Heart-stopping 'ER' deal
Peacock coughs up $13 million per episode to keep series
Sources Wednesday said the Peacock agreed to pay an unprecedented $13 million per episode to keep the drama through the 2000-01 season. That fee more than doubles the previous series license fee record of $5.5 million for NBC's "Seinfeld," and it multiplies the previous "ER" license fee more than eightfold.
The "ER" renewal, which also ensures the show will remain in the Thursday 10 p.m. timeslot for the next three seasons, caps a week of TV dealmaking unseen since the first week of August 1995, when Disney bought ABC and Westinghouse bought CBS within a matter of days. Earlier this week, the NFL negotiated broadcast and cable football rights worth $17.6 billion over eight years.
"There are certain properties that are so unique and so deliver a large-scale audience that you must have them," said NBC West Coast president Don Ohlmeyer of the "ER" deal. "It's expensive, but it's not inappropriate based on what we've made over the years, and we'll continue to make money."
The astronomical deal, which neither NBC nor producer Warner Bros. would confirm, will cost the Peacock web $286 million per year for 22 episodes, and $858 million over the three-year term of the deal. According to an estimate from Merrill Lynch analyst Jessica Reif Cohen, the new "ER" price is equal to more than half the estimated $500 million in profits made by the NBC network last year, not counting the owned-and-operated stations.
Adding to syndie take
Warner Bros. will add the $13 million per episode to the record $1.2 million per episode generated selling off-net rights to the Turner Entertainment Group, and the additional barter ad revenue the studio will receive when "ER" debuts in weekend syndication this fall.
"This 'ER' deal is incredible news for Warner Bros.," Reif Cohen said. "This is the NFL of primetime entertainment. It's $200 million in profit that's going from one pocket to another."
The new price for "ER" is, in fact, costlier than the $217 million per year NBC had paid for the AFC football package it recently lost to CBS, which will pay $500 million a year. NBC executives, though, deny that the network sacrificed football to keep "ER," and Ohlmeyer said NBC was bidding for ABC's "Monday Night Football" package Tuesday even after the ink on the "ER" deal was dry.
He added that NBC wanted to be sure to lock up "ER" "sooner rather than later because if we had gotten 'Monday Night Football,' we didn't want a crazed ABC out there looking for 'ER.' "
Robert Daly, chairman and co-CEO of Warner Bros., said negotiations with NBC were very quick and cordial, and both sides wanted the show to remain at NBC. It took less than a week of talks for the two sides to reach an agreement.
No stray cuts
Daly and Ohlmeyer both said the deal was "clean" and did not involve giving the studio a cut of any ad revenue or any series pickups -- although NBC has ponied up several other large commitments to Warner Bros. in recent months.
Because Fox and CBS had both publicly stated their interest in snagging "ER," Warner Bros. could easily have started a bidding war by stalling until March when NBC's exclusive negotiating window ended.
"We were prepared to move the show if NBC didn't come up to what we considered fair market value," Daly said. "But we ended up exactly where we wanted to be. We did not want to start the 'ER' watch Feb. 1."
Daly added that his studio has sucked up a deficit on "ER" for four years as he watched NBC make millions: "We never renegotiated. We had to give the talent more money, and we did it. We didn't ask NBC. We believed in the show, and we made the decision to wait."
That waiting certainly paid off. The leverage, in fact, shifted dramatically toward Warner Bros. on Christmas Eve when Jerry Seinfeld told NBC that this season would be the last for his show.
Fiscal folly?
Chuck Bachrach, executive VP and director of media and programming at media buying firm Rubin Postaer & Associates, called the "ER" deal "fiscally irresponsible" and "almost as stupid as the sports commitments." And yet, he conceded, "They can't afford to lose 'ER' and 'Seinfeld' in one fell swoop."
Ohlmeyer said the loss of "Seinfeld" didn't necessarily change the value of "ER," but it certainly "shifted the dynamics somewhat. You're never going to want to lose 'ER,' but I think not having 'Seinfeld' turned the Bunsen burner up even more."
Clearly NBC wasn't thinking in the $13 million range as recently as November, when NBC Inc. president and CEO Robert Wright told the New York Times that $10 million an episode for "ER" "would be just awful."
"The thought of an enormous license fee is awful," Ohlmeyer said Wednesday. "I understand Bob's point of view. It's an expensive deal. Anything you pay is more than you'd have wanted to pay."
Even if ad rates on the show rise above their current $1 million per minute estimated rate, most analysts believe NBC won't make much if any money on "ER" from ad revenues. Paine Webber analyst Chris Dixon estimates NBC will lose between $200,00 to $300,000 per episode, and if ratings drop, the web could lose more.
Demo divinity
But the value of "ER," which averaged 32 million viewers a week and a 17.2 rating and 44 share of the key adults 18-49 demo, goes beyond the ad revenue generated by the show itself. Because NBC packages "ER" with other shows, it boosts ad rates for weaker series; it provides a phenomenal lead-in to local news on NBC affiliates and O&Os, and it partially accounts for Jay Leno's top spot in the latenight race. It's also a strong promotional platform for other series.
Even so, Ohlmeyer conceded, "Clearly we have to find some revenue streams to replace the enormous profit we were making on 'ER.' "
One likely scenario is to ask NBC affiliates to pitch in, either by shifting ad time back to the network or through other means. Already, NBC is forming a proposal to reduce affiliate compensation in exchange for longer-term contracts, which could save NBC $200 million a year.
"Our affiliates are making a lot more money today than they were five years ago," Ohlmeyer said. "As we go forward, there are adjustments that need to be made. We're at somewhat of a disadvantage because we pay a lot of money in compensation to our stations. Fox doesn't pay anything at all, and we're competing with them for the same rights."
NBC and the business in general will be feeling aftershocks of the "ER" renewal for years. Some agents speculate that cast members will demand raises when their current contracts expire, although George Clooney is locked up through next season and Anthony Edwards through the year 2000.
Harold Vogel, entertainment analyst at Cowen & Co., said he fears that "all program rates are rising faster than the ad income. The implication is that everything else is going to cost more now. That's the problem. At what point do the shareholders see lower profits?"
(Richard Katz in New York contributed to this report.)
