Steve Jobs promised “three revolutionary products.” He lied.
Dressed in his ritualistic black turtleneck at the Moscone Center in San Francisco in January 2007, he introduced a technological triptych to the five thousand attendees of the Macworld trade show. “The first one is a wide-screen iPod with touch controls,” he began, inviting an eager round of hooting and clapping. “The second is a revolutionary mobile phone,” he continued, to more bellowing cheer. “And the third is a breakthrough Internet communications device,” he said, to perfunctory applause and a lonely, halfhearted “whoop.”
The catch, naturally, was that these three revolutionary new products were in fact one product, combining a touch screen, a music player, a phone, and Internet access. “And we are calling it: iPhone,” Jobs concluded. The audience laughed and hollered and threw claps over their heads.
But outside the Moscone Center, skepticism was en vogue. Former Microsoft CEO Steve Ballmer considered the prospect of a $500 cell phone to be beyond ludicrous. (“There’s no chance that the iPhone is going to get any significant market share,” he said. “No chance.”) In June 2007, a few days before the iPhone appeared in stores, the media and advertising company Universal McCann issued a blockbuster report on Apple’s new product. They said it would flop.
“The simple truth,” said lead author Tom Smith, is that “convergence [an all-in-one device] is a compromise driven by financial limitations, not aspiration. In the markets where multiple devices are affordable, the vast majority would prefer that to one device fits all.”
The Universal McCann survey was massive, with ten thousand participants. They predicted that the iPhone would struggle in the richest markets, like the United States, Europe, and Japan, because few consumers wanted to trade in their nice cell phones, cameras, and MP3 players for a jack-of-all-trades product that would be a master of none. Although more than 70 percent of respondents in Mexico, Malaysia, and India said they “like the idea of having one portable device to fulfill all my needs,” only about 30 percent of Germans, Japanese, or Americans said the same.
Humans are prostalgic, enamored by little predictions. But the future is an anarchy that refuses to be governed by even the soundest forecasts. A decade later, the iPhone was not a flop. It was the most profitable hardware invention of the last fifty years. This outcome was especially awkward for Ballmer, since Apple’s iPhone business was, within less than a decade, worth more than Microsoft.
It’s easy to say that Universal McCann made an embarrassing mistake. The stranger truth, however, is that Universal McCann was right. People in advanced democracies honestly thought they didn’t want the iPhone. The firm precisely measured Germany’s, Japan’s, and America’s indifference to a product they had never seen and did not understand. Apple had spent billions of dollars and five years designing a product that Americans truly did not want. Until they really, really did.
Each industry has its own fairy tales of toadish rejects metamorphosing into princely hits. Several publishers passed on the first Harry Potter volume. Nigel Newton, the chief executive at Bloomsbury, bought the manuscript for a few thousand pounds only when his eight-year-old daughter insisted, with some prescience, that it was “so much better than anything else.” Now with more than $450 million in global sales, Harry Potter is the bestselling book series by such a wide margin that it’s outsold The Chronicles of Narnia and The Lord of the Rings combined. When members of the Who allegedly told guitarist Jimmy Page that his band would go down like a “lead balloon,” he embraced the prediction and renamed his band Led Zeppelin. After the Beatles, Page and his mates are the second bestselling band in history, with more certified album sales than the Who and the Rolling Stones combined. One night in 2001, Rupert Murdoch, the founder of News Corp and 21st Century Fox, received a call from his daughter Liz urging him to adapt a British TV show called Pop Idol. Executives at Fox were skeptical of the project. But Murdoch, trusting his daughter, ordered them to buy the rights anyway. For ten consecutive years, the program it inspired, American Idol, was the top-ranked show in the United States.
These stories are retold often not only because they highlight that thin line between success and failure, but also because they allow hit makers to remind themselves of their industry’s fickleness. “Nobody knows anything,” said screenwriter William Goldman, and his quote has become a motto for many companies. When it comes to predicting the future, ignorance is a club and everybody is a member.
Picking a few hits requires a tolerance for many bad ideas, mediocre ideas, and even good ideas cursed with bad timing. Above all, it requires a business model that supports the inevitability that most new things fail; the most promising ideas often attract a chorus of skeptics; and one big hit can pay for a thousand flops.
