Battle of the Prequels: House of the Dragon v Rings of Power

Alec: [00:00:02] From Equity Mates media. This is the dive. I'm your host, Alec Renehan. We often speak about the streaming wars and this week we are seeing two of the biggest shows in TV history. Go head to head. In one corner, we have the Rings of Power, the prequel to The Lord of the Rings from Amazon. 

Audio clip: [00:00:21] One day this will be for Kingdom. 

Alec: [00:00:24] In the other corner, we have House of the Dragon, the prequel to Game of Thrones from HBO and All the. 

Audio clip: [00:00:30] Dragons roared as one. 

Alec: [00:00:31] Two fantasy epics with epic budgets. And they've come to symbolise the big budget show that we're seeing more and more from these streaming giants. George R.R. Martin versus J.R.R. Tolkien, House of the Dragon versus the Rings of Power. HBO versus Amazon. It's Wednesday, the 7th of September. And today I want to know what do I need to know about these two giant streaming shows? And what do they tell us about the state of the streaming business? To do this, I'm joined by Darcy Cordell. Darcy, welcome. 

Darcy: [00:01:05] Thanks, Ren. Good to be with you. 

Alec: [00:01:07] Now, both of those shows premiered recently grabbing headlines around the world. The big question, have you watched them both?

Darcy: [00:01:12] I actually haven't. I've watched House of the Dragon, and I was a little bit hesitant early on because I thought Game of Thrones absolutely ruined me that final season. So I was hesitant, but now I'm really enjoying it. But the rings of power is on my list. 

Alec: [00:01:25] Yeah. So I was the same. I was a bit let down by Game of Thrones. Wasn't super excited for House of the Dragon, but it's brought me back in. It's brought a lot of people back in. 

Audio clip: [00:01:36] When I'm queen, I'm creating new order and.

Audio clip: [00:01:42] Her family has grandkids. 

Audio clip: [00:01:47] Whatever it was you did, be free of it.

Audio clip: [00:01:51] One day this will be your kingdom, Fraser said. 

Alec: [00:01:54] So let's unpack the business of streaming. I guess the first question. Which show did better? 

Darcy: [00:02:01] I think it's natural to make comparisons between the two shows. This was probably inevitable. As you've mentioned, they're both new. They're based on these epic fantasies, both prequel series, and they've got huge budgets with massive existing fan bases. But I'll put this back on your end. What metrics would you say matter here? 

Alec: [00:02:19] How good the show is? Quality are maybe the Rotten Tomatoes or IMDB rating? Yep. How many people watched how much it costs to make? And then this is always the tough one to figure out with streaming. But is there any way to know if it was actually all worth it? Did they make profit from this?

Darcy: [00:02:38] Oh, okay, cool. I love those metrics. Let's start with the ratings, though. So House of the Dragon that enjoys an 8.8 out of ten on IMDB and 85% on Rotten Tomatoes from both critics and audiences. Not bad at all. The rings of power, though, that enjoys a 6.8 out of ten on IMDB and 84% on Rotten Tomatoes from critics. But here's the difference. Just 39% from audiences. 

Alec: [00:03:04] Well, okay. Well, I'm going to put something maybe controversial into the world. I think I preferred rings of power, tales of dragon coal. 

Darcy: [00:03:12] I need a watch to tell it, to make a judgement. 

Alec: [00:03:14] But I'm obviously in the minority there. Now on this metric, HBO is House of the Dragon is better than well, at least the early episodes are better than Amazon's The Rings of Power. But Amazon contests this, don't they? [00:03:27][13.2]

Darcy: [00:03:27] Yeah, they do. So Amazon has actually delayed the rings of power ratings to combat what they're calling fake reviews. Some are saying Amazon has been review bombed, which is when there's basically a collective effort of people who try to give the lowest rating possible to a show and get as many people as possible to do it. There's an argument that this is driven by an anti-woke backlash to the rings of power and their diverse casting. It features a lot of non-white actors cast as elves and dwarves. [00:03:55][27.1]

Alec: [00:03:55] Look, let's put the reviews to one side then, and let's turn to viewers. Which show has been watched more? [00:04:02][6.4]

