Louis C.K.’s revelation that he’s now “millions of dollars in debt” as a result of his decision to self-finance Horace and Pete hit the internet earlier this week like a splash of cold water. Just weeks after C.K. pulled a Beyoncé — unveiling his dark comedic drama on LouisCK.net with no advance notice — the notion of DIY TV, of big-name creatives bypassing the traditional studio system in exchange for complete creative control, suddenly seemed doomed. You could almost hear Rupert Murdoch, Bob Iger, and other media moguls chortling with delight over the C.K. “collapse.” And yet here’s the thing: The fact that Horace and Pete is still very much in the red doesn’t by itself make the series a cautionary tale for producers looking to go indie. It actually makes the show just like virtually every other prime-time series ever made.
The day C.K. confessed his financial challenges to Howard Stern, New York Times TV critic James Poniewozik pointed out via Twitter: “Good TV costs. Freakin'. MONEY.” Exactly how much, of course, depends on the kind of show (comedy, drama, late-night sketch), the ambition of the series (Game of Thrones–level spectacle vs. a half-hour sitcom shot within the confines of a couple of soundstages), and the level of above-the-line talent involved (Big Movie Star or fresh-faced stand-up comic). But one constant across genres is that the studios that make TV shows — Warner Bros. TV, 20th Century Fox, Sony Pictures TV, ABC Studios, etc. — almost always lose money on their productions, at least initially. That’s because networks such as AMC, CBS, or FX essentially lease shows from studios: They pay for the right to air every episode two, three, or four times during the course of the year, and then ownership of said series reverts fully to the studio that made it. Just as an auto dealer that leases a car doesn’t expect a consumer to pay the full cost of a vehicle, studios understand networks aren’t (usually) going to pay them exactly what it costs to make every episode of a show.
Studios aren’t charities, of course. They deficit-finance their shows in anticipation of making a long-term profit by selling secondary (and often tertiary) rights to episodes. For decades, the path to profitability was pretty simple: Make enough episodes of a show — usually around 100 — so that local TV stations and, later, cable networks would pay significant sums for rerun rights. You know why Law & Order creator Dick Wolf is probably richer than Donald Trump? All of his shows play endlessly on cable and local stations, long after they first aired on NBC. Wolf doesn’t own his shows outright, but he does have a massive deal with the studio that does, Universal Television. Studios such as Universal are willing to sell their shows to networks at far less than full cost because they know they’ll end up making money in what’s called the “back end.” They’re essentially betting on their programs being good enough to have long-term value in the TV marketplace. (Of late, networks have increasingly turned to buying shows from studios they own, blurring the lines between buyer and seller. But even if it’s only on paper, there’s still a divide between the two elements of the financial equation.)
In the case of Horace and Pete, the studio making the show is, essentially, Louis C.K. And the network? That would be anyone who’s paid for one or more episodes of the show. C.K. self-financed his show, and by offering it directly to consumers, he basically allowed us all to play Leslie Moonves: We decide whether or not H&P deserves a weekly time slot on our own personal viewing schedules. And just as the more traditional networks that pay a premium for the right to air a show first, C.K. offered fans the chance to see H&P first at a bit of a premium: $31 for the 10-episode season, with each episode delivered almost immediately after it was filmed and edited.
According to Variety, C.K. told Stern he made H&P for around $500,000 per episode, which would translate to around $5 million for the first season. That’s much cheaper than a typical TV show. On average, industry insiders say a network drama comes in around $4 million per episode, give or take a few hundred thousand dollars, while a half-hour comedy might cost between $2 million and $3 million. In order for C.K. to have broken even on his show at the production cost he quoted Stern, he’d need to get just shy of 162,000 people to buy the full season for $31. That’s not a small number of people, but it’s also not entirely unrealistic. Back in 2011, before all of us were used to streaming full seasons of shows via Netflix, C.K. told Jimmy Fallon that 220,000 fans had paid $5 to download one of his comedy specials. Five dollars is not $31, of course, but C.K. had reason to think he had an audience for his show.
And yet, here’s the thing: While “Louis C.K. in Debt” made for great headlines Monday, C.K. himself actually made it clear he wasn’t crying poverty or admitting defeat in his bid to bring Horace and Pete directly to consumers. He also told Stern he thought he stood a good chance of making a profit on his show by the end of the summer and that “of course” he would be selling rerun rights to H&P to “another outlet … down the road.” In other words, just like any studio that deficit-finances a series in the hopes of making money by lining up multiple homes for its show, C.K. knows that he’ll need to let H&P live beyond its original network (i.e., his hardcore fans). The good news for C.K. is that, according to industry sources, there’s already interest from some networks in buying into the show.
It remains to be seen just how much money these networks will be willing to pay, of course. Emmy nominations and future PR for the show could also result in a spike in online sales. And while C.K. isn’t going to get Dick Wolf–rich from this project, he’s not going to end up in the poorhouse. Studios don’t always make back their money on individual series, either. A show canceled after four or five episodes, for example, will never make its money back. But studios have diverse portfolios: A big hit pays for a number of smaller losses. C.K. — artist, owner, studio — also has multiple revenue streams as part of his own personal business model. He can (and will) tour; he can sell more stand-up specials; he can make more programming for FX, where he has a first-look deal. In other words, Louis C.K. is not going to end up going broke because of Horace and Pete. Like any big company that has made TV over the decades, he just might have to wait a while to recoup his investment.