In Greek legend, Cassandra is a daughter of the king and queen of Troy. She is blessed with the ability to see the future with perfect accuracy and cursed by the inevitability that nobody will believe her. Before the Trojan War, Cassandra foresees that the Greeks will invade through a wooden horse and sack the city. But the city’s guardians ignore her warnings, and Troy is destroyed. The cruelty of her gift eventually drives her to madness.
Today, when an individual’s baleful predictions fall on deaf ears, that person is called a Cassandra. It is a title of scorn or pity. To be a Cassandra in the modern world means to lack a certain authority. Modern Cassandras are seen as semitragic oracles, those who howl ineffectually about a calamity, only to be brushed aside.
But I think Cassandra’s legacy deserves a modern renovation. To be a Cassandra in any hit-making market is not only a compliment; it is a title to which everyone should aspire. If the original oracular Cassandra were alive today, with modern betting markets, she would be the richest woman in the world. While other traders sell their positions as the stock market crashes, only a Cassandra sees the bottom. While other late 1980s music studios sign up hair bands, only a Cassandra sees the forthcoming reign of hip-hop. It’s always nice to be on the right side of history. But it is an economic fact that predicting the future is most valuable when everybody thinks you’re wrong.
Unique and unrivaled access to perfect information about the future is the holy grail of profitable forecasting. Predicting the most valuable hits is essentially about finding Cassandran resources—people, reports, or insights that are both predictive and mostly ignored. The most famous investments in Wall Street history—like Warren Buffett’s 1990 bet on Wells Fargo during the savings-and-loan crisis, or the infamous bet against the U.S. housing market in The Big Short—were absurdly profitable precisely because those investors discovered information that most people discounted at the time.
Buffett and the men who foresaw the housing crash were both once considered crazy. They were Cassandras. They predicted the future and people thought they were nuts, and it was only because both things were true that their bets were so historically successful.
In a world of abundant and transparent information, it’s difficult to find a resource or strategy that is both prophetic and secretive. If every investor realizes that today’s marriage rate predicts tomorrow’s economic growth, then nobody gets much advantage from tracking the marriage rate. When comic books seem to be excellent source material for movie franchises, all of the major studios compete for the rights to the most popular comic books, which drives up the price and makes them a poor investment. When Candy Crush becomes a top-rated mobile game, other developers flood the App Store with similar games. You get it: It’s difficult to make much money from prophecy if everybody else has the exact same forecast.
Imitating recent successes is a game that everybody knows how to play. But seeing the next big thing before anybody else sees it is far more valuable. It’s Buffett in 1990. It’s Murdoch in 2001. It’s Apple in 2007. It means being a little bit wrong at just the right time.
• • •
In 2000, a group of business school graduates and a Stanford PhD named Avery Wang cofounded a cell phone app called Shazam. Their idea was something like magic: Build a technology that can identify any song in the world with a press of a button and send a text back to the user with the title and artist. At first, Wang thought the goal was impossible. Most music in public spaces competes with shouting, forks scraping plates, and other sonic garble. So he built a tool that turned millions of songs into unique audio maps called spectrograms. It was a bit like creating a digital fingerprint for every song in the world. Any live recording could be matched to these digital fingerprints within seconds—even in a busy restaurant.
Shazam is now one of the most popular apps in the world. It has been downloaded more than five hundred million times and used to identify thirty million songs. Shazam’s engineers even built a world map overlaid with its millions of song searches so that users can zoom in to see what songs are most searched in New York, Shanghai, or Tokyo. “We know where a song’s popularity starts, and we can watch it spread,” Jason Titus, Shazam’s former chief technologist, told me. Lorde, a New Zealand singer, was the surprise music sensation of 2013, one of those artists who seemed to come out of nowhere. But Shazam knew exactly where she came from: It traced the global spread of her hit single “Royals” to watch searches sprouting all over the world, like toadstools in a meadow, in New Zealand, in Nashville, blooming outward to the American coasts and in hundreds of U.S. cities.
Shazam turned the world of music fandom into a searchable map of popular music. For a scout at a major label, that’s more than a neat tool: It’s an early detection system for hits.