Darcy: [00:04:02] So House of the Dragon enjoyed that better rating, but it had less viewers than the rings of power. It had 10 million viewers in the US on its opening day and we haven't yet got a global figure, but the expectation is around 15 million globally, whereas the rings of power that had 25 million viewers around the world on day one. So the question here is, would you prefer more viewers with poor ratings or fewer viewers, but better ratings? [00:04:27][25.1]

Alec: [00:04:28] Look, I think I'd be happy if we had viewers or listeners in the millions, regardless. But I'm a big believer in quality winning over time. So I guess fewer viewers and better ratings for me. [00:04:39][11.2]

Darcy: [00:04:40] Yeah, I think that's probably what I go to. [00:04:41][1.7]

Alec: [00:04:42] The Takeaway, a lot of people watched both shows, but House of Dragon has better ratings. Let's turn to cost, because these were some of the most expensive TV shows or streaming shows ever made. [00:04:54][12.2]

Audio clip: [00:04:54] That is not hyperbole. It is not an overstatement. It is $1,000,000,000 show, possibly the most expensive show ever. Maybe they should have looked for discount. [00:05:03][8.5]

Darcy: [00:05:03] These are massive budgets when in fact the rings of power is the most expensive TV show ever made. Amazon paid $250 million just to buy the rights from the Tolkien estate, and $465 million was spent on the first season alone and they've committed to five seasons, meaning the final sum. It should probably top $1 billion. [00:05:23][19.9]

Alec: [00:05:24] It'll definitely top $1,000,000,000, 250 million to buy the rights. 465 million for the first season is $715 million already. [00:05:31][7.2]

Darcy: [00:05:31] Correct. And you can assume each season the budget might even blow out more if it's successful. [00:05:36][4.2]

Alec: [00:05:36] Unless it bombs then might suddenly start cutting through. [00:05:39][2.8]

Darcy: [00:05:39] The lights and better of years. [00:05:40][0.8]

Audio clip: [00:05:41] One thing we can do better than any creature in all middle earth. We stay true to each other. [00:05:48][6.7]

Alec: [00:05:49] So $465 million for an eight episode season works out to be $58 million an episode. We had a look before we recorded. I think the next most expensive TV show comes in at around $25 million an episode, some of Disney's TV shows, so more than double what's come before it. That's Amazon. That's Lord of the Rings prequel. Talk to me about the Game of Thrones prequel. [00:06:12][23.9]

Darcy: [00:06:13] So House of the Dragon wasn't quite as expensive, but it's still right up there for the ten episodes of Season one. The total cost was just under $200 million, about $20 million per episode. And the second season has also just been commissioned. [00:06:27][14.1]

Alec: [00:06:28] Yes, so not quite as expensive. Still top five in that per episode rankings. It's worth noting as well that Game of Thrones cost about $15 million an episode. They've opted to $20 million. So not cheap. [00:06:44][15.8]

Darcy: [00:06:44] Not plenty more CGI and dragons, too. [00:06:46][2.3]

Alec: [00:06:47] Yeah, I've got to say, the Lord of the Rings, CGI, I think is more impressive, but I don't want to start a argument here. So we've talked about ratings, we've talked about viewers. We've talked about cost. Now, Darcy, the big question, is it profitable? Is it worth. [00:07:03][16.1]

Darcy: [00:07:03] It? This is a tough one to answer because streaming is a little bit difficult to quantify. But let's think about success in two ways. The offensive and the defensive. So defensive is how many subscribers you keep on your platform who otherwise would have cancelled if you didn't produce a show like House of the Dragon or the Rings of Power. Whereas offensive, that's how many new subscribers you add to the platform when you release a show like this. So we only really get this data when the company reports to shareholders quarterly half yearly. But if we do see a big spike in subscribers in the latest quarter for the services, then we can pretty much say it was a success for Amazon. [00:07:40][36.5]

Audio clip: [00:07:41] They're counting on this to really relaunch their streaming service and make them a leader in a increasingly competitive environment. [00:07:47][6.6]

Alec: [00:07:48] So I guess it's pretty difficult to quantify the defensive side of it. How many people would have cancelled a subscription, bought for a great show? But the offensive side of it is a little bit easier to quantify how many new subscribers do we need to recover the cost of producing a show? So Darcy, do some quick maths for me. We spoke about the cost of each of these shows, how many new subscribers to HBO and Amazon need to bring in now. [00:08:12][24.5]

