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 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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Most Important Story of the Week and Other Good Reads – 7 June 19: The Trade War Moves to Hollywood

This week felt important for the news. Sure, we didn’t have any official announcements of new streaming services or any giant mergers, but between censorship, antitrust and trade wars, the world of politics is smashing (back) into the garden of media/tech. And the biggest government intervention was far away from Hollywood…

Most Important Story of the Week – The Trade War Moves to Hollywood

If you want a flippant response, “This is how you trade war.” For the catch up, China is surreptitiously telling distributors to avoid booking US films into the Chinese market. China has tight control over their film industry and this is their latest salvo in response to President Trump’s trade war. Here’s the key quote in Variety (but read the whole thing):

Industry insiders stress that there is nothing in writing – no officially published decree – putting a freeze on U.S. content. The Chinese government tends to exercise such controls internally and unofficially, which allows it to publicly deny the existence of any restrictions and to make exceptions when it suits them. Three years ago, when China blocked South Korean films, pop bands and other cultural exports out of anger over Seoul’s decision to deploy U.S.-made missiles, it took six months before Beijing publicly acknowledged the policy.

Frankly, it’s a smart move. Movies really aren’t as high stakes in total dollar value as something like oil or finance, but customers care way more about them. And some powerful people who are friends with the President will be directly impacted (Bob and Rupert). But the ramifications extend from there.

Franchise Movies

This headline from Scott Mendleson sort of explains it all:

Avengers: Endgame Grossed Less Of Its Money In America Than Any Marvel Movie (Box Office)

And that’s Marvel’s highest grossing film of all time in the US. Yet, overseas is even bigger, including at least $600 million from China. As the studios make more and more franchises and more and more animated films, they rely on this overseas gross, and frankly that support is bolstered by China. 

As the article makes clear, the big tentpole franchises like Spider-Man, Secret Life of Pets 2 and others will likely slide through the de facto ban. There is too much money at stake for both sides. However, the challenge–if China does want to hurt the major studios–is to just make it harder to collect money from China, which is already hard. Studios collect a smaller percentage of box office than other countries (25%) and China sometimes make it hard to take capital out of the country. They could add in a few new taxes, and this could hit bottom lines, even if they films do air in China. So even as box office grosses climb, the actual revenue coming back to California stays flat.

Independent Studios

Instead, these are the type of films who will feel the pinch. China is growing in importance not just for the huge franchise films, but even smaller pictures. In some cases, they presell China foreign sales rights, so that becomes a key source of funding. If China starts restricting films like this, well that’s just another economic headwind for independent and middle budget films to content with.

Other Movie Industries

China will still need foreign films. China has a cap on “revenue sharing” films at a loose 34 per year. (And there are some ways to make co-productions with Chinese backing or talent or locations that can get around these quotas.) Of course, China is also feuding with Australia, Canada and the UK, so they will not be easy replacements for US films. So my gut is that Bollywood, Japan and South Korea could have an advantage here.

China’s Film Industry

Or you know what? Just make more movies at home. And they need it since apparently they’ve been in a slump since actress BingBing was arrested on tax avoidance charges and the industry. This move by China could just be good ol fashioned protectionism than anything else. I’m still curious when we have our first break out Chinese film in the American market. (The biggest Chinese language film was Crouching Tiger, Hidden Dragon, according to Box Office Mojo.)


Listen, Europe, I don’t want to tell you how to run your trade wars. And you made nice with President Trump after the last trade war talk, and you’re just waiting until he leaves office. This little maneuver with China won’t really impact your box office. I mean, Europeans don’t care if Chinese moviegoers can see the latest Star Wars. But if President Trump spur of the moment changes his mind on his trade war with Europe (the way he just did with Mexico), here’s my unasked for advice: adopt China’s tactics.

But not with movies–again, you’re too small for that to matter–but for streaming video.

