Wednesday, March 19, 2014

OWN: The Oprah Winfrey Network and Its Strategic Future, Part 2, 2014


               I wrote the below in 2009 and then re-wrote it some more in 2012, so now we’re about into Year 3, easing into Year 4 of this undertaking by Oprah and her company Harpo, to create a network.

Let’s go to the scroll down and see if my predictions came true:

ü  Iyanla Vanzant being the new hit show
ü  Lisa Ling still a hit
ü  Oprah’s Life Class a hit
ü  Oprah’s Master Class a hit
ü  Oprah’s Super Soul Sunday a hit
ü  The Golden Sisters a hit
ü  The McGhee’s and their babies, a hit
ü  Sweetie Pie’s still a hit
ü  Not, one, but two Tyler Perry hits add drama and a comedy—double hit
ü  Two more Tyler Perry series, a drama and a variety/talk show are added to the slate February 2014

               Now I had originally thought to myself what about a sort of throwback to the original The Oprah Winfrey Show line up when she was the 4pm continuation from All My Children, One Life to Live and General Hospital.  I thought hey, what about scooping those shows up and re-starting the 25 year afternoon line-up that millions loved?

               Lo and behold, All My Children and One Life Live were both canceled and then revived as an online series.  And then OWN snapped them up for a 10 week trial.  Ohmigod!  Can it be any more exciting and strategic!  Oh, this is getting good!!!!!  (Yes, business excites me like pornography does others!)

               It won’t be an ongoing thing though because of the cost of producing a long time soap opera format and the lack of re-payment strategies available to that kind of show.  The art of television syndication is based on the lack of availability of a series (excluding DVDs and not VOD like Netflix) but it also has the caveat of requiring an accessible timeframe to new and old viewers. 
               Take for example a series like Cheers that was originally broadcast for 11 years and is now in syndication.  A television “year” is generally about 23 episodes, so Cheers is about 253 shows, give or take in total as a library.  Now say I own The Phoenix Channel (hmmm, possibilities?  As an aside for us all to consider is that as technology both improves and allows the individual to have internet video and radio shows, digital filming, blogs, cable TV shows, books, e-magazines, etc. an individual with very little financial investment (less than $10,000) can produce, distribute and reap financial rewards from their work and its contents, I’m proof of that.  Imagine those possibilities that in ten years time, media will be saturated with many more original programming choices in varying niches and/or personalities.  IN years to come there will be more individuals like Oprah Winfrey branding media outlets and channels with their identities rather than conglomerated companies) and I buy the right to broadcast Cheers from the owning company.  My contract says that I want to have a two-episode block at least once every weekday.  That’s 10 episodes a week.  That means that in approximately 6 months I could play all of the Cheers episodes once.  In a year, I could play the whole library twice, giving old and new viewers a chance to re-engage or catch up/on to the show.

               Most of us would make that kind of general time commitment to a TV show that is well made, with handsome recognizable and entertaining people in it and comes on regularly (say while I’m making dinner for my family at 6pm because we always eat at 7pm (as a side note one of the big pushes to the original Oprah Winfrey Show being such a success was her and her team at Harpo Studios push to have it broadcast at the same time everywhere in the country—4pm)).