In February 2014, I visited 1755 Broadway, the Manhattan headquarters of Republic Records, to talk about the technology behind predicting music hits. At the time, Patch Culbertson was merely one of Republic’s most successful young scouts. Now he’s the director of its entire scouting division. Culbertson was a warm and helpful explainer of the various ways scouts use radio and download data to watch songs go from tiny specks to global cascades. But by far the most interesting thing he showed me was the way scouts use Shazam.
Culbertson took out his iPhone. He opened the Shazam map. The New York City area came into view, with tiny song icons sprouting in Queens and New Jersey, each showing the most searched track in that area. He zoomed out and panned south, through Virginia and past Arkansas. His finger paused near the Gulf of Mexico. He zoomed in on Victoria, Texas, a small city between Corpus Christi and Houston. A radio station there had recently started playing “Ride,” a new single by the R&B artist SoMo, whom Culbertson had signed.
“‘Ride’ is the number one tagged song in Victoria!” he said proudly. “That’s great,” I said out loud. But quietly I wondered what the fuss was about. I had never heard of Victoria, Texas. Why would one of the most sophisticated scouts at the most sophisticated music label care about winning a market nobody outside of Texas had ever heard of?
Victoria is a small city near the Gulf coast with fewer than a hundred thousand people. By itself, it is utterly incapable of launching a hit song. Even if every household in Victoria bought ten copies of a new album, it still wouldn’t go platinum. But Victoria’s size and location make it perfectly Cassandran. As a two-hour drive from Houston, San Antonio, and Austin, Victoria is a Texas augury, a prescient indicator of the music listening habits of the largest cities in the state.
It’s hard to persuade an influential DJ at a popular radio station to play a song like “Ride,” which nobody has ever heard before. After all, most people listen to Top 40 radio for fluency: They want to hear songs they already know. But Culbertson had a clever idea. He could play “Ride” in a smaller market with less noise and determine if the song had potential in a larger city. When users looked up “Ride” more than any other song in the area, Culbertson had the proof he needed to bring the song to more popular stations in Houston and the rest of the United States.
In short, Culbertson was using Victoria not only as an early detection system for hits, but also as proof of popularity that he could sell up to larger markets.
The best hit makers are often those who know the dark corners to find ideas to pull into the light. Hollywood studios study bestseller lists to find their next great stories. But a New York Times bestselling book already has the world’s attention, and the most precious gems are more obscure. Several years ago, the film producer Aditya Sood got an e-mail from an agent suggesting he check out a self-published book about a stranded astronaut fighting to survive on Mars. The book was a Kindle bestseller, but it didn’t have much mainstream attention. Like Fifty Shades of Grey in early 2012, it was still a dark hit. Sood got the book on a Friday and read it on Saturday. He was immediately struck by the confident tone, the cinematic scope, and even the nerdy details about how one might go about growing food on a desert planet. On Monday, Sood called back the agent and said he planned to acquire the rights to turn the book into a movie. The book was The Martian. The film eventually earned more than $600 million worldwide and received seven Academy Award nominations, including for Best Picture.
In February 2014, when I visited Culbertson, few people outside of Texas and Republic’s Broadway headquarters had heard of SoMo. For Culbertson to suggest then that his artist was having a significant year would have been sketchy at best. One month later, “Ride” was tracking on the Billboard Hot 100. Nine months after I visited Republic, the song had gone platinum, selling more than a million copies.
“Does everybody think like this?” I asked Culbertson.
“At Republic, they do,” he said.
• • •
Many good seeds fail to flower in bad weather, and many would-be hits fail through no fault of their own. Catchy songs miss the radio, brilliant books miss their core readership. Success in an attention-seeking industry requires a business model that acknowledges that attention, like the weather, is inherently unpredictable.
People talk about television as if it’s one large industry. But it’s better understood as three business models: broadcast, cable, and premium.49 The first has historically relied mostly on commercials. The second relies on payments through cable, which are supplemented by commercials. The third relies exclusively on direct subscribers. These business models are the subterranean roots pushing art to the surface. On television, the hits we watch sprout from business models most people don’t see.
Broadcast networks, like NBC, ABC, and CBS, have historically made most of their revenue from advertising. Broadcast aims, well, broadly, to assemble many live viewers who will be watching when the commercials roll.
