How Highbrow Wins in a Lowbrow World
J Thoendell stashed this in Business
"We are extremely lucky here on HBO, because we don't have advertisers," John Oliver said in August on his HBO show Last Week Tonight. "So if I want to say, for instance, that Cadbury Eggs are filled with dolphin sperm, or that Old Navy clothing makes you look like a tacky murderer, I can. And why? Because of HBO's business model, which nobody has been able to explain to me yet."
The line drew laughs, but Oliver was dead on. HBO's business model has been instrumental in the meteoric rise of not only Last Week Tonight, but also HBO's entire lineup. That business model goes like this: Households with cable TV pay extra to watch premium channels—and they can start paying to watch the channel online without a cable subscription in 2015. Although the network sells its original movies and shows in places like iTunes, subscriptions make up the vast majority of its revenue.
The fact that HBO has no ads means the network has no money tied up in its ratings. If each of its 43 million US subscribers watch 1,000 hours, 100 hours, or zero hours of "Game of Thrones" this year, it's all the same to the company's bottom line. Technically, HBO doesn't need viewers. It just needs subscribers.*
Compare HBO's business to most broadcast networks, like Fox, CBS, and NBC, who make most of their revenue from advertising, which depends on ratings. Broadcast TV won't survive on cable subscribers, alone. It needs viewers—and it tests and re-tests its shows to ensure that they will be watched by a sizable and sellable audience.
These are two business models living inside the same bundle. HBO is in the business of selling a brand. Broadcast networks are in the business of selling tickets.