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HBO’s Choppy Waters on Hanks and Spielberg’s The Pacific

Back in 2007, when HBO was still trying to calculate the cost of The Pacific, the upcoming ten-part WWII miniseries from Steven Spielberg and Tom Hanks, no one imagined the answer would dovetail so perfectly with the network’s current slogan, “It’s More Than You Imagined.” After a year spent shooting the epic period drama on location in Australia’s beaches and jungles and on the open ocean, as well as costly reshoots and another full year of postproduction, insiders whisper that the true cost of The Pacific could swell to $225 million.

The network brass and Hanks’s producing partner, Gary Goetzman, both insist their Band of Brothers follow-up about the war’s harrowing Pacific Theater was always budgeted at $200 million and hasn’t exceeded that figure. But regardless of which figure is accurate, the 2007 economy in which HBO okayed The Pacific is very much not the same one in which the miniseries will debut next month. “They may get screwed financially on the timing of this,” said one top television agent. “We’re all suffering from decisions based on 2007 projections but which turned out to be the 2009 shit hole.” HBO, however, maintains that they always knew this would be a risk. "Look, even when we greenlit it, it was an unbelievably ambitious undertaking,” says Michael Lombardo, the network’s president of programming. “It took some serious thought before we joined hands with the producers and jumped off the cliff."

In the past, pricey and prestigious projects like Band of Brothers found they could rely on massive DVD sales to more than cover their costs. Insiders say that since Brothers hit stores on May 11, 2002, it has generated some $700 million in DVD revenues, making it the top-selling DVD in the history of HBO. In part, that was because consumers were willing to pay for pricey boxed sets when times were flush: Who didn’t want to give their Greatest Generation–revering dad a video hagiography for Father’s Day?

But now, entertainment has tipped from a buyer’s market to a renter’s market. Purchases of Blu-ray discs and DVDs were down 9 percent in 2008, and plunged another 13 percent last year, to $11.4 billion. So since HBO signed on for The Pacific, Americans will have cut their spending on DVDs by a whopping 22 percent. Considering The Pacific likely won’t hit video for another six months, who knows how much further the market could drop.

Rental spending, by contrast, went up 4.2 percent in 2009, to $6.5 billion, according to Rentrak Corporation’s Home Video Essentials. For studios and networks like HBO, that’s bad news: Hollywood hates it when you rent a DVD, but loves it when you buy one, according to UBS media analyst Michael Morris. He explains that, on average, if a studio makes a dollar when you rent a flick at Blockbuster, they make nine bucks when you buy that same movie at Best Buy. Lombardo, however, maintains that these numbers don’t necessarily reflect all DVDs. "People are still buying high-quality shows," he said, referencing the $61 million in DVD sales racked up by the first season of HBO's True Blood. "In fact, what they're not buying is that middle rung."

And HBO is likely not responsible for the entire Pacific budget. They usually raise the bulk of their shows’ budgets by selling off international rights. For example, their 2005 series Rome cost $10 million per episode, but $8 million of that came from international money. That said, HBO canceled that show after two seasons … for being too expensive.

Many also caution that HBO truly isn’t like regular TV, in that its production budgets can easily be said to be marketing budgets. Pricey bets on award-winning, high-quality original series and minis have been what help keep its relations with top talent excellent, its public image burnished with Emmys, and its subscriptions growing. From 1999 to 2005, HBO added 3.2 million customers. But as critically beloved shows like Sex and the City and The Sopranos have dropped off its schedule, that growth has flattened out: In 2009 it had 29.3 million subscribers, which is only 600,000 more than it had in 2006, according to Adams Media Research.

Given how rapidly people are changing the way they consume entertainment — and how long it takes to produce and air an epic like The Pacific — HBO has to be wondering if it can continue to make Avatar-size bets for the small screen. But while The Pacific is a big picture, Lombardo has an eye on an even bigger picture: the HBO brand. "We happen to be in a business where our programming decisions are not 100 percent about monetizing the program," he says. Okay, so maybe it’s not Pearl Harbor. But we wouldn’t spend the money on a ticker-tape parade quite yet, either.

Photo: David James