Category: The Business of Game of Thrones

A TV Murder Mystery: Who Killed Game of Thrones?

Most of the time, when Hollywood kills off one of its TV shows, we know why. The ratings had been sinking or the talent asked for too much money. (Or recently, it was produced by a rival TV network/conglomerate.)

And yet, HBO killed off Game of Thrones, a TV series that was getting more popular with every season and making its parent company billions in the process. Meanwhile, other long-running series—with worse ratings—from The Simpsons to Grey’s Anatomy to The Walking Dead march on like, well White Walkers. The corpse of Game of Thrones is now—spoiler alert—as cold as Jon Snow’s after season 5.

Why? Who had the motive? And who issued the order?

We Officially Have a Murder Mystery

Frankly, there isn’t a great explanation for why HBO cancelled this series. In the past, I’ve estimated that this series was making an estimated $300 million a season for HBO. (And potentially much more. Read the original, and my director’s commentary here, here and here.) Sure, HBO has a great (on paper) slate premiering the rest of this year and next year, but you know what helps launch a great slate? The biggest show on TV.

Have no doubts this series was growing. The number of viewers rose in every territory that I could find that releases data. Over 44 million were tuning in per episode in America alone, up from 9.3 million in season 1.

GoT Viewership

Of course, in some circles—like HBO creator circles—the story is what matters. Maybe the creators wanted to wrap it up nicely. Except most of the criticism of the last season related to the fact that the series felt rushed. Here is just a sampling of critics and fans complaining that season 8 felt rushed. More episodes and more seasons would have solved this problem, and who knows, by a hypothetical season 9 maybe 50 million people are tuning in in America each year!

Who kills off a money making show? Who are our suspects?

The Suspects

HBO

The buck stops there. So we should start with HBO. Their motive in killing this show would be simple: It’s the most expensive show on television. And since it is already insanely profitable, any additional profits have to be split with talent who are negotiating tougher and tougher deals with more and more back end. Each additional season is less lucrative for HBO, and if the marginal benefits meet the additional costs, well economically HBO should cancel the series.

George R.R. Martin

Listen, George, you’re a part of this. You probably didn’t finish the plot of A Song of Ice and Fire, because if you had, you’d have published that book. Which you haven’t. Maybe you told HBO to stop the series. Or you never provided enough details to fully flesh out 3 to 5 more seasons of the show.

The Actors

When in doubt, blame temperamental actors. Am I right? “Talent” is what you bitterly mumble in Hollywood when you can’t control the situation.

The motives for these suspects—and really I’m talking the big five actors of Jon nee Kit, Cersei nee Leda, Jaime nee Nikola, Daenerys nee Emilia and Tyrion nee Peter—is pretty simple: they’re sick of working on this series. Or more precisely, as artists, they’re ready to make other movies about Greek Gods, Han Solo and Terminators. (Too far?)

Further, even if you don’t mind working on a TV show for the rest of your life—including shoots in both scorching deserts and freezing tundras—you do know how valuable you are. You can’t have a GoT without a Daenerys and Jon Snow/Stark/Targaryen. Knowing that, the actors negotiated phenomenally expensive payments per episode, over $1 million per actor. They also likely demanded higher back end percentages.

The Showrunners

If the actors are sick of this series, imagine the two people at the lonely top of the creative pyramid, David Benioff and D.B. Weiss (D&D in Reddit parlance). I can’t describe adequately how insanely time consuming this series was for these two individuals. They wrote a majority of the episodes, supervised the entire production from set design to costumes and oversaw all the editing and post-production; and oh by the way (NFL announcer voice), it was the largest TV production in history. 

Meanwhile, they had plenty of opportunities to do other things, from Star Wars to a new overall deal to ideas in their notebooks we can only imagine. If you’re worth hundreds of millions of dollars (my tentative figure for D&D once they collect GoT royalties), do you want to keep spending your winters in Iceland and dealing with the most demanding fans in television history? That would be enough to say, “Eight seasons and we’re done!”

