Last March, in a flurry of fur, blood, and gnarly beards, George R.R. Martin’s A Song of Ice and Fire series of fantasy novels came to television. Game of Thrones was, as Slate’s Troy Patterson noted, the “most anticipated” show of the year, and in its inaugural season it garnered a brace of Emmys, generated more than a dozen stories in the generally dragon-averse New York Times, and won the hearts of TV critics. In that light, the show’s performance in the Nielsen ratings might seem underwhelming: The first airing of the season premiere drew 2.2 million viewers, and 10 weeks later the finale was seen by 3.04 million people, numbers similar to those for the Fox sitcom Breaking In. And yet Game of Thrones was renewed two days after its premiere, and no one doubts it was a hit. If premium cable channels like HBO and Showtime aren’t judged by the Nielsens, how do they define success? And how does a niche program like Game of Thrones—beloved by fans, but watched by a tiny fraction of the viewing public—make money?
The premium networks are in the business of selling subscriptions. A Showtime spokeswoman told me that the channel’s goal is to satisfy subscribers and to entice nonsubscribers to sign up. They keep their customers happy by allowing them to watch original TV series, exclusive movies, and sports programming whenever they want to—it doesn’t make a lick of difference to HBO if subscribers watch Game of Thrones the first time it airs or six days later. That’s why they repeat their flagship Sunday night shows so frequently and make them available to subscribers on-demand, online, or through services like HBO Go and Showtime Anytime.
On the networks and basic cable, shows are a delivery vehicle for advertising—and if a program doesn’t attract a big enough audience for those ads, the consequences are clear: It’s pulled from the schedule, and a new show is dropped into the time slot. On those channels, viewer’s just another word for person who sees a commercial. The programmers’ job is to get as many people as possible to watch their shows—and, most important, the ads that appear in the middle of them—as close to the first airing as possible.
The ratings that premium channels pay most attention to are the weekly figures that include replays as well as DVR and on-demand viewing. Although the first Sunday night screenings pulled in an average of just 2.5 million viewers during the first season, Game of Thrones’ average gross audience was 9.3 million viewers per episode. For the premium networks, what matters is that viewers are passionate enough to keep their subscriptions active. That’s why Showtime renewed House of Lies, which grew from 800,000 on Sunday to 4.4 million for the week, and HBO approved a second series of Luck, which leapt from 460,000 to an average gross audience of 4.1 million (though the show was later canceled because of concerns about animal welfare), while NBC killed Prime Suspect and The Playboy Club, which also attracted around 4 million viewers per episode. So yes, premium cable does pay attention to ratings—just different ratings, and with different standards of success, than at the broadcast networks.
But there are still more factors at play. Since the premium cable networks produce just three or four episodes of original television each week, they need to attract positive attention. Popular “buzz,” a uselessly fuzzy concept for channels that make money from ad sales, is important to HBO and Showtime because it generates subscriptions—the more a show like Game of Thrones dominates the cultural conversation, the more people will sign up for HBO to watch it. Ideally, every show will receive a) critical praise, b) a huge audience, and c) a shelf full of statuettes. But in a pinch, just one of those things will suffice. The Wire drew a minuscule audience (peaking at 4 million but down under 1 million in its final episodes) and was ignored at the award shows, but thanks to critical acclaim, HBO gave the show five glorious seasons to spool out its complex drama.
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