Just weeks after reports emerged that Netflix (NASDAQ:NFLX) was losing both The Office and Friends -- its two most-watched shows -- the leading streamer flipped the script, securing the rights to stream Seinfeld globally for five years starting in 2021. 

The news couldn't come at a better time for Netflix. The streamer's stock has been reeling after a disappointing second-quarter earnings report that included the company's first U.S. streaming subscriber loss ever, news that The Office and Friends were departing its service, and fears of incoming competition starting with the launch of Disney+ this November. Shares have fallen 17% over the last three months. 

The market cheered the news that Seinfeld was coming to Netflix streams, giving the stock a modest boost this week, but the price the company is paying is sure to give some investors sticker shock. Though Netflix hasn't disclosed the amount, The Wall Street Journal cited a source who said that Netflix was paying more than the $500 million NBCUniversal agreed to for the streaming rights to The Office for five years, or the $425 million WarnerMedia is shelling out for the same period of time for Friends.

In 2015, Hulu paid what was then an eye-popping $180 million to stream Seinfeld for five years. In other words, the value of Seinfeld's streaming rights has tripled in just four years. How is it that one of the fastest-appreciating assets in all of media is streaming rights to a show that went off the air more than 20 years ago and is still readily available in syndication on cable and local television? 

The receptionist at Netflix headquarters

Image source: Netflix.

They don't make 'em like this anymore

As I've argued before, the reason that shows like FriendsThe Office, and Seinfeld can command half a billion dollars is because they are unique in today's streaming-dominated entertainment landscape. These popular legacy sitcoms are in short supply but high demand. Viewers love streaming reruns of these shows because they've become something like comfort food or bedtime stories for the millennial generation. They're easy to watch, and fans grew up watching these characters.

But equally important for Netflix is that the company simply isn't set up to build zeitgeist-y megahits like Seinfeld, and the media industry is no longer designed to support appointment television -- or as NBC cleverly called it back then, "Must See TV". It's much more difficult today for a show to become a cultural touchstone than it was in the 90s when Seinfeld ruled.

To be fair, Netflix has had its share of hits, including House of CardsOrange is the New Black, and Stranger Things, but I doubt that even ardent fans of those shows are going to be streaming reruns of them a decade from now the way that legions of fans still do with Seinfeld, Friends, and The Office. Part of Netflix's problem is that its original content leans toward serialized dramas, which don't do well as reruns, but the other issue is that binge-watching makes it difficult for a single show to build buzz over an extended period of time, the way they can when a new episode comes out every week. Netflix seems to get this, and may be recognizing that its menu has become too cluttered, as the company recently said it would move some series like The Great British Baking Show to a weekly schedule rather than releasing them through its traditional bingeing format.

Size matters

The other reason that it's a smart move for Netflix to grab the rights to Seinfeld is that it leverages the power of Netflix's vast user base. The company today has more than 151 million subscribers, and will probably have around 200 million in 2021 when Seinfeld joins the service. That means that even if the company is paying $120 million a year for Seinfeld, that's just $0.60 per year per subscribing household. For one of the best known and biggest hit shows of the last generation, that actually sounds like a pittance. The Seinfeld rights will still make up less than 1% of the company's total content budget. In 2026, the last year of the deal, when Netflix could have 300 million members on its rolls, the company would be paying just $0.40 a year per subscribing household.

With Disney, AT&T/Time Warner, NBCUniversal, and others set to join the streaming fray, Netflix needs all the firepower it can get. Landing Seinfeld is a clever play that should help retain members who may be disgruntled by the loss of Friends and The Office, and delight others who will be happy to see it become available. Furthermore, on a per-user basis, it's not particularly expensive, even if the headline number seems shocking. 

The streaming king may be threatened, but Netflix just made it clear that it's not going to give up the crown without a fight.