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Why Amazon's MGM Deal Is Bad for Netflix

By Rich Duprey - Updated May 27, 2021 at 9:15AM

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The streamer will need to fight for every subscriber it can.

Amazon's (AMZN 0.96%) blockbuster acquisition of MGM Studios for $8.4 billion could cause headaches for rival Netflix (NFLX -0.62%) as it creates a much more formidable competitor in the streaming arena.

After Netflix added fewer than 4 million new subscribers in the first quarter and said it expects to add only around 1 million in the second, analysts believe Amazon's movie deal makes it imperative that Netflix show it can resume growth in the back half of the year.

Man watching movies on a laptop

Image source: Getty Images.

For years Netflix has been the straw that stirred streaming video's drink, and as more competitors entered the market during the pandemic's year of lockdowns, it largely remained the premiere streamer.

Yet there are limits to just how many services consumers will subscribe to. Though Netflix is often still considered to be one of the default options, Benchmark analyst Matthew Harrigan just told investors in a research note the "global video streaming playing field is looking ever less unipolar" around Netflix, and rival services will be seen as much more competitive.

He's not alone. Truist analyst Matthew Thornton says Amazon's Prime Video is now "more formidable," though he only sees it as "modestly negative" for Netflix and Walt Disney, and Piper Sandler analyst Thomas Champion said he believes it "may be a bigger issue" for the two.

The deal gives Amazon much greater access to quality content and could lead Netflix to lose more content. Since more studios are diverting more content to their own direct-to-consumer services, Netflix will need to rely upon greater amounts of original movies and shows.

That may not be as much of a draw for luring in new subscribers, and could be more worrisome if the deal signals there is more consolidation on the horizon.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Netflix, and Walt Disney. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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