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Netflix To Raise $2 Billion In Debt To Fund More Original Content (techcrunch.com) 122

Posted by BeauHD from the adding-to-the-pile dept.
According to a press release posted today, Netflix is planning to raise $2 billion to help fund new content, including "content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions." TechCrunch reports: The funds will be raised in the form of senior unsecured notes, denominated in U.S. dollars and euros, it said. This debt offering is the sixth time in under four years that Netflix is raising $1 billion or more through bonds, noted Variety, which was among the first to report the news. As of September 30, Netflix's long-term debt had reached $8.34 billion, up 71% from $4.89 billion in the year ago quarter, it said during its last earnings, Variety's report also noted. Netflix recently explained during its Q3 2018 earnings that it needs to continue to invest in original programming in order to remain competitive. "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," the letter also stated. "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," it had said.
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Netflix To Raise $2 Billion In Debt To Fund More Original Content More

Netflix To Raise $2 Billion In Debt To Fund More Original Content

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  • ELI5: Why is their long term debt so high? And isn't that a bad thing?

    What are their gross and net profits?

    • Re: (Score:2, Insightful)

      by Anonymous Coward

      Is it a bad thing? It depends.

      If I borrow and spend a billion dollars now, and get back $1.2 billion in a year from the things I spent the money on, the borrowing was a good thing: I made more money by borrowing the money and spending it than I would have had I not, and I'm in a position to pay back the debt if I want to. (Or maybe I can re-invest that money into other things and hope for more high returns.)

      If I borrow and spend a billion dollars now, and get back just that one billion dollars over the cour

      • Re:Long term debt .. am I missing something here? (Score:5, Insightful)

        by sexconker ( 1179573 ) on Monday October 22, 2018 @08:29PM (#57521023)

        The core problem is Netflix's original content costs grow without bounds the more successful it is. Netflix's subscriber count is asymptotic.

        The more popular a Netflix series is, the more it costs to continue it for another "season". The same goes for the movies & sequels. Actors, writers, etc. tend to point to the success of a past project and demand a bigger paycheck to churn out another.

        In the old model, success yields ticket sales, ad dollars, toy sales, etc. In Netflix's model, success yields nothing. The people who made it a success by watching it are already subscribed. You don't get more money for a second "season" or a sequel. Nor do you get more money by developing other content they might like, because their single subscription gives them everything. Nor do you get ad dollars since there are no ads.

        Once you hit a certain point where everyone interested in Netflix has Netflix (or has a friend with Netflix), putting out MORE Netflix or BETTER Netflix doesn't generate more money.

        In the long run, Netflix will have to run ads, charge a premium for certain content, stretch releases of "seasons" out over time (they're doing this with certain things already), keep increasing subscription costs, or some combination thereof.

        • HBO does fine with the model of subscription only.

          They seem to be way better at picking winners than Netflix is, and they spend far less on content, but it's definitely a sustainable business model if run well.

          It'll be interesting to see if Netflix's model of tons and tons of mediocre content works. I'm not sure it will, because the whole season release model means people aren't so much in sync and therefore shows are less discussed and less of a cultural phenomenon even when they are great (and sone are).

          If GoT was on Netflix for example, everyone would be totally out of sync, and there'd be a lot less talking about it, which in turn makes it harder to turn a great show into subs.

        • I don't think they need adverts (Score:4, Interesting)

          by rsilvergun ( 571051 ) on Tuesday October 23, 2018 @12:18AM (#57521815)
          but they do need content, not to get new subscribers but to keep the old ones. You need a series of shows you can either go back to or discover. It's not even that big a deal if they're not finished. My kid watched a ton of cheap, unfinished shows on DVD back in the day when she was laid up sick. But the point is to have enough content that folks want to keep the subscription.

        • Content begets subscribers. Make good content, you get more subscribers looking for that content. And then they discover other stuff you have already done, staying around and paying fees for stuff you are only paying bandwidth to serve.

          That's the game, and it's one Netflix appears to be good at - others are trying to replicate it (Amazon, Apple, HBO, Cinemax, etc.)

          • It's called diminishing returns moron. How much are you willing to pay for the content you watch on Netflix? We've already seen that with cable. People's cable bills got so high that subscribers cut the cord. Switched to Netflix and the like. But now content costs for Netflix are increasing. Netflix is taking on more debt, a huge amount. They need to make the money back. So subscriber rates are going to increase.

            Which means you are back to where you started.

            • If you want me to read anything you post, you probably shouldn't just start with insults and name calling.

              Grow up and have an adult discussion.

          • Content begets subscribers. Make good content, you get more subscribers looking for that content.

            Netflix subscriptions have plateaued. More good content won't get more subscribers.

            And then they discover other stuff you have already done, staying around and paying fees for stuff you are only paying bandwidth to serve.

            That's the game, and it's one Netflix appears to be good at - others are trying to replicate it (Amazon, Apple, HBO, Cinemax, etc.)

            No, people on Netflix already know everything Netflix has to offer. It's a pretty thin library. And with the binge model, you can sub for a month, see everything that even vaguely interests you, then cancel for 11 months.

            Netflix is slowly learning to ape HBO and others. HBO gets by because people stick around for 3 months to catch 10 weeks of Game of Thrones, then stick around for 3 more months to catch 10 weeks of Westwo

            • Could be. I have no knowledge of overall subscriber trends. I know that I have to keep my account or my wife will have a small household coup if she didn't have access to the 20+ seasons of network sitcoms she seems to love...