Europe secretly bristles that Netflix and Amazon and other streamers are all foreign owned, hence the law requiring European content on the streamers. Well, if Trump puts unilateral tariffs again, announce tariffs on streaming video for Amazon, Netflix and Youtube. Sure, that hurts Silicon Valley, not the heartland, but it will hurt the US stock market more. (You may ask for the logic or rationale for this, but it’s a trade war started by an irrational actor. Logic doesn’t matter.)

Speaking of the streamers…


Here’s the thing about Netflix’s growth: None of it is in China. That’s kinda crazy when you think about it. They’re adding 9 million subscribers every month, but none are in the world’s biggest market. Amazon has been similarly stymied in the Middle Kingdom. (I’m not sure about Youtube and Twitch.) If China is ready to block US movies, you better believe they’ll take the same approach to the streamers. Which isn’t a change from the status quo, but a trade war won’t help their long term prospects.

Mergers and Acquisitions

The biggest casualty of the trade war may be the desire of massive conglomerates to get even bigger. As Tara Lachapelle asked, “Would you do a mega deal in this environment?” Not if the market is ready to tank at the next sign of a slowdown. Moreover, with all the China-America squabbling, that takes one huge potential source of money off the table. A few years back, the cool thing was to grab Chinese money (Legendary, STX, Relativity). This obviously complicates that or makes it impossible.

Long Read of the Week – Esports

When I used to read the LA Times as a paper back in the 1990s, as a child, I felt like “extreme” or “action” sports–everything from skateboarding to BMX bikes to anything else on wheels–was the hot new sport. I can’t prove this strawman with links because the internet doesn’t work so great for articles that long ago.

But my inherent skepticism of people touting the next thing that will kill the NFL (and other leagues) starts with the memory of breathless predictions about the inevitable conquest of extreme sports over the NFL. That was a thing in the 90s. So when I hear that esports will kill the NFL, I think maybe not.

Listen, esports is clearly a growth industry. However, when valuations start to get frothy, and investors drop tens of millions on negative cash flow businesses, well, then I naturally revert to bear status. I think esports will be a fixture of entertainment going forward, but I can believe that and believe that 1. The NFL won’t die and 2. An Overwatch team isn’t worth $50 million dollars.

So I loved this article from last week by Cecilia D’Anastasio about esports. Read the whole thing, but here are my key takeaways.

Measurements Are Still All Over The Place

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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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Who is a “creative” in Hollywood? My Creative-to-Business Spectrum

When I worked at a studio, I found it funny that we referred to our development execs as the creatives. Not that they were creating the shows, but compared to finance or strategy folks, development execs were way more creative. They read scripts all day, took tons of pitches, provided story notes and helped decide who to cast in the show. That’s pretty creative work, when you think about it. 

So I had to cut them some slack if they couldn’t quantify everything; they’re creatives!

I say funny, because along the way I heard some talent on one of our shows—a showrunner, so the top writer/producer—refer to our development executives as the “suits” at our studio. And, they weren’t wrong?

I’d never considered the development execs the suits, but if your only point of contact with our studio is a development exec, then they seem like the business side of the house, don’t they?

It all depends on your point of view for who is a creative, doesn’t it? The director probably seems like a suit to an actor—an authoritarian bossing them around—while that same director drives the producer crazy with their creative demands. Meanwhile, the production folks are just trying to get shows made, which makes them seem like creative types to the finance folks just trying to get everyone paid. 

As I was starting my website—writing the first articles and sketching out a business plan—I set about to define my target audience. I knew I wanted to target the business side of Hollywood, but thinking about “what is business versus creative?”, I realized there isn’t just two sides on the “creative vs business” battle, but it’s a spectrum. 

Here is that spectrum that I jotted down and eventually turned into a Powerpoint slide.

Creative vs Biz Spectrum

For the most part I think everyone on this line would call everyone to their right a “suit”. Which means business. So I like this spectrum.

