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Many people do not understand how Oprah became so rich.  The confusion is understandable because I don’t think any other popular TV star has ever been officially declared a billionaire by Forbes (though Merv Griffin and Bill Cosby both made the Forbes 400).  According to Forbes, almost all of Oprah’s wealth was made from her syndicated talk show The Oprah Winfrey Show which ran from 1986 to 2011.  That wealth can be largely explained by four things: 1) ownership, 2) syndication, 3) longevity, and 4) timing

OWNERSHIP

When Oprah first came to Chicago to take over a failing morning talk show, her agent was very popular and people would tell Oprah what a great guy he was.

This is where social IQ is extremely important to getting rich, because Oprah asked herself, why would three separate network people go out of their way to tell her how great her agent is?  Oprah shrewdly realized that if the agent was really advancing her interests, he wouldn’t be so popular with her network bosses, so she fired him.

Oprah then went hunting for the toughest agent in town.  She had heard that a Chicago lawyer named Jeffrey Jacobs was a “piranha” and settled on him.  Because Oprah’s ratings were so incredibly high, Jacobs was able to negotiate something better than money: ownership of the show, the production company, and syndication rights.  Because the network was not legally allowed to syndicate Oprah themselves, they agreed to give Oprah the syndication rights on the condition that ABC owned networks get first crack.

SYNDICATION

Social IQ may help you hire the right agent, but at least some math IQ is needed to understand the business.  Oprah’s biographer George Mair writes on page 103 of Oprah Winfrey: The Real Story:

The arithmetic of syndication is not that hard to understand.  Somebody owns a television show and rents it to stations that sell commercials in the show.  If it’s a dramatic show or comedy like Hill Street Blues or Cheers or The Cosby Show or I Love Lucy, it is largely timeless and may run forever.  The only caveat is that you need enough shows “in the can” to go into syndication, because while the show was originally shown once a week, in syndication, such shows are usually shown on independent stations every weekday in the same time slot…Syndicating Oprah is simpler because she does five shows a week…

On page 105-106 Mair writes (as of 1994):

Oprah will appear on approximately two hundred stations each week, which will pay King World between $100,000 and $200,000 per week for five shows.  The figure varies with the size of the audience in each market.  The $200,000 figure is quite high, and that is the amount the ABC station in Los Angeles, KABC-TV, has agreed to pay under the new contract, due to run through the 1994-95 season.  It was forced to pay this amount in the face of strong counterbid from the rival CBS station.  Similar competition occurred in other markets where CBS faced ABC because The Oprah Winfrey Show served as a lead for two long hours of local news.  As noted elsewhere, this programming sequence helps build local news ratings.

If you use the lower figure of $100,000 and multiply it by the approximately two hundred U.S. stations buying Oprah, you see how King World grosses $20 million a week on the Oprah Winfrey Show, against which the production cost of the show runs about $200,000 a week.  Thus, low-cost shows sold to hundreds of stations can make a fortune for the participants and the star.  Even if the program is not as highly rated as the Oprah Winfrey Show, it can make a lot of money, which is why everyone wants to get into the syndicated talk show business.

 

The difference between syndicating a show and running it on a major network is the difference between retail and wholesale.  When TV stations are negotiating how much to pay for a single show (syndication) they will pay a lot more per show than when they are negotiating how much to pay for a whole network of shows, for the same reason you’ll pay a lot more (per movie) to rent individual movies than you’ll pay to stream a whole library of movies on Netflix.  This explains why Leno and Letterman (who were tied to networks) were never in the position to become billionaires.

The Oprah Winfrey Show is hardly the only show to strike syndication gold. Seinfeld reruns have generated  $3.1 billion just from repeating the same 180 shows over and over again, every weekday for 15 years in syndication.  Of this, Jerry Seinfeld and Larry David were paid $400 million each (before taxes).  Although Seinfeld is nowhere near a billionaire like Oprah, he actually made more money per episode just from syndication than Oprah ever did and that’s largely because sitcoms are able to rerun far more than talk shows can without losing their appeal.

LONGEVITY

The third key to Oprah’s incredible wealth is her staying power.  In a field where we’re always looking for the next hot thing, remaining the #1 talk show in syndication for virtually 25 straight years was a virtually unparalleled show business achievement.  This allowed the syndication dollars to accumulate year after year, and put Oprah in the position to negotiate increasingly favorable contracts with her distributer King World.  For example, before 1994, King World received 43% of the operating profit from the Oprah Winfrey show.  But when Oprah renegotiated her contract in 1994, their percentage gradually dropped to 25%

TIMING

The fourth key to Oprah’s success was timing.  Her show’s popularity peaked before the rise of cable television and the internet.  Because the audience was much less fragmented in Oprah’s heyday, she was averaging 12 million U.S. viewers per day in the early 1990s, but by the time she ended in 2011 she was averaging six million.  And yet even with six million viewers, she remained far and away the highest rated talk show in syndication.  She was still the biggest fish in the pond, but the pond had shrunk dramatically and she was lucky to have dominated the medium at the peak of its power.  It’s interesting to ask whether we’ll ever see another Oprah, or perhaps the media has become too fragmented for any one personality to achieve such a large and loyal audience for so long.