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State of the Screens

Amazon Heads to the Shire

By April 22, 2021No Comments

Big news: Amazon will spend ≈ $465M on the initial season of Lord of the Rings.

Why this matters: Lord of the Rings is on track to be the first $1B television show. It was not that long ago where Game of Thrones was setting records with a $100M season.

Quote from Stuart Nash – New Zealand’s Minister for Economic Development and Tourism:
“This is fantastic it really is … the largest television series ever made.”

Flashback: TV Series Budgets Hit the Breaking Point as Costs Skyrocket in Peak TV Era

Amazon content (YoY growth) according to Variety:
1) 2019 – $7.8B
2) 2020 – $11.0B (↑ 41%)

Big question: How does Amazon expect to make money from Lord of the Rings?

Quick answer: Sell more Amazon Prime memberships at a higher rate.

Remember: Amazon does not directly monetize original content on Prime Video. They win when you become a Prime member who grows your per year spending on Amazon to $1,200 from $550 (↑ 182%).

Amazon Prime Spending Graph

Quote from David Offenberg – Associate Professor of Entertainment Finance @ LMU’s College of Business Administration:
“The important thing to remember about Amazon Prime Video is that it’s a loss leader. It’s not the building block they’re trying to make money on which is, as Jeff Bezos famously said, ‘selling socks.’ They don’t need it to be the most important part of their corporate strategy.”

Desired output from video investment:
1) Amazon Prime Video → Sell more on Amazon.com
2) Apple TV+ → Sell more iPhones
3) HBO Max → Sell more AT&T phone subscriptions
4) Peacock → Sell more Xfinity broadband subscriptions

Quick math on Amazon Prime according to Prof G:
1) 129M Prime HH in U.S.
2) Increasing renewal rate from 80% to 91% nets 12M HH
3) 12M HH = $11.0B in additional revenue
4) $11.0B in additional revenue = $47.5B in additional market capitalization

Flywheel Spins Graph

Interesting question: Amazon Prime members generate $5.42/month (see above) in additional gross margin vs. non-Prime members. Entertainment Strategy Guy ponders an alternative where Amazon took the content investment and offered free subscriptions to Netflix and/or Spotify.

Michael Beach

Michael Beach

Michael Beach is the Chief Executive Officer of Cross Screen Media, a media analytics and software company that enables marketers to plan, activate, and measure CTV and linear TV at the local level. Michael is also the founder and editor of State of the Screens, a weekly newsletter focused on video advertising that is a must-read for thought leaders in the advertising industry. He has appeared in such publications as PBS Frontline, The Wall Street Journal, The New York Times, Axios, CNBC and Bloomberg, and on NPR’s Planet Money podcast.

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