Some quick insights


A lot of this depends on what I define as “creative” versus “ business” in the first place. I used those terms since that seems to echo the jargon in the industry. I debated calling this left brain-right brain, though I’ve never liked that terminology since apparently the science behind it isn’t great. I also debated some other definitions (see below), but this worked best.

And the reason I think it works is it captures two inherent tensions, in my mind. First, who cares most about making the product? The closer you get to it, the more you are talent, actively crafting the final product. A creative. On the other side, who cares most about the bottom line? Well, the business folks. If you want a rule of thumb, ask this question, “Who would care the most about going over budget?” The more you care, the more “business” you are.

I debated calling this the “qualitative versus quantitative, but that doesn’t work either.

Or you could call it the “gut versus data” debate. But that doesn’t get at the difference between the business folks and the creatives, really. Some business folks eschew numbers, sort of like the development execs I mentioned above. That’s a pretty qualitative group of people—in my experience—though they are more business than screenwriters.

Creativity is the pretty clear driver on the left. And the opposite of creativity isn’t data. Data analytics and math actually require a lot of creativity. Not that business should be the death of creativity, but it’s what we all assume.

Not Included Jobs

These jobs aren’t left out because they don’t deserve a spot, but because I ran out of space. And for some, I didn’t know where to fit them in. As is, this was a pretty clean line of the people involved in getting a piece of content out there in the world. 

I did want to get in the below the line folks—like set design and make up and wardrobe—but again couldn’t get them to fit neatly. They would be on the more creative side, though to the right of some talent because they start and end with a budget. Precisely where, I’m not sure.

I had no idea where to put production assistants. Probably near the directors—which is where many want to end up—but they aren’t really creatives, just following orders. Programming folks balance both and are probably in the middle. Script readers are likely on the creative end, as they are usually aspiring screenwriters themselves.

Did the spectrum help with the website?

Definitely. I knew my goal was to skew towards the business end of the spectrum, but this helped put what jobs are in that side of the spectrum. And how close or far they are from the creative end. While I think everyone in Hollywood could learn something from my website, the business side could probably apply the most.

And it helped convince me this is a niche I could grow. There is a gap, in my opinion, between investor-focused publishers, who mainly parse 10Ks for stock price information, and the Hollywood trades, who focus on the who is cast in what.

Most Important Story of the Week and Other Good Reads – 31 May 19: Is Broadcast TV Dead?

I really wanted to figure out a way to make FX turning 25 my biggest story of the week. Fox launched a cable channel that helped define the prestige TV era as much as any other twenty-five years ago tomorrow. (Decider had a good roll up of the top 25 that brought this to my attention.) That feels like it should be a bigger story.

Yet, birthdays aren’t really game changing news, even for the channel that brought us. It’s Always Sunny in Philadelphia, my favorite series on FX. My favorite episode for Hollywood in-jokes is “The Gang Tries to Win an Award” which utterly lampoons the Emmy voting process.

So let’s look bigger than one channel. Like at all of TV.

Most Important Story of the Week – TV Ratings Continue to Decline, in pictures

The TV ratings for the 2018-2019 season are in, so let’s summarize what happened. I have three takes that range from “this is bad” to “oh this is controversial ”.

Bad News/Uncontroversial Take – Broadcast Ratings are Down

Well, ratings are down again. And CBS is still on top. And NBC is on top with the key demo (18-45 year olds). On top, though, means just 8.9 million and 1.6 million people, respectively. Those numbers are pretty small compared to broadcast TV’s peak or even just fifteen years ago. Here’s my version of Deadline’s chart, showing this for the last three years:

1 Table Ratings Broadcast Season

Source: Nielsen, via Deadline

So ratings are down another 7% after falling 3% last year. This matches the annual declines I’ve been monitoring. Here’s the same measurements, but from January to December instead of the broadcast season. (I had pulled these last fall to make a point about CBS.)

