How Much Money Did HBO Make on Game of Thrones – Director’s Commentary Part III: Sanity Checking the Model

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Today, is the “sanity check” of my Game of Thrones article guessing how much money it made. I’ve explained where the numbers came from, the high and low cases and all my math. But does this make sense? Can we double check my work? Sure. Again, this is in an FAQ format.

Last big area. Double checking your work. Did you do that?

Yeah, I went through the model a few times. I actually woke up in the night it published in a cold sweat worried I had added or subtracted a line wrong and checked the model in the AM right before it published. I didn’t find anything.

I’ll add, building the high and low cases after the fact caused me to go through the model at least twice more line by line. Still no mistakes found, so the numbers add up correctly. (If you disagree with the inputs, that’s a different question.)

(Though, I could tell stories about models not adding up and really, really, really well paid executives missing it. I mean, REALLY well paid executives.)

That’s not what I meant. Is there anyway to triangulate if these numbers are right?

Ahh. As I think I mentioned elsewhere, getting actual profit participation statements from talent would be the best place to start. Some of the agencies or management companies or talent themselves would have these, and they’d give us the nitty gritty details. HBO, though, wouldn’t admit that the series drove subscribers growth in those statements. We’d need HBO’s analysis of subscribers and trends for that, but that won’t get shared outside of HBO.

To be clear, you don’t have those?

No, I don’t. (I don’t think anyone else does. At least, they won’t go on the record about it.)

What other methods could we use sanity check your model?

I tried to double check my work in a few different ways. The first was to try to find other estimates. 

One of my biggest disappointments of this process was that so few people had tried to do this similar calculation. I think the biggest hold up for journalists proper is that it requires estimating and guessing for a lot of pieces, and most websites/newspapers deal in cold hard facts. (Or other people guessing.) The best articles still tend to to talk “top line” costs, and really just say that Game of Thrones cost a lot, and sold lots of merchandise, without quantifying either. Here are some of the better examples:

2011 – The Hollywood Reporter, “Game of Thrones by the Numbers”

2012 – Slate“How HBO and Showtime Make Money Despite Low Ratings”

2014 – Yahoo, “The Burning Question: How Does Game of Thrones Thrive?” (though caution, this has the terrible “mutliply number of subscribers by months GoT is on)

2017 – The Conversation“How Game of Thrones Became TV’s First Global Blockbuster” (Also, not really answering the same question, but a great read.)

2017 – Marketplace“Let’s Do the Numbers on Game of Thrones

Also, this pops up all the time on Quora, and the answers historically are either just revenue totals or way off. (However, I’ve started hopping in some of the threads to correct the record.)

Finally, I just today found this Wikipedia article on “the most highest grossing media franchises”. Like this morning.

Was the Wikipedia article on total revenue helpful?

In some ways, absolutely. In others, not.

Let’s start with the not. This Wikipedia article cites an article that misquotes a New York Times article, confusing HBO’s annual profit with Game of Thrones profit, which is how they estimate the series earned $4 to 5 billion in subscription revenue. Also, the video games and book sales are likely on the low end, and merchandise isn’t included. However, they pointed me to for physical disc sales—a website I used in my Star Wars series—and well, I wish I had found these specific pages before. (I couldn’t find them after a bunch of searching.)

So you updated your Game of Thrones home entertainment numbers?

Oh, no. But their estimates were mighty close to mine and I think it shows both the difficulty and fun of trying to get these estimates right. (When I dive back into Star Wars—around December this year #ClickBait—I’m going to tie The-Numbers estimates to that series too.) Anyways, I pulled the last 8 years of top 100 titles sold in physical disks (Blu-Ray and DVD) and calculated how much GoT earned. For fun, here’s a few other TV titles I saw too:

Table 1 - Total DVD Sales By Year

This is another data point that Game of Thrones is just a monster across every other category. The two other arguably biggest shows in TV at the time didn’t even make it past 2013 with sales. However, to put TV disc sales in context, they’re still dwarfed by movie sales. Here’s Harry Potter and Star Wars this decade:

Table 2 Total Movie Sales

Let’s take those numbers, and compare them to my estimates, and see how close I was:

Table 3 - Initial Estimates w THe Numbers

On the one hand, my numbers get to a gross revenue about twice as high, though my exact sales figures are nearly exact. Exact! 

