Amazon's proposed 'Lord of the Rings' prequel could cost more than all three movies

Elizabeth Weise | USA TODAY

Show Caption Hide Caption ‘Lord of the Rings’ series on Amazon will cost a ton Amazon, who paid $250 million alone for the rights alone to make a 'Lord of the Rings' prequel, could reportedly spend $500 million or more for two seasons on production and marketing on the series.

More: Whistleblower charges Walmart misled on e-commerce data in catch-up race with Amazon

SAN FRANCISCO — Nobody ever said original programming was cheap, but an internal Amazon document shows just how expensive it can be — to the tune of $500 million for a new prequel series of "The Lord of the Rings."

Amazon said in November it plans to create a multi-season prequel based on the beloved book series and blockbuster movies that came out of it. Insiders put the cost just for rights at $250 million.

Now comes word from a leaked document obtained by Reuters that Amazon could spend another $250 million on production and marketing for the series, bringing the total cost to $500 million.

That's a lot more than the estimated $280 million all three movies in Peter Jackson’s Lord of the Rings trilogy cost to make, before advertising, according to Box Office Mojo.

Amazon's reasoning for creating its original TV series has been that they bring in new viewers who must first sign up for its $99 a year Prime membership, and those Prime members go on to spend more — lots more — on Amazon than others.

Reached by USA TODAY, Amazon declined to comment.

More: 'Lord of the Rings' TV adaptation gets multi-season Amazon deal

More: 7 secrets to getting more from Amazon Prime Video

More: Whistleblower charges Walmart misled on e-commerce data in catch-up race with Amazon

More: Why Amazon is sending you pictures of your front porch

The numbers come from company documents obtained by Reuters. They revealed that the U.S. audience for all video programming on Prime was about 26 million customers.

According to the documents, Amazon appears to use a calculation it calls the "first stream" to determine the worth for shows luring in new members. It is the cost of the show to produce and market divided by the number of viewers for whom it was the first thing they streamed upon becoming a Prime member.

Amazon estimates it paid $63 for each new viewer the critically-acclaimed alternate history series "The Man in the High Castle" drew into a Prime membership, according to the report. The show cost $72 million to make and had 8 million U.S. viewers as of early 2017, according to the report.

That's nothing compared with "Good Girls Revolt," a series about the women in journalism in the 1960s. It cost $81 million to make but lured few enough viewers to Amazon Prime that the company estimated each "first stream" customer cost it $1,560, according to the Reuters report.

Amazon does not release figures for either Prime membership or viewership for its shows and declined to comment on the report.

Not every show was expensive. "The Grand Tour," a reality show about four friends who travel the globe learning extreme skills, cost $49 for each new viewer and $78 million to make.

Amazon launched its Amazon Studio in 2010 to create original material and to acquire movies. It's since gone on to win multiple awards.

Amazon CEO Jeff Bezos said at a conference in 2016 that Prime Video was a great driver to both help renew subscriptions to the Prime membership, which offers video streaming and faster shipping, and sell more products as well.

“We get to monetize content in a different way,” he said. “When you win a Golden Globe, it helps you sell more shoes. Prime members buy more on Amazon than non-Prime members.”

Amazon Prime members pay $99 per year for free, two-day shipping and a host of other perks, including streaming Amazon original content.

The calculation Amazon seems to be making about both the worth and the cost of the shows it produces is “an extremely crude metric that may not say much about the strategy,” said Jim Nail, a television and video marketing strategist with Forrester Research.

It has always cost a lot to get new customers, whether it’s through mailing a paper catalog to their home, paying for multiple advertisements they might see or making award-winning shows.

“The accepted marketing rule is that you lose money on that first order. You’re looking to build a relationship,” Nail said.

The real question is at what point Amazon begins to make money on that new customer.

It’s well worth Amazon’s while to do what it can to pull in new Prime members, who on average spend $1,300 on the site compared with $700 for non-Prime members, according to research by Consumer Intelligence Research Partners.

The other way to look at the shows’ numbers is purely as ratings, and even there they do pretty well. The 1.6 million views that "Good Girls Revolt" got according to the Reuters report works out to about a 1.3% or 1.4% rating, said Nail.

“That’s really a pretty decent rating, that's a reasonably successful show.”

Unanswered in all of this is whether the viewers for different shows spend different amounts on Amazon.

Do music aficionados who skew highbrow and love "Mozart in the Jungle," a show about the New York classical music world that cost $37 million to make and $581 per first stream, buy more on Amazon than do viewers who watch "Bosch," a police procedural that cost $158 per viewer to acquire and $47 million to make?

“That is exactly the right question that you need to answer to be able to judge the effectiveness of this content strategy,” said Nail. Unfortunately, those numbers aren't known outside Amazon.