The Real "Game of Thrones" | How Warner Bros. Discovery's HBO MAX can beat Netflix, Amazon, Disney & Apple (while generating meaningful Revenue$)

Executive Summary

With Season 2 of House of the Dragon right around the corner, we thought it would be an opportune moment to outline Three Ways Warner Bros. Discovery can leverage the Game of Thrones prequel and other valuable IP (including Dune & Harry Potter) to globally compete and beat Netflix , Amazon Prime Video & Amazon MGM Studios , Apple TV + and 华特迪士尼公司 in streaming, while also driving consumer growth and significant revenues for HBO Max through proven data-driven strategies. Even though Game of Thrones premiered more than 13+ years ago, there is a tremendous amount of source content ready for development to drive significant value for WBD. Warner Bros is sneakily in a much better position than Netflix, Amazon and even Disney with the IP assets it controls should they follow the strategy below.

Three Ways HBO Max and Warner Bros. Discovery (WBD) Can Leverage Game of Thrones to Increase Profits and Subscribers, and Beat Netflix and other Streaming Platforms:

1. In-App Purchases (IAP): WBD can easily implement in-app purchases, the driving force that propelled mobile games to the largest and fastest growing sector in digital entertainment, to drive meaningful revenues within the HBO MAX streaming service and platforms. We estimate HBO Max can generate between $300m to $1bn of additional annual revenue (c. 10% revenue increase ) which would fall directly to the bottom line at almost 100% margin, which would double or triple the profits of the streaming business and significantly aid in subscriber retention. See the section below for the calculations. This strategy also converts a weekly episode cadence into a competitive monetizable advantage vs. Netflix's strategy of dropping all episodes at once.
2. Significantly Accelerate New Content Cadence while Collecting Precious Audience Data: Instead of relying on the old school greenlight method with expensive pilots, long production cycles, and releases that can take years, WBD should test all of the Game of Thrones Spinoff Ideas in the next 12-18 months by releasing audio podcast series of 8-10 episodes exclusively on the HBO MAX app, then on streaming audio services to see which concepts jump to the front of the line. Then, prioritize TV series development based on the audience data and community fervor. This template can easily be replicated for Dune and Harry Potter universes.
3. Become the "Global Box Office": HBO Max needs to be focused on the Lifetime Value of its customer, fans and community. At Powerhouse Capital we like to say "Content is King, but Distribution is Kingmaker", and although Netflix has the broadest global distribution advantage, WBD can set their sights on climbing the ladder through data (really understanding the consumer and communities), content cadence, and stronger monetization tools. Max needs to adapt their business by leaning into being a (i) Platform (focused on network effects), that is (ii) Data-Driven (Personalization at Scale), and (iii) Direct to Community (the new D2C focused on KYC = knowing your customer).

Read on below for a bit more in-depth explanation on each of the strategic proposals. If this TLDR is where you stop, our last comments would be that we would rather have Game of Thrones, Dune and Harry Potter vs any of the Marvel MCU or Disney Star Wars IP for the period ahead in the streaming wars. WBD's streaming platform is a sleeping giant with massive upside potential.

Chaos is a Ladder

The media world is in a chaotic state, but as we learned from Game of Thrones,

"Chaos is not a Pit....Chaos is a Ladder...and The Climb is all There is" - video

During this tumultuous period in the world of media, there are strategies that companies can employ to smartly take advantage of the circumstances to position themselves to benefit from the chaos, positioning themselves for massive future gains.

Strategy #1: In-App Purchases

Imagine this scenario: This coming Sunday evening you sit down to watch Episode 1 of House of The Dragon, the Season Two premiere. At the end of what is sure to be a riveting hour of TV, you are left wanting more as the screen flashes a preview of next week's episode.

At the end of the teaser, the screen then offers you, the viewer, an opportunity to watch Episode Two right now! Yes for the low price of $20, you can watch Episode 2 right now and be ahead of the curve sharing your early access on Twitter.

Your first reactions may be, "This is Crazy", or, "This will never work", or "What sorcery of technology is needed for this?". Turns out that in-app purchases are a common monetization and engagement lever utilized by mobile games, which as an industry has become the largest and fastest-growing sector of the global media economy.

All streaming services could implement this mechanic, and not just for early access to content. In-app purchases can be used to (i) access exclusive content, (ii) live Q&A sessions, (iii) higher-tiered monthly subscriptions, and (iv) other fandom-related community content. Additionally, the in-app purchases can be "dynamically priced" based on the time advantage (e.g. $20 for watching an episode one week in advance, vs $10 a few days later, etc).

