HBO And AT&T Lost Millions Of Dollars On A Bad Game Of Thrones Ending
Game of Thrones ending might have ruined the long term prospects of the beloved franchise. The long term profitability of future projects is at risk.
The ATT owned franchise has multiple prospects for future business, the cost of production increase the financial risk in big-budget projects.
ATT Investors should be furious with HBO Executives. There is no doubt the May 19 series finale cost the firm profits and subscribers. Long term investments might be curtailed.
The success or failure of season 8 will impact the profitability of future projects, including sequel series, theme parks, licensing deals, merchandise, and long term collectible investment value.
The Game Of Thrones universe has massive franchise potential. These projects will require significant investment but could fail to attract growing demand and new loyal fans in the long term.
Game of Thrones GoT ended on May 19th, 2019, and you don’t need to do much research to know that fans are angry. The biggest show ever could still launch multiple spin-off series in addition to the theme park and the long term licensing deals. The real question is, can a bad final season kill the long term profitability of the franchise? Did Benioff and Weiss destroy HBO’s (T) future Game of Thrones business? Will fans care about the next GoT series? AT&T must handle the future of Westeros before they lose a significant chunk of its total addressable market. Game of Thrones offers alternative investments outside of AT&T stock. This article covers the financial risks involved in the production of big-budget franchises, looking at the merchandising of a franchise and the growing revenue streams required to help monetize big-budget productions. Game of Thrones still needs to generate hundreds of millions in additional revenue.
These business strategies are only as good as the stories they are selling. A Game of Thrones collectible was a terrific non-traditional investment before the beginning of season eight. The merch is a significant part of the monetization strategy. Streaming companies cannot afford to take their eye off the ball in the last minutes of the game. The Game of Thrones business has been strong, will this continue?
(Source: New York Times)
Event Television
This was possibly the most significant series finale to date. Game of Thrones has set rating records this year with 18.4 million viewers for “The Bells.” Game of Thrones had already redefined event television. The industry has been searching for “Event Television,” and HBO’s own Westeros based spin-off series seems like as good a bet as any. Game of Thrones has averaged 18 million viewers per episode this season which is about 50% more than the Sopranos final season. The last episode hit 19.3 million viewers breaking single night viewing records.
You can not make everyone happy, but in the case of season, eight GoT fans were explicitly angry accusing the writer of the poor execution of storytelling. The special effects were cool, but fans still demand a “do over” by petition and a quick google search of “game of thrones series finale” show a front page full of negative comments. Some loved it, some hated it, but the biggest fear for investors: does this finale episode create long term negative impact on the franchise value?
While some fans have tried to defend season eight, the response has been critical of the six episodes, the end produced a roar of takes from the media. The Wall Street Journal, New York Times, SI.com, USA Today, Newsweek, Wired, Quartz, Fox News, Vox, Vulture, The Atlantic, Yahoo, Vice, The Week, Slate, and many other articles were demonstrating the different ways to say I hated this thing!
Rotten Tomatoes shows fresh ratings for each episode of the six-episode season. Episode 1 received a 92%, Episode 2 received 88%, Episode 3 received 75%, Episode 4 received 58%, Episode 5 received 47%, and Episode 6 received 55%. This significant decline in fresh ratings between episode the first half and second half indicates a severe problem in Thrones land. Based on the Rotten Tomatoes fresh rating decline alone, it is safe to assume a large portion of the audience is unhappy with this season. This is an unfavorable response given the long term plans for the franchise. These ratings are clearly skewed heavily but the message is clear. People are mad!
In the case of season eight, the negative fan reception has become a news event itself. Game of Thrones might be more toxic than other poorly received endings. The anticipation has built up to an unrealistic moment. Maybe there would be less ammunition if HBO demanded a full 10 episode season.
HBO had the pilot episode reshot and recast. There is absolutely no reason they could not have delayed the show if executives were not pleased with the end result.
The Historical Nosedive
Quartz writer Dan Kopf wrote an article on May 16, 2019, about Game of Thrones poor eighth season citing IMDB data. “Data Show Game of Thrones is Taking a Historical Nosedive.” In the article, the author shows multiple charts to help visualize the end of the series decline in IMDB ratings between recent Event TV shows. The New York Times took this one step further and compared 22 different popular shows.
These charts show the stark difference between Game of Thrones and past big-name shows. The New York Times organized different shows based on their end of series success or failure. Remember all of these series were financially successful, but some are significantly more valuable than others. These charts might not seem very important. However, some of the included titles are valuable series.
Figure 1
(Source: New York Times)
Figure 2
(Source: New York Times)
Figure 3
(Source: New York Times)
These three images taken from The New York Times show 18 different charts representing 18 different wildly successful TV series. The first image indicates 6 shows that decline in quality according to IMDB ratings. The second image indicates six series that increased in IMDB ratings. This includes valuable shows like Freinds, The Office, and Parks and Recreation. The third image indicates six series that increased significantly in IMDB ratings. The IMDB rating should not hold this much significance on the potential value of the franchise, but this franchise has a tremendous amount of future expectations built into the project.
