To stay relevant to television viewers, cable channel operators have started spending millions of dollars to create hit shows and programming. Warner Media (formerly Time Warner) operates a handful of leading channels and states that Home Box Office, or HBO for short, is “the nation’s most widely distributed multi-channel premium pay television service.” It also competes on an international scale and boasts 74 million worldwide subscribers, according to its owner.
Expensive Content
That is a pretty impressive figure, but creating the content is pretty expensive. HBO’s hit shows in recent years have included “True Blood,” “The Pacific,” “Sex and the City,” and “Entourage.” A season of “True Blood” costs an estimated $50 million to $60 million, which works out to around $5 million per episode. Warner Media doesn’t break out the details of its network financials individually, but the company does lay out how it makes money through its programming.
In 2019, WarnerMedia reported $6.75 billion in operating revenue from Home Box Office. Subscription fees accounted 86% of the total. HBO is unique in that the end cable subscriber usually makes a decision to pay extra on the cable bill for the right to have access to the channel. Consumers pay around $15 a month for HBO, though it varies depending whether it is part of a premium channel package or provided free for an introductory period that can run a few months.
Money from Subscriber Fees
According to its parent company’s Form 10-K, HBO brought in $7.7 billion in operating revenue from subscriptions. There are also advertising revenue opportunities. HBO is again unique because it doesn’t air commercials during its programming, but sponsors are always willing to pay to have their products placed directly into a program to enhance its appeal. Apple Inc’s computers and Chrysler’s Jeep vehicles are frequently seen in popular shows and films, in the hopes that consumers associate the products with their favorite character or setting.
On a standalone basis, HBO therefore has plenty of revenue with which to spend on developing its programming. It has a reputation as a powerhouse for creating award-winning shows, which serves to keep subscribers coming back and attracting new ones. It is also a virtuous cycle where producers, directors, and actors keep coming back because they enjoy the freedom to develop quality content.
HBO looks to find ways to replicate the success it has seen in the U.S. in international markets. Other businesses include HBO Asia and the HBO Latin America. It can rely on some of the U.S. content, especially the hit shows, but also must tailor its programming to local tastes. These investments can be substantial. Back in 2010, Time Warner paid $217 million for an additional ownership stake in HBO LAG, as well as paying for full ownership of HBO Central Europe. To gain international know-how, but also share risk, the company will partner with a local programmer.
The Bottom Line
Many subscribers find that they can’t live without their HBO, and WarnerMedia likes it that way. There is little denying that it creates some of the most popular and innovative programming on cable. With intense competition, including other cable channels as well as movies and online content, HBO must stay on its toes, but has been one of the most successful channels for many decades now.