Netflix's aggressive strike to lure one of television's most prolific producers from ABC Studios sent shock waves throughout the industry on Monday and ratcheted up television's arms race for talent.
Shonda Rhimes, creator of "Grey's Anatomy" and "Scandal," is moving from her home of 15 years to create shows and other content exclusively for Netflix.
Her decision was a blow to ABC, owned by Walt Disney Co., because the network has relied heavily on shows from Rhimes and her production company to buoy its prime-time schedule for more than a decade. It also comes a week after Disney announced it was launching its own streaming service to better compete with Netflix.
By poaching one of television's most successful producers, Netflix signaled that it would doggedly pursue deals with other top-tier talent, which could drive up programming costs for major television studios and cable channels at a time when they already are witnessing a flight of viewers.
"We're witnessing an all out war," said Eric Schiffer, chief executive of Patriarch Organization, a Santa Ana-based private equity and venture capital firm that specializes in digital entertainment. "The studios are seeing Netflix and Amazon go out for their talent, and out for [their] scalps."
ABC will not immediately feel the sting.That's because the shows that Rhimes has produced, including "How to Get Away with Murder" and a planned spinoff of "Grey's Anatomy," will remain at the Disney network. ABC Studios also retains contracts with several of the top writers on Rhimes' programs -- such as Pete Nowalk, who created "How to Get Away With Murder."
Nonetheless, analysts and Hollywood agents warned that other marquee producers could easily follow Rhimes' lead, and studio chiefs scurried Monday to fortify their relationships.
"Studios haven't felt this kind of hellfire in decades and it's not going away," Schiffer added.
The Los Gatos, Calif., company announced late Sunday that it had signed a multiyear deal with Rhimes, who will move her Los Angeles production company, Shondaland, to Netflix to produce original series and projects exclusively for the company. Rhimes' longtime producing partner Betsy Beers will make the move to Netflix as well.
Netflix dangled a deal that would have been difficult for ABC to match: the ability to create edgier shows that would be available to a global audience with few creative constraints. Network television demands that writer-producers, known as show runners, adhere to a relentless and rigid schedule. They must crank out 48-minute episodes, leaving room for commercials, and 22 episodes a season. At Netflix, Rhimes could do a series with only eight or 10 episodes, episodes could vary in length and the content can be more provocative than on a network.
"A lot of writers don't want to write for broadcast television anymore because it is such a grind," said one top Hollywood talent agent who asked not to be identified because his clients have deals with the various networks.
Netflix's multiyear arrangement with Rhimes also was lucrative and could be worth well over $100 million, according to one person familiar with the terms who was not authorized to discuss them. Rhimes will also continue to receive producer credit fees from her shows at ABC.
"Shonda Rhimes is one of the greatest storytellers in the history of television," Ted Sarandos, Netflix's chief content officer, said in a statement. "We are so excited to welcome her to Netflix."
Until now, the streaming company mainly has been buying individual projects from established studios, including Sony Pictures Television, Warner Bros. and Lionsgate. Netflix intends to focus more heavily on developing projects in house, which is becoming increasingly important as media companies withhold their content because they are determined to try to block the growth of their powerful rival.
Launched in the 1990s as a DVD rental service, Netflix has become the leader in program streaming and video on demand, and in recent years it has gained clout in Hollywood as an entertainment producer in its own right.
With more than 100 million global subscribers, Netflix is spending $6 billion this year on content.
The growth and spending have sparked much anxiety among traditional TV studios and TV networks as consumers ditch cable subscriptions in favor of Netflix and other low-cost streaming options.
"These guys are all on offense," said Colin Petrie-Norris, chief executive of the Irvine-based Xumo, an over-the-top content service provider. "They see the traditional TV market as fair game. They're raising money and getting investments."
In a notable sign of defiance, Disney last week announced that it would end its movie distribution deal with Netflix, beginning with 2019 releases, and start its own streaming service. Disney also will launch an ESPN streaming platform that it will market directly to consumers.
In other moves to counter Netflix, 21st Century Fox and Time Warner have limited their content deals with the company. Fox refused to renew its content deal with Netflix when the last pact expired. The sides also have sparred in court, with the studio alleging Netflix has illegally poached its executives.
Netflix has populated its ranks with executives who have worked at major entertainment companies, taking a page out of the playbook of such established juggernauts as HBO. That premium service nearly two decades ago began focusing on its own original programming, such as "The Sopranos" and "Sex and the City," as the most logical way to evolve.
Netflix began raising its profile in 2013 with the series "House of Cards," from Media Rights Capital; and then, "Orange Is the New Black," from Lionsgate. Other shows that Netflix licenses from outside studios include "The Crown" from Sony Pictures Television and "Iron Fist" from Disney's Marvel.
To exert more financial and creative control over its shows, the company is pouring more money into self-produced original content that it owns. The goal is for 50% of its programming to be original.
"It's about filling the voracious need for content that they can use on a global scale," said Guy Bisson, research director at media research firm Ampere Analysis.
Results have been mixed. While "Stranger Things" became a near-instantaneous hit, other shows such as "Santa Clarita Diet" and "The Ranch" haven't made much of a cultural impact.
Netflix is working overtime to attract more top-level TV producers to its moneyed shores. It will stream two new Warner Bros. series from producer Chuck Lorre, including the marijuana comedy "Disjointed," which debuts this month. It has also secured a deal for a new animated series from Matt Groening of "The Simpsons" fame. Amazon is also moving aggressively, recently striking a deal with "The Walking Dead" Executive Producer Robert Kirkman and his company Skybound Entertainment, luring them away from AMC.
ABC Studios tried to keep Rhimes, but she had made up her mind, according to a person close to the situation. ABC let Rhimes out of her contract early. She had less than a year remaining on her deal.
Rhimes, over the years, had become increasingly frustrated with the constraints of working for ABC Studios, according to two people familiar with the matter. That stemmed in part because all the shows she created were destined for ABC, which has a particular sensibility.
In addition, two of her most recent shows quickly fizzled in the ratings, something she will not experience at Netflix because that company tightly guards its viewership data.
Rhimes, in a statement, called the move to Netflix part of "the evolution of my company."
Sarandos, she said, "provides a clear, fearless space for creators at Netflix. He understood what I was looking for -- the opportunity to build a vibrant new storytelling home for writers with the unique creative freedom and instantaneous global reach provided by Netflix's singular sense of innovation."
Channing Dungey, president of ABC Entertainment, said that working with Rhimes was a highlight of her career, and that ABC is "happy to continue working with Shonda and her team at Shondaland" on the series that will still air on the network.
Netflix shares fell 40 cents to $171.00. Shares of Disney slipped 59 cents to $101.40.
6:35 p.m.: This article was updated throughout.
10:05 a.m.: This article was updated with comments from Ampere Analysis' Guy Bisson and with more recent stock prices.
9 a.m.: This article was updated with information about ABC and with more recent stock prices.
8 a.m.: This article was updated with stock prices, details about shows airing on ABC, comments from ABC Entertainment President Channing Dungey and Creatv Media founder Peter Csathy and additional background information.