               On the other hand, something like a daily soap opera like All My Children or One Life to Live has been on for 25+ years, 5 times a week, with no repeats means that there are at least 7500 episodes for each one of those soap series.  Even if we did broadcast in reruns two episodes a day, it would stay take 12+ years to watch it all the way through, to catch up or even engage.  Where and when to start?  (You can also see why there aren’t DVD collections of long running soap operas, there are simply too many episodes to logically put onto DVDs for someone to buy.  But I predict that I the future there will be Video On Demand of them for a dollar or two per episode much like other television shows.  The problem comes into play with such a gargantuan amount of media and a system/company to support and monitor and administrate such an undertaking.  But mark my words, it will happen soon.) 
               This was also Harpo, Inc.’s problem essentially---“time to second and so on level of revenue (re-re-syndication) profiting” from the library of TOWS with 4561 episodes.  The solution was to create an initial summation of 100 episodes as a collection to be rebroadcast and then to re-broadcast whole select episodes every day plus the deal with Sirius XM where, and this boggles even my mind, through a 4 year (which has been renewed, $50 million dollar contract, Sirius seriously rebroadcasts TOWS TV shows on the radio for people to listen to them for a subscription fee!  Harpo Inc was able to solve the problem by repurposing the shows themselves and more importantly establishing conduit relationships with larger and varied distributors and being able to name a premium price for the content.   Yes, the Discovery Channel is paying Oprah multiple times if you count all of the levels of profit lines she’s a part of through that relationship.

               I gave this longer explanation because this was always the problem with the original OWS, at the end of 25 years, she had 4561 episodes in her library of 1 hour shows.  Now her (and her company’s wealth) is based and was created by this library in its first run payments from the distributor (originally King World and then Buena Vista Television and ABC Cap Cities).  Harpo had a contract with this group of companies to produce a certain amount of shows every television season (year).  Originally Oprah was doing about 220 shows every year and essentially selling them.  Starting from 1986 her contract would be in blocks of time---4 years, 5 years, 7 years, etc. but one of the key negotiation points was to do less shows for the same price.

               Back in a 2000 article in Fortune magazine she talked about seeing $50 million dollars a year as a good ceiling for the budget to the amount of shows that her contract made her company responsible for producing and delivering.  By then she was creating 150 shows, which meant that each show had an average budget of $330,000 for staff, guests, etc..  By being the owner, she was able to sell the show to the distribution and broadcasting companies based on the ad revenue and television station revenue.  (Each local TV station has a budget, garnered from local and large advertisers and larger companies (like ABC, NBC, CBS) that might own them and use them as affiliates.  The mark up on TOWS annually could be as high as 450 times in value back to Harpo due to there being a market penetration of 220+ affiliate TV stations plus international licensing, repeats, etc..  Suddenly the velocity and incredible wealth she’s been able to amass makes sense, no?  A truly liberated owner wants to create one thing once and sell it as many times as possible.
               A broader understanding of this comes from Robert Kiyosaki’s Rich Dad series that teaches that most people don’t’ achieve the wealth they want because they don’t grasp and work directly toward such a system as above:
·        getting paid more than once for their work,
·        getting paid ever increasing amounts for their work
·        and getting paid over the course of years for the same work again and again.
               Harpo, Inc. started out getting paid multiple times for each episode and simply lowered the amount of episodes it had to deliver.
               Another feature of amassing wealth is to take money earned from one arena and reinvest it in two ways:
·        Control and ownership of whatever it is you create/your product and/or creating similar and more products of the same time to funnel through your system.
·        Other money making ventures that are reasonably stable and allow for greater increases in time over the initial investment.
               Harpo then turned around and created other shows that it has ownership of  Dr. Phil, Dr. Oz, Rachael Ray, Nate Berkus, etc. and made part of it’s contractual negotiation with all of the partners at the table---“If you want more years of Oprah, you have to take on Dr. Phil---we’ve proofed out his ability and people’s interest in him, we’re walking in the door to you with another guaranteed hit.  But we need the amount of TOWS that you required for our last contract from X to Y  And because we own our work entirely, you’re the “store” we’re comfortable selling in.  However if you don’t agree then we’ll start entertaining offers from other stores to sell our proven products in.
               Sexy, huh?
               So this is the exchange that occurs for 25 years until 2009 and OWN and now the opportunity to not only become the company that owns, creates and sells the products but also a partnership with a huge “store” (Discovery Channel) to sell the products in.  In many ways Discover Channel is like a department store and she has a boutique within it.
               And she’s into her boutique she’s installed a kiosk called Tyler Perry.  The strategy being to draw in not only her viewers but also his from his plays, movies and TV shows.  He’s already got his own library of shows and films so he costs less to produce but more to rent/lease.  The agreement was that he would get a small percentage of the ownership percentage of the boutique/store that he’s now in (as he had been considering starting his own TV network for years.)
               With that we can look at my original predictions in red and the outcomes so far.

