How HBO Makes Money

By Ryan C. Fuhrmann | August 09, 2012 AAA
How HBO Makes Money

To stay relevant to television viewers, cable channel operators have started spending millions of dollars to create hit shows and programming. 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 93 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. Time Warner doesn't break out the details of its network financials individually, but the company does lay out how it makes money through its programming.
Last year, Time Warner reported more than $13 billion in revenue from its networks. Subscription fees accounted for more than half of the total. This includes payments that cable providers, including Cox Cable and Comcast, make to Timer Warner for the right to carry its channels. 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 if 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
Using a rough calculation using the subscriber figure provided by Time Warner, HBO could bring in as much as $1.4 billion in subscriber fees. 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 developing 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, HBO South Asia and the HBO Latin America Group (LAG). 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 for $217 million and $136 million for more of HBO Central Europe. To gain international know-how, but also share risk, the company will partner with a local programmer.

SEE: Why Networks Love Reality TV

The Bottom Line
Many subscribers find that they can't live without their HBO, and Time Warner 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.

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