Acquired
00:44:03 · David Rosenthal, Ben Gilbert
[00:44:03] S1: The Coca Cola company acquired episode crossover. [00:44:07] S0: Coke is trying to get into the movie business. They just had a new CEO, Roberto Goizueta, take the helm and is is trying to diversify. And I think [00:44:18] S1: part of the rationale here is, like, oh, hey. Coke products in movie theaters, films, and then product placements in movies. What if we just own a studio? There can be some efficiencies here, some diversification as you say, you know, sure. Whatever. [00:44:32] S0: Maybe. Okay. So that's Columbia and Coca Cola. A few years after Coke buys Columbia, Castle Rock Entertainment is formed in 1987 by five partners, including Rob Reiner. [00:44:46] S1: The successful young actor and director. He'd been on, All in the Family and directed Spinal Tap, I think, in the princess bride. Yes. Great movies. [00:44:54] S0: And the idea is to be a studio by artists, for artists, really talent friendly, flexible, and easy to work with. [00:45:01] S1: Yep. And, funded by the big bucks from the Coca Cola Company. [00:45:08] S0: This is the craziest thing. So Castle Rock is just this little thing with five partners that needs to get off [00:45:13] S1: the ground. Independent production company in the Silicon Valley style we were just talking about.
00:45:13 · David Rosenthal, Ben Gilbert
[00:45:13] S1: the ground. Independent production company in the Silicon Valley style we were just talking about. [00:45:17] S0: Right. It could end up being very, very valuable because they're gonna own the forever rights to any downstream revenue after the first run on television of any shows that they make and any of the movies they make. But for now, it's just Five Guys. They find their way through Columbia Pictures to Coca Cola, and Coca Cola invest $30,000,000 at founding of Castle Rock. So the studio that funded and created Seinfeld was itself Coca Cola money. [00:45:46] S1: Amazing. Why do you think Jerry drinks Diet Coke inside them?
00:45:46 · David Rosenthal, Ben Gilbert
[00:45:46] S1: Amazing. Why do you think Jerry drinks Diet Coke inside them? [00:45:51] S0: So at formation, Castle Rock is owned 60% by its founders, 40% by Coca Cola. And part of this deal is that Columbia would get to be the distributor of any films and TV shows that Castle Rock made. Yep. Which doesn't matter that much right now, but later on, you need a distributor in order to sell the syndication for reruns anywhere where you're gonna put reruns. So it's of a nice thing to put in the contract right now. Hey. We get to be the distributor down the line of anything you make. In November 1989, right around the same time that Seinfeld is kinda getting started here, Sony buys Columbia from Coke, which means the distribution rights that Columbia had goes to Sony. To Sony. Yep. In addition to a minority stake in Castle Rock itself. Sony did get the minority stake of Castle Rock, but they don't control it. So that distribution right goes with Columbia. Columbia to Sony. Yep. But the actual IP ownership stays with the independent Castle [00:46:57] S1: Rock. Mhmm. And this is all gonna become very, very important to the financial incentives behind Seinfeld as we go here.
00:46:57 · David Rosenthal, Ben Gilbert
[00:46:57] S1: Rock. Mhmm. And this is all gonna become very, very important to the financial incentives behind Seinfeld as we go here. [00:47:04] S0: Yes. So taking a step back here, you're probably like, why don't I need to know all of that, and what's the bigger picture here? Just think about the incentives. If you're Castle Rock and you own the rights, all of your returns are super backloaded. If you make a show, like, great. I'm gonna make a show for $500,000 an episode. You're only getting paid $400,000 an episode by a network to buy that show from you. [00:47:32] S1: Right. You have the rights to lose money on every episode that
00:47:32 · David Rosenthal, Ben Gilbert
[00:47:32] S1: Right. You have the rights to lose money on every episode that [00:47:34] S0: you make. Every episode you make, you're like, oh, boy. I hope this does well, but you just keep losing more and more and more money every single episode. You don't make money until five plus years down the line, again, much like the venture business, when that show goes into syndication or the foreign rights get sold or merch becomes big or home video becomes big. And same for those distributors. The the distributor doesn't do anything when a Castle Rock is selling a show to an NBC. So that whole apparatus of Castle Rock and Sony is just sitting there on their hands saying, so, when do we get to stop losing money? Meanwhile, the networks are sort of in this rental business where they are renting content to show it. I think the contracts usually say, we get to show it once and show ads against it on a big night of television and primetime. We also get to show it one more time, maybe next summer or something when there's nothing on the schedule. But after that, all the rights revert to the IP owner, to the studio. And so the the whole business of network is just we're gonna rent content that we are legally not allowed to own, and we're gonna bet that we can sell more ads than it costs us to rent. So they run a, like, very short term business while the studios and distributors run a very long term business.
00:48:49 · David Rosenthal, Ben Gilbert
[00:48:49] S1: Guess it's just like Silicon Valley. They're betting on the equity value in the long run. Yes. So back to Seinfeld's stand up diary here. Larry and Jerry having the guarantee that NBC is gonna make this thing is so valuable to any production company they work with because the idea is this is gonna be a one time special, and it's guaranteed to be made by the networks. So any production company that comes and works with them to make this thing, it's gonna air right away on NBC. Maybe it'll do a summer rerun on NBC, and then it's theirs. They get it to go sell it to HBO or Showtime or whoever, sell it internationally, run the whole business model on the back end right away, guaranteed. No need to pitch the networks. No need to put capital into developing pilots that might not get picked up, etcetera, etcetera. Awesome. [00:49:38] S0: Yep. But you don't know how big it's gonna be. Like, is this thing gonna be worth anything to sell to other networks and syndication? Probably not. It's a one time special. [00:49:46] S1: Right. Nobody's thinking about this as a sitcom. It's a it's a special. But what this allows is Jerry and Larry via Shapiro and Wes, the the managers, the agents, to negotiate huge percentage of the back end, essentially, the equity in this piece of content with the production company. Because [00:50:05] S0: nobody thinks it's gonna be worth that much, and there's no risk.