Thread by @DavidHSteinberg

So you wanna know about deficit financing of television shows and how they're sold into syndication? Okay, your funeral! Read on...

How are tv series financed, produced, and licensed in the traditional broadcast tv model? I’m talking about ABC, CBS, NBC, FOX, CW-- the networks that “air” shows that are regulated by the FCC and you can get them free with an antenna.

You may have noticed that each of these companies has a network and a studio with a confusingly similar name. Or confusingly different. ABC network has ABC Studios (among others). CBS, CBS Studios. NBC has Universal.

Then there’s major studios with no network affiliation like WBTV, Sony, and Lionsgate.

In broadcast tv, the studios produce the series. The network airs them. You can look up the long history of antitrust regulation and vertical integration to understand why, but here’s how it works:

ABC Studios takes your pitch to ABC network, they love it & you negotiate a deal w the studio. The studio pays you. The network orders a pilot. The studio pays for it to be produced. The network loves it. They order the show to series & announce it to advertisers at the upfronts.

You’re making a tv show! ABC Studios pays for the “negative cost” of the show. Negative like film negative, not minus negative. They then license the show to the network to air. And oddly, the cost of making the show is LESS THAN the license fee. This is deficit financing.

Caveat: This is the traditional model. Financing with next day airing on OTT platforms (“over the top”; e.g., Par+, Peacock) changes everything so this discussion is useful as a foundation but may be somewhat-to-largely obsolete these days.

Say your 1/2 hour costs $2.5M per episode to produce. Let’s say the license fee from ABC is $1.5M per episode. (That’s what they pay for the right to air it exclusively for a certain amount of time.)

ABC Studios is in the red $1M for every episode it produces. More for hour shows! That’s the “deficit” in “deficit financing”!

Getting cancelled early is a blessing to the studio. They only lost a few million! Getting cancelled in season three or four? Heads will roll. Why? Because you need a certain number of episodes (usually but not always pegged at 100) to sell the show in syndication.

So if you’ve made 66 episodes and get cancelled, you just lost $66M (or actually more). But if you get 5 seasons (times 22 episodes) you hit the magic number and you can now sell the show in syndication.

What is syndication? Short answer: It’s those shows that run on oddball channels at oddball times like 7:00, 7:30, or 11:30. Like Seinfeld, Friends, Law and Order, etc.

Long answer: The studio licenses the show to individual tv stations market by market across the country. In Hartford, WTNH might show Friends at 11:30pm. In LA, KTLA might show Home Improvement at that time.

The studio sells the show to whoever wants to air it for a certain amount of time. And they keep doing that, forever. Nowadays these syndication shows all pretty much make massive licensing deals TO STREAMERS (or to their own OTT), but that’s how they used to do it.

And whether WBTV is selling Friends to KLTA or making a big deal with Netflix, the principle is the same.

The studios make this syndication sale on hit shows to make a profit. Sure they lose $10M, $50M, or more on all the cancelled shows (the vast majority of what they produce) but the syndication sale is in the hundreds of millions on the low end.

And to bring it full circle, that’s why on a traditionally deficit-financed network show that hits syndication, the creator of the show becomes mega-rich.

Unfortunately, as they say, “those days are over.” Well, sort of. Syndication is a lot more complicated now & shows for streamers don’t have mega-sales unless they become franchises w merchandising, but there are still shows that go into traditional syndication and earn 💰💰💰!

MORE THAN, oh man that's a big mistake
The cost of making the show is MORE THAN that license fee

Errata: "And oddly, the cost of making the show is *MORE* THAN the license fee." Whoops big mistake up there in the thread. The number example is correct but deficit financing is when the cost > the license fee!

Now back to our regularly scheduled program.

https://twitter.com/DavidHSteinberg/status/1465363843882749955?s=20