Press coverage cites two reasons:
1. The MGM film library is extensive. It includes the James Bond franchise, the Pink Panther movies, and about 8,000 other titles. The new Sony/MGM group would own a substantial fraction of the color movies ever made in Hollywood; one source says half.
2. Sony will try to use its larger film library to become format king for the next generation of high resolution DVDs. But note that new movie issues, rather than the back catalog, may have greater influence on the new standard.
Note that Comcast is part of the deal as well:
Comcast is fresh from a defeat in its audacious bid to acquire Disney (and its Buena Vista studio) earlier this year. In addition to its distribution deal with Sony, it is also understood to have an option to acquire 20% of MGM for $300m. Both agreements underline the belief that drove the Disney bid: that owning content is essential to Comcast’s target of reaching 40m customers by 2006. Indeed, Comcast’s involvement is symptomatic of a broader trend in America’s media business: consolidation between those who make music, movies and television programmes, and those who distribute them, whether via broadcast networks or, increasingly, via cable, satellite and the internet.
I see two possible scenarios. Under the first, the current DVD gold mine will continue until it is displaced by some version of video on demand. Film owners will continue to reap the profits, but buying into film libraries late in the game should not bring extra-normal returns. Under the second scenario, DVD buying will dry up, just as CD buying for classical music has dried up. Once people build up the basic library they want, they buy at a much slower rate. Both DVDs and video on demand will become less profitable over time.
I’ll weight these two options at about 50-50 in terms of proportional relevance. But regardless of which view you hold, I would not want to be bidding for old film titles in a competitive environment.