Streaming companies such as Netflix and Amazon Prime have discovered the advantages associated with creating and distributing original content. Netflix has now decided to approach the debt markets to raise financing in the form of senior unsecured notes, denominated in U.S. dollars and euros.
The company said that it plans to use the money towards content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions. This round if realized, will bump up Netflix’s long-term debt to over $10 Billion. As of September 30, the company’s debts had already reached $8.34 billion, up 71% from $4.89 billion last year.
The company has however, defended its decision to take on the increasing debt so as to be able to continue creating original content. In its Q3 earnings call, it told shareholders:
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.
It had also added:
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. 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.
Netflix is not the only company doubling down on original content, most other streaming entities with pockets deep enough to afford it, have started churning out content of its own. Competing with the likes of Prime Videos (backed by Amazon) however, is going to require money and Netflix is prepared to risk taking upon massive debts to even the odds. The company is also planning to lower prices in various locations, such as India, to increase subscription.
You can read the full press release from Netflix, by clicking here.