True Detective, the eight-episode cop thriller that ran from Jan. 12 to March 9, won almost 12 million viewers per episode, a feat never before accomplished by an HBO series in its first season. The fourth season of Game of Thrones drew some 17 million fans of swords and nudity, more than any HBO series since the final season of The Sopranos in 2007. ”HBO’s current lineup includes four of its top five highest-rating shows ever,” Time Warner’s chief executive, Jeffrey Bewkes, crowed on a conference call this morning.
All told, HBO revenue increased 9 percent in the recent quarter, to $1.3 billion, according to an earnings report this morning from Time Warner (TWX). What’s more, HBO managed a 36 percent operating margin, which is no small accomplishment in a hit-driven business that requires such expensive employees as Matthew McConaughey, Woody Harrelson, and Julia Louis-Dreyfus.
How impressive is that margin? Consider Warner Bros., Time Warner’s movie department, booked an operating margin of 12 percent last quarter and a profit of $369 million—a full 20 percent less than HBO. And the movie studio’s bottom line benefited from the huge success of The Lego Movie. Other Time Warner entertainment properties didn’t do much better.
It’s not so much that HBO’s hits have smaller budgets than most might think. After all, the network spent $8 million on one Game of Thrones episode. It’s just that its flops are relatively rare—though not unheard of. Girls generates plenty of cultural conversation, but only 670,000 viewers tuned in for its Season 3 finale in late March, down from 1.1 million who watched the first episode.
But even those smaller audience numbers are insulated a bit by the subscription model. HBO executives don’t have to worry about each installment striking a chord with advertisers, and seasons are kept short enough that the network isn’t compelled to pull the plug midseason on a subpar offering.
And the growing field of streaming services is still clamoring for HBO’s leftovers. So-called content revenue from old shows increased 13 percent in the recent quarter, a $24 million improvement. Time Warner believes that the more people who watch HBO shows on places other than the cable-TV channel, the more likely they are to become subscribers—a philosophy that has led to a hands-off approach to those borrowing HBO Go passwords from friends and family. ”We firmly believe that if you have great content, giving consumers control over where, when, and on what platform they watch it will drive increased consumption and value,” Bewkes said.
Just last week, Amazon.com (AMZN) struck a licensing deal to offer its Prime members a catalogue of old HBO hits, including the miniseries Band of Brothers and the crime drama The Wire. Time Warner has long since stopped paying for those episodes, but the shows keep pouring money into the coffers. Play the model out a bit, and we should see the same thing from True Detectives, Veep, and a certain show with dragons and knights. If only Time Warner could pull off the same trick with old copies of Time magazine.