Multiple Future GoT Projects
The difference between GoT and some of these other series is HBO has already indicated significant future investment in the franchise. This includes a prequel series that has hired SJ Clarkson to Direct, plus the hint from George R.R. Martin at three more possible Game of Thrones prequels. In addition, there are plans for a Game of Thrones theme park.
The Hollywood Reporter’s Michael O’Connell wrote a piece in April describing the potential fallout post Game of Thrones. This did not account for a poor reception, which could accelerate subscriber churn. Some analysts value the Game of Thrones franchise above $1 billion. This valuation is probably accurate if HBO and AT&T handle this transition properly; if not, HBO stands to lose hundreds of millions of dollars in lost revenue.
Multiple revenue sources are at risk, including merchandising, licensing, and the longevity of the franchise. If there are four more Westeros based projects in the pipeline, their success or failure could have a material impact on AT&T in the long term.
Franchise series that can grow their fan base years after production can generate additional long term value. The ending of this series might have cost HBO hundreds of millions of dollars in lost profit. Big budget series are always at risk of financial failure; this critical ending mistake has dramatically increased the risk of business failure despite their initial success.
The Petition and The Iron Bank Board of Directors Meeting
The petition for “competent writers” to remake a $100 million series is pretty funny — nearly 1.3 million signatures. The financing required to make one season of this television show is many multiples above the most expensive premium shows. Enjoy this Washington Post Iron Bank Board of Directors meeting.
In an interview with The New York Times, actress Sophie Turner called the petition disrespectful to the cast and crew. This criticism of disrespect highlights a huge issue, the cast and crew are upset, but investors in HBO and the Game of Thrones series should also be angry. They have explicitly left money on the table. Millions of fans are walking away with a bitter taste in their mouth.
AT&T And HBO Need To fix this Problem
The petition is aware there is no real goal, but it speaks volumes of the response from the fans. HBO can count on a certain amount of annual revenue from core fans, and the prequel will have an audience, but the initial reception will be a critical indicator of future success.
The prequel series is not the original, we can’t expect the same total audience, and the initial run will not expect the same 20–40 million viewers. However, at least 10 million viewers for season one is expected, given the significant investment in the series. This question creates more questions. Did this ending go that badly? What is the total addressable market for a Game of Thrones spin-off? What is the total addressable market for four of them? Can HBO and AT&T monetize these new brands as efficiently as the original series?
From the Polygon article “Everything we know about the Game of Thrones spinoff series” HBO has made it clear they are prepared to make a significant investment in their next big Westeros based series.
“$50 million (per season) would never fly for what we are trying to do,” Francesca Orsi, HBO’s senior vice president of drama, said at an INTV conference in Israel last March. “We are going big.”
This show is the first to go forward, but there are three more prequels in active development each set in different periods with different characters. Each season could cost more than $100 million, which is not a problem if the audience is there. The same Hollywood Reporter article discussed different streaming apps and their big budget franchise projects.
(Source: Hollywood Reporter and THR research)
Let me Get a Franchise?
Game of Thrones is the golden goose! The Song of Ice and Fire book series has become a significant success in multiple mediums, and the competition is following the playbook. Franchises are now producing franchises. Seen in the image above from THR research, streaming firms AMC (AMCX), HBO, CBS All Access (CBS), Disney + (DIS), and Amazon (AMZN) are all spending large amounts of capital on the next big franchise hit series.
There are five Walking Dead projects, four Game of Thrones spinoffs, four Star Trek series, three Marvel movie TV spinoffs, two live-action Star Wars series, and one Amazon Lord of The Rings series which is going to be the most expensive project to date. This capital will desire a significant return on investment.
Past success does not always mean future success. Look at the Star Wars film Solo as an example of failed projects with heavy investment. According to Screen Rant and Deadline, the spin-off feature made less than $400 million worldwide with a $500 million break even. HBO is not Disney; they cannot afford to lose money on their next big budget series.
HBO already sees a significant amount of subscription cancelations. Bloomberg wrote a piece detailing this problem. HBO’s ability to bring back some of those subscriber dollars will depend on their next 18 months of programming. Game of Thrones can still be a major part of the long term plan, but the HBO service will need to survive the subscriber exodus without Westeros for nearly two years. Depending on how many spin-off series are picked up will likely impact the speed of their return to the Home Box Office.
The Last Watch and The HBO Store
On May 26 HBO will show The Last Watch, a documentary about the making of the last season of Game of Thrones. The trailer has already gained more than 5 million views on Youtube. The Last Watch is essential for the future of Thrones. The surging interest in the making of the last season will give some indication of the target market for fans who can’t wait for the next series.
(Source: Youtube)
Don’t expect this series to lose value in the short term. This bad ending generated an enormous amount of free press that could even generate new curious viewers in the short term. In the long term, Game of Thrones might squander some of the profitability expected with a major hit. Looking back to those charts from The New York Times, series with long term licensing value can generate significant amounts of revenue.