So how much could HBO MAX make per month by enacting in-app purchases? Here is a rough calculation based on HBO's current global direct-to-consumer subscriber base:

Global Direct-to-Consumer Subscribers for HBO Max, Max & Discovery+

Taking round numbers and assuming 100m subscribers, and similar conversion rate ranges from mobile gaming, here is a monthly rough estimate of incremental revenues:

We estimate that over a 12 month period, Warner Bros. Discovery can generate $300million to $1bn in additional incremental revenue ($30-80m a month extended over 12 months), which would be a 10% increase to the $10bn streaming business unit revenue base. More importantly, most of this revenue would fall directly to the bottom line as a high margin line item. If WBD matches its monthly streaming business unit profit from Q1 2024, it should generate in total about $350m in profit. Our conservative estimates would double or triple the bottom line of the streaming business based on the incremental revenues.

What is crazy to think if you look at the right most bottom outcome, assuming that 10% of your subscriber base pays $20-25 in one month for exclusive content, you could easily meet your entire annual profit in streaming in just 24-48 hours.

Each episode averages about 30m viewers in the US, so assuming a 10% conversion of this targeted audience gives you 3m paying users (you can see that column above which is also in the range of outcomes).

HBO Max currently generates about $8-10/month from each subscriber (based on wholesale rates, and also taking the total revenues divided by the subscriber base to triangulate to this figure). Implementing In-App Purchases could easily double the Monthly ARPU for many subscribers.

This shows the power of In-App purchases where the platform can capture the value it creates (similar to mobile gaming). It also shows the limitations of a one-size fits all subscription pricing buffet all-you-can-eat model where value created is not captured by the platform.

In this era of the "SuperFan", we could easily envision WBD generating significantly more revenues per superfan subscriber of Game of Thrones, or other IP in the DC Universe. HBO Max would essentially be running Live Services, similar to the way mobile gaming companies operate. For more info on Live Service, see our Powerhouse Whitepaper on Mobile gaming LiveOps.

Traditional media companies already do this with services such as Disney Parks Genie+ and Lightning Lane fastpass products, or Netflix's 4K UHD streams...upselling around the edges. Much better to upsell your core competency...content and access to exclusive IP and experiences.

Much like in mobile gaming, proper nurturing of In-App purchases can create a win-win for the platform and consumers, where monetization actually becomes a method to better attract and retain subscribers, rather than the traditional methods of paywalls being a tradeoff.

It also turns what some consider to be a disadvantage (weekly episode drops vs Netflix's model of dropping an entire season at once) into a massive advantage that can be monetized and can also retain users through the live operations "gamification" of content access and releases.

Strategy #2: Significantly Accelerate New Content Cadence while Collecting Precious Audience Data

WBD is sitting on a treasure trove of concepts, books and ideas from George RR Martin's Game of Thrones Universe. Over the past 14 years, we have only seen eight seasons of one series (Game of Thrones), and one season of the blockbuster prequel House of the Dragon. We have a solution on how HBO Max can significantly scale their output, generate revenues, build fandom and gather data to prioritize development.

HBO has been working on multiple spinoff treatments, spending tens of millions of dollars with very little to show for their efforts. In fact, they recently cancelled a series after investing north of $30m into a pilot and the development. They have also run into issues with a Jon Snow sequel. In our world we call this lack of product-market fit.

As covered in the Executive Summary above, HBO Max should greenlight all of the concepts in audio form, creating high quality audio seasons of each idea complete with the voices of the attached talent, wonderful sound effects and scripts of varying levels of finish. Creating a 8-10 episode season in high quality podcast storytelling audio would cost a fraction of a video pilot (c. $250k or less for an entire season), and significantly increase content throughput.

WBD could leverage this original content to:

• Offer it exclusively on the HBO Max app for the first window
• Attract Sponsorship to not only offset the production costs but generate meaningful revenues
• Offer exclusive windows to Spotify or even YouTube for significant content fees + sponsorship, and even perhaps advertising revenues
• Gather data on the Superfans, and keep fans in the Game of Thrones universe to drive higher Lifetime value and ARPU
• Most importantly, gather listening and completion data to determine which series to prioritize for greenlight development

Media companies are used to the old way of spending millions of dollars and years of development before figuring out if there is product-market fit. This method allows WBD to continue to nurture fandom, generate a steady content cadence, attract new subscribers and supercharge the advantage WBD has over Netflix and especially Amazon Prime Video who have a massive flop on their hands with the Lord of the Rings franchise.

