Donald Trump claims to be the “king of debt” but Netflix, Inc. (NASDAQ:NFLX) wants that throne all to itself. The streaming media giant is raising hundreds of millions of dollars in new debt. What for? The website wants to fund and produce more original content. This means you will get to watch shows similar to “House of Cards,” “Orange is the New Black” and other popular content. To the mindset of Netflix, content (not debt) is king.
Netflix, Inc.: New Debt, New Content
The firm announced on Monday that it plans to raise $800 million as part of a senior note debt offering. The video-streaming titan wants the funds to produce new content and to pay for other “strategic transactions.” Netflix notes that the terms of the debt, like interest rates and maturity dates, will be “determined by negotiations between Netflix and the initial purchasers.”
This has some experts wondering if this is the way to appease investors.
After last week’s report of a strong fiscal quarter, Netflix shares spiked more than 26 percent. The company announced 3.5 million new subscribers between July and September, up from 1.8 million in the previous quarter. And this amount of good news is making shareholders’ appetites ferocious.
Netflix is looking to be different from its rivals. And investing in original and exclusive content is the way to go. It is a costly endeavor, though. But this doesn’t seem to phase Netflix at all. The tech firm is no stranger to implementing this similar fundraising model as it has done in its history. Netflix has about $2.4 billion in long-term debt, and it still has a negative cash flow.
In Feb. 2015, Netflix raised roughly $1 billion in debt to fund its global growth. In 2013, it was successful in raising $400 million in. In 2009, it raised $200 million. Financial experts warn that this amount of debt could impact its credit rating.
Netflix, Inc. Using Debt to Take Over Hollywood
Prior to Monday’s announcement, Netflix had said it was planning to spend $6 billion in content next year. This is up by 20 percent from this year. By buying new and old content and producing original content, Netflix has the potential to take over Hollywood. Some fear it could create a monopoly.
Not only is Netflix going on a content rampage, it’s hiring more employees. Netflix doubled its workforce to 3,700. It is also seeking new openings for marketing and public relations for its exclusive content. It also moved in to a brand new office tower in the middle of Hollywood.
Despite its superb growth, some financial experts are warning that it isn’t all sunshine and lollipops. For instance, Netflix has a $1.5 billion negative cash flow. And where is this money going? It’s putting its money into things like two stand-up films starring Chris Rock, which may not create any returns.
But this could be a key investment for Netflix. Ted Sarandos, chief content officer, said that it wants to “maintain exclusivity.” In other words, Netflix can control global rights to its content and provide a library of exclusive shows and movies globally.
Is this plan working right now? It seems so. However, eventually Netflix may have to return to non-original content, a model being perfected by Amazon.com, Inc. (NASDAQ:AMZN)’s Prime Video.