2 Table Ratings End of Year

Source: Nielsen, via IndieWire

So two different ways to subtly measure the data, which both show declines. Also, I’ll bang on another point I made about CBS last fall. For the “old people network”, which is the stereotype, it has more young people watch it than ABC, and tied with Fox. So proportionally, yes it has more non-key demo viewers, but it has the same in total numbers. Does one of those things matter more than the other? Maybe, maybe not.

Learning Point – TV Series are declining, but winner still takes all

Every year Michael Schneider does a list of the top 100 shows on cable and broadcast. I love reading through this list. Here’s the top 14, for example:

3 Image Top 14

Source: Nielsen, via Variety

I love it even more as further proof of my favorite learning point, which is to show that TV is, like all entertainment, “winner take all”, meaning that most shows get hardly any ratings, while a few are monsters. Given that FX estimates that between basic cable and broadcast there were 300 scripted series, and that Schneider’s lowest rated series was Hell’s Kitchen with 4 million viewers, we could basically add 200 more scripted series that had under four million viewers. Doing that, here’s how the winner takes all economics look for the traditional TV bundle (with some assumptions for that extra 200 series.)

4 Table Count of Series by Viewership

Actually, since Schneider’s list includes reality and sports, who knows how many more reality shows were made last year? I looked and couldn’t find it. The point is it would make the winner-takes-all shape even sharper.

Potentially Good News/Controversial Take – Top TV Series May Be Getting Bigger

So the inspiration for this hot take comes from Axios’s (must read) media newsletter by Sara Fischer. Her take? Well, TV series finales are getting smaller. She called this TV’s moving goal posts. Here’s the image from her newsletter:

5 Image Axios Goal Posts

Source: Axios

Pretty damning stuff. But it seemed like it was really trying to tell a story about decline over time. To better visualize this, I took the data and put it in a scatter plot by year to see the story over time:

6 Table ratings by Year Live

Still pretty serious decline. Except something bothered me about it. I mean, I’ve been pretty deep into the Game of Thrones ratings lately. And everyone knows that a ton of people watch the series after it airs. With the latest data, Game of Thrones is getting 44 million viewers per episode. If you assume all those people watched within say a week of the final, then GoT is a top 6 show of this data set.

And this makes sense: with DVRs, multiple airings and digital, do we care about how many people watch a show, or how many happen to watch it live? This is always my thing about data: you have to know why you’re asking the question. And so I tried to update this table for all the series with DVR numbers. Along the way, I found this fun image showing DVR’s rise over time:

7 Image dvr-users-590x330

Clearly, the rise of DVRs killed the “live watch” of series finales. (Along with a stretch of not great broadcast series for finales.) But with the 2010 finales like Breaking Bad, Game of Thrones, How I Met Your Mother and The Big Bang Theory, a lot of people tuned in late. So I adjusted some of those series up if I could find the data, and dropped Will and Grace, which wasn’t a series finale, and had my own new data set. I also kicked up The Sopranos since it had delayed viewing and multiple airings too.

8 Table Ratings with DVRI’ll be honest, I had hoped with this table the trend line would be flat, or near to it. And it didn’t go quite that far. The trend for series finales is still…down.

So this take isn’t that hot. But look at the decline in the equation. Instead of series finales losing over a million viewers per year, now it is down to 700K viewers or so. If you pulled just the 2000s, the line would be flat. Yes, I had to make a ton of assumptions, but in the question of, “Is the monoculture dead?”, well I think Game of Thrones is a pretty good argument that one truly great show can still draw in a significant amount of viewers. I wouldn’t go so far as to say that the trend is reversing, but it’s flat. (The biggest shows on “TV” aren’t getting smaller anymore.)

Bonus Point: Eurovision Viewership Over Time

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Most Important Story of the Week and Other Good Reads – 24 May 19: The Writer’s Breach the Agency Lines (while One Agency IPOs)

Here’s the most important narrative question of the entertainment industry:

Are we overusing war metaphors in our articles on streaming?

