If the saying that you have to spend money to make money is correct, then Netflix is doing things right. Though, they may want to slow down at least a little bit. Netflix is by far the biggest streaming service in the world and they continue to grow at a steady pace, but their increased spending to produce original content has resulted in the company amassing a crazy amount of debt. How much debt, you ask? A staggering $20 billion.
The figure comes courtesy of The Los Angeles Times who report that Netflix has acquired $20.54 billion in long-term debt, and they aren’t expected to stop spending big anytime soon. The debt has mostly come as a result of Netflix producing a lot more original content in recent years. Netflix has said that they intend for half of their library to be original content in the coming years, but producing high-profile TV shows like Stranger Things and Netflix original movies like Okja doesn’t come cheap. As such, Netflix has racked up a serious bill that they are going to have to pay at some point. Mike Vorhaus, president of Magid Advisors, a media and digital video consultancy, thinks this debt is going to catch up with Netflix.
“Nobody is ever the dominant player forever. I think they’re going to need some luck in not drowning in debt in the ultimate slowdown of growth.”
Even though Netflix has racked up tremendous debt, their strategy appears to be working on the surface. According to this report, the streaming service now has 104 million subscribers worldwide, which is up 25 percent from last year. They also garnered a very impressive 91 Emmy nominations this year, second to only HBO. Perhaps the most impressive stat? Their content accounts for more than a third of all prime-time download Internet traffic in North America. Netflix Chief Executive Reed Hastings doesn’t sound overly worried about the debt.
“That’s a lot of capital up front, and then you get a payout over many years. The irony is the faster that we grow and the faster we grow the owned originals, the more drawn on free cash flow that we’ll be.”
Netflix is spending so much on making original content in order to keep up with competitors like Amazon, Hulu and HBO. What’s interesting is that shows like Orange is the New Black and House of Cards, though they are billed as Netflix Originals, aren’t actually made by Netflix. Lionsgate produces Orange is the New Black and Media Rights Capital makes House of Cards, and Netflix pays them a lot of money in order to put them on their streaming service. In order to avoid this in the future, they are spending big to produce more shows and movies in house, but that has also helped them rack up this $20 billion in debt.
For the time being, Netflix is king and even with massive debt, they aren’t going away anytime soon. However, they are going to face some big challenges. For one, Disney is getting ready to launch their own streaming service in 2019, which means all of the exclusive Disney titles that Netflix has been enjoying, including Star Wars and Marvel movies, may be leaving the service in the future. For now, investors still have lots of faith in the streaming giant as their stock continues to rise, but this $20 billion debt could wind up biting them down the road.
Source: Movie Web