Darcy: [00:08:13] So HBO, Max, they charge $15 a month or $180 a year. They spent $200 million on House of the Dragon Season one doing the maths. They would need 1.1 million new subscribers to recover that cost. [00:08:25][12.7]

Alec: [00:08:26] So 1.1 million paying $180 a year. That gets you 200 million bucks. [00:08:31][5.2]

Darcy: [00:08:31] Spot on. [00:08:32][0.3]

Alec: [00:08:32] 1.1 million. Doesn't seem that outrageous. [00:08:35][2.6]

Darcy: [00:08:35] I think it's achievable. Like this is a massive show with so much hype. I think they can get that. Okay. [00:08:39][4.3]

Alec: [00:08:40] So House of Dragons spent 200 million. Amazon spent 715 million to buy the rights and produce season one. How many subscribers did they need to bring in in America? [00:08:50][10.3]

Darcy: [00:08:51] Amazon Prime charges about $15 a month as well. So we'll go with that figure. So that means they'll need about 4 million new subscribers to break even or make money on this show. [00:09:00][9.7]

Alec: [00:09:01] Okay. That also sounds pretty reasonable. 4 million subscribers. And for context, Amazon Prime already has about 200 million subscribers globally. They could add another 2% to their membership. [00:09:12][10.6]

Darcy: [00:09:12] 100%. Yeah, I think it's a good investment. [00:09:14][1.9]

Alec: [00:09:14] Yeah. Wow. Okay. That really contextualises. It makes you think that maybe these investments aren't as outrageous as we first thought. I guess the challenge is you get the 4 million new subscribers. How do you keep them once the Lord of the Rings finishes? [00:09:28][13.2]

Darcy: [00:09:28] Yeah, a lot of people would just be cancelling that race at ten. [00:09:31][3.3]

Alec: [00:09:32] Yeah. Resubscribe next to you when the next season comes out. Yeah. Anyway, that's their problem, not ours. Let's take a quick break here and then turn not to the head to head battle between the two shows, but the head to head battle between the two companies behind the shows. Warner Brothers. Discovery. The Amazon. [00:09:48][16.6]

Audio clip: [00:09:52] HBO. House of the Dragon, already breaking records. And now the pressure is on Amazon with the ultra expensive prequel to Lord of the Rings. It was a business decision. We looked at it and we looked at the data, the number of users. They had spent an enormous amount of money trying to sell an independent product. The subscribers weren't there. The users weren't there. [00:10:10][18.2]

Alec: [00:10:11] Welcome back to The Dive. Today we're talking about the business of streaming and the head to head battle between the blockbuster prequels, the rings of power and House of the Dragon. But see, the two companies behind the shows are also going head to head. [00:10:26][15.3]

Darcy: [00:10:26] They certainly are behind the rings of power. We've got online retail giant Amazon and behind House of the Dragon. We've got media conglomerate Warner Brothers Discovery. [00:10:36][9.3]

Alec: [00:10:37] Now everyone knows Amazon, but fewer people will know. Warner Brothers, Discovery. And a key reason for that. It only was created this year. And I think the story of Warner Brothers Discovery tells us where streaming is going. Because, Darcy, we are finally seeing some consolidation in the streaming space. [00:10:54][17.2]

Darcy: [00:10:54] That's right, Alex. There are just too many streaming services out there. But let's take a step back. Before this year, Warner Brothers and Discovery were two separate companies. Warner Brothers is Hollywood royalty, and until recently, it was owned by telecommunications giant AT&T. Warner Brothers were the makers of the first movie with speaking the jazz singer. They own the DC universe, including Batman, Superman and Teenage Mutant Ninja Turtles, and they're the makers of some of the biggest movies from our childhoods Harry Potter, Lord of the Rings. And they also on a number of cable channels, including HBO, CNN, TBS and TNT. But importantly, Ren, they also operated multiple streaming services HBO, Max and the very short lived CNN plus very. [00:11:38][43.5]

Alec: [00:11:38] Short lived. [00:11:38][0.3]