AT&T

Is there a thing that AT&T hasn’t managed to screw up since it acquired Time-Warner turned into Warner Media? Since taking over, they’ve lost the head of their movie studio, the head of HBO and plenty of other executives. Meanwhile, they named their new streaming service HBOMax, which was universally derided, and DirecTV is hemorrhaging subscribers. Oh, and AT&T is the most indebted company in America. Maybe they killed GoT to keep the losses from piling up. 

Netflix

When you discuss TV on the internet, you’re contractually obligated to mention Netflix at least once. While we give Netflix a lot of credit and blame for, they’re not involved here. 

The Evidence

Like a detective in Law & Order, it’s time to interview the witnesses. Which in this case means various articles that describes the suspect’s state of mind. Supply your own “dum dum”.

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

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 The-Numbers.com 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:

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How Much Money Did HBO Make on Game of Thrones – Director’s Commentary Part II: The High Case, Low Case and Uncertainties

There’s a fun tidbit in this massive must-read article on Kotaku about eSports. Here’s the quote I love:

A 2017 Morgan Stanley report leaked to Kotaku claimed that, in its first year, the Overwatch League could conceivably generate $720 million in revenue, about the same as World Wrestling Entertainment. By 2022, says Goldman Sachs, viewership of pros playing competitive games…may be on par with the National Football League’s viewership today. 

Those estimates are just…nuts. Here’s the thing. I believe those reports made them. What I am more skeptical about is if those reports gave their confidence intervals. Basically, was Goldman Sachs estimating their prediction, or their best case scenario? The best case isn’t a prediction, but your hopes and dreams.

My goal is to never do that. Here’s the thing about predicting the future: it’s hard. A lot of the techno-futurists and streaming-vangelists of the world are better than me in that regard. They know how the streaming wars will end and can predict that with unerring accuracy. I’m not that talented.

Instead, I try to tell you how this business works and try to do so with some modesty. Even with my backwards looking estimates, I want to give you my 90% confidence intervals. That’s why for my big, big analysis articles (explainer here) I build multiple scenarios. (I also try to show you my math. And explain what and how I did it.)

Which brings us to Game of Thrones. In my Decider article, I had to leave out some explanations for space. I’m taking those and giving them to you now in a Q&A with myself I’m calling my “director’s commentary”. (See Part I here.)

Let’s start with uncertainty. What was the biggest variables in the model?

I have two areas that could really swing the model. First, in other revenue, home entertainment and merchandise could have been even bigger than I thought. Again, in winner-take-all, as box office regularly and reliably shows us, the winners are multiples larger than everyone else.

Then, in subscription revenue, the numbers again could be huge. And since I don’t have the actual viewership behavior, it’s really a question of attribution. As is, I had it at 57% of total revenue but there’s a real possibility that this show is even more important for HBO, especially on the international and digital sides.

What about costs? Are they certain?

The costs are pretty relatively certain. The production costs get leaked every season it seems and even marketing costs were leaked this year.

So everything else you’re very, very confident in?

Well, no I’m always wracked by uncertainty. Which in a columnist, I understand is a weakness. (If you fail to project anything less than strength, they’ll get you, like Theon getting got by the Iron Born in Game of Thrones.) At a high level, here’s my confidence in my inputs:

Table 1 - Confidence Table

As you can see, there are always lots of estimates in a model like this. And estimates are better than “guesses” but a far cry from leaks or facts. And even estimates can range from pretty high confidence like the merchandise take or studio distribution fees, to pretty all over the place like tax credits. (I’ve seen the rates for Ireland, but it’s unclear how much GoT films specifically in Ireland, so hard to know. There have been some leaks, but only selectively for certain years too.)

So the revenue estimates will provide the biggest range in the final estimate?

Yep. Oh and one more. Profit participants.

