Case Study The Frasier Negotiation Guhan Subramanian Douglas

Case Study: The Frasier Negotiation Guhan Subramanian Douglas Weaver Professor of Business Law, Harvard Business School Joseph Flom Professor of Law & Business, Harvard Law School August 2017 Copyright © President & Fellows of Harvard College.

Frasier Press Coverage Like a mighty fortress on a bluff, impervious to attack and threatening to all that dare to invade its territory, NBC’s Thursday night lineup has towered over the rest of the television industry through an entire generation of viewers. . It has been armed with the biggest guns in the business: “E. R. , ” “Seinfeld, ” “Friends, ” “Cheers, ” “L. A. Law, ” and a roster of hit shows going all the way back to “The Cosby Show” in 1984. Now NBC’s total command of Thursday -- and the massive advertising revenue that pours in because of it -- is being challenged, and the stakes are enormous. NBC draws more advertising money on Thursday night than on all other six nights combined, according to several current and former network sales executives. The challenge, by CBS, sets up the most important battle in recent prime-time history. Source: New York Times (Jan. 18, 2001)

Core Party Map Viacom Sumner Redstone CBS Les Moonves Nancy Tellem NBC Bob Wright Paramount Television NBC West Coast Kerry Mc. Cluggage Gary Hart Marc Graboff Scott Sassa Jeff Zucker Kelsey Grammer ABC

Patterns of Concession #1 NBC Offers #2 #3 $8. 0 “floated in the press” $6. 0 $4. 75 #4 #5 $5. 0 Impasse at $5. 0, $5. 5 MM “best and final” offers Paramount Offers

Negotiating Process 1. Month-long exclusive negotiating period. 2. If no agreement by the end of the month, Paramount submits a Last Offer to NBC. 3. If NBC accepts, then deal. If NBC rejects, then Paramount can shop the show to other buyers. 4. If Paramount reaches a deal with someone else that is less favorable (to Paramount) than the Last Offer, NBC can match. 5. If Paramount reaches a deal with someone else that is more favorable (to Paramount) than the Last Offer, NBC has no right to match.

Frasier Aftermath (Part I) Deadline expires but Paramount does not make a Last Offer to NBC. Negotiations continue with new issues: • Cancellation right if Kelsey Grammer or David Hyde Pierce leaves • Price reductions if other stars didn’t return • Reduction in the number of episodes to be purchased if Writers Guild or Screen Actors Guild strike • NBC gets some re-run rights March 5: NBC and Paramount agree on purchase price of $5. 4 million price per episode, for three years.

Frasier Aftermath (Part II) Kelsey Grammer “ecstatic” that Paramount and NBC reached a deal: “spent last month biting my nails, lost in controlled frenzy” June 6: Paramount reaches deal with Grammer to keep him on Frasier for NBC extension period • Fee: $1. 6 million/episode • Makes Grammer highestsalaried TV actor in history!

Frasier Party/Issue Sequencing Paramount Step #2: License fee Dev. Commit. Strike Protection Actor Protection KG & DHP guarantees Step #3: KG guarantee KG compensation NBC Step #1: Threeyear pickup guaranteed Kelsey Grammer

Step #1 Revisited “Scott went and talked to Kelsey, and asked him squarely, ‘Is three years really that important to you? ’ And Kelsey basically said, ‘Look, at the end of the day, you’re not going to be embarrassed here, because we’re not going to do it just to do it. ’ So that gave us the comfort we needed to say okay, the issue was off the table. ”

Frasier Ranking 1994 -2004

Frasier Epilogue Boston Globe (May 16, 2010): “The final years of Frasier. . . were lackluster and obligatory, with repetitive story lines and tiresome fallout from the union of Niles and Daphne. By the time Frasier ended in 2004 after 11 seasons, everyone – those on the show as well as viewers – seemed more than ready to let it go. . ” Compare: “Look, at the end of the day, you’re not going to be embarrassed here, because we’re not going to do it just to do it. ” (Kelsey Grammer, 2001)