The Hollywood Empire Strikes Back Against Netflix

(Bloomberg Businessweek) -- Peter Roth knew it was time to take out his checkbook. Roth, the head of Warner Bros. Entertainment Inc.’s TV studio, had just watched Netflix Inc. lure top producers from several rivals by offering them more money than they’d ever made before. Ryan Murphy, the creator of American Horror Story, left 21st Century Fox Inc. for a deal worth at least $240 million. Shonda Rhimes, the showrunner of Grey’s Anatomy, left Walt Disney Co. for at least $150 million. Roth was determined not to let Greg Berlanti, one of his own star producers, do the same.

The prolific Berlanti has 15 shows on the air, the most of any TV producer in history, including several adaptations of DC Comics franchises such as Supergirl and Arrow that appeal to tweens and young women. He’s particularly valuable to Warner Bros., which owns DC as well as half of the CW Television Network, where many of its shows air. Of the 12 series that will run in prime time on the CW this fall, Berlanti is an executive producer of seven.

So with two years before Berlanti’s contract was set to expire, Roth offered the 46-year-old a contract worth at least $400 million to stay at Warner Bros. through 2024. Berlanti and Roth both declined to comment on the deal, believed to be one of the most lucrative for a TV producer in the history of Hollywood, according to interviews with more than a dozen executives, agents, and producers. It’s also a sign of how traditional studios, tired of losing their best people to Netflix, are fighting back. Warner Bros. bought out Berlanti’s rights to future profits on all his current shows, what’s known as the back end, a structure that allowed it to offer him more money upfront than he would have otherwise received.

Roth has set a template others have followed. Lions Gate Entertainment Corp. is nearing an exclusive movie and TV deal with comedy producers Seth Rogen and Evan Goldberg—outmaneuvering Netflix and Amazon.com Inc.—using a similar approach. And Disney, once it concludes its acquisition of Fox, will turn its attention to securing soon-to-be free agents such as Family Guy producer Seth MacFarlane and Modern Family creator Steven Levitan.

“There is a lot of crazy stuff happening in the market today, and there is an aggressive dividing line between what is now considered old media companies and new media companies,” says Joe Cohen, a talent representative at Creative Artists Agency who negotiated Murphy’s deal with Netflix.

Netflix’s Hollywood raid started with Rhimes, the creator of Scandal and Grey’s Anatomy. The company offered her the biggest deal of her career to leave ABC and produce programs exclusively for the streaming service. Rhimes jumped at the chance to free herself from the limitations of broadcast TV—where overt politics, nudity, and swear words are all prohibited.

The deal upended the economics of the industry. Producers used to own a piece of their shows outright, potentially reaping hundreds of millions of dollars by selling the rights to reruns. Tom Werner, for instance, made enough money from The Cosby Show and Roseanne to buy the Boston Red Sox and Liverpool Football Club. There’s no back end on Netflix, which releases shows all over the world at the same time, and runs the programs indefinitely. “You get more upfront with less risk, but potentially less upside in success,” says Chris Silbermann, Rhimes’s agent at ICM Partners.

Still, deals such as Murphy’s and Rhimes’s are outliers, says Silbermann. There are only a handful of producers who can—or even want to—produce multiple shows at the same time. Rhimes has already announced eight different projects she’s undertaking for Netflix, while Murphy has a half dozen shows in production. For creators who just want to do one at a time, Netflix may not be the best home, since it doesn’t provide as much hand-holding for individual projects. While Netflix provides money and artistic freedom, networks such as Home Box Office Inc. claim to provide more support every step of the way—from notes on early scripts to fine-tuning for a pilot episode. That’s a big reason why Breaking Bad creator Vince Gilligan stuck with Sony Pictures when his contract came up for renegotiation earlier this year, according to people familiar with his decision.

Rogen and Goldberg, producers of the movies Neighbors and Sausage Party, were wooed by Amazon and Netflix but wanted a studio that would give their movies a big push in theaters. Previously with Sony, they’re now talking to Lions Gate and executives there who initially helped them get their business off the ground.

Many producers fear their programs can get lost amid all the clutter on Netflix and wonder if their shows might get a bigger boost from the weekly rollout of traditional TV. Actor and writer Jason Segel, who starred for nine seasons in the CBS hit comedy How I Met Your Mother, specifically wanted his new show, Dispatches from Elsewhere, to air on conventional TV so it could benefit from the added attention paid to new episodes each week.

Some producers see HBO as the epitome of quality, where programs are treated more as art than commerce. Buffy the Vampire Slayer creator Joss Whedon recently signed with HBO over Netflix for his new TV series. “The increased volume at other places has worked in our favor,” says Casey Bloys, the head of programming at HBO.

To contact the editor responsible for this story: James Ellis at jellis27@bloomberg.net, Dimitra Kessenides

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