The economics shape the entertainment. Popular procedural dramas like CSI, Law & Order, and NCIS are like regulated shipping containers, with each episode meeting the exact measurements of the one-hour block. These shows use a similar narrative formula: a steady slate of characters, weekly challenges with clean resolutions, and a new cliffhanger every ten minutes to keep viewers from changing the channel during the commercials. More recently, broadcast television has poured money into entertainment that benefits from live viewing—like awards shows (e.g., The Voice and Dancing with the Stars) and live sports, particularly football and basketball. Sports is perfectly ephemeral for broadcast’s purpose in an age of time-delayed viewing, because fans have to watch live. According to one analysis in 2012, sports rights account for half of all of television’s programming costs.
Since broadcast relies heavily on advertising, its job is to find the shows that attract the largest (and richest) audiences. To know if a show will be a hit, NBC administers a series of national surveys. If 40 percent of respondents say they are aware of a new show, and 40 percent of that 40 percent say they want to watch it, and 20 percent of that 16 percent say they are passionate about the new show, NBC can confidently predict that the program will be a hit. This is the 40-40-20 test, and it works. One of the last shows to pass this threshold, The Blacklist, debuted on NBC as one of the ten most popular shows on television.
The intense pressure to immediately discover popular shows hurts broadcast in the long run, because great characters and rich relationships take time to develop. NBC and the other broadcast networks test their pilots in screening rooms with live audiences armed with dials they turn to the left to signal their displeasure or to the right if they’re entertained. These famous dial tests might be accurate measurements of a show’s pilot, but they aren’t always great measurements of a show’s potential. “Seinfeld was not a great test,” said Sumi Barry, senior vice president of consumer and market intelligence at NBC. “Neither was Friends. The Office had an awkward first screen test, but then we put it behind My Name Is Earl, and it took off.”
Some of the most famous shows in broadcast history did not debut fully formed, like Athena springing from the head of Zeus. They were more like ordinary children, born helpless and slowly reaching maturity. When Cheers debuted on NBC on September 30, 1982, at nine p.m., it finished last in its time slot. Out of seventy-seven shows that premiered in the 1982–1983 season, its dismal ratings placed it in the seventies. But the show was critically acclaimed, and if NBC had canceled it, there wouldn’t have been many suitable replacements.
Cheers survived to year two, but it still wasn’t a hit. But NBC showed patience. Executives knew they had an awards show darling and thought perhaps it would slowly build an audience to match its critical reception. Finally, in its third season, the show’s average ratings perked up. In 1985, Cheers began an eight-year run as one of the top ten shows on TV.
Hits have what economists call “multiplier effects.” If you introduce one dollar into an economy, it can produce more than one dollar of GDP growth. The same is true of hits: Growth begets growth, popularity begets popularity. The value of a hit television show is greater than its ratings or its ad rates alone, because those don’t account for an even more important feature: their ability to support other shows.
The spillover effects of NBC’s patience in the mid-1980s were massive. The obvious dividend was that Cheers launched a spin-off, Frasier, based on the character of Frasier Crane, a sonorous psychiatrist. Frasier debuted as a top ten show in 1993 and went on to be perhaps the most successful TV spin-off, commercially and critically, of all time.
But Cheers’s subtler beneficiary was the immortal, loquacious sitcom Seinfeld. In the late 1980s, when NBC tested the show’s pilot with four hundred households, the response was worse than lukewarm. “No segment of the audience was eager to watch the show again,” the NBC pilot tester reported. But several executives loved its conversational pitter-patter.
The network opted to air a one-episode special called The Seinfeld Chronicles in the summer dead-zone of 1989. It was a critical curiosity with mediocre ratings. For the next year, nothing much happened. Then the cancellation of a Bob Hope special freed up money for a four-episode run the following summer. The episodes did surprisingly well. No surprise: They aired behind reruns of Cheers.
The typical sitcom is a predictable hopscotch between small domestic problems followed by much hugging and learning. Seinfeld’s writers, however, would have none of this. They wore jackets embroidered with the show’s one and only rule: “No hugging, no learning.”
