Financially, how does Hulu come out ahead by buying up Seinfeld

Hulu spent $180 million buying up rights to Seinfeld.

Hulu makes about $1 billion a year in revenues. I’m assuming they’d have to make up at least $180 million net income to make up for buying the shows. I have no idea how the taxation would work and if that drives the number up or down. Shouldn’t hulu plus have to add at least 23 million months of new hulu plus membership to make up the cost ($8/month for hulu plus means you’d need 23 million months of new membership to make up the 180 million)? meaning, if they aren’t getting new hulu members, or if members who would’ve quit w/o seinfeld choose not to they aren’t really getting ahead. If all that happens is if people who already watch Hulu watch Seinfeld they aren’t getting ahead, they’d need new memberships to make up the cost.

Anyway, Seinfeld is a hit show that had its prime 20 years ago. I recently bought 5 seasons worth of used DVDs for under $20.

I don’t know what I’m talking about in case that is obvious.

That is a lot of months of new subscribers. I wondered the same thing when Netflix started doing it’s own original content.
Just looking now, Orange Is The New Black cost about $4m per episode to make. That means they’re about 150 million into this project. With Netflix (or Amazon) shows, I have to wonder if they eventually sell off the rights to recoup the money. Or they could just be doing this to make an even bigger splash overseas as they’re trying to grow in China/Japan where they have a very small subscriber base.

I haven’t heard about the Seinfeld thing yet. What’s included in the rights? Do they get royalites from the DVD sales now? It looks like it’s still on TV, are they getting paid for that? Those two things would probably offset the 180m by quite a bit.

For one thing the two thousand articles about Seinfeld let people know about

Seems pretty unlikely. My impression is that typically only the more slapstick, broad foreign comedies successfully find a market in China/Japan. Friends was a bit of an aberration in China, but that had more to do with the lifestyle and social dynamics appealing to the new generation of young urbanites. I really can’t see OITNB or Seinfeld drawing in any significant amount of subscribers in those regions. It would be far, far more cost effective to buy up the rights to more local fare.

In the OP’s calculation, should we count revenue from ads shown during the show?

Maybe they could sell the rights for $190 million?


Absolutely. Though I don’t know how useful that is.

Hulu wants people on their platform. The streaming rights to one of the most popular sitcoms of all time is pretty good bait.

When Netflix got the rights to Friends it nearly broke the Internet. (And it wasn’t cheap for them, either.)

I have Comcast, and have seen recently that their onDemand service is now allowing you to buy the first two seasons of Orange is the New Black for viewing that way.

So there clearly is some resale potential for original/exclusive content owned by streaming services. I would love to know what NetFlix’s cut is… they’re not exactly best friends with Comcast, so you can bet they’re getting paid well.

Subscription services are insanely lucrative because people are incredibly lazy. It takes a lot of effort to switch someone from being not-a-subscriber to being a subscriber but once they subscribe, it also takes a lot of effort for them to quit the service. Look at AOL for example, there are people who are still paying the $20 a month for AOL dialup that they haven’t used in 10 years because they’re too lazy to cancel. AOL dialup still makes more than Techcrunch, Huffington Post, Engadget and all of their other media properties combined. I wouldn’t be surprised if Hulu’s calculated Lifetime Value per User (LTV) was north of $1000.

What this means is you can afford to spend crazy amounts to get people on board. Some people will join Hulu just for Seinfeld, but a lot of other people will hear the news about Seinfeld and mentally place Hulu in the category of “credible contender to Netflix”. Then, when another show they do like comes along, they’ll be much less resistant to signing up.

Is all of this worth $180M? Probably not, but you have to realize these companies are also, in part, playing with funny money. There’s only a limited number of premium shows that could generate this kind of buzz and the competition is fierce among the few competitors. Netflix’s stock has an insane Price/Earnings ratio and Hulu is attracting investment on very favorable terms so they’re really both playing with house money at this point. Probably more important for Hulu for their $180M is not that they got Seinfeld, but that Netflix didn’t get Seinfeld. At some point, the market may correct itself and both of these companies will lose half their value but, at that point, they would have already spent their inflated funny money on a real, hard asset so they won’t care.

I think looking at Hulu’s current revenue and comparing it to the cost of the Seinfeld streaming rights is a mistake. If I understand correctly, the deal is for the rights to stream the Seinfeld video in perpetuity. And video streaming is still both in its infancy and undervalued.

People seem to think that the world is going to replace $100/month cable packages with $10/month streaming services, but it’s very likely that streaming services are going to increase in price to produce the same revenue for content that cable did.

You’ll find the answer filed under D for duh.

