The Wall Street Journal reported yesterday that the FTC will be the agency to review Amazon’s acquisition of MGM. A review was expected, either by the Justice Department or the FTC. The plot thickener here is that the brand new FTC chair is Lina Khan, a law professor and journalist who was confirmed by the Senate last week in a bipartisan 69-29 vote. Importantly Khan is a critic of Amazon and Big Tech, having written a widely circulated article, “Amazon’s Antitrust Paradox,” in 2017.
The article argues, in a nutshell, that the current approach to antitrust, which is focused on “consumer welfare,” is insufficient to oversee platform-based businesses like Amazon which can use predatory pricing for their overall competitive benefit. Rather, Khan believes that antitrust oversight needs to be driven by gauging the concentration of market structures and competitive process, which she writes is a more traditional approach. Khan shares five factors for how to evaluate the competitive process.
I must confess that after reading Khan’s 26,00+ word document, it’s not entirely clear to me how this new evaluation process would work from a practical perspective, or, in particular how it might be applied when considering Amazon’s MGM deal, though I’m not an antitrust attorney, so I don’t claim to know enough to understand the nuances. My initial reaction, however, is that neither Khan’s approach nor the traditional “consumer welfare” angle would provide enough justification to block the deal if it had to be defended in court.
As big and powerful as Amazon is, it is a tiny player in the overall premium video (TV shows, movies and sports/events) industry and MGM, despite its robust catalog, is unlikely to change Amazon’s position materially any time soon. As one example, Nielsen’s new The Gauge snapshot pegs Amazon Prime Video’s share of viewing time at just 2%, behind streaming competitors Netflix (6%), YouTube (6%) and Hulu (3%). In fact, Amazon Prime Video’s 2% share is barely ahead of Disney+’s 1% share, and Disney+ only just launched in late 2019, whereas Prime Video’s been around for over 10 years.
Meanwhile, Amazon’s rationale for how it’s going to drive significant value from MGM (which would in turn boost its share of view time) was quite nebulous. Mike Hopkins, Senior Vice President of Prime Video and Amazon Studios said in its press release, “The real financial value behind this deal is the treasure trove of IP in the deep catalog that we plan to reimagine and develop together with MGM’s talented team. It’s very exciting and provides so many opportunities for high-quality storytelling.”
As Colin and I agreed on the Inside the Stream podcast, while it will be interesting to see how Amazon’s reimagining process turns out, even if it’s a grand slam, it’s going to take years to unfold and come to market. Importantly, by that point, the streaming market is going to be far different - and even more competitive than it already is today.
It is this final point that I believe is the biggest obstacle to the FTC successfully challenging the Amazon-MGM deal under either regulatory approach. Anyone with even a cursory understanding of the streaming market knows that it is extremely vibrant, filled with many players and supported by not one but two robust business models (SVOD and AVOD). As I explained last week in “The Connected TV Advertising Flywheel is Here, and It’s Only Going to Accelerate,” free, ad-supported premium video, which is already flourishing, is on the cusp of a major boom. eMarketer / Insider Intelligence estimates that CTV advertising in the U.S. alone will double from $13.5 billion in 2021 to $27.5 billion in 2025. That translates into a ton of funding for high-quality free original programming.
All of this is fantastic news for consumers, who will have more choice than ever, which addresses the FTC’s potential “consumer welfare” approach. And from a “market structure and competitive process” angle, given the number of other successful players and fragmentation in streaming, it’s going to be hard to argue Amazon’s platform business gives it an insurmountable edge if the MGM deal is permitted, regardless of how successful their reimagining creative work goes. Umpteen James Bond spinoffs (unlikely as that may be, given creative control issues), even if free to Prime members, are not going to carry Amazon Prime Video to dominance.
To be clear, I’m all for a rigorous review of the Amazon-MGM deal. I just don’t want to see a repeat of the Justice Department’s challenge to AT&T’s acquisition of Time Warner which was ill-conceived, expensive, politicized and ultimately unsuccessful (of course the AT&T-Time Warner deal itself was all of those things too, and more, but that’s a topic for another day). Amazon sends shivers down a lot of people’s spines and is a central player in many of today’s most important economic and social debates. Regardless, the FTC must still be prudent and fact-based in evaluating the MGM deal, and resist any personal preferences or temptations to do otherwise.