(I had called this “talent participations”, but agents aren’t talent. Shade thrown.)

Specifically, the actors and GRRM. I’m fairly confident the showrunners are getting 10% of the MAGR profits. My gut is GRRM is between 5-10% of that (either matching the showrunners or equal share to them), and the actors could be in that range. And for the initial agreements, I’m pretty confident in those guesses. But…

…what about the renegotiations?

That’s the big uncertainty. After season 4, this show is a monster hit, and HBO needs everyone on board to see it to its conclusion. That’s where the power starts to shift to the talent. And even if this show loves to kill off major characters, killing off Jon Snow or Daenarys Targaryen just seems unlikely. So how much higher did all the talent negotiate in the backend? I don’t know.

Okay, let’s get to the high and low cases now that we know the uncertainty. Can you walk us through the changes for the high case model.

From the top.

Home Entertainment

My working theory is that Game of Thrones is the biggest TV series in terms of units sold this decade, and maybe this century. But is that over a billion dollars in retail sales, as I’ve heard? Again, I heard a rumor around 2016 that Game of Thrones had already earned a billion dollars for HBO. That’s through just six seasons. Of course, I didn’t ask the source if that was gross retail sales or net receipts. But that’s my starting point for a high estimate. 

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How HBO Made Billions on Game of Thrones – Director’s Commentary Part I

One of my guilty pleasure TV series to watch is Forged in Fire on the History Channel. Like Making It, there is something really enjoyable about watching people make things, but especially when they do it really well. Especially in a positive atmosphere, which is what Forged in Fire and Making It emphasize.

Well, if I had a version of that hobby, it would be making business models in Excel. Especially bespoke models for brand new businesses. 

I just love it. I love taking a blank spreadsheet and figuring out how to fill in every line. More importantly, figuring out the data behind each number to get a model to be as accurate as possible. That’s my favorite part of the job. I’d do it even if no one was paying me to do it. If I can do that for things I love—like Star Wars, the Pac 12 or Game of Thrones—even better. 

These models don’t come cheap in terms of time required to build. Weeks of work usually. And the final result of even 4,000 plus words explaining them still usually don’t capture all the insights I think a well-built model provides. So—as I did with the Pac 12—today is the first article diving into all my extra thoughts on my Game of Thrones profit model.

I’ll dust off the FAQ format for it. If you have any questions, hit me up on Twitter, Linked-In or email (see the contact page) and I’ll answer those too.

First, can you remind me what your conclusions were?

Sure. In case you haven’t read the model, here is. It’s 35 lines and ten columns, so it’s small. (If you want the actual Excel, email me and I’ll consider sending. I’d have to clean it up first, though.)

Table 4 Final Estimate

The conclusion again is $2.28 billion is my estimate for how much GoT made from this series. That’s what I’d call my “median” estimate if I were running scenarios on this. And again, it is an estimate, not “truth”.

What do you mean by “not truth”?

Most numbers reported by the entertainment press, in my experience, come from one of three sources: the companies (via earnings reports or leaks), bad surveys or an investment bank releasing their analysis. My estimate would best fall in that last category; this is my estimate of the future.

But estimates are just that “estimates”. Since I don’t have every input—what I’d call “the actuals” in an internal document—I had to make a ton of assumptions. Still, estimates like these can be damn useful training for anyone in business. Unless you employ an industrial espionage firm—and I’m not a lawyer but I’d recommend you don’t do that—you don’t have your competitor’s numbers either.

I expect there is a chance some people who are “more in the know” than me can get someone in HBO to give them the real accounting sheets. Though, as Michael Ovitz’ autobiography testifies, there are quite a few people in H*Wood willing to tell you they know something for certain, even when they have no idea.

