Acquired
03:23:34 · David Rosenthal, Ben Gilbert
[03:23:34] S1: Well, you're you're happy to take the highest quality viewers. You just need viewers. You you want everyone to differentiate. And, you know, look, streaming is historically subscription based, but they're adding ad tiers now. Netflix is adding an ad tier. [03:23:47] S0: Right. And those advertisers will care who the subscribers are. Yep. Okay. So my my big question for you in analysis before we get to powers and quintessence, we opened the episode by saying this couldn't happen again today. That this was so anomalous, it needed to happen at the exact time that it happened with the exact people who who made it. I have a list of things that I think couldn't happen today, and I'm curious your thoughts on them. [03:24:15] S1: Great. I've got a list too. You wanna trade back and forth? [03:24:18] S0: Yeah. Let's do it. So my first one, arguably the whole show, it was so creator led with essentially no design by committee. I bet that's pretty hard to find today. [03:24:29] S1: Well, it's easy to find on YouTube or [03:24:34] S0: Yes. [03:24:34] S1: Podcasts or, you [03:24:35] S0: know, creator outside the system.
03:24:35 · Ben Gilbert, David Rosenthal
[03:24:35] S0: know, creator outside the system. [03:24:36] S1: Completely outside the system. And it is almost impossible to find inside the system because the stakes are too high now. Somebody... Executives at some organization are involved, whether it's the streamer or the production company or the studio. Right? Like, the budgets are so big. That was my point about the stakes are too Right. Like, you wanna make a TV show these days, you need a lot of freaking money. There's no way that something could start like Seinfeld back in the day with that budget, that, you know, set of episodes. Right. [03:25:06] S0: I think always sunny did, but that's now twenty three years old or something. Tires, I think, did. Tires was pretty low budget when it started. [03:25:13] S1: And it was, like, creator led independent. So, yeah, yeah, I guess it can happen out there. But by and large, you wanna make a TV show, you need a lot of money, which means you're gonna have suits weighing in on what's going on, which [03:25:24] S0: is just gonna make everything worse, [03:25:26] S1: those damn suits. [03:25:28] S0: Yep. Alright. Next for you. [03:25:31] S1: No doubt the independent cap table and incentives associated with Seinfeld made it what it is today. The fact that Jerry and Larry, as creators, got this incredible deal and sort of set of circumstances that let them get huge back end from the production company. And then they made the show artistically what they wanted, but they were incentivized for the long run always. Yes. Made all the difference in the world.
03:26:02 · Ben Gilbert, David Rosenthal
[03:26:02] S0: It is probably impossible today to make a TV show that you, in any way, make $500,000,000 from. I mean, you can make it in secondary ways. You can get famous from the TV show and then pick up sponsorships and get to invest in companies and stuff like that. But to truly own enough of a show's long term economics to make hundreds of millions of dollars, I think that's over. That that would only exist in the creator world, like podcasts and YouTube, and doesn't happen on TV. So the question is why? Because both business models are totally viable. The old media networks one where you're like, I don't wanna own the long term upside. I just wanna have profitable business today. Or the one that the Netflixes of the world are doing where they do want to own all the long term upside. And follow me on this. I think it's because the distribution that happens today is on tech companies at their core, not on media networks, which I think were capital constrained. Tech companies are very, very used to making big investments upfront the way that you would make in software Yep. With very high margins when you get to scale. But, obviously, you're, like, way in the hole for a while until you get to scale. You know, Microsoft's a terrible business with a 100 customers, but an unbelievable business with a billion customers. The modern media company wants to own all of that risk like a tech company and pay for it up front so they can own all the rewards later in the success case, which is the exact opposite of the traditional media business [03:27:43] S1: Right.
03:27:43 · David Rosenthal, Ben Gilbert
[03:27:43] S1: Right. [03:27:44] S0: Right. Or the traditional networks business. You know what's interesting? I sort [03:27:47] S1: of expected going into this research to hear over and over that, NBC realized their great mistake in not owning any of the back end of Seinfeld, and they let so much value walk, and it was this bitter lesson that... Especially once Finson was repealed, they never allowed something like that to happen again. That's the fact pattern. But actually, back in the day, the executives were fine with it. They were happy with the arrangement of, [03:28:16] S0: yeah Totally. [03:28:17] S1: You production companies, you're essentially the VCs. You take the risk. You make money on the back end. We get this great stuff that we can put on our network. We have a [03:28:25] S0: one year payback period on a multiple of our invested capital. [03:28:29] S1: Sell ad units. We're super happy. That works great. [03:28:33] S0: Yeah. I think it comes down to tech companies are trained to seek operating leverage and attract investors that want operating leverage, and that was not a thing when media was distributed by networks. But now that's the ultimate end state of the media distributors beating tech companies. [03:28:54] S1: And back in the day, they were they were the only game in town. Right? Like, you're gonna tune into NBC, ABC, or CBS, and then eventually Fox too. That was it.
03:28:54 · David Rosenthal, Ben Gilbert
[03:28:54] S1: And back in the day, they were they were the only game in town. Right? Like, you're gonna tune into NBC, ABC, or CBS, and then eventually Fox too. That was it. [03:29:04] S0: Yep. One other little piece of analysis before we get to seven powers. There's a very real argument here that Finsin being repealed is one of the worst things to happen to the industry in the last several decades. Yep. The networks start saying, we're gonna pick from the in house things that we've sort of come up with to hit the airwaves. It just means that you get bad stuff out there. Whereas if you have this, like, thriving free market of a whole bunch of independently funded small studios coming up with things and you can buy from any of those, that's a much better world for content. [03:29:43] S1: Totally agree. And we heard that universally in the research. Like, yep. Those were the good days. Vincent being repealed [03:29:49] S0: ended that. Yep. And consolidated where content could come from. [03:29:52] S1: Yep. [03:29:53] S0: Fortunately, the Internet changed that, and we have, you know, YouTube and the explosion of creator diaspora now. [03:30:00] S1: Yep. Powers. This is actually gonna be really fun. [03:30:04] S0: So let's see. Normally, the way we do this exercise is seven powers are the seven things that could give a company persistent differential returns or the ability to be more profitable than their nearest competitor on a sustainable basis. Who's the entity here? The Seinfeld cap table? [03:30:25] S1: Yeah. I think we should talk about it
03:30:25 · David Rosenthal, Ben Gilbert
[03:30:25] S1: Yeah. I think we should talk about it [03:30:27] S0: from the cap table's perspective. And it's what lets Seinfeld the asset of the show, even when it was being produced and today, be more valuable than anything that competes with it? Other shows? [03:30:41] S1: Yep. Yep. Okay. I think counter positioning today might be the biggest one, because it's the last of these huge retention tools left that is not captively owned by a streamer. So it can come to market in a way that Friends in the Office can't. [03:30:57] S0: And you think that's counter positioning? [03:31:00] S1: Well, if you were to say Friends in the Office are its competitors, they are structurally hamstrung Right. By their ownership situations now. [03:31:09] S0: If they did compete with Seinfeld to go to the free market and be able to go anywhere, it would hamstring their their parent company. [03:31:15] S1: Their parent companies would be making value destructive decisions to do that? [03:31:19] S0: Yep. At least based on their chosen current strategy of needing to have owned and operated streaming services. Yep. Scale economies all all over the place. I mean, the fact that the world has an installed base of a 100,000,000 plus Seinfeld fans. [03:31:35] S1: Oh, I agree, but I I would say this is network economies, not scale economies. [03:31:39] S0: Oh, that we're all [03:31:40] S1: The fact that you know all the memes from Seinfeld is extremely valuable to me.