Acquired
00:37:02 · David Rosenthal, Ben Gilbert
[00:37:02] S1: than Way more. Way more money in TV. [00:37:04] S0: Walt was incredibly right. When you look at where the cash gushers are in the entertainment industry, you know, over the last forty, fifty years, it's come from TV, not from movies. [00:37:13] S1: It's kinda, you know, one of these, jokes in in Hollywood that we really learned about studying for this episode of, you know, all the glamour goes to the movie stars and the movie directors and the movie executives. The richest people in town were always the TV guys. [00:37:27] S0: Yep. Yep. Okay. So back to the, call it, sixties. The way that the deals worked between the networks and the studios were called deficit financing. And this is crazy that this is how it works, but but it is. The networks would not fund all the production costs of the show. So they would greenlight something, find the the production company to make it, and say, we'll pay you 60 to 80% of what it costs to make the show. Because we're [00:37:54] S1: Like, in this case, this special with Seinfeld and Larry David. [00:37:57] S0: Right. Because historically, these networks are cash conscious, and so they'd rather save 20 to 40% of the budget of the show. And we'll give up some future upside, but, you know, that's okay. [00:38:08] S1: Right. Well, in return, the production company would own the show.
00:38:08 · David Rosenthal, Ben Gilbert
[00:38:08] S1: Right. Well, in return, the production company would own the show. [00:38:11] S0: Yes. So because NBC is not totally covering the costs, they're leaving this deficit. They just get a license to the show to air it on their airwaves once, twice, very limited license. But that meant that the studio was still in the hole for the rest of the funding to make the show. But, you know, it is sort of fair. The studio gets to own the rights to that show in the future to monetize it when there's things like international ways that they could license it or merch or later home video or the eventual huge cash cow of syndication or reruns of the episodes on other networks or on cable channels or something like that in the future. But then the network started including one deal term that was, very, very favorable to the networks. They overreached, and they demanded a large cut of the future syndication revenue even though they were not fully funding the cost to produce the shows. [00:39:09] S1: I didn't realize Back in the sixties. A period in the sixties where the networks could own syndication rights. Yes.
00:39:09 · David Rosenthal, Ben Gilbert
[00:39:09] S1: I didn't realize Back in the sixties. A period in the sixties where the networks could own syndication rights. Yes. [00:39:16] S0: So studios, of course, as you would expect, complain to the government, and they say, this is ridiculous. Like, they're not funding the whole thing, but they're making it so we can't make money now, and we can't make money in the future. So in 1970, the FCC issued the thing that you mentioned, David, the financial interest and syndication rules or FinCin. And these rules prevented the networks from owning a financial interest, which mostly meant from participating in the future syndication of shows that they were buying from the studios. So this created a true separation between networks that aired the shows and the studios who make the shows. You've got a buyer. You've got a seller. It's very clean. [00:39:55] S1: Yep. Yep. [00:39:56] S0: But then by the late nineteen eighties, flash forward, I don't know, twenty years or so, the networks are now the ones complaining. Cable shows up, and a lot of the consumer attention is leaving the network and going to cable. And the networks argued, well, we need more latitude in operating our businesses to effectively compete and make profits. You might remember this from our, our Disney episode where we talked all about what opened the door for Disney to eventually buy ABC. So by 1993, the networks won. FinCEN is repealed. The net of this is networks actually can produce their own shows from nineteen ninety three, four, five, onward.
00:39:56 · Ben Gilbert, David Rosenthal
[00:39:56] S0: But then by the late nineteen eighties, flash forward, I don't know, twenty years or so, the networks are now the ones complaining. Cable shows up, and a lot of the consumer attention is leaving the network and going to cable. And the networks argued, well, we need more latitude in operating our businesses to effectively compete and make profits. You might remember this from our, our Disney episode where we talked all about what opened the door for Disney to eventually buy ABC. So by 1993, the networks won. FinCEN is repealed. The net of this is networks actually can produce their own shows from nineteen ninety three, four, five, onward. [00:40:36] S1: Yep. Which means that they'll own those shows in perpetuity. [00:40:40] S0: Yes. But here where we are in the Seinfeld story, 1989, it is like the tail end of the Finson era. And the way it works is NBC is not allowed to own the actual intellectual property of the show. They must say, hey, go find a production company, make the show, and then we will pay you 80 ish percent of what it costs to make it in order for the right [00:41:03] S1: to air it on our airwaves. Yep. And that dynamic back in that era had set up this incredible entrepreneurial ecosystem where you had these independent production companies and the creators they work with who got actual ownership of the shows and the syndication rights. It's almost like Silicon Valley startups, this, like, capitalistic entrepreneurial incentive to go make these amazing things. And Seinfeld is one of the last ones out of this system.
00:41:03 · David Rosenthal, Ben Gilbert
[00:41:03] S1: to air it on our airwaves. Yep. And that dynamic back in that era had set up this incredible entrepreneurial ecosystem where you had these independent production companies and the creators they work with who got actual ownership of the shows and the syndication rights. It's almost like Silicon Valley startups, this, like, capitalistic entrepreneurial incentive to go make these amazing things. And Seinfeld is one of the last ones out of this system. [00:41:29] S0: And it had power law dynamics where just like the venture capital industry, most shows fail. But for the shows that succeed, they succeed massively. And the cap tables are like a bunch of individuals or of... Or small production company. It's not like all the profits just go into a big network the way that they do today. So you actually could have literally exactly like Silicon Valley power law outcomes to individuals on a cap table. [00:41:57] S1: Yep. So back to Seinfeld and Jerry and Larry and this meeting with NBC when NBC says, we will promise you we are going to make what you are pitching us. That is an extremely valuable commodity that they are giving Jerry and Larry because they're saying, yeah. Yeah. You know, go get a production company, and you work out your own deal with them, but we'll make it. Usually, it's reversed. The production companies are making pilots and concepts for specials and scripts [00:42:28] S0: Right.
00:42:28 · Ben Gilbert, David Rosenthal
[00:42:28] S0: Right. [00:42:29] S1: That they're pitching the networks and desperately trying to get the green light to air them. NBC is now saying to the individual creators, to Jerry and Larry, you go find your own production company, cut your own deal with them, we guarantee we'll make it. This is like It's free money. To use a Silicon Valley analogy, it's like if you're investing in a series a and somebody has already guaranteed that they're gonna market up 10 x in a series c afterwards. [00:42:55] S0: Right. You write this check, and, then there's another check waiting right here for you. [00:42:59] S1: Yep. So Jerry and Larry and the agents, Shapiro and West, they're just given the golden goose here. So this is where that very nice production company back when Jerry was being considered to be cast for that ABC pilot comes back into the picture. Castle Rock. And, Jerry says to George Shapiro, alright. Great. Well, why don't we just use those guys from last year? They seem nice enough. And boom, Castle Rock becomes the production company. Now, Castle Rock, you might know of it, or you might just know of it from watching Seinfeld episodes and seeing their title card at the end of the screen. Ben, what's the awesome history of Castle Rock? [00:43:43] S0: Alright. So we're gonna go back slightly pre Castle Rock. In 1982, Columbia Pictures, the [00:43:51] S1: Major Hollywood film studio. Yep. [00:43:54] S0: Gets bought for $750,000,000 by, longtime listeners will know this, Coca Cola. [00:44:03] S1: The Coca Cola company acquired episode crossover.