Netflix to allocate $2 billion in debt to finance more content spending
For the second time this year, Netflix is giving $2 billion in debt to finance its investment in content. This includes new programming, content purchases, investments and more.
The news was published on Monday morning and was accompanied by a small dip in Netflix’s stock price.
The decision to expand its investment in content production supports Netflix’s well-received earnings hit last week when it recorded revenues of $5.24 billion versus the $5.25 billion anticipated.
However, the streaming service is not out just yet.
It will shortly face significant competition, particularly among families with children when Disney+ starts next month.
Apple is also poised to begin Apple TV+, NBCU is producing Peacock, AT&T’s TimeWarner is debuting HBO Max.
Moreover, Jeffrey Katzenberg is starting a mobile-only service called Quibi with big-name talent joined.
On their own, all of the new services would not be likely to replace Netflix as a top streamer.
But joined, they can break away at Netflix’s user base if users decide to leave and switch, rather than adding on yet an added subscription.
On Netflix’s Q3 profits call, Netflix CEO Reed Hastings also admitted that Disney is going to be “a great contender.”
However, he showed that all of the services, including Hulu, YouTube and Amazon Prime, have been battling more with linear TV rather than each other.
The Need For New Content
That said, Netflix yet needs to up its content game to keep consumers subscribed which can be expensive.
Hastings stated that while not every Netflix’s projects work out, the significant and growing subscriber base allows it to experiment.
And the scope of its content budget, $10 billion on P&L spend and $15 billion in capital content spend benefits Netflix from becoming too dependent on any particular hit show.
The company also said its increasing revenue base and extending margins would enable it to fund more content spending internally, with cash flow saving up further in 2020 and ahead.
In today’s announcement, Netflix states it plans to use the net profits from this offering “for overall corporate purposes.
This might include content acquisitions, production and growth, capital expenses, investments, working capital and possible acquisitions and important transactions.
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