But this pure and unsentimental vision took time to pay off. Even in its third season, the show got walloped by its competition, like ABC’s Home Improvement, and finished a dismal fortieth among prime-time shows. But in the fall of 1993, NBC moved Seinfeld behind its thoroughbred comedy Cheers on Thursday nights. It was only then that everybody started watching the show about nothing. Buoyed by the audience of Cheers, Seinfeld soared in the ratings, from the fortieth to the fifth most-watched show on television.
The rest of the story is lore: In its last five years, Seinfeld was one of the most popular shows on television, and TV Guide named it the greatest show of all time. Some might argue that Seinfeld’s genius is platonic, an objective example of the presence of godly perfection on earth (I would). But without Cheers to help launch it into the cultural pantheon, would anybody have tuned in to find out?
One could draw a sentimental conclusion from this story—for example, that businesspeople are always rewarded for following their hearts. But this isn’t that kind of book—“No hugging”—and this isn’t that kind of story. Cheers was, above all, a beneficiary of its time, when critically acclaimed comedies were scarce and networks rarely canceled original shows after a year. Even in the early 2000s, more than 90 percent of original series on broadcast and cable were renewed the following season. In 2015, however, the number of original shows has exploded, and now only 40 percent of them survive to see another year. There is practically no chance that NBC would renew the four hundredth most popular show in today’s era of television abundance.
But perhaps another lesson is about the rewards of betting on talent over outcomes, or “people over products.” The truth is that extending Cheers in 1983 and 1984 when it was one of the least popular shows on television was a commercially dubious decision, and a broadcast television network might not make the same one today. But NBC didn’t rush its writers. It believed in its showrunners as individuals. The network gave them time to develop characters and relationships. Because NBC made the decision in 1983 to extend a show that nobody was watching, the channel spent two decades with some of the most popular and critically celebrated comedies ever. The last episodes of Cheers, Seinfeld, and Frasier are among the fifteen most watched finales in television history.
• • •
The definition of broad in “broadcast” has narrowed in the last few decades as the number of cable channels and original shows has bloomed. The 40-40-20 rule for hits has depreciated to something more like a 30-30-20 rule. A network can have a “broad” hit on its hands with just 2 percent of the country feeling passionate about its debut.
In 2000, there were 125 original scripted series and fewer than three hundred unscripted cable series, or “reality shows.” By 2015, there were four hundred original scripted series and nearly one thousand original reality series—an across-the-board tripling. One can see the effect in Nielsen ratings, which estimate the percent of TV-owning households that watch a given program. For a show to have a Nielsen rating of 20 means that one fifth of homes with a television are watching it. In 1979, twenty-six shows surpassed that lofty threshold. In 1999, only two shows hit the mark: ER and Friends. In 2015, none did. As television watching options expanded, the threshold for hits lowered.
Cable networks invaded the television landscape with a different business model. They don’t make most of their revenue from advertising. Instead, a cable network makes most of its money from fees paid out of each household’s monthly cable bill for the legal rights to distribute their channel.50 If a family pays about $100 for cable each month, approximately $40 of it is divided among hundreds of channels. ESPN gets more than $7 per month, the most of any network. A news channel like CNN gets about 60 cents. This small fee multiplied across the entire country adds up to an enormous sum of money—tens of billions of dollars to support more entertainment than anybody can reasonably consume in several lifetimes. Cable has been the closest thing that the United States has had to a private sector tax. Just as 150 million taxpaying households fund a bundle of services called the U.S. government, 100 million cable-owning households have funded this bundle of entertainment, even if many of the programs don’t serve their particular demographic. Young urban workers subsidize Medicare and farm subsidies; young cable households subsidize Fox News and Green Bay Packers games.
In 2005, Rob Sorcher was the executive vice president of programming at a cable channel that most people knew as American Movie Classics. The network had recently changed its name to AMC, but like the surviving actresses in its black-and-white films, this facelift alone was insufficiently rejuvenating. The channel was struggling mightily and in danger of being dropped by cable operators like Comcast and Time Warner Cable. This would have been ruinous, since the first business of a cable network is to stay on the bundle. Sorcher wasn’t looking for a broad show with mass appeal, like a raunchy family comedy for Fox. He wanted something that couldn’t be copied. As he said: “Your strategy becomes: Let’s go for quality.”
