I’ve never understood it. Is it based off of viewership? If so how does that work? I’m not paying a fee to watch individual episodes. Does it comes from Advertisements? If so, why would it matter how many people watch the show?
In: Economics
A toy maker (TV studio) makes a toy (TV series), and a teacher (the tv channel/network) decides to rent it to show to their students in their class (the tv audience), paying me an amount (license fee) that does not always cover the cost of making the toy (production budget). The teacher makes back the cost they paid me, by showing ads to the class while showing off the toy (like NBC), or by charging an admission price for students to see the toy (like Netflix).
The teacher and the toy maker usually negotiates how long the teacher owns the right to show off the toy to the different classes they teach (number of years on a single network), and in how many schools they can show it to (international distribution). The toy maker can decide to sell the toy to other schools (countries) by himself, but teacher will ask to lower the price he pays, since the toy is not exclusive to them. The toy maker then lower the amount they make back from the cost of making the toy from the teacher alone, but also increases the likelihood of them making even more money by selling it to other schools. The teacher can also pay a higher price in order to be the only person who is allowed to show off the toy to students.
After the number of years the teacher agrees to rent the toy expires, the toy maker gets the toy back, and is allowed to then rent it to other tutors (cable channels, or other distributors) to increase the toy maker’s profits. Sometimes, the toy maker (ABC Studios), works for the school (Disney), that the teacher (ABC Network) also works for, but is allowed to sell it to another school (NBC), because the toy was not right for the school they work for. At the end of the day, the toy maker will usually end up with the rights to the toy.
For example, Friends was made by Warner Bros TV Studios, but was broadcast on NBC. All advertising on NBC went to NBC. When Friends was “rented” to Netflix, the profits go to WB, not NBC.
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