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Word that The Office and Friends will be leaving Netflix for Comcast and WarnerMedia’s forthcoming streaming services came as little shock to the industry — but what did raise eyebrows were the hefty price tags attached to the deals. With NBCUniversal’s direct-to-consumer platform paying $500 million for exclusive streaming rights to The Office for five years and WarnerMedia ponying up $425 million to move Friends to its HBO Max service for the same length of time, the high valuations were a welcome surprise to several creatives. Many have been keeping a close eye on how the companies are determining fair market value when selling internally and how the revenue is being accounted for and paid to profit participants.
“So far, so good,” says veteran entertainment attorney Cliff Gilbert-Lurie of Ziffren Brittenham, whose firm represents The Office showrunner Greg Daniels. “Whether or not our clients have strict approval rights, the studios have included us in some major deals to try to guarantee that the license fees are appropriate.”
Had any of either show’s participants — the producers, directors, writers and stars who own a piece of a TV series — felt the deals were somehow unfair to them, they might have considered legal recourse, as many did in the 2000s when studios began selling shows to affiliated networks. Fox, for instance, was found by an arbitrator recently to have cut a sweetheart deal with Hulu, which it co-owned, for streaming rights to Bones.
“These deals are so high-profile, it would be insane of them to try to cheat creators out of money because that would be asking for a lawsuit,” says one veteran studio executive. Insiders say producer Universal Television did its best to hold an “arm’s length” auction and that several other representatives were consulted on the negotiations to ensure transparency and a fair bidding process. In the case of The Office, sources say there was more than one round of bidding, with Netflix topping out at $90 million per year and NBCUniversal willing to dole out $10 million more for all nine of the show’s seasons.
Insiders contend that a major reason why NBCUniversal and WarnerMedia were able to outbid the streaming giant is that they’re simply redistributing the money within their own companies. Some argue that it also can be attractive to pay high figures for in-house properties because it marks up the worth of the library and therefore increases the value of the company’s assets. Plus, sources say the studios are more than happy to pay the financial stakeholders on the big properties, even if those checks might be based on inflated amounts, because they’re the kind of top-tier creators they want to keep happy amid the war for talent.
One knowledgeable source estimates that roughly a quarter of the payouts will go to profit participants. Of course, the creators are expected to make out the best, as they traditionally get the lion’s share of a show’s backend “points.” Some say Daniels, along with the Friends‘ trio of Marta Kauffman, David Crane and Kevin Bright, are likely making tens of millions of dollars off these library streaming deals. It’s the sort of down-the-road windfall that may not exist in the future if the industry transitions to the new model — popularized by Netflix — that buys out a creative’s backend upfront.
But not everyone associated with a hit show benefits from backend, anyway. In fact, most of the Friends and Office actors aren’t expected to see much money from these deals beyond their SAG-AFTRA residuals. One person familiar with The Office agreement says that star Steve Carell has some points, but it’s unlikely other members of the ensemble do. And on Friends, multiple sources say the six principal castmembers negotiated somewhere around a half-point to a point each in later seasons. To put that in perspective, about 15 points are usually reserved for creators.
The exceptions are star-creators like Jerry Seinfeld, who together with Larry David owns a significant portion of Seinfeld. With Hulu’s roughly $150 million SVOD deal set to expire in 2021, the comedy is expected to spark the next big licensing bidding war, with sources noting that co-owner WarnerMedia is eyeing it for HBO Max (Sony is the distributer). Multiple insiders speculate that the show about nothing could command an even steeper fee than Friends and The Office, all but guaranteeing Seinfeld another generous check and his co-stars practically nothing. Quips one insider, “I guarantee you Julia Louis-Dreyfus made sure she had points on Veep.”
This story appears in the July 19 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.