Netflix to raise $2 billion in debt to fund more original content
Netflix’s commitment to growing its original content collection will see the company again returning to debt markets to raise more financing, the company announced today. According a release published to its investors site, Netflix says it plans to raise $2 billion to help fund new content, including “content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.”
[...] “We recognize we are making huge cash investments in content, and we want to assure our investors that we have the same high confidence in the underlying economics as our cash investments in the past. These investments we see as very likely to help us to keep our revenue and operating profits growing for a very long time ahead,” the letter to shareholders read.
Netflix also pointed to the increasing competition in the industry as one of the reasons why original content investment was so critical, adding that it didn’t only compete with linear TV, YouTube, gaming, social media, DVDs and pay-per-view, but with a number of new and upcoming streaming services, as well.
“Content companies such as WarnerMedia and Disney/Fox are moving to self-distribute their own content; tech firms like Apple, Amazon and others are investing in premium content to enhance their distribution platforms,” the letter also stated. “Amid these massive competitors on both sides, plus traditional media firms, our job is to make Netflix stand out so that when consumers have free time, they choose to spend it with our service,” it had said.
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Netflix has become the first streaming company to join the Motion Picture Association of America (MPAA), Hollywood’s most powerful lobbying group. This is the first time a non-Hollywood group has joined the group which consists of the six Hollywood studios. The MPAA has been a strong proponent of Digital Restrictions Management (DRM) in all technologies it touches and lobbies extensively for maximal reductions in use.
The Netflix-MPAA union coincides with the streamer becoming a card-carrying member of the Oscar race after securing an unprecedented 15 nominations on Tuesday morning. Netflix CEO Reed Hastings and Sarandos are intent on upping the company's profile as a legitimate force in the movie business, and joining the MPAA will further that goal.
Additionally, once Fox is merged with Disney, the MPAA will have one less member, meaning a loss of as much as $10 million to $12 million in annual dues. Sources say the MPAA is courting other new members as well (Amazon could be a candidate).
Articles about Netflix have been featured a lot on SN in many different contexts.
Earlier on SN:
Video Streaming Services set for Cambrian Explosion (2019)
Netflix to Raise $2 Billion in Debt to Fund More Original Content (2018)
Netflix is the Latest Company to Try Bypassing Apple's App Store (2018)
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(Score: 1, Insightful) by Anonymous Coward on Friday October 26 2018, @08:00PM (4 children)
Surely, if your model were sustainable, then you'd be using your real cash flow to fund future projects.
They are hoping that new content will grow in their real cash flow, but why would it?
(Score: 3, Insightful) by ikanreed on Friday October 26 2018, @08:06PM
Very inclined to agree. Yeah, my first thought when I sign on to Netflix is definitely not "wow, there's not enough Netflix originals, I'd recommend this project to my friends if there was another reboot of an old show here."
But there's another way to look at it.
If netflix ever wants to "retire" from growth, and just suck on the teat of subscriptions they currently have, not paying any license fees at all could be really effective. And if you think of it like the scumbag accountants at my employer who make us track every detail of every project we work on, it increases the par value of the stock to increase the amount of held assets.
(Score: 2) by Entropy on Friday October 26 2018, @08:52PM (1 child)
Lots and lots of companies fund projects with debt. It's an incredibly common practice and doesn't really have implications for profitability of the given projects. Why? Because it allows them to do more than they otherwise would and manage their cash flow better.
(Score: 0) by Anonymous Coward on Friday October 26 2018, @09:08PM
This is like an American corn farmer selling bonds so that he can grow even more corn. What?
(Score: 1, Insightful) by Anonymous Coward on Saturday October 27 2018, @11:57AM
No, it's not a bad sign. It's business in this modern world. To grow quickly a business will lend money, going into debt, to produce a product or service to make money to service the debt.
You'll find that moneylenders won't lend money for a bad deal. Usually.
So far, it's working well for them with a knock on effect for actors Netflix has discovered.
https://www.hollywoodreporter.com/heat-vision/avengers-4-adds-katherine-langford-cast-1155578 [hollywoodreporter.com]
(Score: 2) by MichaelDavidCrawford on Friday October 26 2018, @08:03PM (4 children)
Not that Netflix isn't offering new equity to Wall Street, they're offering bonds.
Yields on bonds have been going up for a month or so while the market has been plummeting. I expect part of this is a feedback loop - when one goes up, the other goes done, when the investors see that stock is already going down they'll sell their stock then buy bonds with the proceeds, thereby accelerating the feedback loop.
One of the amendments to the US Constitution stipulates that Federal debt "will not be questioned". That Amendment was enacted after the civil war to head off the possibility that the South could regain control of Congress then pass legislation to default on the debt. The southerners really did want to do that because after their economy had already been wrecked by the war they were being taxed to pay off the bonds that were sold to wreck the south's economy.
If the US Federal Government defaults on its Treasury Bonds, you're already going to have far worse problems to deal with. So go right ahead, finance Trump's tax cut for the rich and buy some T-Bills!
Yes I Have No Bananas. [gofundme.com]
(Score: 3, Insightful) by ikanreed on Friday October 26 2018, @08:10PM (3 children)
Yeah, that's a great investment strategy, counting on Trump to not do an incredibly stupid, unconstitutional thing he already publicly suggested doing. I can see no risks to that strategy.
(Score: -1, Offtopic) by Anonymous Coward on Friday October 26 2018, @09:32PM (2 children)
But it was OK when the big O cut 12 Trillion in that stuff. Shipped pallets of cash to Iran and played funny with the budget to make sure an audit did not happen (you can look it up in the budget if you think it is 'conspiracy'). But what ever orange man bad right?
(Score: 1, Interesting) by Anonymous Coward on Friday October 26 2018, @09:36PM (1 child)
Have you ever once considered that not everyone who hates Trump must have liked Obama? Have you ever once considered that, you sniveling little partisan hack?
(Score: 4, Insightful) by ikanreed on Friday October 26 2018, @10:10PM
I thought Obama was fine.
But you're right, though, about the hackery. If we could take everyone who posts of the form "This thing where you're replying to one very specific conception that's possibly factually wrong? WHAT ABOUT THIS AT BEST TANGENTIALLY RELATED THING THAT ADDRESSES THE ACTUAL TOPIC AT HAND IN NO WAY" and shove them in an incinerator, every political party would be massively improved, and one major one would be 1 tenth the size.
(Score: 0) by Anonymous Coward on Saturday October 27 2018, @01:23AM (2 children)
Ima turn on that Kodi and browse the Netflix stuff
(Score: 2) by bzipitidoo on Saturday October 27 2018, @03:54AM (1 child)
Guess Netflix will have really arrived when people feel it's worth the bother to pirate their original content.
I have a question. Will Netflix offer a way for public libraries to legally archive and lend out the stuff they produce?
(Score: 1) by DeVilla on Saturday October 27 2018, @11:17PM
Can someone buy a copy and donate it to the library?
https://www.target.com/p/stranger-things-season-1-collector-s-edition-target-exclusive-blu-ray-dvd/-/A-52823816 [target.com]