Why Amazon.com, Inc. (AMZN) Should Buy Lions Gate Entertainment (LGF)

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Last month, Amazon.com, Inc. (AMZN) rolled out a new video streaming service, available at $8.99 a month. This is a dollar less than the $9.99 a month plan offered by Netflix, Inc. (NFLX).

amazon-amzn-stock amazon primeThe video streaming industry is growing rapidly. Research and Markets recently estimated that the market would grow at an 18.3% annual rate from 2016 to 2021, increasing from $30 billion to $70 billion. Good news for AMZN and NFLX shareholders!

But video streaming is becoming more crowded. Amazon is one of 12 different major streaming services, including Netflix, YouTube, Vudu, Hulu, and many more. And more seem to be popping up like a never-ending game of whack-a-mole. Last year, AMZN’s competitor Alibaba Group Holding Ltd (BABA) rolled out a new video subscription service in China, TBO.

Amazon will have to differentiate itself from its competition. It can do so by buying up Hollywood studios…such as Lions Gate Entertainment Corp. (USA) (LGF).

Some video streaming services are already buying up Hollywood studios. Last month, Comcast Corporation (CMCSA) announced it was purchasing Dreamworks Animation Skg Inc (DWA) for $3.8 billion. Dreamworks Animation produced some major hits, including Shrek, Madagascar, and Kung Fu Panda.

Here is why AMZN should buy LGF, which has also produced blockbuster film series like Twilight and The Hunger Games.

Why AMZN Should Buy LGF: LGF’s Content

Streaming licenses tend to be expensive and last only for a limited amount of time, with exclusive licenses costing more. Licenses also cost more when renewed. Streaming services (ahem, Amazon Prime Video) can avoid this annoyance and secure exclusive access to the content by buying the studio itself.

And I wouldn’t put it past AMZN CEO Jeff Bezos, a wildly ambitious man, to buy LGF out entirely.

Lions Gate Films has released 200 films since 1997, and has grossed an average of $2 billion at the box office annually each of the last three years. Lions Gate Home Entertainment, a division of LGF, boasts one of the largest libraries in the business, with over 8,000 titles.

LGF would add to AMZN’s library of content, which includes movies such as Dallas Buyers ClubUp and Toy Story.

Lions Gate also has an interest in Epix, a premium TV channel and streaming service. Epix is a joint venture between Lions Gate, MGM, and Paramount that distributes movies produced by the studios. Netflix previously had an exclusive contract with Epix which ended in 2015; the deal had allowed NFLX viewers to watch films like The Wolf of Wall Street and The Hunger Games.

Why AMZN Should Buy LGF: Talent and Expertise

Differentiation is key for streaming services, and Amazon must produce original content to lock in more subscribers. Of course, Amazon is already doing that, producing shows like Transparent, which has won both Golden Globes and Emmys. Amazon has bested NFLX in Golden Globe awards this year, and Jeff Bezos is now aiming for an Oscar.

LGF has experience producing Oscar-winning films and hit TV shows, and would be an excellent addition to Amazon Studios. Movies produced by Lions Gate have been nominated for 77 Academy Awards, winning 20. This year, LGF showed 8 films at the Cannes Film Festival, its biggest slot ever. Orange is the New Black is NFLX’s most-watched original series, helping to drive its rapid user growth. Half of NFLX users say they have watched the show, which, of course, is exclusive to Netflix subscribers. The series is produced by none other than Lions Gate Television.

Amazon Should Buy LGF While They Still Can!

Streaming services are looking to buy content leaders such as LGF, and last year Lions Gate was in merger talks with premium TV channel Starz, which ended up stalling in February. Lions Gate is a prize for streaming services seeking original content and a bigger library. Amazon should buy LGF before one of its competitors does; with $16.2 billion in the bank, it can cover Lions Gate’s $3 billion market cap five times over!

It’s likely that streaming services will continue buying producers of high-quality movies and television. You can buy LGF stock and wait for a merger possibility.

As of writing, Lucas Hahn did not hold a position in any of the aforementioned companies.


Article printed from InvestorPlace Media, https://investorplace.com/2016/05/amazon-com-inc-amzn-lions-gate-entertainment-corp-usa-lgf/.

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