Are TV Mega Deals Worth It? Why Studios Are Paying So Much for Producing Talent

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“Whether or not the currency of dollars makes sense, the currency of prestige may at the end of the day win out,” one analyst tells TheWrap

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NBCUniversal’s decision this week to pull “The Office” from Netflix is just the latest sign of the shifting landscape for streaming services. Even bigger changes are coming thanks to mega deals with many of the top producers in television. But will those deals pay off? The days of Netflix building a streaming business on classic TV shows appear to be numbered, which is why it was a coup for the streaming giant to secure the services of Shonda Rhimes and Ryan Murphy. Netflix is hoping that the two uber-producers behind hits like “Grey’s Anatomy” and “American Horror Story” will keep it perched atop the rapidly-expanding streaming kingdom. WarnerMedia, meanwhile, is prepared to give J.J. Abrams $500 million to help prop up its upcoming streaming service, while last week it was announced that longtime producer John Wells will help Warner Bros. TV take advantage of all the new content buyers, to the tune of a nine-figure sum. This year alone also has seen studios pay up to either bring over or retain Dan Fogelman, Mike Schur, Phil Lord and Christopher Miller, and “Westworld” creators Jonathan Nolan and Lisa Joy. Analysts that spoke with TheWrap question the high price tag, but understand the allure that comes with star talent. “Whether or not the currency of dollars makes sense, the currency of prestige may at the end of the day win out and having that talent under your wing,” Paul Dergarabedian, a senior media analyst at Comscore, told TheWrap. “It’s not just about the ROI. It’s about the prestige of having someone like a J.J. Abrams in your stable.” While some of the deals are expected to generate attractive returns for the studios, “others will invariably result in programming write-offs , to varying orders of magnitude,” CRFA analyst Tuna Amobi said. Tom Nunan, a founder of Bull’s Eye Entertainment and lecturer at the UCLA School of Theater, Film and Television, saw a similar “gold rush” with mid-to-late ’90s overall deals. That’s the half-decade that rewarded Chuck Lorre with what Nunan remembered as a then-unprecedented $45 million payday with Warner Bros. — and that was before the hit “Two and a Half Men.” This is “exponential multiples” of that era, Nunan said — like “10 times” — those huge deals. “As consolidation continues between these tech companies and entertainment companies, the creative brands — to coin a term, so to speak — with regards to these mega artist deals, are becoming more and more valuable,” Nunan said. It’s simple supply and demand. The economics behind these mega-deals are anything but basic, which is where the tech companies’ checkbooks come in. Some need the cache the cash brings more than others. “It’s one thing to be Disney+. It’s easy to stand out with that kind of brand. But how do you stand out if you’re Warner(Media)+? If you’re NBCUni+? If you’re Sony+?” Nunan said. “One way is through Ryan Murphy’s doorway, Shonda Rhimes’ doorway, John Wells’ doorway. They represent a reason for someone to subscribe for $10-$15 a month to your streaming service.” Top producers have a gravitational pull for other A-list talent. Jordan Peele’s involvement in CBS All Access’ “Twilight Zone” reboot played a major role in getting other high-profile stars, such as Adam Scott, Kumail Nanjiani and Seth Rogen to join the show. “That’s why you hire someone like J.J., Shonda, Jerry Bruckheimer, Ryan Murphy or Jordan Peele,” Dergarabedian said. “They bring a certain amount of weight. They can draw talent; people want to work with them.” The proliferation of streaming services over the next year has led to an insatiable thirst for content. In addition to WarnerMedia, Disney, Apple and NBCUniversal are launching their own Netflix competitors. WarnerMedia entertainment CEO Bob Greenblatt said last week he fears the “Peak TV” era will create an unsustainable level of production: “Volume is both a good thing and a bad thing. It allows us to do so much more and at the same time, it requires us to put things in production faster than we should.” That’s why mega-producers have become so in demand. Amobi says the top dollars being spent towards streaming means that there is higher risk involved. “This trend is creating a supply/demand imbalance for proven creative talent and showrunners who now have more potential buyers/bidders for content deals,” he told TheWrap. “It’s not just a business deal for their services,” Nunan added. “It’s creating a destination point for their streaming future. I look at it more as an investment in the streaming service than a producing deal.” “If past is prologue, the gold rush will end, the way that it did in the late ’90s,” he added. “The big entertainment concerns will sober up. They will see that hits can come from anywhere — you don’t have to pay a half-a-billion dollars for one.” Like free agency in sports, these periods are cyclical: Everyone calms down, a new batch of showrunners emerge, and the arms race eventually stops ramping up. That said, Nunan doesn’t think that’s going to happen “anytime soon.” Trey Williams contributed to this story.