While streamers cut costs, Amazon makes a massive bet with ‘Lord of the Rings’

New York (CNN Business)— After much anticipation, “The Lord of the Rings: The Rings of Power” finally debuts on Amazon Prime Video on Friday. It represents one of the biggest bets in streaming history.

The series, which takes place thousands of years before the events of J.R.R. Tolkien’s “Lord of the Rings” trilogy, is considered to be the “the most expensive show of all time,” according to The Hollywood Reporter, which said the series carries a reported budget of an estimated $465 million for its first season.

The show’s budget is notable on its own, but the series as arriving at a pivotal transition for streaming.

After years of increased spending and an abundance of content, streaming companies like Netflix (NFLX), Disney (DIS) and Warner Bros. Discovery (the parent company of CNN) are taking a harder look at the money they’re throwing around in the streaming space. These companies are not pulling back on streaming so much as they’re reevaluating the most profitable way forward as the industry continues to evolve.

“The Rings of Power,” and its hefty price tag, flies in the face of that current trend.

One streamer to rule them all

So how can Amazon (AMZN) spend that much on a single series at a time of re-evaluation regarding spending across streaming services?

The answer is simple: “The Rings of Power” is not your normal, everyday streaming series, and Amazon is not your normal, everyday streaming company.

“2022 is a pivotal year in streaming and content spend has generally gone up across the major players looking to drive further acquisition,” Andrew Hare, a senior vice president of research at Magid, told CNN Business.

The question now is “are we reaching a plateau or is this when Amazon will bring the big guns out once others start to pull back?” he added. “The spend growth isn’t sustainable for many organizations, but for for some it is much easier to justify.”

Put another way, Amazon has the resources and cash to produce a show like this. It is a diversified company worth $1.3 trillion, after all.

So bankrolling a series based on hobbits, elves and wizards that costs this much is potentially easier for Amazon to absorb, even when “more traditional media companies may be looking to sharpen the pencil on how much streaming is part of the bottom line,” according to Hare.

Plus, “The Rings of Power” has been in development since 2017, so even if Amazon wanted to scale back on its level of investment, it’s too far down the pipeline to pull back now. Also, this goes without saying, but we’re talking about “The Lord of the Rings” here — one of the most popular fantasy stories ever written — so the risk is likely to match the rewards.

“It’s really about overall strategy. Where does this fit within a broader portfolio? What metrics will signal growth and success?” Hare said. “Streaming is an unusual space in that the competitors are very different organizations with different visions for success.”

The bottom lines of dragons and hobbits

Take for example, HBO’s “House of the Dragon.”

The “Game of Thrones” spinoff comes in under $20 million an episode, according to Variety, at time when Warner Bros. Discovery, HBO’s parent company, told investors that it will cut a total of $3 billion in costs and is scrapping HBO Max shows left and right.

So far, the investment in “House of the Dragon” has paid off.

It was HBO’s most watched premiere ever, with roughly 10 million viewers two weeks ago and its second episode, released on Sunday, brought in a slightly bigger audience.

Well known intellectual property like “Lord of the Rings” and “Game of Thrones” may be expensive, but they tend to bring in and retain subscribers while helping define the service’s value.

Amazon doesn’t tend to focus as much on original content as its rivals, and is hoping that Prime Video becomes synonymous with the adventures of Middle Earth just as Disney+ is with Marvel, Netflix with “Stranger Things” and Paramount+ with Star Trek. Notably, Amazon’s signature show right now, “The Boys,” is a dark, edgy superhero satire that has developed the kind of loyal fan base that drives subscriptions.

But even if “The Rings of Power” doesn’t work, Amazon will get a valuable lesson about the costs that come with trying to rule the streaming kingdom.

“If the show fails to capture mass interest, it’s probably still worth it because they will learn how difficult it is to build IP driven hits,” Hare noted. “Regardless, it’s probably worth it for them to see how this shot lands.”

View the original article on CNN Business.