As the leader in the streaming space, Netflix, Inc. (NASDAQ:NFLX) might as well have a target on its back. Investors have long considered competition from the likes of Amazon.com, Inc.'s (NASDAQ:AMZN) Prime Video and Hulu, which spent an estimated $4.5 billion and $2.5 billion, respectively, on content in 2017.
The 800-pound gorilla in the room, though, is The Walt Disney Company (NYSE:DIS). Disney already has a vast array of intellectual property, including those bearing the Marvel, Pixar, and Lucasfilm labels -- as well as its Disney-branded fare. The company announced last August that it would be pulling its content from Netflix in order to launch a direct-to-consumer streaming service in 2019 that would be home to its treasure trove of characters and stories.
With the proposed acquisition of Twenty-First Century Fox (NASDAQ: FOX) (NASDAQ: FOXA), Disney would acquire a host of other valuable properties in hopes of wresting market share from the streaming pioneer.
Now, it seems like Netflix is fighting back.
Stalking A-list talent
Netflix revealed that it had poached Emmy, Golden Globe, and Peabody Award-winning producer, director, and writer Ryan Murphy and his production company in an exclusive, five-year deal that could be worth as much as $300 million.
You may not know his name, but you've certainly heard of Murphy's creations, which include Glee, American Horror Story, Nip/Tuck, 9-1-1, Feud, and American Crime Story: The People v. O.J. Simpson -- a body of work Netflix described as "genre-shattering."
Murphy is leaving after more than a decade producing hits for Fox's broadcast network and the FX cable channel, which Disney is gaining as part of the acquisition. Murphy will generate new films and series for Netflix, when his contract expires this summer. Netflix was one of several bidders for Murphy, which included Amazon and Fox.
The rights to Murphy's highly anticipated new productions Ratched and The Politician had already been secured, and will debut globally on Netflix this year. The company's chief content officer Ted Sarandos talked about Murphy's impact on television:
Ryan Murphy's series have influenced the global cultural zeitgeist, reinvented genres and changed the course of television history. His unfaltering dedication to excellence and to give voice to the underrepresented, to showcase a unique perspective, or just to shock the hell out of us, permeates his genre-shattering work.
This isn't the first high-profile coup by Netflix that will directly affect Disney's streaming ambitions. Late last year, the company signed Shonda Rhimes and her production company Shondaland to a deal worth an estimated $100 million, following a 15-year stint at Disney-owned ABC TV. Rhimes was the creative mind behind such hits as Grey's Anatomy, Scandal, and How to Get Away with Murder. This deal happened just a short time after Disney announced it would be removing its content from Netflix to start its own streaming service. I don't think that's a coincidence.
Why it matters
The pattern that is emerging is clear: Netflix is poaching the top talent from linear and cable TV to ensure that its string of hits continues. Rather than spending hundreds of millions on a particular show, Netflix is locking up the talent behind some of television's most successful programs.
Netflix plans to spend an estimated $7 billion to $8 billion on content in 2018, but quality will be more important than quantity, and deals with the likes of Murphy and Rhimes will help the company achieve that objective.
Sarandos famously quipped that the "The goal is to become HBO faster than HBO can become us." It seems that's likely to happen, now that the company has its sights set on Disney.