Sorcher came across an intriguing script by a writer for the HBO mafia family drama The Sopranos. The writer’s name was Matthew Weiner. Both sides had every reason not to work together. Weiner knew that AMC was a channel without renown or money and might give his show the worst possible exposure. For AMC, this was a slow show about sad and unlikable people in the 1960s world of advertising by someone with no record as a successful showrunner. But they made a deal anyway, because AMC was devoted to making a distinctive show that would ensure its place in the cable bundle. The show was Mad Men.
Mad Men was precisely the sort of television that Sorcher wanted—beautiful and strange, a shadowy, intimate drama with cinematic touches and methodical pacing. It was not a blockbuster hit by audience size; the show averaged fewer than one million viewers in its first season, less than a show that might be abruptly canceled on a broadcast network, like NBC.
But AMC didn’t need a blockbuster hit. It needed a unique show appealing to a critical mass of valuable viewers so that no major cable company would think of leaving AMC off the bundle. Ultimately, it’s almost wrong to say that AMC made money from the few million people who watched Mad Men. The channel really made money from the tens of millions of households who never watched Mad Men but nonetheless paid a few dollars every year for AMC through their cable bills. One little hit had a massive multiplier effect: Mad Men helped to rescue an entire network.
The difference between broadcast and cable speaks to a critical lesson for picking hits: Artistic judgment can go hand in hand with economic savvy. Mad Men’s ratings were so low that it might have been canceled after one year on NBC. But on AMC it was a hit, not strictly because of the size of its audience, but because of the business model that it clicked into.
In the last decade, the cable channel FX has arguably produced the deepest lineup of prestige drama and critically acclaimed comedy on cable, including The Shield, Nip/Tuck, Damages, American Horror Story, Archer, Fargo, Louie, The League, Justified, It’s Always Sunny in Philadelphia, The Americans, and Sons of Anarchy. Their genres span surrealist horror, dark biker drama, and verbose spy comedy. “I’m looking for a ninety-hour movie, a novelistic character journey,” said Nicole Clemens, executive vice president for series development at FX. “Genre is irrelevant. It is just a Trojan horse carrying the deeper emotional question: Who is the main character becoming? What is he or she going to do next?”
Clemens describes herself as a former latchkey child, raised in the glow of television in the 1970s, with shows like Happy Days and Laverne & Shirley. She can remember the day she was deemed old enough to stay up and watch The Love Boat. Clemens first went to work in film, but she found that the middle class of movies was being hollowed out. Some moviemakers went to work on franchise films that cost hundreds of millions of dollars, while others toiled on small indie films. But the middle left for cable, and in 2012, Clemens followed them for television.
“The key to success for us is to find an authentic original voice and characters so compelling that the audience wants to wear their skin,” she said. That is, FX is looking for superheroes and antiheroes, but they don’t have to wear a cape, or even a $5,000 suit. “I define a hero as somebody who can do what we can’t do,” she said. “That would include a brave fireman, but also a sociopath. Aaron Sorkin’s characters are all superheroes. They can’t leap tall buildings in a single bound, but they can talk and think better than ordinary humans.”
The second principle at FX is what Clemens calls the “hide the vegetables and potatoes” approach to storytelling. Like George Lucas festooning his evergreen myths with glittery technology, Clemens sees the value of old stories wearing new costumes. In Sons of Anarchy, its popular drama about an outlawed motorcycle club, “You think it’s this super-uber-macho motorcycle show, but it’s also a soap with handsome guys. And the plot is basically Hamlet.” In The Americans, the critically acclaimed spy drama about Soviet agents posing as a married couple in the United States, “You crash in, in the middle of the Cold War, and meet this spy couple who has been in an arranged marriage for ten years. They’ve just started to fall in love, but they have to kill people and sleep with other people. So the spy genre has been subverted to tell a classic story about marriage.”
• • •
A third business category within television is subscription-only channels, like Netflix and premium networks like HBO and Showtime. It sounds risky to forgo advertising. But this business model is an artistic luxury. If somebody pays for HBO, it doesn’t matter if she watches fifty hours a week or never watches at all: HBO makes the same amount of money. The company doesn’t have to worry about maximizing ratings each hour to lure advertisers.