Let’s get into the model. Starting with the subscribers section. Explain the difference between accounting profit and your projected profit

Well, the key is that HBO (and all TV producers of wholly-owned series) think of a show in two ways. First, what is the “accounting” profit. That’s the amount they need to pay talent. That is usually made in an agreed upon definition called a “Modified Adjusted Gross Receipts” (MAGR). The people who work at the agencies have this knowledge as does HBO’s finance team. If it was leaked to me, we could make these estimates way more precise.

(Same with Star Wars. Feel free, readers, to leak me any info you want.)

MAGR, though, doesn’t come close to capturing the true value of the series. The MAGR definition usually ties the first run license fee (sometimes called imputed license fee) to the production costs. This gets nowhere near the true value of a TV show. It’s so “sub-optimal” that in my articles on subscription revenue, it didn’t even get its own “not-explanation”. I just dismissed using costs as a stand-in for value. Here’s this demonstrated for Game of Thrones.

Screen Shot 2019-05-23 at 4.36.34 PM

To quickly explain, to truly get at how “profitable” Game of Thrones had been for HBO, I needed to know how much subscriber value it added. Since this isn’t a hard and fast amount of cash—the way say theatrical box office or home entertainment sales are—networks like HBO usually set an agreed upon amount before the show airs. As you can see, it’s tied to the production budget of a series, usually at some percentage. Historically, 70% if the show can be sold to other windows.

As this table shows, though, if HBO had to pay off the actual subscriber value, then the talent collectively would have made something like $400 million more off the series. In other words, HBO was able to keep about $1.5 billion in profits from being shared with talent. 

Is this a bad deal for talent?

I mean, not as much as it seems. Estimating the value of subscribers is pretty complicated, and if you let lawyers into that calculations, it would get messy pretty quickly. Arguably this only comes up for the biggest hit TV series anyways, of which there are less and less.

How did you come up with your percentage for the imputed license fee?

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GoT vs LoTR vs Narnia – Appendix: Subscription Video Economics… Explained! Part 2)

(This is an “Appendix” to a multi-part series answering the question: “Who will win the battle to make the next Game of Thrones?” Previous articles are here:

Part I: The Introduction and POCD Framework
Appendix: Licensed, Co-Productions and Wholly-Owned Television Shows…Explained!
Appendix: TV Series Business Models…Explained! Part 1
Appendix: TV Series Business Models…Explained Part 2
Appendix: Subscription Video Economics…Explained Part 1)

The best analogy for content libraries on streaming services, for me, is theme parks. When I tried to value the new Star Wars land Galaxy’s Edge at Disneyland and Disney World, I wrote about this future scenario:

Next year, I’ll walk into Disneyland in the off-season (probably September-ish). I’ll be wearing a Star Wars shirt. My brother will probably rock a Marvel shirt. That said, I’ll also have a four year old wearing, if current trends hold, either an Elsa (Frozen) or Belle (Beauty and the Beast) dress. Other family members will likely have Mickey shirts on.

So how much of that trip do you allocate to the opening of Galaxy’s Edge? My family already averages one trip to Disneyland every year, and my daughter knows that Mickey lives at Disneyland. So she’d go anyways. But what about me? I’ll definitely go to see the new park at some point. 

Something about theme parks—maybe the permanence of the attractions—helps crystallize in my head the challenge of valuing content libraries. A theme park is a content library of rides, shows, shopping and food. Some of those attractions at Disneyland have been there since the 1960s. Those are the “library content” of Disneyland. Others are only one or two decades old. Those are the “recent library” of rides. Then there are the brand new attractions: Star Wars land, Cars land and a Guardians of the Galaxy ride. Those are the “new TV” of Disneyland rides.

The trouble is trying to value each of those pieces and disentangle them. At the end of the day, this both matters—because you need to make the best decisions possible to maximize revenue—and doesn’t—because at the end of the day the goal is to have revenues exceed costs on a total basis. Do the latter and how you get there doesn’t really matter.

