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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.
(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]