OWN Years 1 to 3---they'll have a handful of mini, mid and 1 or 2 large tent poles for the network. 
Ø  Oprah’s Life Class a hit
Ø  Oprah’s Master Class a hit
Ø  Oprah’s Super Soul Sunday a hit
Ø  Oprah’s Next Chapter a hit
Ø  Iyanla Vanzant a hit
Ø  Lisa Ling still a hit
Ø  The Golden Sisters a hit
Ø  The McGhee’s and their babies, a hit
Ø  Sweetie Pie’s still a hit

Ø  Tyler Perry’s The Haves and the Have Not’s a hit
Ø  Tyler Perry’s Love Thy Neighbor a hit
Ø  2 More Tyler Perry Shows as potential hits
Ø  Plus the stable of other shows: Dr. Phil, Dr. Oz, Rachael Ray, Nate Berkus and the original TOWS episodes acting a draws for their respective and collective audiences.

OWN Year 5+---there will be at least 3 to 5 large tent poles as the minis and mids provide enough survival time to grow the big ones.
Ø  The above list of hits continue either directly or in repeats re-runs
Ø  There will probably be at least another two or three hit shows that will slowly roll out and gain an audience.  The greatest challenge for a TV series is to have enough broadcast time for its audience to find it.  But the surrounding support of other hits allows a network to use those profits and attention to give new products a chance to blossom. 

