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Netflix raising $2 billion in debt for new content

This is happening for the second time this year that Netflix is going to offer $2 billion in debt (euros and dollars) so as to fund its investment in content including original programming, content acquisitions, investments and many more. This is done to fund more original content for Netflix as well as other expenses. The news came in on Monday, 21st October 2019. The news was followed by a dip in the company's stock prices. This will solidify Netflix's market share.

This decision to enhance its investment in the content production field follows Netflix’s high earnings beat the last week when it had reported revenues of $5.24 billion versus the expected $5.25 billion, and EPS of $1.47 versus the expected $1.07. Netflix missed the subscriber numbers in Q3, and despite that Netflix’s stock quickly surged on the news.

However, the streaming service is not out yet. It will be facing a significant competition pretty soon especially among families that have children when the next month, Disney+ will be launching. Apple is also planning to launch the Apple TV+, NBCU is going to bring to us Peacock, AT&T’s Time Warner is going to debut with HBO Max and Jeffrey Katzenberg is planning to launch a mobile-only service called Quibi with big-name talent attached to it.

Netflix had said in a statement that the interest rate, maturity date as well as the other important terms of this offering will be determined soon by negotiating with the initial purchasers.

Each one of these services will not really bring Netflix down as a top streamer. But together, they can steal away Netflix's user base only if the consumers find the other competitors better and would decide to switch to them. 

On the company’s Q3 earnings call, Mr. Reed Hastings, the CEO of Netflix has admitted the fact that Disney will be a great competitor of Netflix. He had even pointed out that all of the services such as Hulu, YouTube, and Amazon Prime and others have been competing more with the linear TV than against each other.

Netflix states that it will still need to better its content so that it can keep its customers and bring in new customers to subscribe. This can turn out to be expensive.

Netflix's CEO said in a statement in Netflix's Q3 letter to the shareholders, “We don’t move away from taking bold steps if we think that the impact on the business will be worth it. We don’t close every deal that we go after and we don’t chase every deal on the table.” Hastings also added that although not all of Netflix’s projects work out always, its large and continuously growing subscriber base let it experiment with different aspects. The size of its content budget that is a whopping $10 billion on P&L spend and $15 billion in cash content spend which helps the company from getting dependent on a single hit show that it has.

The growing revenue base and the expanding margins will allow it to fund more, said Netflix.

Netflix is taking on debt in the meantime. 

In an announcement today, Netflix has said that it is aiming to use the net proceeds from this offering for general corporate purposes, including the content acquisitions, production and development, capital expenditures, investments, working capital, and potential acquisitions as well as strategic transactions. The company will have to keep spending billions of dollars on new content due to its strong competitors.

Also read:- Owner of TikTok made $7 billion in the first half of the year

image source-
Forbes

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