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To Win the Streaming Wars, Amazon Will Need to Take More Risks

If you’re wondering why the service spent so much money on an upcoming ‘Lord of the Rings’ series, its leaked in-house calculation method will offer a few clues

A frowny face made up of play buttons and an upside-down Amazon smile logo Getty Images/Ringer illustration

If there’s one thing that connects the three biggest streaming companies—Hulu, Amazon Prime Video, and Netflix—it’s that they like to keep their numbers to themselves. That’s why it’s always intriguing when anything leaks out, like on Wednesday, when Reuters published a report detailing Amazon’s internal viewership statistics for Prime Video. Amazon declined to comment on the findings, but the documents, which contain data from 2014 to early 2017, highlight how the company evaluates its original video content.

Amazon is far more than a streaming company, which separates it from Hulu and Netflix. Amazon’s customers are there for more than watching content: It’s a gateway for the company to get even more people hooked on streaming services to purchase items online. Still, the streaming arm of Amazon has seen better days, between the ousting of former Amazon Studios head Roy Price in light of sexual harassment allegations and the cancellation of several of the service’s critically acclaimed shows in the past few months. Reuters’s findings provide a literal by-the-numbers approach to the struggling service’s strategy.

Amazon evaluates its shows with a “cost per first stream” method, dividing a program’s marketing and production costs by the number of people who tune in to the first episode, or “first streams.” (Reuters has a handy interactive graphic that shows you how 10 Amazon Originals seasons stack up, and how the company perceives their respective value.) For example, despite the first season of alt-history drama The Man in the High Castle costing $72 million, it drew 1.15 million first streams, which amounts to an average cost of $63 dollars per subscriber. The only show more profitable of the ones featured in the Reuters graphic was Season 1 of The Grand Tour—the motorsports series featuring Top Gear alums Jeremy Clarkson, Richard Hammond, and James May—at $49 dollars per subscriber with 1.5 million first streams at a $78 million production cost.

The least profitable season by a wide margin was Good Girls Revolt’s first and only chapter, which had just 52,000 first streams, costing Amazon $1,560 per subscriber. The second-worst was Sneaky Pete, costing $959 per subscriber at a $93 million budget.

In other words, there’s a method to the madness—even if Good Girls Revolt’s cancellation was met with criticism, and the optics looked even worse after Price’s resignation in October. The fact that the second-least profitable show, Sneaky Pete, just unveiled its second season this month, probably doesn’t help matters, either. If this is the Amazon Video way, however, it might explain why shows like One Mississippi and I Love Dick were also recently canceled (and met with similar backlash, as women-driven series.) But Amazon’s spate of cancellations also speaks to a larger truth about their original-content operation: Most of their shows aren’t cutting it. Only The Man in the High Castle Season 1 and The Grand Tour are costing less than $100 dollars per subscriber—and subscribers pay $99 dollars a year.

All told, the documents show that there are 26 million customers who use Amazon’s video service. It’s pennies compared with Netflix—which boasted having 94 million subscribers in the final quarter of 2017—but Amazon is far more than a streaming company. As Bezos put it in 2016: “When we win a Golden Globe, it helps us sell more shoes.”

What else would help sell shoes? An Amazon Original smash hit with killer numbers that immediately becomes a part of the zeitgeist to rival the likes of HBO’s Game of Thrones or Netflix’s Stranger Things. And that hasn’t happened yet. It’s no wonder Amazon spent a disgusting amount of money to secure the rights for a Lord of the Rings television series—which, combined with production costs for a commitment of at least two seasons, could end up costing the company as much as $500 million.

Using this calculation method, Lord of the Rings would need even more first streams to justify the high production cost. But one reason Amazon is investing so much into the series is because of its extremely valuable IP and brand recognition. You can easily make the case that more people are familiar with J.R.R. Tolkien’s novels—as well as Peter Jackson’s Oscar-winning movie trilogy—than George R.R. Martin’s A Song of Ice and Fire books, prior to Thrones first airing in 2011. There have been jokes made at Amazon’s expense that the company is going to mimic Thrones’ whole vibe—gore, dragons, nudity, et. al—but really, just plastering “Lord of the Rings TV show” should be enough to entice first-streamers, secure more international subscribers, and, yes, perhaps lock down a few more orders of Jordans.

Amazon’s strategy isn’t infallible, and its execution is even worse: The amount the company spent on Good Girls Revolt is staggering, and, in just one season, The Man in the High Castle went from being its most successful endeavor to its third-worst; suddenly, based on the numbers, the show can be deemed cancellation-worthy. However, if Amazon wants to grab a foothold in the streaming wars, it will need to take bigger risks to reach for a bigger reward. That’s just math.