Darcy: [00:11:39] Discovery, the company they've merged with. They operated a number of lifestyle channels, including the Discovery Channel, Animal Planet, Science Channel, TLC, Food Network, HGTV and Travel Channel. And they also operated a streaming service, Discovery Plus. But in April this year, AT&T spun out Warner Brothers and then Warner Brothers and Discovery completed a merger forming this new company, Warner Brothers. [00:12:04][25.0]

Alec: [00:12:04] Discovery, two massive media players, especially in the cable TV business. Warner Brothers on one hand. Discovery on the other hand, merged together form one company. What I'm not hearing is any merging of streaming platforms. Instead, we've got HBO, Max, and we've got Discovery Plus. [00:12:24][19.9]

Darcy: [00:12:25] That's where we're at at the moment, but not for too much longer, according to their CEO, David Zaslav. [00:12:30][5.1]

Audio clip: [00:12:30] Philosophically. We thought having been in business in Europe now for the last ten years and direct to consumer, that simple for consumers is easier. And so we tried independent sport, we tried independent products, and in the end we landed that putting it all together in one product with more value was what work does that mean? [00:12:51][20.1]

Audio clip: [00:12:51] Putting Discovery Plus and HBO Max together. [00:12:53][1.9]

Audio clip: [00:12:53] We will we will come to market with one product. [00:12:56][2.8]

Alec: [00:12:57] Okay. So that's really the first big takeaway here, Darcy. We are seeing finally some consolidation in the streaming business. Warner Brothers Discovery will be combining their offerings. And if people are subscribers to both Discovery Plus and HBO Max soon they will be able to cut one streaming subscription from their monthly bill. But there's a second key learning in this story, I think, which is the budgets that we're seeing for these streaming shows is going to make it harder and harder for your pure play media businesses to compete. [00:13:29][31.7]

Darcy: [00:13:29] It's pretty telling that Amazon has been able to break all of these records. They're able to subsidise their streaming business with their online retail and Web services business. If we look at some of the biggest streamers these days, very few of them are pure play media businesses, Apple TV. They, of course, have a giant electronics business. YouTube Premium has Google's search business behind it, the number one and two most visited sites on the Internet. Even Disney has a huge entertainment and parks empire behind it. If we compare that to Netflix, Paramount and Warner Brothers Discovery, though, they'll rely on their streaming platforms to make money. If we keep saying these budgets increase for blockbuster streaming shows, it's going to be Amazon, Apple, YouTube and Disney that will be able to afford it. Netflix, Paramount and Warner Brothers. Discovery. They'll need to win on quality rather than by spending. [00:14:18][49.1]

Alec: [00:14:19] Yeah, that makes sense. Amazon can put $715 million into the rings of power and they can do the maths that they did earlier that had 4 million new subscribers. Or it can be they need to sign up two new Web services customers or they need to sell X number of Amazon basics pairs of socks to cover that cost, whereas Netflix, they're reliant on new subscribers. And how many massive budget shows can they create year after year after year? It's an arms race in the streaming business. [00:14:46][27.5]

Darcy: [00:14:47] It is, yeah. We can say Amazon could absorb those costs with all their other. Revenue streams, but it is a little bit more difficult for these other media pure plays. [00:14:55][8.1]

Alec: [00:14:55] So it probably means we're going to see more consolidation in the future. It also probably means we see more businesses take on the Disney business model of building great entertainment assets and then finding other ways to monetise it. Will we see a Netflix theme park or will we say Netflix on ice one day? I guess we'll wait and say, But Darcy, we're going to leave it there. We've spoken about the business of streaming a few times on the dive, I'm sure will speak about it again. If you enjoyed this episode, please tell a friend about it. It really is the best way for a podcast to grow. And if you're listening because you've been referred, we have a growing back catalogue that's worth checking out. Our last three episodes, we've spoken about the Elon Musk and Twitter lawsuit, Ryan Reynolds and Rob McElhenney buying a football team and Russian knockoff brands a wide spread of episodes. Go and check them out. And remember, you can follow us on Instagram. At the Dive Business News, you can contact us by email, the dive at Equity Mates dot com and you can subscribe wherever you are listening right now so you never miss an episode. Thanks for joining me today, Darcy.

Darcy: [00:16:03] Thanks for. And I'm off to watch the rings of. 

Alec: [00:16:04] Power yet it's worth it. Until next time. Thanks for listening.