Game of Thrones: How HBO and Showtime make money despite low ratings.

How Does HBO Make Money?

How Does HBO Make Money?

Arts, entertainment, and more.
March 29 2012 2:00 PM

How Much Gold Is Game of Thrones Worth?

How does HBO make money on expensive shows only 3 million people watch?

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Although Showtime has been growing its subscription base in recent years—it has jumped from 13.8 million U.S. subscribers in 2005 to 20.6 million in late 2011, while HBO has been stuck at around 28 million during that same period—HBO is still the premium premium cable company. HBO makes more money—according to the New York Times it generates “slightly more than $1 billion annually,” compared with about $692 million for Showtime. In large part, subscriber growth is driven by marketing efforts by cable and satellite providers—customers give their money to companies like Time Warner Cable, not directly to Showtime or HBO. When new customers sign up for Showtime, the providers generally get a bigger cut than they do from HBO subs. When HBO, the stronger, more swaggering brand, negotiates with service providers, it emphasizes income; Showtime is focused on building its audience. According to the Economist, HBO typically banks half the subscription fee from new viewers; Showtime and other pay-cable networks tend to strike deals in which distributors pay a flat licensing fee and then keep customer subs for themselves. This encourages providers to discount Showtime, which increases subscribers without necessarily earning the network more money in the short term.

HBO has made other decisions that bring in the bucks. Unlike most networks, HBO owns, rather than licenses, almost all its shows. (Showtime owns about half its output; the recent breakout hit Homeland is produced by Fox.) That makes programming more expensive, but it’s a smart move. The first season of Game of Thrones was reported to cost between $50 million and $60 million to produce; but international sales covered more than $25 million of that. (Showtime, on the other hand, doesn’t benefit from international sales of Homeland—Fox does.) HBO also has complete control over decisions about syndication and DVDs. Not only does it bank the proceeds from DVD sales—Season 1 of Game of Thrones sold about 350,000 copies in the first week it was available—it can also time the release date to maximize subscriptions. For example, the first season of Boardwalk Empire wasn’t released on DVD until after Season 2 had concluded; until then, the only way to catch up was to call your cable provider.

HBO is a global business. It has about 60 million subscribers outside the United States—mostly in Central Europe, Latin America, and Asia—and it licenses its programs to channels around the world. Luck may have enticed only 460,000 Americans to tune in to HBO at 9 p.m. on March 20, but millions more people in 200 markets around the world will have a chance to watch horses circle the Santa Anita racetrack. Game of Thrones’ epic tales of clans and kingship travel particularly well. Showtime, which is a division of CBS, sells the shows it owns overseas, but with less brand visibility.


Of course, the absence of advertising confers other advantages on HBO and Showtime. With no nervous widget-marketers to offend, characters on premium cable shows can swear, screw, and smash as many faces as they like—and anyone who has seen the bowdlerized basic-cable versions of The Sopranos knows what a difference a whole lot of F-words and a few pints of blood make. Networks like NBC may broadcast smart, buzzy shows like Community, but they’re still in the business of selling ads. Even prestige basic-cable networks like AMC are dependent on advertising. (With its much-discussed, award-magnet series and so-so audience numbers—the Season 5 premiere of Mad Men was its most-watched episode to date but still was seen by only 3.53 million viewers—AMC is the basic cable channel that most shares HBO’s DNA, if not its business model.)

And although rampant DVRing is steadily eroding the influence of traditional TV advertising, there’s the simple reality that watching ads turns viewers off. During Slate’s recent Facebook chat about Mad Men’s return, several participants complained that their viewing experience had been spoiled by commercial interruptions. No one who tunes in to the Season 2 premiere of Game of Thrones—on Sunday or whenever they choose to watch—will have to worry about that.

Video: Slate V looks at the most ridiculously violent moments from Season 1 of Game of Thrones