HBO is an American pay TV network and a subsidiary of Home Box Office Inc. (itself owned by Warner Bros). The HBO network was launched in November 1972 and is now the longest continually operating television subscription service in the United States.
Understanding HBO’s business model
HBO utilizes a subscription-based business model where users pay a fee to watch content. The company produces content itself which is then distributed to subscribers across its television channels and on-demand streaming service.
One of the key components of the company’s business model is its focus on quality over quantity. Unlike most other television networks, HBO produces a relatively small number of original programs each year, but what it does produce tends to be of very high quality. This approach allows HBO to attract subscribers who are looking for more than just the typical network television fare.
To that end, the network has produced several critically acclaimed series over the years. These include Game of Thrones, The Sopranos, Sex and the City, The Wire, and Curb Your Enthusiasm. However, this is not to say that HBO does not license content from other networks and studios. In recent years, it has expanded its streaming services via partnerships with Amazon Prime Video and Hulu to name a couple.
Nevertheless, HBO’s reputation for premium, self-produced content lends a degree of exclusivity to its brand. Viewers value HBO’s various networks and services because it is often the only place the content can be accessed.
HBO advertising
With services such as Netflix taking subscribers away from premium cable networks, HBO now also relies on an ad-based model to drive revenue. Users with a free subscription will be shown ads before and during movies and television shows in a standard commercial break format.
Those with a paid subscription can access a commercial-free service, but HBO may still make money from product placement deals in the movies and TV shows themselves. This is standard practice among large studio networks and streaming companies.
Branding and marketing
A sometimes overlooked (but no less important) aspect of HBO’s business model is transmedia storytelling – a technique that involves telling a story across multiple platforms and media, such as books, films, television shows, websites, games, and social media.
Game of Thrones is one such example, with HBO creating an entire universe around the show that incorporated a mobile game, web series, and a variety of social media platforms.
The mobile-based Game of Thrones: Conquest allows fans to build and manage their own kingdoms, while the web series History and Lore provides additional background information on the show’s world and characters. These are free to play and watch, but HBO relied on fans paying to watch Game of Thrones to add context.
Put another way, transmedia storytelling supports the idea that HBO offers premium content that is worth the price of admission. The technique also aligns with HBO’s famous catchphrase “It’s not TV, It’s HBO” which was first introduced in 1996.
Key takeaways
HBO is an American pay TV network and a subsidiary of Home Box Office Inc. The HBO network was launched in November 1972 and is now the longest continually operating television subscription service in the United States.
HBO utilizes a subscription-based business model where users pay a fee to watch content. Depending on the subscription, users may also be subject to commercial breaks with ads and more subtle product placements.
HBO also uses transmedia storytelling to create buzz around new content and encourage users to pay for a subscription to derive maximum benefit.
Netflix is a subscription-based business model making money with three simple plans: basic, standard, and premium, giving access to stream series, movies, and shows. Leveraging on a streaming platform, Netflix generated over $29.6 billion in 2021, with an operating income of over $6 billion and a net income of over $5 billion. Starting in 2013, Netflix started to develop its own content under the Netflix Originals brand, which today represents the most important strategic asset for the company that, in 2022, counted almost 223 million paying members worldwide.
Binge-watching is the practice of watching TV series all at once. In a speech at the Edinburgh Television Festival in 2013, Kevin Spacey said: “If they want to binge then we should let them binge.” This new content format would be popularized by Netflix, launching its TV series all at once.
Coopetition describes a recently modern phenomenon where organizations both compete and cooperate, which is also known as cooperative competition. A recent example is how the Netflix streaming platform has been among the major customers of Amazon AWS cloud infrastructure, while Amazon Prime has been among the competitors of the Netflix Prime content platform.
Netflix is among the most popular streaming platforms, with a subscription-based businessmodel. The brand, platform, and content are strengths. The volatility of content licensing and production are weaknesses. The streaming market is a potential blue ocean. The inability to attract and retain premium members and its fixed long-term costs threaten its businessmodel.
Netflix’s largest individual shareholder is Reed Hastings, co-founder, and CEO of the company, with a 1.7% stake, valued at over $1.8 billion in 2022. Netflix runs a subscription-based business model that generated $29.6 billion in revenues, and it had over 221 million global members in 2021. Netflix’s business model runs only premium content on its platform, driven by its Netflix Originals shows. Netflix is also building an ad-supported version.
Netflix generated over $31.6 billion in revenue in 2022, compared to $29.7 billion in 2021. Netflix was profitable in 2022, as it generated almost $4.5 billion in profits.
Netflix had over 74 million paying members in US & Canada, over 76 million in the EMEA region, almost 42 million in the LATAM region, and 38 million in the APAC region.
The most significant geography in terms of average monthly revenue per subscriber in 2022 was US & Canada, with $15.8, compared to $10.99 in the EMEA region and $8.50 in APAC and LATAM.
In 2022, The Walt Disney Company’s total paid subscriber base was larger than Netlfix, with over 235 million paid members, compared with Netflix’s over 230 million members. However, Disney’s offering is fragmented among Disney+, ESPN+, and Hulu, compared with Netflix, which has a single offering.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
