Sony to buy MGM
Sony
announced its agreement to buy the assets of MGM/United Artists. Sony
will pay a total of around $5 billion, including an assumption of debt.
It beat out an offer from rival Time-Warner for the company. Several
equity partners are backing the buy.
In terms of market share, the #3 Hollywood studio
is buying #8. But the value of MGM is not so much in terms of the
number of movies it produces, which is far less than other major
companies. It is in the MGM and United Artists libraries, the ownership
of hundreds of important films. They include the James Bond franchise,
the Pink Panther movies, and a total of around 4,000 film stretching
back to the 30's. When Sony combines it with its existing libraries
bought from Columbia Pictures, it will become one of the leading owners
of films in the business.
Observers see this move as a big grab
for content. The actual MGM studios will likely cease production,
except for the Bond series. The content of the library will help Sony
generate profits in the DVD arena, where there is more money to be made
now than in theters. Burt even more important is Sony's push to
establish its Blu-ray Disc technology for high-definition video storage
as the successor standard to DVD. Blu-ray consortium members include
Samsung, Panasonic, and Philips. That format is encountering resistance
from companies like Toshiba and NEC, which are supporting the rival
HD-DVD format.
The thinking is that if Sony owns a good
chunk of the content, it can make it much easier to get its storage
format get the upper hand in the battle. The other Japanese electronics
firms own no video content.
It's a risk, according to an article in the Wall Street Journal (“Behind MGM Sale”, 9/15/2004).”In
any event, analysts do not expect high-definition DVDs to produce the
same kind of bonanza that DVDs did. When DVDs were launched in the
1990s, they tapped into a new market of sales, as consumers built their
own libraries of movies.” But in the end, the article points out, the revenue stream from the content (in any format) may be more important than the format war.
The MGM is acquisition is not the only content move Sony has made recently. The Sony Music-BMG merger
also helps extend Sony's reach in the music content industry. Of
course, Sony is in danger of losing the portable music war, as it has
been outflanked by Apple's iPod and other competitors.
Sony got a strong ally in its move from cable TV giant Comcast.
While the deal is independent of the MGM takeover, that move can only
sweeten the pot for Comcast. Comcast and Sony now have a deal toi
supply video on demand (VOD) , presumably of both older films and
recent hits (like Sony/Columbia's SpiderMan films.) Comcast may also
buy a share of MGM itself, a consolation prize for not getting its hands on Disney.
It's
significant that this merger is not about innovation or new creative
energy. It's about the low-risk practice of repurposing existing assets
that are based on someone else innovation, creativity, and risk. That's
the trend in Hollywood studios, TV networks, and music companies, as recycling what already exists takes precence above doing anything new. [Oligopoly Watch]