As the Streaming Wars Heat Up, Ryan Murphy Cashes In

Ryan Murphy’s roughly $300 million with Netflix is the latest sign of how streaming companies have disrupted traditional Hollywood and driven up prices for stars and series creators.

The battle between the Hollywood establishment and the streaming-media giants has caused big changes in the entertainment industry in recent months, driving up the prices of major stars and series producers while leaving traditional companies in danger of losing relevance.

The effect of the digital disrupters on the Hollywood economy had its big reveal in August when Netflix announced a multiyear agreement worth an estimated $100 million with the producer Shonda Rhimes, who had made her name at Disney’s ABC with “Grey’s Anatomy” and “Scandal.”

In November, Apple — a new entrant in the streaming wars — beat out Showtime and Netflix for a series starring Reese Witherspoon and Jennifer Aniston as morning talk show hosts. The cost? An estimated $240 million for 20 episodes.

That same month, Amazon Studios entered the mass-market arena in dramatic fashion by pledging to spend some $200 million on a series based on “The Lord of the Rings.” Previously, it had been following a please-the-critics strategy heavy on midbudget fare from directors like Todd Haynes, Richard Linklater and Jill Soloway.

In this overheated atmosphere, Ryan Murphy, the 52-year-old producer behind critical and commercial hits like “Glee” and “American Crime Story,” found himself in the final months of his contract with 21st Century Fox, his longtime corporate home. He took full advantage of the shifting Hollywood economy on Tuesday, agreeing to leave Fox for Netflix and its offer of a five-year deal valued at roughly $300 million.

Mr. Murphy was in an ideal bargaining position not only because he possesses a fecund imagination able to spin out one successful series after another, but because Apple and Amazon have lately proved themselves willing to spend their way into rivalries with the old-line movie studios and television networks.

Ted Sarandos, the chief content officer at Netflix, laid down the gauntlet five years ago when he said, “The goal is to become HBO faster than HBO can become us.”

That statement seemed unlikely, coming from an executive who had only recently begun overseeing original programming at a company better known for tucking DVDs into postage-paid red envelopes.

Jump-cut to the present: Netflix is valued at some $115 billion and has 110.6 million subscribers worldwide. It has shown off its might by signing David Letterman to a deal at reportedly $2 million an episode for his new talk show series, giving Chris Rock a reported $40 million for two standup specials and handing Jerry Seinfeld a reported $100 million for his interview program, “Comedians in Cars Drinking Coffee,” and standup shows.

Dana Walden, a co-chief executive of the Fox television group, said Mr. Sarandos’s signing of Ms. Rhimes was the deal that had evinced a deep change in Hollywood.

“What Ted did was extremely disruptive and sent a message to the entire talent community: These old deals that seemed incredibly lucrative at the time, there’s a new template in town,” Ms. Walden said. “For any uber-premium creator, the value has gone up 10 times. And Ryan is a once-in-a-lifetime creator.”

Rick Rosen, the head of TV at the agency WME, said it had become clear that Netflix was now able to outspend the companies that had been around since the early days of the movie business.

“As a representative of talent, if you have top-top talent, you must talk to them,” he said. “You’d be negligent if you didn’t. Top talent wants to pitch to Netflix.”

Another competitor in the expanding streaming industry, Hulu — which is available only in the United States — has gained momentum recently with original series like the much-decorated “The Handmaid’s Tale,” and now has 17 million subscribers. While that is no match for Netflix, the company has seen growth in each of the last two quarters.

Apple is the wild card. The company has been buying projects at breakneck speed as it begins to shell out more than $1 billion on original programming. And as Amazon moves into the internationally friendly fantasy genre with “The Lord of the Rings,” it has equipped itself with fresh leadership in the person of the respected NBC executive Jennifer Salke. (Earlier this month, she replaced Roy Price, who resigned as the head of Amazon Studios in October after he was accused of sexual harassment.)

With the old Hollywood model disrupted, or perhaps broken, Disney, Fox, CBS, Viacom and Time Warner have moved to gain scale in their efforts to compete against the deep-pocketed upstarts.

Pending governmental approval, Disney will acquire much of 21st Century Fox in a $52.4 billion deal that the two companies reached in December. CBS and Viacom, which were part of the same corporation from 2000 to 2006, are in talks to reunite. And AT&T is working to purchase Time Warner — a deal that is in jeopardy because of a lawsuit filed by the Justice Department to block it on antitrust grounds.

The mergers and acquisitions taking place in the background are, for now, a destabilizing force in the entertainment industry — one that likely contributed to Mr. Murphy’s decision to leave old Hollywood for the streaming space.

“Were the Disney deal to have never happened, I think he would have been close to a new deal with us,” said Ms. Walden, the Fox executive who has worked closely with Mr. Murphy. “If the Disney move happened a year ago, and the transaction was completed by now and we were part of the Disney Company, I think he would be part of us.”

Mr. Murphy declined to comment for this article.

Disney — a part-owner of Hulu that is building new streaming services under its chief executive, Robert A. Iger — has repeatedly cited 21st Century Fox’s ability to create popular programming as one of the main reasons it sought to acquire it from Rupert Murdoch. Disney’s own television studio has not been a reliable supplier.

The day after losing Mr. Murphy to Netflix, John Landgraf, the chief executive of FX, which is part of 21st Century Fox, pointed to his cable network’s long record of producing talent, including Donald Glover (“Atlanta”) and Pamela Adlon (“Better Things”).

“With more than 20 scripted original series on our schedule or upcoming, FX has a very successful track record of identifying and developing talented writers who have produced award-winning hit shows, and it will continue to do so,” he said.

The money aside, Mr. Murphy may have decided that he had a better chance of creating new shows with minimal interference from above at Netflix, rather than at a Disneyfied version of 21st Century Fox. Referring to Disney’s agreement to acquire much of the company at a news media event last month, the producer said: “When this deal first went down, I got a call from the Murdochs and I got a call from Mr. Iger. And I said point-blank, you know, the stuff that I do is not specifically Disney, and I’m interested in that and I’m concerned about that.”

The Murphy deal is a distillation of what may prove to be a once-in-a-generation Hollywood moment. He was looking for security at a time when the old-line companies had yet to take the expanded form they are likely to assume in the next year — and when the streaming services are spending in manic style.

And it helps that Mr. Murphy has become a Netflix obsessive in his own right.

“All Ryan has watched for the last year has been Netflix,” said Ms. Walden, who is the godmother to Mr. Murphy’s children. “He loves their Y.A. series, he loves their documentaries, he watched ‘The OA’ and loved it, he loved ‘13 Reasons Why,’ he admires the brand, the programming. It was the right timing and right company for him.”

The question now is: How long will the streaming companies continue to spend in a George Streinbrenner-like fashion for talent? Last month, Netflix told investors that it had generated a net income of more than $559 million in 2017, but said its free cash flow was negative $2 billion — a figure that could balloon to $4 billion this year, the company said.

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