Huh. What happened?

Well, to start, my initial number is lower, while my decay is similar. My sales figures after season four factor raised the price too, compensating for the idea of selling box sets. Or multiple seasons. I also estimated the sales in the last year.

Moreover, The-Numbers numbers have some limitations. First, these are US only numbers. Game of Thrones, as we’ve mentioned before, is huge overseas, including the UK, Australia and Germany, and Europe has a stronger home entertainment market than the US.

Second, these are only top 100 lists. We don’t have, for example, sales of previous seasons. (They never rated high enough to make the top 100, meaning they have a ceiling of $10 million in 2015, which is pretty high when you think about it.) Also, the biggest unit sales were for individual seasons. We don’t know how many box sets were sold in any given year for past seasons.

Third, this year is the year of the whole series box set. And I have 2 million units projected to sell for it this year and going forward. And even with the decline in home entertainment sales (see my later question on this), I still think it will be a thing. (I think entire Star Wars and Marvel Cinematic Universe box sets will be a thing too.)

Would you change your home entertainment estimates then?

Probably, I would drive my base case up by a little bit. I’d use this as the base case for the US—for new series sales. Then I’d have a library sales figure with some box sets driving up the US average. Then, I’d factor in international sales. However, I think the number would get pretty close to the estimates I already have. I’d consider moving down the top estimate to as well. However, these tweaks wouldn’t drastically change the model as HBO was only keeping 20% of these sales in my model.

How has the decay in physical discs impacted this analysis?

Sure, yeah, home entreatment is declining. It still $23 billion in total retail sales, which is more than streamers are displacing. In other words, the studios and all of entertainment will feel this loss at some point. Here’s the total home entertainment sales by year:

Table 4 - Top 100 by Year

Before we went off on a home entertainment tangent, we were talking about finding other estimates. That didn’t work. So what’s next?

Check the financials.

This was my best sanity check. Does this level of profit ($300 million per season) make sense? And my initial gut is, “Heck yeah it does.” This approach was brought up on Twitter by Matthew Ball (formerly the strategy guy at Amazon Studios) and he didn’t think that HBO’s profit went up enough to cover it. I disagree.

Here’s my take. I took the projected GoT profit per year, and compared it to HBO’s growth across four categories:

Table 5 - HBO Profit by Year

Wait. Where did this data come from?

Good question. If you see numbers in an article, the author should always tell you where he got them from. The financials and some of the subscriber numbers come from Time-Warner’s annual reports from roughly 2012 to 2017.

What happened to 2018? 

AT&T happened. They stopped breaking out HBO as an independent business segment, which means that we have to sort of guess what happened to HBO’s profitability after the merger.

What about before 2011?

Well, that’s another problem. Before 2012, Time-Warner also didn’t break out HBO, and bundled them with Turner and called that revenue “networks”. So we can’t use that to pinpoint HBO’s profitability either. (They did give us 2011’s data, though.)

Can we figure out how well HBO was doing before 2011?

We have some leaks about it. We forget what life was like in post-Great Recession 2008-2010 time period for HBO. At that time, the big question on media’s mind—from the New York Times to the Economist—was, “What will HBO do next to replace The Sopranos? For a few years, the answer was True Blood. Which was popular on HBO, but not really moving the needle. After Game of Thrones appeard, HBO started adding subscribers again.

The Economist article gives us some of the specific numbers we can use. The New York Times articles repeats some of them, saying that HBO earned about $4 billion for Warner, of which about a billion went to their profit. 

Tie this back to the financials…

Well, HBO was flat, not growing from 2008 to 2011. Then, Game of Thrones came out and you can see international growth, domestic growth and operating profit all started growing again. You can see that GoT was a big, but not 100% driver of this operating profit. (About 13-17% of HBO’s operating income.) And I think that’s a pretty reasonable assumption.

