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HBO’s investment in high-quality, original programming pays dividends

Time Warner subsidiary Home Box Office (HBO) is a premium pay television service available through cable. Over the years, HBO has become synonymous with high-quality, original programming and signs suggest that the company’s recent offerings, such as Boardwalk Empire and Game of Thrones, are helping to cement a reputation established by shows such as Oz, The Sopranos and The Wire.

HBO invests large sums of money to create such programming. For example, the first episode of hit gangster series Boardwalk Empire cost $20m according to HBO and the network also had to build a boardwalk on the Brooklyn waterfront to recreate Atlantic City circa 1920 at a cost of $5m. Each episode of the series is believed to cost around $5m and this is not an isolated case, with the cost of Game of Thrones believed to be around $6m per episode, equating to $60m a season. By way of comparison, the most expensive film ever produced, Pirates of the Caribbean: At World’s End, had an estimated budget of $300m, highlighting just how significant HBO’s investment in programming is.

HBO is happy to invest such large amounts as it sees a return. The $20m investment in the Martin Scorsese-produced pilot of Boardwalk Empire paid dividends as it brought in a great deal of syndication revenue. Before filming had even closed on Season One, 160 countries had purchased the rights to the mob drama having only seen an unfinished version of the pilot episode. “The sale of an HBO series this wide and this early is unprecedented,” said Charles Schreger, president of programming sales. In addition to such excellent syndication, the popularity of such shows helped HBO add seven million subscribers in H1 2012.

HBO’s success is good news for parent company Time Warner as the conglomerate’s other divisions continue to struggle. It is not, in fact, a stretch to state that HBO is driving growth for Time Warner. HBO falls under Time Warner’s ‘Networks’ division, a division that accounted for over 45% of the company’s total revenues and 76% of its operating income in FY2011.

Although HBO has enjoyed great success in recent years, it must continue to show that it is flexible and able to adapt to changing consumer trends. The ways in which people consume media are changing, with sales of physical media falling and the popularity of streaming services growing. Calls for an internet-only offering will undoubtedly become more vociferous and piracy will remain a serious threat to ongoing revenues. In order to continue to grow and deliver first-rate programming, HBO must demonstrate an ability to tackle these issues and is already doing so. It has increased its engagement with streaming services such as Netflix and has introduced HBO Go to grant viewers access to content outside of their homes.

This flexibility and ability to move with the times, coupled with its continued investment in high-quality television means that HBO is in prime position to improve on an already-established reputation for excellence and to continue to be a growth driver for its parent company.

For a detailed analysis of how HBO is driving revenues and profits for Time Warner, check out the MarketLine Case Study ‘HBO: Driving revenues and profits for Time Warner.’

Posted in Financial Services.

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