When Sesame Street inked a five-season deal with HBO on Aug. 13, the pact meant more than giving the premium cable network a foothold in the children's TV space, where Netflix and Amazon already are developing programs. The agreement, which allows the iconic kids' franchise to deliver nearly twice as much new content per season, as well as a Muppets spinoff, is a lifeline for Sesame Workshop, the nonprofit that produces the show.
Audited financial statements reveal that the organization has operated at a loss in recent years ($11 million in fiscal 2014). "Without this five-year funding commitment from HBO, we would not have a sustainable funding model that would allow for the continued production of the show," Sesame Workshop CEO Jeff Dunn tells The Hollywood Reporter.
PBS, which will air the new episodes nine months after they first run on HBO, reportedly pays a license fee that covers about 10 percent of the show's annual $40 million production cost. Meanwhile, DVD sales, once responsible for much of its revenue, drop each year with the growth of video streaming services.
Click through to see photos from Sesame Street's 45th anniversary:
Sesame Street's 45th anniversary
B is for broke: Why 'Sesame Street' is moving to HBO
401643 02: Actress Sonia Manzano, who plays Maria Rodriquez on the childrens television show 'Sesame Street,' and the muppet Grover lauch the new 'Super Grover' sandwich in honor of the 4,000th 'Sesame Street' episode February 27, 2002 at the Stage Deli in New York City. (Photo by George De Sota/Getty Images)
NEW YORK, NY - SEPTEMBER 12: (L-R) Elmo, Grover and Abby Cadabby of Sesame Street visit at SiriusXM Studios on September 12, 2014 in New York City. (Photo by Rommel Demano/Getty Images)
NEW YORK, NY - SEPTEMBER 27: Sesame Street muppets Raya (L) and Elmo attend VIP Lounge at the 2014 Global Citizen Festival to end extreme poverty by 2030 in Central Park on September 27, 2014 in New York City. (Photo by Ilya S. Savenok/Getty Images for Global Citizen Festival)
GOOD MORNING AMERICA - Sesame Street's Snuffleupagus visits 'Good Morning America,' 9/12/14, airing on the ABC Television Network. (Photo by Lorenzo Bevilaqua/ABC via Getty Images)
SARA HAINES, SNUFFLEUPAGUS
NEW YORK, NY - MAY 28: TV journalist Barbara Walters attends the 12th Annual Sesame Workshop Benefit Gala at Cipriani 42nd Street on May 28, 2014 in New York City. (Photo by Desiree Navarro/WireImage)
NEW YORK, NY - MAY 28: Creator of Sesame Street Joan Ganz Cooney and singer Michael Buble attend the 12th Annual Sesame Workshop Benefit Gala at Cipriani 42nd Street on May 28, 2014 in New York City. (Photo by Mike Pont/FilmMagic)
NEW YORK, NY - MAY 28: President of the Jim Henson Foundation Cheryl Henson attends the 12th Annual Sesame Workshop Benefit Gala at Cipriani 42nd Street on May 28, 2014 in New York City. (Photo by Mike Pont/FilmMagic)
MIAMI, FL - JULY 12: Karla Martinez, Cookie Monster, Lola and Ana Patricia Gonzalez are seen during Sesame Street's visit of Univision's 'Despierta America' at Univision Headquarters on July 12, 2013 in Miami, Florida. (Photo by Alexander Tamargo/WireImage)
NEW YORK, NY - MAY 29: President of the Jim Henson Foundation, Cheryl Henson attends the 11th annual Sesame Street Workshop Benefit Gala at Cipriani 42nd Street on May 29, 2013 in New York City. (Photo by Desiree Navarro/WireImage)
NEW YORK, NY - MAY 29: Bob McGrath attends the 11th annual Sesame Street Workshop Benefit Gala at Cipriani 42nd Street on May 29, 2013 in New York City. (Photo by Desiree Navarro/WireImage)
NEW YORK, NY - JUNE 01: Gary Knell, President and CEO of Sesame Workshop attends the 9th annual Sesame Workshop Benefit Gala at Cipriani 42nd Street on June 1, 2011 in New York City. (Photo by Ben Hider/Getty Images)
NEW YORK - APRIL 08: Journalist Katie Couric (C) poses between two Sesame Street Muppets and children at the tree planting ceremony at Madison Square Park on April 8, 2010 in New York City. (Photo by Mike Coppola/FilmMagic)
NEW YORK - FEBRUARY 04: Sesame Street characters attend the temporary street renaming to celebrate the 30th anniversary of Sesame Street Live on 31st Street & 8th Avenue on February 4, 2010 in New York City. (Photo by John Lamparski/WireImage)
JIMMY KIMMEL LIVE - 'Jimmy Kimmel Live' airs every weeknight, (12:05 - 1:05 a.m., ET), following 'Nightline,' featuring a diverse lineup of guests that include celebrities, athletes, musical acts, comedians and human interest subjects, along with comedy bits and a house band. The guests for WEDNESDAY, NOVEMBER 4 included actor Josh Jackson ('Fringe'), Big Bird (Sesame Street's 40th Anniversary) and musical guest Ghostface Killah featuring Raheem DeVaughn. (Photo by Randy Holmes/ABC via Getty Images) JOSH JACKSON, BIG BIRD, JIMMY KIMMEL
A Sesame Street Afghan muppet called Zari is seen in this handout image provided to Reuters on April 1, 2016. Zari, a curious and lively girl whose name means "shimmering" in both the Dari and Pashto languages, makes her debut on April 7, 2016 on the "Baghch-e-Simsim" Afghan local co-production of the long-running U.S. educational TV show for pre-schoolers.REUTERS/Sesame Workshop/John E. Barrett/Handout via Reuters ATTENTION EDITORS - THIS PICTURE WAS PROVIDED BY A THIRD PARTY. REUTERS IS UNABLE TO INDEPENDENTLY VERIFY THE AUTHENTICITY, CONTENT, LOCATION OR DATE OF THIS IMAGE. EDITORIAL USE ONLY. NOT FOR SALE FOR MARKETING OR ADVERTISING CAMPAIGNS. NO RESALES. NO ARCHIVE. THIS PICTURE IS DISTRIBUTED EXACTLY AS RECEIVED BY REUTERS, AS A SERVICE TO CLIENTS TPX IMAGES OF THE DAY
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Sesame Workshop has a significant merchandising asset in its intellectual property, which it has licensed to companies including Hasbro, Fisher-Price and Betty Crocker. The nonprofit would bring in revenue from hit toys like Tickle Me Elmo and Talking Big Bird, but it's still not enough. Licensing revenue has dipped to roughly the same level as the show's production cost (from $46 million in 2013 to $41 million in 2014), according to the financial statements. "Kids' habits are shifting. They've moved on to interactive platforms," says Gary Knell, Sesame Workshop's former CEO, who left in 2011. "Traditional toys don't really carry the day."
Whatever the cause, it's clear that a deal with HBO was needed to give Elmo a fighting chance. "I think it was the right decision," says Knell. "HBO gets a huge bonanza brand they will do a great job marketing to get young parents to sign on to their streaming platforms. For Sesame, it's a way of plugging a big gap and providing funding for a lot of shows." PBS now will air the episodes from HBO for free, to a young audience unconcerned with spoilers or first runs. Says Knell, "I think it's a win-win-win."