The HBO Business Model is mostly a subscription-based model that charges users to watch its channels or use its on-demand streaming app. The company additionally uses an ad-based model. As HBO is almost a half-century-old (it was founded in 1972), it’s easy to assume that HBO Business Model has changed, updated, and upgraded, to follow the market demands. The brand, which has built its name on the premise of exhibiting Hollywood movies uninterrupted by commercial breaks, keeps seeking to be relevant to customers.
Home Box Office, HBO for short, has been under the umbrella of Time Warner Inc., one of the largest conglomerates in the media industry, and that was acquired by AT&T for $85.4 billion, in mid of 2018. HBO is now the longest and oldest paid channel in the United States. The network broadcasts original series, movies (both released in theaters and produced for TV), concerts, and documentaries. It is the owner of titles such as Game of Thrones, The Sopranos, Sex and the City, and True Blood, and the winner of uncountable awards. But how does the HBO business model support all these productions?
A brief history of HBO
Founded in 1972 by Time Inc. and headquartered in New York City, NY, HBO — which stands for Home Box Office — offered cable television service, presenting movies that had been just released, and transmitting them via satellite to subscribers.
In March 1989, Warner Communications merged with HBO’s parent, Time Inc. One of its top competitors, Paramount Communications (relabeled to Paramount Global in 2019) tried to block the merger, but failed twice, and then Time Warner was created with the union (now known as WarnerMedia).
In 2010, WarnerMedia launched its video-on-demand service, HBO Go, and later, in 2015, HBO Now, a subscription streaming service that offered on-demand access to original films by HBO, but both of them were phased out when WarnerMedia launched its flagship service, a brand-new streaming service to compete with Netflix, Hulu, and Amazon Prime Video: HBO Max. Launched in May 2020, with Friends: The Reunion as one of its original announcements for the launch, HBO Max is now one of the leading platforms in the streaming service market.
In April 2022, there was the merger of WarnerMedia with Discovery Inc., which created Warner Bros. Discovery. The union brought side-by-side two important streaming services, as Discovery Inc. had launched Discovery+ in early 2021. The merger opens up the possibility of combining both services into one in the near future.
Who Owns HBO
HBO is owned by Warner Bros. Discovery, Inc., the merged company between WarnerMedia and Discovery, Inc., which occurred in April 2022.
HBO’s Mission Statement
“To develop the best shows and films that illustrate the incredible power of storytelling”.
How HBO makes money
Nowadays, the HBO business model is a subscription business model, based on three main revenue streams: HBO cable channel, HBO app, and HBO Max (streaming).
HBO has currently around 23.6 million subscribers in America, which come from what AT&T calls HBO’s “wholesale” channels — those who pay for HBO through an existing MVPD (multichannel television). And it’s curious to know that, even though HBO Max became free as part of the HBO “regular” subscription, only about 1 million subscribers have activated the app. The HBO subscription price is between $5 and $20, depending on the channel package provided on cable or satellite TV.
In 2015, HBO moved to OTT (over-the-top media service). The network started allowing customers to subscribe to HBO via the app, regardless of a previous cable subscription. This put the company into B2C transactions, as a new market strategy, in accordance with consumer demand. That’s because, in recent years, we have been experiencing a new way consumers access television content.
The mobile devices along with the high-speed broadband internet have made it easier for customers to watch their favorite shows anywhere, anytime. This customer segment has realized that paying a monthly cable subscription has no longer been the most efficient way to watch TV — as sometimes they will pay for content they will never watch.
The HBO app (former HBO Now) came to meet a demand from people who wanted to pay for an on-demand à la carte service. The subscription fee is $14.99 per month and gives access to the same catalog that people would get on TV, via browser, and on some major platforms and providers.
But the changes didn’t stop with “watching TV on the computer”. A powerful new entrant came to transform everything we used to know as television — Netflix. It’s fair to say that Netflix has even created its own Blue Ocean – at least, as long as the giants of the media industry hadn’t reached it.
The success of video streaming companies (first Netflix, followed by Hulu and Amazon Prime Video) made revenue for cable providers and premium cable networks, such as HBO, decrease significantly (both from subscribers and advertising revenues).
HBO quickly perceived that the future of television is not cable. From one side, HBO has an advantage against Netflix: while the first streamer didn’t have a subscriber base, HBO has tens of million people as its regular consumers.
On the other side, HBO still doesn’t have the popularity of the first. But it is surely working to get there. HBO Max streaming service provides access to the same HBO catalog available on the channel and the app, plus the whole Warner Entertainment programming. The subscription costs $14.99 per month (and that is also a nice marketing move to strengthen HBO Max rather than HBO app.