New subscribers, basis for keeping the subscription active for many months (probably leading to some number becoming “permanent”), ad revenue, high draw from the overall fan-base size and squee level…

That said, Seinfeld is an old show that fans might want to remember more than rewatch, and so much of it was tied to the moment that it might not appeal to new audiences.

I am/was in the center of its general demographic, and I don’t think I ever watched more than a minute or two, maybe fifteen minutes altogether. So the appeal is not universal, even among its original potential audience.

The difference being that subscribers will be able to pick and choose their channels, instead of having to take a package of 50 of which 45 will never be watched. Cable-cutters right now can slash their costs enormously, even if they pay for a few select shows from Vudu and Amazon.

The model seems to be trying to persist, though, with streaming providers trying the same tired “packaging” to shove off low-interest channels with the high-demand ones and make the Costco-size package seem like a better deal.

I’d like to see the winning model being a single provider (or competing providers with equal access to the material) offering individual-choice packaging at fair per-channel rates. Okay, so HBO is worth $10 a month and the ESPN bundle, $15. Around a buck or two should get the mid-tier ones - AMC, IFC, A&E, CN, etc.

But no bundles of mismatched stuff - I want kid stuff, I’l subscribe to the Disney or CN package; sports, ESPN; drivel, the Oxygen/Lifetime/Oprah package. :slight_smile:

I’m not convinced that’s true. I certainly can’t subscribe to only a fraction of Netflix’s offerings, or Hulu’s. It’s all or nothing, just like cable packages.

I think lots of us would like to be able to buy a package of television that matches what we actually want to watch. But there’s a reason that television has been sold in mismatched bundles: people pay more for them. That economic principle isn’t going away because we get our TV through the internet.

Yes, right now it’s much cheaper to not have cable, but that’s because most people still have cable and are paying the high prices that make those shows profitable. But if more people stop paying for cable, then either we stop getting as many high quality shows, or the price of what people do pay for goes up.

Pretty apples and oranges, I think. ALL Netflix and Hulu offer are individual on-demand programs. That you won’t (or can’t!) watch more than a fraction of those doesn’t make the model equivalent to cable channel bundles. They are effectively “one channel” of an alternative approach.

An a la carte system would let you add, say, HBO and its subsidaries, ESPN ditto, Disney ditto… but each as an independent option. Those “channels” are pretty much watch or record, not on-demand. (OD is a subsidiary feature that would probably be bundled with them, though.) That’s not the same thing as a program bundler like Netflix.

The market forces will try to get the replacement scheme back into the same cost/profit range as cable - insert big “duh!” here. And for a time at least, they will do it by trying to follow the cable model, just without the fixed cable head-end and distribution system.

I’d hope we as entertainment consumers reject the attempt and do better for ourselves, since there’s exactly zero reason to make an internet-based, fully on-demand model follow a “cable provider” model.

Part of the value is all the meta discussion that is currently going on about it. Here we are talking about Hulu. Many news sites and bloggers are mentioning Hulu. People who have never heard of it may go check it and and discover all the other shows it offers. It would be tough to buy this kind of advertising.

Maybe I’m completely misunderstanding your logic here, but it doesn’t seem right.

Hulu pulls in $1000 million a year in revenues, you say. Let’s say 20% of that goes to hosting and overhead. That leaves $800 million dollars that they can spend on content, every year, and still break even without acquiring a single new customer.

Acquiring the rights to Seinfeld is just part of their operating cost to keep their existing subscriber base happy. If this nets them any new customers, that’s just icing on the cake. But I don’t follow your logic wherein they need new revenue to cover this purchase. It seems well within their budget.

All due respect, that number has a whiff of ass about it. I doubt Hulu runs on anything close to an 80% gross profit model.

If it’s as good as 1/3 operating costs, 1/3 content rights, 1/3 gross profit… I’d be amazed.

But certainly a high-profile catch like exclusive rights to Seinfeld are worth quite a bit in image and marketing value.

Well yes, there was a good deal off ass around that number a moment ago :slight_smile: but I didn’t say 80% profit, since paying for content is going to be a huge chunk of their budget. My number was assuming 0% net profit.

I think the mistake here is thinking of Hulu like a startup. If some widget company was pulling in a billion a year making widgets and wanted to spend 200 mil to replace one of their aging widget machines, nobody would say, “Oh boy, you’d better start selling a lot more widgets if you want to pay for that nice new machine.”

Indeed. I have a friend who still has Netflix’s disc subscription, even though they haven’t received a disc in years. His wife wants to get Netflix streaming and cancel the disc, but she left it up to the husband because the sub is under his name. He’s just too lazy to actually do it.