And then comes the real wrinkle.  OWN in Year 7 (2016) the Discovery/Harpo deal is now open Harpo by the original contract signed in 2009 for a 50/50 partnership for Harpo, Inc. to take all of its products, having taken a 50% split on all of the profits (and no responsibility to the over $500 million dollar rolling loans to start and fund all of the programming) to walk away, no harm no foul with full ownership of the shows and profits, no expenses charged against them.  This was the guaranteed back door that was always built into this deal so that if it went south, Harpo could walk away.
               Will Harpo, Inc. re-up it’s deal with Discovery Channel similar to how they each contractual period of TOWS re-negotiate and re-up with King World (for more stock, distribution of other shows and higher fees) and with Buena Vista/ABC Cap Cities---now absorbed into Viacom (for more stock, distribution and broadcast of its products and licensing fees.)  Is the Discovery Channel now the new wedged partner…because logically Harpo, Inc. could now take its huge stable of TV shows and talent and go to another “store” to set up a boutique?
               Recently Oprah announced that she was selling her multi-block buildings in Chicago, the original Harpo Studios to Sterling Productions for $32 million dollars.  Why?  With the majority of her work now centered in California and internationally, is Harpo Studios in Chicago necessary?  Not so much.  The challenge became in 2009 with the TOWS winding down to end in 2011, what business sustain a 4 building campus of studios and offices, including 400+ employees.  So now we see as she reported that Harpo, Inc. now has 200+ employees, the goal was to slim down the company most especially by transferring them to the new base in California at the offices Discovery Channel provided.  It also gave time for there to be multiple established shows with budgets for employees to migrate to and it most importantly not wholly be Harpo, Inc.’s dime that was paying for them.
               But as business has been improving, OWN turning a profit of over $150 million almost two years ago when Comcast, the cable company had to renegotiate for the price it pays to have channels broadcast over its cable system.  Cable companies essentially figure out your cable bill based on the amount of customers they have and the channels figure out form that number how much to charge the cable company (or ask at least).  Discovery Channel has 8 channels through Comcast, Time Warner, etc. and charges Comcast now 15 to 18 cents per viewer/cable subscriber.  That may not seem like much until you see that’s monthly and multiplied by close to 80 million viewers.  Which works out to about $12 billion or $144 billion worldwide.  Suddenly the risk of taking on Oprah and her own channel doesn’t seem as far-fetched as it was originally reported.  The question was never could it be a hit but how it was going to become one and when.
               With the viewership and therefore ad revenues slowly increasing, I predict that it’s a clean re-up, why?  Canada.  India.  Australia.  China.  The Middle East.  South America.  As Americans we tend to not wholly understand that the media products we create go out and fulfill the approximate 3.5 billion people in the world who have regular access to TV, radio, movies, etc.. 
               Therefore, with a renewed contract OWN Year 10 will be a fuller network, right now the entire 24 hour block of possible programming isn’t occurring, less than half actually.  Think of it as a hybrid of HBO and the current OWN--it’s no coincidence that they're in partnership to produce shows on HBO, to learn how to do what HBO has done in 20 years.  But that requires a vehicle, Discovery Channel Channel to distribute to the world.
               In 2023, looking at another contractual renewal, there will be more to negotiate about because OWN through Harpo Inc. will have possibly tens of thousands of hours of television in its library to license out to Discovery Channel or to other networks (think NBC/Universal/USA Network and the Law & Order franchise but Harpo will own it all unlike Dick Wolf, the creator and owner of L&O who has an agreement with only one “store”.)
               The HBO deal represents cross pollination.  The current film that Oprah is co-producing with Steven Spielberg starring Judi Dench are some of those cross-pollinations as she and Harpo, Inc. continuously create more and more products that will generate profit in perpetuity.
               Harpo, Inc. in 2030?
               Oprah will be 76 years old and if you compare that Barbara Walters is currently in her 80s as is Clint Eastwood and Woody Allen in his late 70s, she could conceivably be looking at 76 as the beginning of “retirement”, with maybe 10 more “active” years.  Her net worth will have not only steadily increased by an average of $200 million a year aside from the Discovery Channel and O Magazine (Hearst Publications) deals.  Those two will probably eventually equal then dwarf the revenue and dividends from the original Harpo, Inc. profits from two handfuls of TV shows and movies prior to the 2009 deal.  Remember she’s looking at 50% (less the Tyler Perry small percentage) from 1/7 of the Discovery Channel’s annual payday.
164097_1775945127038_4831652_n.jpg               I’m going to make a bold prediction that she will begin earning $1 billion dollars a year with a re-upping of the Discovery Channel agreement (even more if Harpo, Inc. takes its new cable street cred elsewhere) probably before 2020.
               The advantage Discovery Channel creates is that it's worldwide, that it's 7 channels---that gives a range of billions if viewers around the world. Now at the peak, Oprah was rocking 12 to 15 (upwards of 40+ when averaged by the week) million viewers---to multiply that success over multiple shows/formats is going to take time. She's now arguably getting close to I’m sure one of her considered goals: she had on her show a young Chinese talks how host, Chen Lu Yu.  Her single show has a viewership of 200 million a week in China, while Oprah was doing 40 million a week including America and international markets.
               After 2016, the push is going to become the international market and the billions of potential viewers out there.  Oprah will be able to see her work as a tapestry that reaches billions.  You can kind of see why she wouldn’t want to be President of the United States, it’s too small of an arena with too many government based restrictions.  Her excursions and shows from India example that she can go to a country of 1 billion people and start working the relationship of getting to know them and them her through the saturation of her work and image through the Discovery Channel pipeline.  And something that is often overlooked or downplayed in the Western world is that the majority of the world are one women, and two, not White women.  O  Magazine, selling 2 to 4 million copies a month is also acting as a passive advertisement to the rest of the world, as several years ago she launched a South African version of the magazine.
Chen Lu Yu of China 
(on a set that looks a lot like the Oprah Winfrey Show)

Thank you,
Kyle Phoenix
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(This blog was originally in answer to a commentary system on ( concerning The OWN Network and some responses ideas etc. there.)