Besides the subscription business model, HBO also benefits from advertising opportunities. Although the network’s value proposition involves not airing commercials during the programming, sponsors (such as Apple and Jeep) enjoy paying premium prices to place their products into the programs and have their names associated with nice productions.
Despite the production of merchandise for several shows, merchandising is not a big source of revenue. Especially because this strategy aims mostly at kids, and the main HBO customer segments are adults, who watch shows like Game of Thrones at night.
HBO’s Business Model Canvas
Let’s take a look at how the HBO business model can be plotted in the business model canvas and understand its main block of strategies.
HBO’s Customer Segments
HBO’s Value Propositions
- Watch exclusive high-quality TV series and movies
- Ad placements to targeted users
- Cable TV companies
- HBO + HBO Max apps
HBO’s Customer Relationships
- Self-service + AI recommendations
- Dedicated sales team
HBO’s Revenue Streams
- Subscriptions (HBO channel, HBO app, and HBO Max)
HBO’s Key Resources
- Exclusive content portfolio
- HBO brand
HBO’s Key Activities
- Production and licensing
- Advertisement sales
HBO’s Key Partners
- Cable companies and broadcasters
- Producers and studios
HBO’s Cost Structure
- Production and licensing
- Technology development
HBO’s expensive content
Probably the main value proposition of HBO’s business model is its exclusive content. The network is responsible for the production of many worldwide famous originals, both series, and movies. HBO has a powerful reputation for creating award-winning shows.
The qualified shows keep the subscribers active because they start watching a new show right after finishing the previous one. It also attracts new customers who want to enjoy them as well. And this virtuous cycle also interests famous producers, directors, and actors, who want to be part of high-quality productions.
However, the budget for these productions usually reaches expensive figures. One episode of True Blood would cost about $5 million, for example. And the estimated costs for the final season of Game of Thrones were around $15 million per episode — although the company didn’t confirm these numbers. Let’s take a look now at the revenue streams that are able to maintain this value proposition working.
- Netflix: The mother of the streaming market is definitely HBO Max’s top competitor. Although its recent rise in prices made a few subscribers cancel their Netflix subscriptions, it is still the biggest market share there is: 221.6 million users worldwide;
- Hulu: Majority-owned by The Walt Disney Company — with Comcast’s NBCUniversal holding a minority stake —, Hulu is a dinosaur in the streaming market, being founded back in 2007. Today, it has around 45.6 million subscribers;
- Disney+: The flagship of The Walt Disney Company, Disney+ was launched in November 2019 and already has around 137.7 million global subscribers. Their contents include movies and series not only from Disney and Pixar, but also from Marvel, Star Wars, and National Geographic;
- Starz: Owned by Lions Gate Entertainment, Starz is a premium cable and satellite television network, and it is available to approximately 28.5 million U.S. households;
- Amazon Prime Video: Amazon’s streaming service is another gigantic competitor, as it counts around 175 million users globally. Besides Amazon Originals and other content produced by Amazon Studios, they also have the license of MGM Holdings’ movies and series.
HBO’s SWOT Analysis
Below, there is a detailed swot analysis of HBO:
- Worldwide-famous titles: Franchises such as Harry Potter and The Lord of the Rings — as well as iconic comedy series like Friends and Seinfeld — are game-changers for customer acquisition and maintenance;
- Pricing: While other streaming service competitors occasionally raise their prices — potentially frightening its clients —, HBO has kept its original price for HBO Max since its launch.
- Form of payment for subscription: Lack of flexibility for users to subscribe to its streaming service packages, as it only accepts one form of payment — credit card —, while some of its competitors are much more flexible about this matter;
- Limited catalog: It has a limited catalog compared to its competitors, especially when it comes to documentaries;
- Unavailable on old smart TVs: Unavailability of the streaming app on older Smart TV devices.
- Merge with Discovery Inc.: WarnerMedia’s recent merge with Discovery Channel’s group may bring an entire set of new catalogs, especially regarding documentaries.
- Streaming competition: Disney+, Amazon Prime Video, and Netflix are no joke. Month after month, they present new titles to their services, bringing the market competition to new levels;
- Market competition: Besides the famous competitors, another threat is the upcoming services in the streaming market, offering low prices to attract clients from the bigger ones.
Despite its approach to B2C transactions, HBO still needs to cultivate its relationships with cable providers, because the biggest share of its revenue remains in the traditional subscriptions sold by cable companies. Plus, HBO’s end goal is to expand the streaming service internationally at a lower distribution cost.
Nevertheless, there is still a long way before streaming overtakes traditional cable, both inside and outside America. There are plenty of regions with low broadband speeds and limited technology, which stops them from accessing digital content.