Ownership of Self /Products
Most entertainers don’t own their work. In it’s entirety. The reason why is simple, it’s costly to produce and distribute work—-film,TV, radio, the internet one of the few recent democratizers in the 21st century of cost to distribute.
For 25 years the Oprah Winfrey Show was produced, to the total of 4500+ shows after Oprah and Jeffrey Jacobs, lawyer and eventual President of Harpo, Inc.renegotiated the initial contract she was offered of $250,000 a year for 4 years for what would have been 800+ shows. As just the Talk Show Host. By renegotiating and establishing a company that would solely own the show and produce it, she/Harpo, Inc., took on the responsibility of housing and producing a show—-directors, producers, guests, etc.—-all the things a TV studio requires—-plus equipment.
What Jeffrey did was essentially estimate the revenues that King World, the distributor and ABC/Cap Cities—the TV network——would earn in the totality of the show then—1986, approximately $120 million and negotiate for 1/4 of it as the show was one fourth of the element of production.
$30 million, per year. For Years 1–4, for approximately 220+ shows to air daily, at 4pm across 226+ markets (TV zones/TV stations) across teh USA and then eventually 140+ countries.
Like an IPO, Oprah and Jeffrey went on the road and got investments to build a studio, first renting space and equipment, before the show was even broadcast.
TV Markets
Essentially there are markets or stations in every region of the country. There were 220+ throughout the USA then. Each one of those stations, based upon advertising dollars pays the Production Studio/Distributor a fee for episodes or packages of shows that air. The deal was that instead of King World having to assume responsibility, Harpo, Inc. would, for getting the show to the stations/network (ABC/Cap Cities—-the umbrella network to bundles of stations). For that effort, Harpo got its 25% cut as it solely owned, and therefore controlled The Oprah Winfrey Show.
Every contract negotiation with King World and then ultimately with ABC Cap Cities, whom the bundles funnel money to network distribute, then cuts KW 220+ checks—-and KW then splits off Harpo’s share—-Harpo would renegotiate the amount of payouts.
Ownership happened incrementally from KW to Harpo.
- Year 1–25%
- Year 2–50%
- Year 3–75%
- Year 4–100%
Year 4 the contract is coming to a close but by then Oprah is a hit, Donahue has folded and now Harpo can really renegotiate because it has full ownership of itself and a fully operation studio and most importantly a valuable salable product. ABC/Cap Cities, even King World, aren’t the only broadcast/distribution game in town (on TV) so KW, the distributor, is pressed to lock Oprah down into their own contrcats. The boon to Oprah was that King World was also the creator/owners/distributors of Jeopardy and Wheel of Fortune—-this allowed a “natural” TV bloc from 12 noon of Ryan’s Hope, Loving, All My Children, One Life to Live General Hospital and then Oprah, Local News
The next times of contract renegotiation—-in increments of 3, 5, 3, 2, etc. years—-Jeffrey Jacobs negotiates for pointed changes.
- Years 1–4 was 220+ shows a year.
- Years 5 to 25 and onward 200, 180, will be less shows but for the same 25% cut of teh entire pie revenues—-the numbers steadily going downward until the final two years was 130 episodes due a season (year.)
Why?
The value of the shows increases when you make less but at the same valuation budget. So by the end the show had balanced out at a $50 million dollar season production budget.
$50 million divided by 220 episodes= $227,000 valuation an episode.
$50 million divided by 130 episodes= $384,000 valuation an episode.
Now calculate at the $384k valuation each show times 4561 episodes=$1,751,424,000.
Which is how she became a billionaire.
But you can’t pay Harpo entirely in cash, so one of the things they began negotiating for was stock in King World and ABC/Cap Cities.
Eventually Paramount buys KW and Disney ABC/Cap Cities and then Viacom buys Paramount.
Which means that Oprah owns a piece, a large percentage, between 2%-5% of ViacomCBS because her shares of the previous companies were converted to Viacom shares and Disney shares.
Selling Your Product Again
The challenge of having this library as an asset was that yes, it has this value. Yes, there is stock that you can borrow against for cash, you have cash in the bank, you can even sell some shares for cash but you still have this library of assets sitting on servers and in storage rooms.
What to do?
Along comes Discovery Networks and offers Harpo one of it’s 8 channels to brand with Oprah and do as she likes. To infuse Oprah with it.
