In the summer of 1984 Oprah Winfrey was riding high. She was already Chicago’s most popular TV talk show personality, having just knocked Phil Donahue off his throne.
WLS-TV, the local ABC affiliate that produced her show, was paying Winfrey $230,000 a year, and her longtime agent had negotiated a four-year contract with annual salary hikes of $30,000.
As she tells it, she was pleased at first but then began having second thoughts. “Three separate [ABC] people stopped me to tell me what a great guy my agent was,” Winfrey recalls, “and that didn’t make sense to me.” Why were people going out of their way to praise the fellow? Winfrey’s natural skepticism was aroused. She sacked the agent.
She replaced him with a Chicago lawyer named Jeffrey Jacobs. “I’d heard Jeff is a piranha,” she says of her choice. “I like that. Piranha is good.”
That key decision turned Winfrey from employee to capitalist and vaulted her out of the ranks of the merely well-paid into The Forbes 400. Her show now airs on more than 200 stations in the U.S. and in 117 foreign countries, and earns Winfrey more than $70 million a year before taxes.
But it’s ownership that has made her rich. Thanks to her new agent, Winfrey owns not only the program but also the studios in which it is produced, and a big stake in King World Productions, the company that distributes the show. Her net worth is now estimated by Forbes at over $340 million. Winfrey is the only performer on the list this year. Such is Winfrey’s importance to King World that the mere rumor she might discontinue the show, printed in the Wall Street Journal, hurt King World’s publicly traded stock.
What made Winfrey kick over the traces of her old agent and her seemingly lucrative contract? “I had to get rid of that slave mentality,” she says. “That’s where Jeff came in. He took the ceiling off my brain.”
Winfrey’s previous agent had given the local ABC station the rights to syndicate the Oprah show. No surprise that Winfrey gave them up. Her first syndication attempt—her earlier show, People Are Talking, on WJZ TV in Baltimore—made it to only 13 cities before it was pulled.
But Jacobs sensed he could do better with Winfrey’s new AM Chicago show and started looking for ways to retrieve her syndication rights. In 1985 he asked WLS if he could take AM Chicago, renamed The Oprah Winfrey Show that year, to the independent market. The bosses at ABC let Jacobs peddle the show outside the Chicago market as long as ABC stations got first crack. Prohibited by law from syndicating, ABC had nothing to lose and something to gain. Once ABC agreed, Jacobs brought in King World Productions as distributor.
Winfrey then got a break: She was picked to star in the film The Color Purple. When her talk show went back on the air in the fall of 1986, she was a bona fide Hollywood celebrity. Ratings for her talk show climbed rapidly.
With King World Productions selling it hard, Winfrey’s show earned $115 million in revenues during its first two seasons. Jacobs returned to the bargaining table, wrestling ownership of the Oprah program from WLS, having already extracted a heavy cut of the show’s profits from distributor King World.
Last year The Oprah Winfrey Show took in $196 million in gross proceeds, against production costs of about $30 million. Her production company Harpo—Oprah spelled backwards—grossed close to $100 million. Agent Jacobs’ cut was 10%–nearly $10 million last year—and after deducting Jacobs’ share and other expenses, Winfrey earned about $74 million pretax last year, up from about $72 million the year before.
So strong is the Winfrey franchise that in the last round of negotiating Jacobs convinced King World to take a shrinking percentage of the show’s revenues for distribution. Currently Harpo gives up about 35% gross revenues to the distributor, but over the next five years that will drop to 30% or less.
Local stations are willing to pay top dollar for the Oprah show because it assembles an audience that tends to stay tuned to the same channel for the evening news. In a market the size of Houston or Atlanta, one rating point can mean about $1 million a year. The news programs that follow Oprah are predictably the highest rated in most markets. “Without Oprah, you’re just scrambling,” says Terry Connelly, general manager of WJLA-TV in Washington, D.C., which bear station WUSA-TV in 1989 bidding for Oprah with an offer to pay about $90,000 a week. Today it pays around $100,000.
The cash is likely to keep flowing. Last year King World, now heavily dependent on Winfrey, sold her show to 210 stations, which agreed to carry the program for the next five years and pay a 3%-to-5% increase every year of the deal. The stations will also give up an additional minute of advertising time; King World and Harpo will share the ad revenues that the minute generates. A conservative estimate of Harpo’s five-year cash flow from the deal is $400 million. Every year Winfrey renews with King World she receives options on 250,000 King World shares to add to the 1.5 million she already has under option. Those options, at various strike prices, are not worth over $30 million to Winfrey.
If she stays popular and with the show, Winfrey is well on her way to becoming America’s first black billionaire.
Next step: the movie business. Like many successful business people, Winfrey has the Hollywood bug. A few years ago she hired the Creative Artists Agency as her film agent and subsequently set up her own West Coast office to consider movie roles. But she hasn’t liked any of the offers. “All of them were nobody-knows-the-trouble-I’ve-seen roles,” laments Winfrey. “Could I play another heart-torn mother with her socks rolled down who lost her family?”
While her acting career is on hold, Winfrey wants to become a top Hollywood producer. She already owns three soundstages, where she has filmed her own features. She has ten movie projects under development; none are yet in production. Winfrey recently won a commitment from ABC to fund six TV films over the next three years, to be presented under the Oprah Winfrey Presents banner.
Remembering her close call with becoming just another high-paid celebrity, Winfrey tells Forbes: “On my own I will just create, and if it works, it works, and if it doesn’t, I’ll create something else. I don’t have any limitations on what I think I could do or be.”