Just off the top of my head: Will Netflix kill the studios? Is Disney Plus the death of Netflix? Is the bundle is dying? The #StreamingWars. War, death, murder. Clearly the disruption of the media industry is taking our coverage of what is–at the end of the day–a bunch of people talking in front of cameras to overwrought heights. And yet…

The Most Important Story of the Week – The Writer’s Breach The Agency Lines (While Endeavor Grabs the Money)

I debated when to check back in with the WGA-Talent Agency fight the last few weeks, and this week finally pushed me over the line. Let’s start with WME, or Endeavor, or William Morris Endeavor, all names or former names of a company that filed this week to go public.

Endeavor is hoping to IPO at a price that will impart a market capitalization of about $10 billion, according to reports. That’s roughly the same size as the Sinclair-RSN acquisition of a few weeks back. So it qualifies for my most important story just on size. Though, looking at that market capitalization, does it sell the impact of this move short?

Because what Endeavor means as a publicly traded company could impact all agencies and hence all of Hollywood. The entire point of an agency was to be solely focused on the needs of their clients–actors, writers, directors, athletes, musicians, models–as they negotiated with giant studios and leagues, etc. The talent is arguably the most important part of a film or TV show, but historically compared to massive multinational conglomerates, they have much less power. That’s where agents come in. “We have tons of power and knowledge and negotiating prowess, so we’ll fight for you,” they tell clients, “and you’ll make that much more.” Of course for this to work, they had to be completely separate from the studios. That’s why California passed laws keeping them at arm’s length from producing anything themselves.

Until the agents realized how much power they had. If you have all sorts of power, you should be able to make money off it. Like by making more money producing shows. Or distributing those shows. That’s why the agencies are buying sports leagues and marketing firms and streaming video providers and even starting production companies. You can make more money by owning all the parts of the value chain, instead of tangentially helping talent.

Of course, if you own a production company, and a streaming video company and the marketing first, well that doesn’t sound that much different than the studio system of the yesteryear. If your agencies are just studios, why have agencies? I can’t answer that, just tell you why we’re here. Money. Private equity saw the power of the agencies, saw that it could be monetized more, and it took a stake in the agencies. Now the PE backers are looking for their exit, which means the “exit” which is the IPO.

And while PE started pushing the agencies away from clients as the center of the business, the markets will permanently end it. Since “shareholder value” is the be all end all for businesses, when it comes to clients needs versus shareholder needs, well clients won’t win that war. The clients move from being the core of the business to being one cog in that machine. Maybe the cog that drives the core competitive advantage in the first place, but still just another cog.

That brings us back to the news this week that at least one agency has broken ranks to sign the WGA. I hadn’t heard of the agency–Verve–but this seems brilliant to me. Frankly, if you’re anyone but CAA, UTA or WME, I don’t know why you haven’t broken ranks yet. The huge agencies have PE backing and the best clients already, and as they merge they’re only getting bigger. In a crowded market, you need competitive edge and it seems like one agency finally realized that. Add to the bad branding of the IPO, and upcoming agencies strike now!

Of course, if the writers all abandon WME (and maybe CAA/UTA), are those agencies as valuable on the open market as public companies? How does that not hurt their alleged core competitive advantage?

I’m with others, though, in saying I still don’t know how this ends. The WGA still seems really dug in and at least initially, they can keep getting work. This isn’t a strike. Meanwhile, if other agencies break ranks following Verge, the writers will even have agents. On the other hand, the agents are negotiators, and I could easily see an end where they end up on some compromise that only tangentially helps the writers in the long run, because that just seems like how things go.

(Best read of the week goes to David Lidsky at Fast Company who read the entire Endeavor prospectus.)

Other Contenders for Most Important Story of the Week

Last week was big for TV with two huge American TV series ending. But I’m looking across the pond for another huge TV event most Americans missed.

Eurovision Song Competition Aired

Last Saturday–I back date these articles to Friday–the Eurovision song competition aired. If you’re like me, you may have missed this news.

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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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