NBC studies audience data with Talmudic exegesis because its business model encourages a devotion to delighting the largest possible audience. HBO does not rely on dial testing, focus groups, or surveys, its executives told me, because its business model requires something subtler. Its economic imperative is to build a television product that viewers feel like they have to pay for—even when they don’t watch it.
“HBO is in a different business than broadcast,” said Michael Lombardo, HBO’s former president of programming. “The broadcast channels are selling eyeballs and advertising. HBO is not in the business of selling tickets. HBO is selling a brand.” No audience would tell a television network to make a show about neurotic, narcissistic young women flailing in their early twenties, he told me. But when HBO made that very show, Lena Dunham’s Girls, it debuted as a critical darling and might have been the most written-about show on television. “To what end would I focus-group that show?” Lombardo said. “So that Hannah would be nicer to her friends?”
HBO’s first two hit original drama series, The Sopranos and Six Feet Under, were dark, strange, and too explicit for broadcast television or cable. Several broadcast networks turned down David Chase, the creator of The Sopranos, before he accepted HBO’s promise of creative latitude. That is HBO’s long game: to build a reputation as a place where creative geniuses have artistic freedom. That strategy might not produce a hit each year, but over time serious television viewers will feel obligated to pay HBO for the expectation of forthcoming genius (even if it doesn’t always materialize). In this way, a company like HBO is more like a talent management agency than a typical television channel. The network’s thesis is: Find the best artists, give them time and space to create, and distribute their creation.
When Lombardo first read the script for Game of Thrones in 2006, he worried it would be an impossible haul for his company. The series would be based on George R. R. Martin’s bestselling doorstop books about several families battling for power in a fantasy universe similar to J. R. R. Tolkien’s Middle Earth. But the price could be prohibitive. The ten-hour filmed trilogy of The Lord of the Rings, directed by Peter Jackson, had cost about $300 million to make; HBO would have to produce ten hours of similar entertainment year after year. “A part of me thought we shouldn’t be doing a show with dragons and White Walkers,” Lombardo told me. “I was concerned that we couldn’t afford a production that would have to rival those feature films, and HBO had no record of successfully doing this genre.”
One afternoon, as Lombardo was undecided on the script, he stopped by the Santa Monica Equinox gym, a few blocks from the beach. He was walking through the cardio section when he saw Dan “D. B.” Weiss, one of the two lead writers on the Game of Thrones pilot, hunched over an incline bike, reading a copy of the original George R. R. Martin book with copious annotations.
Lombardo approached Weiss to say hello. They chatted for a few minutes. “He was holding a highlighter in his hands,” Lombardo told me, “and the book was absolutely covered in notes and dog-ears. That’s what HBO wants, to bet on that sort of commitment and passion”—the sort that inspires an obsessive-compulsive approach to adapting a fantasy epic for a network that doesn’t do fantasy. “Whatever reservations I had, they were gone. I thought, ‘These guys aren’t swinging for the easy hit. They’re doing this because they love these stories.’” In January 2007, Lombardo and HBO optioned the series. Eight years later, Game of Thrones knocked off The Sopranos to become HBO’s most watched show of all time. Perhaps even more impressively, it holds another superlative that speaks to its global popularity: It is the most illegally downloaded show in the world.
People often compare business to baseball. In both activities, one can mostly fail 70 percent of the time and still be an all-time great. But the difference between baseball and business is that baseball has what Amazon founder and CEO Jeff Bezos cleverly called “a truncated outcome distribution.” Home runs can only be so big. In a letter to shareholders, he wrote:
When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.
The Sopranos was no ordinary home run. It wasn’t just the most watched show in the history of HBO for its time. It also increased subscriptions to the premium cable channel by 50 percent. Mad Men wasn’t just a critical gem. It also led to AMC picking up Breaking Bad, one of the most acclaimed shows in TV history, and the network’s cable fee revenue rose 50 percent between 2007 and 2013. This growth in fees helped the network produce The Walking Dead, which became the most popular drama on cable.
The risky bets on The Sopranos and Mad Men didn’t just earn their parent companies a ton of money; they also sparked a commercial and artistic revolution on television. The genre of prestige television, which was once a monarchy overseen by HBO, is now a raucous parliament. Netflix, Amazon, Hulu, Showtime, Cinemax, Starz, FX, AMC, USA, and more compete for television shows that will be the next Sopranos or Mad Men—a critical juggernaut with cinematic panache and the expansiveness of an old-fashioned doorstop novel. Some hits save their company. A special few revolutionize their business. They score a thousand runs.
