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Netflix doesn’t need to buy its hits from Hollywood anymore. It can go straight to the hit makers.

Big Media wants to pull its stuff away from Netflix. It may be way too late for that.

TV producer/screenwriter Shonda Rhimes
TV producer/screenwriter Shonda Rhimes
Mike Coppola / Getty
Peter Kafka covers media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.

Over the weekend, Barron’s launched a broadside against Netflix, arguing that the high-flying company was actually quite vulnerable because it bought all its most popular content from Hollywood: “It is chiefly a hit-renter, not a hit-owner.”

It’s a long-standing critique of Netflix, which picked up steam last week when Disney said it would be pulling (at least some of) its movies off Netflix. Barron’s, which famously called the dot-com bubble in 2000, says Netflix shares could drop 50 percent in the next few years.

Netflix’s answer: It has gone into business with Shonda Rhimes, one of the biggest hit makers on TV.

Netflix has signed Rhimes, the producer behind “Scandal” and many other hits for Disney’s ABC networks for the past 15 years, to a four-year deal. Even for an industry that’s become used to reading about big Netflix deals to bring talent to the service, this one is big.

For starters, Netflix will be spending a huge sum to work with Rhimes. The Wall Street Journal reports that Rhimes got paid $10 million a year to make shows for ABC, and received syndication profits on top of that. Syndication money goes away when you make shows for Netflix, because Netflix shows don’t rerun on other platforms. So Netflix would need to replace that money — and give her a significant raise — to pull her away from Disney.

And that’s before it spends a penny on any of the shows she actually makes.

On the other side of the deal, it’s hard to overstate how important Rhimes was for Disney and ABC. But here’s one way of looking at it: At one point, ABC devoted an entire evening to Rhimes’s shows. Here’s another: Rhimes generated $2 billion for Disney over the course of her work there, someone (presumably who works for Rhimes or Netflix) told the Journal.

Yet another way of looking at it: Netflix has made lots of splashy deals with content makers in the last few years. But many of them — Dave Chapelle, Chris Rock, Adam Sandler and David Letterman, for instance — either weren’t making stuff for Hollywood or were past their commercial peak. Shonda Rhimes is very much in the mix, right now.

Zoom out to the very big picture. It’s certainly reasonably to argue that Netflix’s stock is overvalued — as CEO Reed Hastings did in 2013, when Netflix was trading at a split-adjusted $55 a share. Now it trades around $170.

It’s also reasonable to ask how long Netflix can keep writing big checks for content, or content creators. Right now it relies on Wall Street’s willingness to fund an ever-increasing amount of debt, backed up by its ever-increasing stock price. What happens when/if that changes?

But those arguments are for investors and stockpickers, and we won’t know how it plays out for some time. And remember that history shows us that digital insurgents don’t have to succeed on their own to do long-standing damage: Ask the music labels, who vanquished Napster and pals but are still crippled from that battle, two decades later.

In real time, if you run a big media company, you don’t have time to see what happens. You have to decide what to do, right now.

For the past few years, the media guys have tried to steer some of their stuff away from Netflix and either keep it for themselves or for things they own (see: Hulu). But they kept selling some of their stuff to Netflix anyway, because once you get hooked on Netflix money, it’s hard to stop taking Netflix money.

Now they’re looking at a scenario where they may not have a choice in the matter. Netflix has been paying Disney for the rights to show Shonda Rhimes shows, but it’s not waiting around to see if Disney extends those deals. It’s just going to pay Shonda Rhimes directly.

Who’s next?

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