Netflix is apparently reaching $1.5 billion in long-term debt to help pay for new content, licensing acquisitions and potentially even a concert.
This comes after Netflix announced on Feb. 2 that they would be taking on an additional $1 billion in debt, a figure which quickly increased. Netflix has also made it public that it will pay $700 million in 2022 and $800 million in 2025 to pay off the debt it is currently incurring.
In addition to this, Netflix has stated that the sale of the debt is expected to close by Feb. 5 2105 and will be subject to usual closing conditions.
In a report filed in January, Netflix CEO Reed Hastings and CFO David Wells told prospective investors that the company was planning to raise at least a billion dollars due to the “current favourable interest-rate environment,” a clear nod to the volatile economy’s fluctuating rates.
According to Hastings and Wells, “Over the next few years we expect to continue financing our original content expansion with long-term debt,” Hastings and Wells wrote in the letter. “As long as the maturities are spread out, and the interest cost is built into our content budgets, we think long-term debt is the best way for Netflix to finance the production of content.”
As for what the money will directly go towards, Hastings and Wells will use the surplus of money to increase funding for original Netflix projects launching in the next few months with the acclaimed show House of Cards coming back for its third season on Feb. 27.
In addition to House of Cards, Netflix will also use the money to launch around 320 hours of other new and returning original series in addition to films, documentaries and comedy specials. If Netflix keeps true to this figure, it would constitute a 66 per cent rise in originally-produced material since 2014.
When asked about the future of Netflix in regards to the new debt, Hastings and Wells wrote shareholders that, “There are numerous local competitors and a thirst for movies and TV shows from around the world. Later in the year, we’ll launch additional major countries, in keeping with our global strategy”.
“Our international expansion strategy over the last few years has been to expand as fast as we can while staying profitable on a global basis. Progress has been so strong that we now believe we can complete our global expansion over the next two years, while staying profitable, which is earlier than we expected. We then intend to generate material global profits from 2017 and onwards.”
Despite being optimistic about the future of Netflix, Standard and Poor, an American financial service and rating company, recently downgraded Netflix’s stock value stating that, “The downgrade and negative outlook reflects our expectation that Netflix will incur significant discretionary cash-flow deficits over the next several years and that debt leverage will be high during that time”.
“Netflix remains dependent on movie and TV studios for content, and we expect the company to increase its investments in original programming for which success is often unpredictable.”
Regardless of the future economic woes of Netflix, one thing is certain: Netflix is clearly asserting itself as a media powerhouse, and will continue to dominate the online streaming world as long as it put profit second to content. You have to spend money to make money, and Netflix is clearly willing to pay the price.