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One of the hard things about writing a representative book about successful cultural products is that hits are not representative. They are intrinsic freaks, outliers, and exceptions. There is no complete and perfect formula for building a popular product. If there were, everybody would know and follow it, and the world would be awash in similarly successful cultural products, which technically means nothing would be very successful. Instead, the entertainment landscape is awash in imitation—comic book sequels chasing comic book sequels, young adult fantasy novels piled upon young adult fantasy novels. Imitation is not a sign that people know the secret of popularity. It is a sign that there is no secret, and the only thing people know is the last thing that succeeded.
“Hit” is a relative term, not only within the television business, but also across entertainment. Bestselling books, blockbuster films, and online videos can all claim the title of “hit,” but their commercial popularity can differ by orders of magnitude. If a book sells a hundred thousand copies, it might be a national bestseller, but if a major studio film sells a hundred thousand tickets, yielding a domestic box office of around $1 million, it’s a disgraceful flop. Meanwhile, if a studio film sells a hundred million tickets worldwide, it might be one of the highest-grossing movies ever, but a YouTube video with a hundred million views isn’t historic at all. The most popular music videos on the platform can amass more than one billion views each year.
An e-book might cost ten dollars and a movie ticket might cost ten dollars, but underneath the price tag the economics of books and movies couldn’t be more different. A major movie studio, like 20th Century Fox, might churn out about twenty films a year and spend about $100 million on production and marketing for each one. A major publisher like HarperCollins might publish ten thousand books a year—almost more titles each week than 20th Century Fox will release in this decade.
Both companies are in the business of selling stories, feelings, inspiration, and information. But they stay in the business by aligning costs with demand. 20th Century Fox survives in an industry where a handful of products require ten million customers, and HarperCollins survives in an industry where almost nothing sells more than one million copies.
HBO, AMC, FX, Republic Records, 20th Century Fox, HarperCollins, and other hit-making companies are all venture capitalists. They evaluate an enormous pool of products. They bet on a diverse set of potential hits. But success is semichaotic. Most ideas fail, and ideally the few successes pay off enough to compensate for the failure.
Michael Lombardo and Nicole Clemens have had their share of Cassandra moments, but they are not Greek oracles. Their success begins with a business model that provides a steady stream of revenue to their companies, even in the case where they produce a season of entertainment that almost nobody watches. “We are in the brand play,” Lombardo told me. “AMC is a brand. FX is a brand. NBC is still about selling a half-hour slot.”
Cable television might have been one of the best business models in modern media—a multibillion-dollar entertainment subsidy from a hundred million households for hundreds of channels, despite the fact that most families never watched most channels. But many signs suggest that the near future will be different. Cable is in structural decline, with young audiences cutting the cord or never even plugging in. The future won’t be one bundle for all, but rather many bundles for many—HBO, Netflix, Amazon Video, Hulu, and soon maybe a Disney bundle, a CBS bundle, and a sports bundle. There will be so much high-quality television and digital video series in the near future that audiences will clamor for a product that finds and organizes the best stuff across all of these discrete services. In other words, it will be time for a new bundle. This seems to me the likely future of video: the rebundling of unbundled bundles (which will inevitably be unbundled themselves).
As the monolithic cable bundle disintegrates, it will fall to younger companies to learn what audiences are willing to pay for. Workers in some industries, like journalism and art, occasionally shudder at the pressure to monetize their work. It’s always nice to think of creators working in a separate universe from the oleaginous world of commerce. But everybody has to eat. Claude Monet painted for about sixty years—that’s twenty-two thousand dinners—with many thanks to his heroic art dealer Paul Durand-Ruel and his friend and benefactor Gustave Caillebotte. Monet had the freedom to be a dedicated artist because somebody else was his dedicated merchant. David Chase and Matthew Weiner relished artistic freedom because HBO and AMC had an economic model that allowed them—even encouraged them—to take risks.
Art may be invaluable, but it’s not free. One way or another, someone has to pay.