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.
6:22:15 PM 
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