Amazon Should Look To Buy CBS, “The Most Logical Fit” – Analyst


Amazon has been underachieving with its Prime Video service, and would do well to look at acquiring a traditional, library-rich asset like CBS, according to a report this week from Wall Street research firm MoffettNathanson.

Analyst Michael Nathanson issues many caveats, chief among them the fact that CBS is currently locked in a legal struggle with its majority shareholder, National Amusements, until October 3 at the earliest. Still, he uses the report to blue-sky in some interesting ways.

“Despite all of Amazon’s many accomplishments, Prime Video appears to be lagging in both
usage and reach,” he writes. “The question from here is: ‘What does Amazon do to fix Prime Video?’ For starters, help is on the way as Jen Salke takes over. Yet, with a paucity of deep library content
and an absence of output deals, the path forward to critical mass will take a long time as a
pipeline of new shows needs to be developed, produced and marketed.

“Rather than build it out over time, we wonder if Amazon would embrace a “buy it” model and
seek to acquire a traditional media company with content creation skills, deep proprietary
content libraries, sports production capabilities, and burgeoning OTT ambitions. Of all the
companies available, CBS is the most logical fit.”

While Prime Video is important to only 40% of customers (most of whom join Prime for the free shipping), Nathanson said his firm’s work has shown that exposure to video makes Prime customers more loyal. And while buying CBS would be the largest acquisition in Amazon’s history, it isn’t the top end of the media market. Just as it bought Whole Foods, rather than Kroger or Wal-Mart, to enter the grocery business, it could scoop up CBS (whose market capitalization is around $21 billion) as an entry point to media.

Original programming will continue to be a focus for Amazon regardless of whether it pulls the trigger on a traditional deal. Nathanson, who stipulates that he does not cover retailers like Amazon (a colleague tracks those companies day to day), cites a Reuters report from the spring in estimating the budget range of Amazon originals. From Mozart in the Jungle at $3.7 million an episode, they go up to Man in the High Castle at $10.7 million per outing.

With CBS library titles to provide reinforcements for the originals (especially with the HBO output deal soon to expire), all of the spending would be more worthwhile, Nathanson argues. Plus, mergers are the way of the new media world.

“Acquiring a media company with a film or TV studio will create vertical integration for Amazon in the model that Disney is imaging with their acquisition of Fox,” Nathanson writes.

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