She can then produce new content for Discovery—-keeping a large portion of her staff employed and Harpo productive and profitable without out of pocket expense as Harp itself is restructured beyond simply being a company that produces Oprah present content. The issue Harpo was always worried about was that so much of their content was Oprah dependent. They needed to get into the production/film business and have it be Oprah blessed/sanctioned/produced—-with them moving their viewers and subscribers from the show and magazine to this new content.
Harpo turns and says what we’d like to do is re-play our shows on the channel continuously and re-splice segments of them into a 100 episodes. A Best of Collection of shows. She has so much content that she’s eager to replay it somewhere and she already has a valuation on episodes of what to charge a network.
Now here’s where it gets fun. The Harpo deal with Discovery is simple—-
- Discovery puts up the channel, the distributor, the cash, the infrastructure, finds the advertisers and
- Harpo will put up Oprah and slowly integrate the Harpo staff from Chicago to the new California OWN offices (whomever wants to come).
The future lies in California, closer to not only Discovery but also other studios, the Chicago Harpo studios, which take up four city blocks, without The Oprah Winfrey Show as the cash cow, aren’t worth keeping open. The cost of shipping everyone to Chicago when space is available around the country/world as a production studio that will provide 20+ hours of shows, means that Harpo is no longer a stationary company.
Oh, and Oprah has moved to California to a big estate. Harpo follows her.
There is already another deal with Sirius XM to rebroadcast old TOWS and new radio shows with her and her friends for $50 million dollars. This will act as two things—-bridge money and advertisement for the OWN Network itself.
Discovery puts up the cash, totaling between $330 to $500 million, over the course of several years to develop 20+ hours of programming.
But, consider this, there are now 30–50 shows that Harpo has produced to go onto OWN. As a production studio it still makes a revenue profit as it sells the shows to the network, Discovery/OWN, and Discovery foots the bill to buy them—-the charge going back to Harpo as revenue. In essence Oprah owns half of the store that buys exclusively from her that she didn’t have to put any money into…and she has a high level of control over what the store buys from her.
With this level of leverage she’s able to bring in Tyler Perry (he gets 9–10% of the 50/50 split from Harpo Discovery deal as an ownership stake), Ava Duvernay (gets a full wraparound do whatever you want deal), Iyanla Vanzant and stellar others (this takes time—-the first 1–7 years of the initial Harpo/Discovery) to develop scripted television to slowly build the stable of shows for viewers, to find the right mix.
Harpo—-50% owner of Rachael Ray, Nate Berkus, Dr. Phil and Dr. Oz’s shows is also able to bring/sell/lease that full library to Discovery as well.
But where does Discovery get the money from to buy shows from Harpo? And eventually other studios, like Tyler Perry Studios?
You Give Oprah Some of Your Paycheck
OWN: The Oprah Winfrey Network
In 2011, Oprah bid goodbye to her daytime TV show and launched the cable channel OWN in partnership with Discovery Communications. In December 2017, Discovery purchased 24.5% of OWN from Oprah, leaving her with 25.5%. Forbes estimates that Oprah’s share of OWN is worth about $75 million.
Profits from 25 Years Of The Oprah Show, Reinvested
Forbes estimates that profits from over 25 years of the successful Oprah show, plus profits from films like The Color Purple, Beloved and Selma (which her Harpo Productions co-produced) add up to nearly $2 billion, after taking out estimated taxes and assuming that the funds have been invested over time. Harpo itself is likely worth another $150 million.
In 2015 the cable licensing fees are renegotiated across the board.
Essentially how cable TV works is say you pay a flat fee of $100 to your cable company, let’s say on Time Warner/Spectrum, for all the Basic and Premium channels. The networks themselves then deal with the cable companies for the price/piece of what they sell, what the agreement is with Time Warner and what Time Warner pays per channel.
Discovery is paid $0.15 x 8 (channels) or from $1.20 to $1.50 per subscriber per month, that they can show comes into, uses/watches their channel, that it is offered to. This is why cable companies have a box that broadcasts and measures who’s watching what so that they can figure out how much they owe to whom based upon popularity and agreement. But unlike TV network ratings—-where popularity is paramount to success, agreement is paramount in cable TV world.
For simplicity sake, let’s say there are 100 million subscribers to Discovery’s 8 channels as part of the package deal with Time Warner, RCN, Comcast cable companies.
Every month Discovery gets a check for $150,000,000.
Every month Discovery then divides that by 8.
