Acquired
03:12:44 · Ben Gilbert, David Rosenthal
[03:12:44] S0: And this is a result of Netflix had Friends and The Office, which I think became their top viewed shows, and they were losing them. Because Friends... It's so funny. All three of these shows were on NBC. Friends was produced just like Seinfeld in the Finson era, and it was produced by Warner Brothers, which is exactly where the rights are held for Seinfeld. So you might say Friends and Seinfeld are the same. But in the case of Friends, Warner Brothers also controls the distribution rights. Those were not ever owned by Sony. So HBO Max is about to become a thing. Warner Brothers is like, nope. Netflix, we'll take Friends back. We're gonna use that on our streaming service because we control the distribution rights. And The Office was produced after all the Finsin stuff, so NBC actually owned it directly. And they go, nope, Netflix. We'll take that back. We're gonna put that on what's about to come out and be called Peacock. So Netflix loses their top rerun sitcom shows. They need Seinfeld real bad. And Sony owns the distribution rights and is not coming out with a streaming service. So they're kinda the only ones to go to and say, give me a 180 episodes of people loving their nineties and 2,000 sitcoms. [03:14:00] S1: Yep. So it all goes down that same year in 2019. Friends with HBO Max and The Office with Peacock, they have to announce, like, a a dollar value for the deals that they do because they have to calculate all the guild residuals to come out of it.
03:14:00 · David Rosenthal, Ben Gilbert
[03:14:00] S1: Yep. So it all goes down that same year in 2019. Friends with HBO Max and The Office with Peacock, they have to announce, like, a a dollar value for the deals that they do because they have to calculate all the guild residuals to come out of it. [03:14:18] S0: And I think the creators did have some back end there. Yes. Kinda suck to have back end in a deal where the distribution wasn't independently owned. Right. Because it means that, like, you just kinda have to trust that the invisible wall between the sides of the company exist, and the the value is the real fair market value. [03:14:35] S1: Yep. So they announced that the friends deal is $425,000,000 for five years, and the office deal is $500,000,000 for five years. But, yeah, this is not real money. [03:14:46] S0: So all three of these are in the same ballpark, but Seinfeld is the only one where there's actually a company paying another company. [03:14:51] S1: And then that brings us to this year with the 2026 Netflix renewal reported as slightly lower than the original greater than $500,000,000 deal. But this time, it's exclusive for Netflix only in The US and Canada, not worldwide. So Sony is basically taking the bet here of, oh, we can start selling international streaming rates for Seinfeld separately and monetize those better, which they will begin selling shortly here.
03:14:51 · David Rosenthal, Ben Gilbert
[03:14:51] S1: And then that brings us to this year with the 2026 Netflix renewal reported as slightly lower than the original greater than $500,000,000 deal. But this time, it's exclusive for Netflix only in The US and Canada, not worldwide. So Sony is basically taking the bet here of, oh, we can start selling international streaming rates for Seinfeld separately and monetize those better, which they will begin selling shortly here. [03:15:22] S0: Yep. In addition to that, they're still doing the other forms of syndication. So basic cable to Paramount for 45,000,000 ish. They had a full cycle four and a full cycle five and a full cycle six. So all told here, all the syndication ever, all the off network and international and cable, the streaming, plus all the DVDs. This is around $5,000,000,000 to the cap table of Seinfeld from all of these deals, and it's real liquid cash changing hands every five years when they do a renewal cycle because Sony has no streaming service of their own. [03:16:02] S1: Yep. And all of that is just so far. I think at current course and speed, you can reasonably expect another billion plus in streaming rates to get stacked on top of that every decade from Netflix or whoever takes it next. [03:16:17] S0: Assuming it stays this relevant, but you would think if it fell off in relevance, it would have happened by now.
03:16:17 · Ben Gilbert, David Rosenthal
[03:16:17] S0: Assuming it stays this relevant, but you would think if it fell off in relevance, it would have happened by now. [03:16:23] S1: Yep. And it definitely hasn't. And then, you know, total total revenue, you stack the 2,000,000,000 in profits for NBC from first run, you're at easily 7 plus billion dollars for this little TV show that shouldn't have gotten made. [03:16:38] S0: And by my calculations, David, this thing probably in total, including everyone's salaries, even that crazy high last season, cost about $250,000,000 to make. And those costs stopped in 1998. So this is an asset that's now well above $7,000,000,000 in returns that keeps stacking another billion dollars every decade, and all the costs are paid for thirty years ago. [03:17:07] S1: It really is like a Silicon Valley startup type story Yes. As a TV show. I mean, it's not Google or or or Facebook. We're not talking about trillions of dollars or Nvidia here. But that that level of investment would continue returning cash flows for that period of time of that magnitude. [03:17:24] S0: And it's a 30 x on its costs. Yeah. Incredible. That's the other thing. Because if if you just divide 7 point something billion by 250,000,000, that's a 30 x return. [03:17:35] S1: Alright. Should we transition to analysis?
03:17:35 · David Rosenthal, Ben Gilbert
[03:17:35] S1: Alright. Should we transition to analysis? [03:17:38] S0: Yes. So one big thing I wanted to talk about is why is Netflix buying this? Like, why is this particular asset and this category of assets, Seinfeld, The Office Friend, so valuable to a streaming service? Well, streamers need content to do two jobs. One is acquisition, and the other is retention. [03:18:01] S1: Yep. These are awesome retention vehicles.
03:18:05 · Ben Gilbert
[03:18:05] S0: Yes. So acquisition is a totally different thing. That's what the new content is for. That's the, like, super high polish thing you can market to get people to sign up for your service. And I think... I'd be curious to get feedback from people in the entertainment industry. I think the reason why every show is, like, eight episodes now instead of 22 to 24 is because in broadcast, it was an ad based business model. So you needed something on the air always, and then you needed to sell ads for eight minutes of every half hour. And so you'd take 22, you'd take 24, you'd take 30 episodes if someone could make you 30 if it was a good show because it suits your business model. On streaming, the point of a new show is to get people to sign up for your service. And I'd be willing to bet that there's not a big difference between a great show with eight episodes and a great show with 20 episodes, how likely it is to get someone to sign up. And these things are expensive now. It's, you know, $810,000,000 per episode for some of these high polished ones. There's no way that the $10,000,000 you spend on the fourteenth episode of a season is justified versus sinking it into the sixth episode of another show that you could do instead. Once you kinda, like, wrap your mind around, oh, shows are now acquisition vehicles rather than ad inventory carriers, you sorta understand why shows are so different now than they used to be. Yep. And the other thing, in addition to the fact that these seasons are really short, they're mostly not comedies. Yes. It's really weird. Like, everything is a drama or Spectacle. Or a sci fi. And and I was really grappling, like, why don't we see more Seinfelds now? Why are there so few things that look like this? Part of it is I think that comedy doesn't travel internationally. And these businesses now, these streaming businesses are all scale economies businesses. So whatever you make, you wanna expose it to the broadest number of people to justify its cost. And so it's really hard to green light something where, like, you know, British humor doesn't translate. When they brought BBC's The Office over to The US, it bombed, and they had to completely remake the show in order to make it appeal to an American audience. So I think that's part of why you get white lotuses, but you don't get Seinfeld's anymore.