My approach to valuing theme parks—calculating the money spent by both existing and new customers—gives us a good idea for how to value content libraries on streaming platforms. So let’s explain that. In today’s article…

– The rules guiding my approach to valuing content
– The “dream method”, which is what we’ll try to emulate
– The steps to the optimal method
– The HBO and Game of Thrones example explained
– Some other variations, caveats and thoughts

The Rules

As I wrote these last two articles, I kept coming back to the “rules” that define good business models. A few stuck in my head for valuing streaming video. Thinking that way…

– First, no double counting. If a customer gets attributed once to a piece of content, they don’t get to count twice. (A good rule of thumb, you can’t attribute more than 100% of your customers!)
– Second, CLV trumps monthly revenue and other calculations. If you attract a new customer, CLV is the best way to capture their true value to your business.
– Third, be humble in attributing success. No single show or movie accounts for 100% of its viewers in a library model.
– Fourth, use real data as much as possible.

The Dream Method – The Probability of Resubscribing

The dream method for HBO would be, basically, to be God Almighty. Looking down omnipotently, reading the mind of every customer subscribed to HBO and knowing why they subscribed, and what percentage of that should be credited to Game of Thrones. Add all the percentages together and you have it. (Maybe our Google/Amazon/Apple AI overlords will be there soon…)

In the meantime, we have data. Especially streaming data if you’re Netflix, Amazon or (partially) CBS or HBO. 

This data means you can track every customer. When their account starts. When it renews. When it lapses. And, crucially, what they watch the entire time. From the people who only watch movies to the people who complete every episode of Game of Thrones. In a big data sense, then you can compare their behavior to the customer who never watched Game of Thrones. 

Say the results looked like this…

…GoT Viewers resubscribe after a year period at a 92% rate.

…non-GoT Viewers resubscribe after a year period at a 80% rate.

That means, of customers who started the year subscribed to HBO, by watching GoT, they were 12% more likely to stay subscribed to HBO. That’s the best number if you can find that, because it basically means that GoT increases the probability of staying subscribed by a huge, statistically significant margin. Now that GoT is cancelled, if those GoT watchers suddenly flee HBO, well we can also reverse engineer that to know that GoT had been keeping them subscribed.

This could also be applied to new customers. If you take all the new subscribers for a given time period, you can look at the ones who watch GoT versus the ones who don’t and model their behavior. You can also tell which are the customers signing up to watch GoT right away, and which ones don’t. Add those up and you can attribute all the best approximation for value we have. (With heaping doses of regression analysis and machine learning.)

Yet, we don’t have the big data to do this. I mean me, as a commentator on the strategy of entertainment. If I were managing content strategy at a streaming company, I would set a team of data scientists working on. But I don’t have that team or that data here. As an outside observer, well, we need to make some assumptions, but we can try to replicate that method.

My Method – Attributing New and Remaining Customers by CLV

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Read My Latest at Decider – How HBO Made Billions on Game of Thrones

I’ve been in a bunker these last couple of weeks and that bunker was an Excel bunker with internet access where I had one quest: to estimate how much money HBO made off Game of Thrones.

As I was writing my big series, “The game of thrones for the Next Game of Thrones”, I realized I needed a starting point. And figuring how much money Game of Thrones made was that starting point. It helped me understand exactly how the GoT Prequel could make money, but also tested my model. And I learned a ton figuring it all out. I’m up to 20 pages of research for this series and growing by the day.

(And I’m not close to being finished…this model inspired at least two more spinoff articles and maybe more guest articles.)

It was so good, I pitched Decider on it, and they accepted all 2,000 words of it (with tables).  Go check it out and share it on Twitter, Linked-In, Facebook and everywhere.

Seriously, I don’t ask for a lot of favors from my small, but growing, audience and this is one of those moments. If you’re a journalist, consider picking up the story, and I can answer any questions you have. (Email on the contact page or DM.) If you’re just a fan, still consider or emailing it to your entire office. Any little bit helps. Thanks in advance!

Again the story of how HBO made over $2 billion on Game of Thrones here.