Table 5 - HBO Profit by Year

I will add, you don’t really see this immediately in the content revenue line, which actually decreased from 2011-2013, then gets back up again.

Why not only use financials to do this analysis? 

Because the “bottom’s up” analysis is more accurate. Using financials, and working backwards is more of a top-down approach, which has limitations for a content library. (No method is perfect.)

Imagine this scenario: A company makes so much content that overall it loses money. Does that mean that every single show is not profitable? Obviously not, otherwise Netflix is in trouble. In the same scenario, one show could be the thing that keeps a company profitable, but that’s because it makes billions while everything else is worthless. Again, life is never this neat, but it’s a good mental experiment.

I’d go further with HBO. They’ve increased the original programming costs in recent years with big shows like Westworld, Watchmen, His Dark Materials, and more. The fact that they stayed profitable could be all because of Game of Thrones.

In the end, as a sanity check, the fact that HBO grow subscribers by 25 or so million, including launching a digital platform, adding tons of international customers, building its content library and growing revenue by $2 billion and operating income by $700 million per year owes a lot (but not 100%) to Game of Thrones. That showed up in their financials. 

Before we move on, any final ways to double check your work?

Yes, back end talent payments. This could give us an idea of how much book profit HBO has distributed. Or plan to. 

So thank Nikola Costau-Walder for firing his manager and getting sued. Because of that, we know that the big 5 GoT actors (show names Jon, Danaerys, Cersei, Jamie and Tyrion) were paid $1 million per episode the final season AND that they got a $1.5 million dollar payment on future profit participation. What that means is that HBO said, “Hey, instead of waiting to pay you what you will eventually make in profit, we’ll pay you that now.”

Crucially, their definition of profit is NOT the same as mine. I added GoT’s true subscriber attribution (or my estimates of it) whereas HBO likely used an “imputed license fee”. Still, we can use this as a better guess of how much profit HBO thinks they will/have made. 

$1.5 million is 1% of $150 million.

Therefore, the HBO expected profit is $150 million. 

So, yeah, a far cry from $2 billion, right? But if you take profit definition I used, I thought HBO would have made about $790 million in profit (over the life of the show) for talent. So either HBO is accounting for less profit (possible) or the big five actors make a lower percentage and/or HBO gave an up front payment of say only a portion of projected profits. Given that we have three interacting variables, it’s tough to say. This could mean my model isn’t conservative enough and HBO made less than I think.

But…I mean…it’s in HBO’s interest to keep profit projections low, while keeping talent happy. I could argue that the fact that HBO cut at least five big stars $1.5 million dollar paychecks is a huge sign the show is wildly profitable, even with an imputed license fee.

You keep talking about future and past payment. Which reminds us, you never answered our question on the time value of money.

Ah, my old friend “time value of money”. A topic that has finally made it into politics due to certain reporting on tax schemes of the 1980s.

You’re still stalling. When is the series worth $2.2 billion dollars? Like, right now?

I left it out of this analysis, because frankly I couldn’t find the right way to phrase the question to incorporate it. If I had tried to ask, “What was Game of Thrones worth in 2010?”, well the future cash flows don’t really make a lot of sense. This wasn’t a huge capital expenditure, and the potential future performance would be all over the place. That said, it doesn’t make sense either to back date my money implying that money earned in the past is worth more now. (Honestly, it is, but that’s not how we think about past earnings in entertainment.)

Finally, given that I’m playing fast and loose with some revenue time frames (like the library value) and I just didn’t really factor this in. If I can think of a way to do this, I would, but I haven’t been able to crack.

Any last thoughts?

Not really. Let’s get back to the question that started this all, “Who will win the battle for the next Game of Thrones?”

The Entertainment Strategy Guy

The Entertainment Strategy Guy

Former strategy and business development guy at a major streaming company. But I like writing more than sending email, so I launched this website to share what I know.


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