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Comment by fredsters_s | Hacker News Reader

How is everyone condoning this?! This is fucking insane.

The logic is NOT we give you free advertising -> you owe us monies. The logic is you provide amusing filler in the context of a targeted program and we sell advertising the audience of that show. Just like every other show on our network.

So any return ABC would get from this is logically abnormal, and I would argue morally abhorrent. On what other show does this happen? Would American Idol demand rights to future royalties of all auditioning acts? Would that be seen as fair?

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I agree with you. ABC is granted access to the limited spectrum of the public airwaves to run their network. It's been accepted that some amount of advertising is allowed with this privilege, but it is not acceptable to run advertising 24 hours a day or to use the public airwaves to back specific political candidates. Using their public license in this way is a violation of the public trust. Their broadcast license should be revoked. Not that it will of course.

If they were cable only they could do as they wish, but that's not the case.

Eek, that's a pretty good argument. Severely limited resources should probably be used for public good. There are plenty of cable channels upon which companies can make a buck.

Companies choose to be on Shark Tank. Nobody is forced to be on the show. The show is just a giant informercial; in primetime. It's definitely an informercial that I love to watch.

How is that different from American Idol?

you should see the contract that American Idol makes its participants sign...not just the winner, but all the participants in the Hollywood round and beyond have to sign a contract.

American Idol is more like a record label that signs a ton of artists and puts out releases in the form of weekly contest shows on which they perform.

I'm not going to go look for the actual contract, but there has been controversy about the American Idol contract for years. Out of all the shows you could have picked, why would you pick one involving recording companies? :)

Here's a excerpt from the American Idol Wikipedia page, talking about the contract:

"The contract the contestants are required to sign gives Simon Fuller's company the right to oversee not just the recording deal for "American Idol" stars, but also control any merchandising, touring, sponsorship and movie deals."

That's one way to look at it. Another is that Shark Tank is itself a business and they're taking a risk putting you on TV; if you don't generate interest, the show could get cancelled because of poor ratings. In effect, they are investing in you and the success of your product, and I don't see why it's unfair they receive a return on your potential subsequent success.

The last episode of Shark Tank had 6 million viewers [1]. If we pick $1/thousand impressions as a reasonable advertising cost, you'd have to spend $600K for 6 million impressions. It's difficult to overstate how good this deal is. That's what you'd be looking at paying for a Google ad that is displayed for a few seconds while a user searches or reads a page (not even looking at your ad). On Shark Tank you're holding people's direct attention for 5-15min.

For you to start losing money, ABC would need to take > 600K out of your business. At 5% equity, that equates to $12 million in distributable net profits. Let's say the life-time of your business is 10 years - that's $1.2 million net profit distributed to shareholders/year. To redistribute $1.2 million/year you're looking at (one imagines) at least 4 times that in net profit before taxes, i.e. $4.8 million. If your net profit margin is an optimistic and very healthy 30% that's $16 million revenue/year.

To be generating $16m revenue/year makes you a pretty successful business and the chances are if you got to that point it's because you were on Shark Tank. Very few people grow a business to that size without spending substantially more than 600K on advertising and investment.

At that point, assuming you still own 65% of the business (you negotiated 30% away to Shark), you're pulling in 780K (65% of $1.2m) per year vs. ABC's 60K/year. And this is a bad deal?

[1] http://en.wikipedia.org/wiki/List_of_Shark_Tank_(TV_series)_...

Right, from a marketing perspective for a company at such an early stage its actually a pretty good deal.

In addition the Sharks know this and have an unfair advantage as investors that would motivate them to make deals. So ABC is also attempting to level the playing field a little bit

> morally abhorrent

No coercion. If you don't like the deal, you're free to avoid it.

Coercion is not a precondition of abhorrence. Even if it was, the publicity value of the show could be seen as leverage with which to coerce potential participants.

The point is, this is a predatory act and it should not be misunderstood as 'fair' or 'ok'.

You're spinning a little bit too much hyperbole. It would be nicer for the entrepreneurs if ABC didn't take a cut but clearly they aren't that nice. However they are getting 15 mins of national exposure to a captive audience - that's worth something.

Doesn't YCombinator give pittance amount of capital for an equity stake in the companies it invests in, with the value proposition being largely in introductions to VCs/Angels and some strategic help? Are they coercive?

Which of the Shark Tank & YC have a better track record by which we can compare?

I'd be curious to see the stats. They do cater to different kinds of businesses, but it would still be interesting.

Shark Tank has a good track record. So does Y Combinator. What's your point?

I think my point is in the details. Whose funding/promotion framework is more successful?

You're going to see a decline in the number of actual legitimate companies on the show. Maybe they discovered that the "wackier" or maybe more desperate founders bring higher ratings and those founders are more likely to accept such a deal? I'm curious what the target demographic of that show is. I enjoy watching it and generally rate how good the show was based on how well the founder presented/defended their business (well, at least how they edit it to look like). I mentioned this in a separate post, but I this this is a new addition to the contract...

Luckily, there's a really easy way to avoid ABC's terms if you deem them too costly: don't sign the contract.

Would American Idol demand rights to future royalties of all auditioning acts?

I'd actually be shocked if they didn't demand future royalties of all acts that actually end up on the show. I don't really like it, but that's just how that industry works.

You are wrong. National publicity is priceless. I know someone who is on the show and did quite well as a result of the publicity and got into national distribution and is now in chain stores something they simply weren't able to pull off.

And I received publicity from a single syndicated news story (with pictures) about 12 years ago (ran in 20 papers). I can't even tell you how much money that one thing put in my pocket. To this day I have money still coming from customers I picked up 12 years ago. I would agree with those terms in a second.

Its plausible that American Idol has a similar contract

I've never seen the show, but.. what they are doing is running an infomercial without disclosure that it is an advertisement. I'd like to see what the FTC has to say about that.

There is a disclaimer at the front of the show:

> The following are actual negotiations between entrepreneurs and investor "Sharks." The Sharks invest their own money at their discretion.

> No offer is being made to or solicited from the viewing audience.

I always found it odd since there was no such title card present in the Canadian or UK versions. I just assumed it was an overly cautious precaution due to operating in the stereotypically overlitigious United States.

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