HBO could decide to eventually to sell non-exclusive rights to competitors to make up for the lost subscriber revenue. HBO will likely license exclusive rights to international markets that do not have HBO. They needed a much stronger ending to ensure they maximize profitability. Look at the merchandising strategy, AT&T hopes to use the HBO Store as a modern day comic book store. The collectibles on sale are expensive and risky, but they can yield massive returns.
Investing in GoT Collectibles
There is a full force effort to generate additional revenue from Game of Thrones. This includes 1/6th scale figures of Jon Snow, Joffrey Baratheon, Cersei Lannister, Brienne of Tarth, White Walker, Drogon, Tyrion Lannister, Titan of Braavos, Limited Edition Brienne of Tarth, and Limited Edition Tyrion Lannister. These collectibles are priced above $200, Drogon is priced at $1499. HBO is trying to tap as many revenue streams as possible. The puzzles, plush toys, replica weapons, POP Figures, and board games.
Many more moderately priced figures might offer investors a better return with less required capital per unit. The negative response to season eight could hurt their sales and the long term value. These figures are potential collectible investments, and they might even appreciate long term, but the lackluster response from fans creates significant doubts and far more downside risk than initially anticipated.
Investing in collectibles is even riskier than investing in the stock market, but the returns can be big enough to entice even most cautious investors. If you have no idea how to invest in collectibles, I recommend a significant amount of research before you purchase and store anything. Read this 2018 WSJ article about investing in collectibles to start. Investors are even more likely to lose their entire investment in collectibles.
The Blu-ray Box Set Business
Yes, they still make those tv and movie box sets, if you don’t believe it check the HBO store and you’ll see the complete seasons 1–7 for $229.99. This store page shows all of the available sets you can buy including individual seasons for $60 each. How many of these things do they sell annually? The complete collection will probably price for nearly $300 based on the price of seasons 1–7. These products compete with streaming sure but candidly, the people who buy these sets are hardcore fans who want the special features discs. I expect some of these fans signed the petition referenced above. This is the root of the problem; the fans who drive these additional revenue streams are outraged. Their anger is reverberating across the entire business model.
Sales on box sets are down, search for your favorites on Amazon you’ll see Harry Potter and Rocky are discounted by 50%. So if box sets are already in step decline what are the sale numbers on these products when the fans are angry? I expect some of the sales will be Instagram influencers who try and go viral lighting the $300 set on fire. A strong or weak ending has a significant impact on the long term profitability of a major franchise. Did HBO forget about their monetization effort when they accepted the final six episodes? Seriously! Did the writers forget they were selling a product as much as a story?
Conclusion
Game of Thrones is a huge success for HBO and AT&T that is not in question. What is in question is, will this continue into future Game of Thrones project? Will Game of Thrones attract new audiences? In ten years will younger audiences subscriber to HBO for the first time to watch Game of Thrones? What is the expected net profit from a Game of Thrones theme park? Will Game of Thrones projects keep subscribers? Can HBO make GoT projects without losing money? Can HBO compete with the pack of streaming firms for event television?
AT&T is not the specific investment in mind; the Game of Thrones collectibles play is dangerous. Investing in collectibles is no joke; some items can generate 5X returns. Others are worthless pieces of plastic that no one wants, and you will lose 100% plus storage costs. The risks and rewards are significant. These figures are very questionable investments before season eight began.
HBO will make millions of dollars selling fans, t-shirts, cups and mugs, art, box sets, and books. We have no idea how much more they might have made if more fans were satisfied with the ending. Merchandise and content sales could have been worth hundreds of millions of dollars more in the long term. If Game of Thrones can attract new viewers in ten years, everything will be fine.
Will the “bad ending” of the biggest series ever make a material impact on AT&T share price? Probably not next week, but if spinoff 1, 2, 3, or 4 is a massive financial failure then that news will have a material impact on the stock. If some of the collectibles listed above appreciate in ten years, the franchise and AT&T will be fine. But there is no doubt that HBO made a huge mistake in 2019.
The parent company was going completing a merger before the release, and HBO chief Richard Plepler announced his departure days after the AT&T purchase of Time Warner. This created multiple transitions in addition to the end of their flagship series.
Candidly, HBO should already be in season two of the spinoff series launching the first season during the break between season seven and eight of Game of Thrones. Now fans are canceling their memberships like a stampede. HBO shows an explicit lack of anticipation; one of the benefits of streaming is these companies can see viewing patterns. Customers who like X, Y, and Z shows. But hit shows like Insecure and Westworld are not coming back until 2020 and seeing that “coming in 2020” at the end of the cool trailer is not encouraging for sub growth.
HBO and AT&T could find a massive hole in their subscription base in the coming months; they will miss millions of dollars in high margin merchandise revenue. The future success of this franchise is in at risk. The future for these new projects could have been extremely bright but now the dark cloud of fan rage is coming.
(Source: Youtube)
