We expect Amazon Prime to be the most active streaming service over the next number of years in terms of its overall commercial activity. This will be especially true as it relates to: 1.) strategic partnerships with other content providers across content categories (sports & entertainment), as well as 2.) acquisitions.
Apple (AAPL) and Amazon (AMZN) are the two platform companies that have invested most heavily in their respective content businesses. Apple seems to care more about prestige content and Virtual Reality (Apple’s VR headset is coming in early 2023, bad news for META), whereas Amazon is willing to be creative in terms of figuring out how best to optimize its content portfolio. Take Amazon Prime Channels as an example. Amazon features third party content in a pre-packaged channel (Amazon’s recent deal with WarnerBrosDiscovery, WBD as an example), where that content may be consumed from within Prime. It is easy to imagine Amazon striking similar distribution deals with studios and production houses that lack Amazon’s global reach. These deals provide Amazon with a piece of the economic pie without having to take the production risk (Amazon of course also produces its own content). Amazon has a fascinating content portfolio that covers live sports (NFL), proprietary content and third party content, not to mention gaming.
We expect M&A to continue to play a significant role in Amazon’s content strategy. For example, Amazon closed its $8.5 billion MGM deal earlier this year. Paramount (PARA), is a studio that will likely end up as part of a larger company’s portfolio as will Lions Gate (LGF). Independent studios such as A24 will also likely be acquired. The forthcoming recession may accelerate acquisition activity depending upon the debt pressures that various production houses may face.
I don’t see WBD selling itself in the near-term unless its Ad business goes to zero. WBD’s debt carries long-term maturity to where debt service should not force a sale. Further, nobody wants to sell at a bottom.