inside of Apple TV+ would instantly provide users with a good selection of movies and TV shows to watch while they await the next episode of For All Mankind or Oprah’s Book Club.

Apple also has another way to monetize the library more completely than Netflix. It can allow Apple TV users to rent or buy movies. From the library.

Finally, Apple has over $200 billion in cash-on-hand. Buying MGM is no problem for Apple, and it can even afford to pay a premium if necessary, to get it.

The stretch for Apple is making the acquisition successful. Most of the companies Apple has purchased have brought key technologies like Siri and Xnor.ai. It has never bought a company anywhere near the size of MGM and never paid anything like $10 billion. As well, the management team at MGM is likely very different from Apple’s. Keeping them on-board and enabled for success will be essential. Judging by the awkward moment between Oprah and Tim Cook, Apple’s CEO, at the Apple TV+ launch, managing Hollywood movie moguls will not come naturally to Apple’s management.

Why it matters

The MGM library and production expertise could help both Apple and Netflix.

Netflix could instantly put the production and content to good use but will struggle to afford the studio.

Apple can easily afford MGM, and the content would be a big boost for Apple TV+, but serious culture-clashes could doom the acquisition from the start.

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(2) Comments

  1. Colin, MGM no longer owns their film library prior to something like 1986. They sold the movies made prior to that off to a turner in the 80s.

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