We would also suggest that WBD consider revamping Game of Thrones with the real ending that the author wanted, or to create different endings (since many people thought the series went downhill once the showrunners no longer had source material since the books were never completed). George RR Martin can also utilize this medium to flesh out his yet to be completed books.

This strategy opens up many opportunities to take WBD's Game of Thrones IP competitive advantage to the next level, at the speed of technology.

There is also tremendous room for extension into fan fiction, fan art, AI video creation, and kids content.

To learn more about the Game of Thrones Universe of ideas, check out the video below.

Strategy #3: from "Home" Box office to "Global" Box Office

Media companies need to start thinking in terms of the Lifetime Value of their Customer. Companies such as Disney, Warner Brothers, Sony, etc need to know their customer, become focused on really being a direct to consumer/community platform and understand the lifecycle and lifetime value of their consumer base. This mindset shift will yield

Netflix is dominating the Global Streaming landscape with a 270m subscriber global footprint. But Netflix is a teenager, having launched streaming 17 years ago in 2007 and original content 11 years ago in 2013. HBO was launched in 1972, but only launched streaming 4 years ago in 2020. Setting a vision to the the Global Box Office is very much in line with the founding of the business from Charles Dolan, the Founder of Cablevision and HBO.

So you have a 17-year-old fighting a 4-year-old....not a fair fight, but WBD can exploit the opportunities that Netflix has yet to pick up. Strategies #1 and #2 above are clear differentiated opportunities, and Strategy #3 is a culmination of these efforts.

HBO debuted as the aspirational "Home Box Office", something that probably sounded just as audacious as our proposed Vision of becoming the "Global" Box Office. Easier said than done, but leveraging the in-app purchase know-how from #1 above, MAX can program new theatrical releases via its streaming service every Thursday, Friday and Saturday nights for the entire spectrum of consumers (from kids, teens through adults) so that subscribers can adapt to expecting new movies every weekend.

We believe the answer for “legacy” media companies lies in adopting proven customer-centric strategies focused around the “Lifetime Value” of their customer segments (LTV and KYC, or know your customer). Tech companies religiously track the LTV of every new & existing customer on a daily basis, and we expect legacy media to begin adopting these practices. Legacy media will adjust from just operating as B2B businesses to adopting the mindset of data-driven D2C (direct to consumer and direct to community) tech businesses (Click for a Powerhouse one-pager describing the formula for success in this transition).

Imagine how powerful if WBD could communicate directly via email & text with the millions of Game of Thrones fans globally (much like Netflix can do at this very moment). Disney specifically should be able to leverage its unique world-class assets and new global D2C streaming distribution to drive higher LTVs from the data derived from its consumer touchpoints.

Layering in KYC data can help more efficiently market new content & experiences (lowering marketing expense), and more tailored pricing and add-on services (to drive efficient revenue growth). Understanding the subset of highest value customers will allow for intelligent, personalized revenue generation vs. typical across-the-board blunt price hikes. In our recent Netflix article, we discuss this concept in more detail (click to explore Monetization Strategies). We already see Netflix leaning into experiences around its shows (especially Stranger Things and Bridgerton). WBD and MAX need to really integrate Game of Thrones, Harry Potter and Dune into their platforms and include content, live experiences and other upsells to maximize the Lifetime Value of their Customer base.

Tremendous opportunity exists for all tech-driven media businesses that can be (i) Platforms (focused on Network effects), (ii) Data Driven (Personalization at Scale) and (iii) Direct to Community (really Knowing Your Customer and Best Customers).

Chaos is not a Pit. Chaos is a Ladder, and the Climb is all there is.

Enjoy the House of the Dragon, and we hope WBD takes our advice to start adding real value and increasing the cadence of content that appeals to everyone from casual to superfans. All it takes is recognizing that there is indeed a ladder, and then scaling it to the top ahead of the competition. If anyone from WBD, Netflix, Amazon Prime Video or Apple TV+ would like to dig in deeper, we would love to hear from you.

Thank you for reading, and please check out our other media thoughtpieces including:

• How to Beat Spotify
• 10 Reasons why Netflix should buy WWE

Salim Mitha is the Co-Founder and Managing Partner of Powerhouse Capital, a?highly focused media technology venture capital firm?based in Los Angeles, investing in tech-driven media, specifically:

The Four Pillars of Global Consumer Media & Technology:?

• Sight?(Visual Content),?
• Sound?(Audio, Music, Podcasting),?
• Play?(Gaming, Sports, Interactive and Betting); and?
• Live?(Creator & Experience Economy ).