OWN/Discovery Channel # 8 gets $18,750,000 a month,
$2,062,500-Tyler Perry’s cut (9-10%) per month
$9,375,000-Oprah’s cut (25.5%) per month
Discovery takes the remainder per month.
$225,000,000 per year which if you divide it, splitting profits after Discovery covers costs—-is $112,625,000.00.
Now reel it back to TOWS days, a $50 million dollar budget against profits, at 1986 rates of $120 million. By 2011, over $200+ million a year.
But that $112,625,000.00 has to cover Discovery’s nut and then Harpo’s production cost for all of the shows it’s producing for the network.
How did Oprah Winfrey become the only female African-American billionaire on the Forbes list of America’s richest? Decades of hard work, building her daytime Oprah talk show into a must watch for her core audience.
Forbes has been tracking Winfrey’s fortune since 1995, when she joined The Forbes 400 list of richest Americans with a net worth of $340 million. Today she’s worth an estimated $3–4 billion.
She then renegotiated Harpos’ contract with Discovery to shift her ownership stake from near half to reduce her ownership stake to 25.5% because Discovery was taking over Scripps TV and needed to essentially in a very simplistic financial explanation way “puff up” it’s size/value.
So Discovery buys out her percentage down to 25.5%, valuing it at $70+ million BUT to re-compensate her in their need to puff up, they hire her as the CEO of her own partnership venture and her annual salary for the 7 years of her contract from 2016 on is $70+ million a year for 7 years PLUS her company gets the accruing value of her 25.5% ownership stake/value in the company she runs.
PLUS all of the shows on OWN are either from her initial Harpo stable of partnerships or new shows where she gets a production piece of each, with Discovery putting up more than 60% of the cost/expenses AND providing OWN with a building/studios at no cost to Harpo.
She then sold and demolished the Chicago studios to McDonald's for $32 million.
Harpo then turns to Apple TV, having proven themselves in the TV, radio, magazine, film and cable arena and says we have both content and viewers/paying subscribers so let’s make product on your platform that serves 1 BILLION viewers around the world.
So let’s say Oprah/Harpo brings from all of this a minimum of 2 million new subscribers a month to Apple TV $4.99 to $9.99 for Premium subscription—-that’s $10–20 million a MONTH. $120 million a year in probably a 3–7 year deal.
Harpo can probably pull together a consistent 2–4 million.
$250 million a year from Apple TV
$100 million+ a year from Discovery (plus ever increasing value of the remaining 25.5%)
Then there are the other ventures, that synergistically push revenue and support back into Harpo.
Here’s a guide to her assets:
Weight Watchers
Winfrey bought 10% of the weight loss firms’ shares in October 2015 for a total of $43 million, paying $6.79 a share. Looks like she bought in at the right time. As of late Tuesday January 9, the shares are worth more than 8 times what she paid for them – a total of $365 million.
Real Estate
Winfrey’s 42 acre estate in Montecito, just south of Santa Barbara, is assessed at $95 million. Other properties she owns in Santa Barbara, Maui, Colorado and Nashville are worth another $117 million combined, at least. Total estimated real estate holdings: $210 million.
And all of these assets is INCREASING in value, slowly but surely.
Next time you pay your cable bill, know that you just slipped Oprah some cash.
Or download on ITunes (you know Harpo gets upfront payments for production from the Apple coffers right?)
An excellent long term business strategy that will eventually eclipse others as Harpo pulls in hundreds of millions, half a billion a year.
The below answer goes into the intricate history of setting Harpo up to be able to so deftly do the above.
Kyle Phoenix's answer to Why is Oprah Winfrey so rich?
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Smile, Kyle
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Kyle Phoenix is a teacher, certified adult educator, sexologist, sex coach and sexuality educator with over two decades of intensive experience. He studied at the University at Buffalo, SUNY, New York University, and Columbia University. He has worked, consulted and taught individuals and focused professional developments for the CDC, Department of Education, Gay Men's Health Crisis, New York City Department of Health, non-profits, Fortune 500 companies and unions. He began his career facilitating on-campus workshops addressing a wide range of sexuality and sexual health issues and then moved on to teaching at universities, non-profits, private groups and clients, hosting The Kyle Phoenix Show on television and multiple online webinars, including YouTube and Sclipo and writing extensively through his blog, Special Reports, articles and other print and E books in the Kyle Phoenix Series on relationships, finance, education, spirituality and culture. He lives in New York with his family.
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