Hollywood and Silicon Valley Go to War for Talent

Name calling, hair pulling, and all-out brawling -- that's not just what you'll see on Netflix's (NASDAQ: NFLX) original series G.L.O.W (Gorgeous Ladies of Wrestling) but what investors should expect from the entertainment industry this year.

The rise of new-age media companies like Netflix and Amazon (NASDAQ: AMZN) -- and soon Apple, Alphabet, and Facebook -- has resulted in talent fleeing Hollywood for Silicon Valley. It's a major shift in the entertainment industry that could lead to significant upheaval.

Disney's opening salvo

Walt Disney (NYSE: DIS) recently unleashed a Pandora's box when it announced that it would be pulling its films from Netflix, opting to develop its own streaming service. Disney had the biggest stake in holding the traditional cable bundle together, so the move to create a Disney-branded streaming service -- along with a similar service for ESPN -- means the bundle is looking worse than ever.

The end result: Each media company must ensure its channels are compelling enough to win subscribers. More likely than not, many will experience a steep decline in viewership.

Unfortunately for most cable networks, Netflix, Amazon, Youtube, and other over-the-top services offer the flexibility and dedicated audiences likely to win over talent.

Netflix strikes back

Case in point, shortly after the Disney announcement, Netflix poached hit-making showrunner Shonda Rhimes from Disney-owned ABC, where her production company had resided for 15 years. Her work, which includes Grey's AnatomyScandal, and How to Get Away With Murder, made ABC over $2 billion in revenue. Rhimes claimed she was eager for more freedom and "fresh creative energy".

Rhimes isn't the only Hollywood star to go to Netflix. Netflix has also signed the Coen Brothers to a make a six-episode mini-series about the American frontier (I personally couldn't be more excited about this), following the acquisition of rights to the latest Martin Scorsese film, The Irishman. Then, there was also the acquisition of Millarworld, which came just as Disney pulled away.

If the creative freedom isn't enough to win content creators over, Netflix and Amazon are known for paying up to twice as much as studios.

Godzilla streamers

Amazon is right behind its rivals, recently inking a deal with Woody Allen and luring Robert Kirkland, creator of AMC's The Walking Dead, to a development deal.

One has to feel for networks such as AMC. Not only do you have to please your stars and deliver profits for shareholders, but you now have to compete with tech giants willing to operate at breakeven or even negative free cash flow to sign up as many subscribers as possible to their services

Good or bad?

In a recent speech, FX CEO John Landgraf, sometimes called the "smartest man in television", lamented the situation, saying, "I want the humans to hold their own against the emerging strength of the machines" that Landgraf believes are leaving behind the "editorial voice" that networks have traditionally exercised.

This sounds a bit like sour grapes. The whole model from streaming competitors is to give more freedom to a) the talent, and b) the viewer. Audiences have spoken, and they clearly prefer to have the option to assemble their own lineup of shows without the help of network executives.

How this ends

I predict that in a few years, most major studios will either be owned by Silicon Valley companies, just as Time Warner was acquired by AT&T. Otherwise, they'll break up or merge in order to stem a terminal decline. The exception is Walt Disney, which has the branded content and financial means to develop its own distribution platform. The old model of the high-priced cable bundle -- as well as the network gatekeepers who have perpetuated it -- is coming to an end. The remaining shakeout could be very ugly for existing players but exciting for creators, Silicon Valley, and the viewing public.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Billy Duberstein owns shares of Alphabet (C shares), Amazon, Apple, AT&T;, Facebook, and Walt Disney. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, AMC Networks, Apple, Facebook, Netflix, and Walt Disney. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.