              The netflix monthly streaming charge is a small pittance in comparison to that.

        • Re: (Score:2)

          by Hodr ( 219920 )

          This ignores the fact that at some point they will be producing enough new content per year that they more than satisfy the demands of the typical subscriber. At that time their costs (for content) should stabilize, while they will continue to collect revenue from old subscribers.

          It is also likely that at some point they will have such a large catalog that they can significantly reduce the new offerings and concentrate on a couple of popular properties (like HBO) to keep the subscribers interested.

          My wife h

          • LMOL. Really? And how much is that content going to cost? What are the production costs? And debt needs to be paid back.

            What do you men by content costs should stabilize? Why? Content costs increase year over year. Just look at what any of the networks charge cable and the like to carry their content. So Netflix works in a magical world where production costs don't operate the same?

            Moron.

        • Re: (Score:2)

          by Kjella ( 173770 )

          But you seem to be starting out on the assumption that Netflix pays as much as they can for the first season. What really happens is that there's a lot of aspiring actors, directors, writers etc. so they'll start low and go *shrug* there's a hundred more in line behind you if you don't want the offer. And they will threaten to write you out of the script if you demand too much for the next season, they'll figure that out before the series is renewed. They'll keep renewing the shows that are profitable, not

          • But you seem to be starting out on the assumption that Netflix pays as much as they can for the first season. What really happens is that there's a lot of aspiring actors, directors, writers etc. so they'll start low and go *shrug* there's a hundred more in line behind you if you don't want the offer. And they will threaten to write you out of the script if you demand too much for the next season, they'll figure that out before the series is renewed. They'll keep renewing the shows that are profitable, not necessarily because they're popular if the costs get out of hand. And the last bit is a bit duh, if making "more or better" Netflix doesn't give any value it's just waste. If "more or better" gives value, then naturally you can charge more for that value. From a for-profit company's point of view, if you're not willing to pay for it it's not valuable.

            I'm not assuming that.

            90% of "Netflix Originals" are shit. 90% of those are low budget shit. Those can be safely ignored. They don't contribute significantly to cost OR subscribers.

            The problem is when one of those "Netflix Originals" becomes a hit. Then the costs skyrocket. Netflix has a pattern of axing its most successful content after 2 or 3 seasons because no matter how much people like it, they can't bear the ever-increasing costs.

            Sometimes Netflix skips the cheap phase because they're hunting for

    • Why is their long term debt so high?

      Because they're stupid.

      And isn't that a bad thing?

      Very bad, unless they can keep the ROI ahead of the interest.

      What are their gross and net profits?

      https://www.nasdaq.com/symbol/... [nasdaq.com]
      Or check out that cash flow, quarterly: https://www.nasdaq.com/symbol/... [nasdaq.com]

      They're spending bigly.

    • They sell debt and repay it with membership fees. It's like lending money in reverse. The shows will be watched for years to come so it's like a capital expense which will be used for years to come and it doesn't make sense to pay for it from retained earnings.

      If they paid for content from their cash reserves they wouldn't be able to fund all the content they have now and would still be paying more license fees

      • LMOL someone who doesn't understand the economics of it. The reason Netflix took on more debt is to create NEW CONTENT. That means Netflix will need to continue to make NEW CONTENT. That's how it works. You attract and retain customers with new content.

  • Oh boy (Score:1)

    by Anonymous Coward

    Are they gonna bring back quantum leap?

  • Maybe they could finish (Score:4, Interesting)

    by bobstreo ( 1320787 ) on Monday October 22, 2018 @07:50PM (#57520833)

    Forever

    or

    Terminator: The Sarah Conner Chronicles

    I see they're doing the new season of Lucifer...

    I'd also like a sequel to Bright

    Just say no to more movies from Adam Sandler though.

    • Re: (Score:3)

      by rtb61 ( 674572 )

      Don't forget really cheap to produce content, like scenery channel lopped from various locations with generic music. Then various music video channels, again buy cheap early and loop over and over again.

      People will pick the one the fills the most spots with the most content. Fuck sports that is for jock strap douche failures and with mind control levels of advertising, your sports stars, your team, the play for you, yeah fuck off, the mostly are jock strap douche fwits that chase the highest money and seeki

      • Re: (Score:3)

        by AmiMoJo ( 196126 )

        The whole idea with Netflix is that they should be able to make better quality programming by relying on the long tail for viewing, and not having to worry about the whims of advertisers. Otherwise what is the point, it's just the same drek as other streaming services.

        I'd love to see some really good documentaries, like the BBC used to make in the 70s/80s. Informative and in-depth, none of this Brian Cox gazing at the sky and breathlessly whispering about how amazing it all is. Making a Murderer was pretty

        • Informative and in-depth, none of this Brian Cox gazing at the sky and breathlessly whispering about how amazing it all is.

          I know. A fucking pop star who did that song that New Labour used.

          And don't get me started about Sky At Night. The new presenter is a black woman who can't read!

          Froth froth dumbing down froth froth green ink froth froth political correctness gone mad froth froth Belgians.

          • Re: (Score:2)

            by AmiMoJo ( 196126 )

            You mean Dr. Maggie Aderin-Pocock? Fairly sure being able to read is a prerequisite for getting a PhD.

            • Well either there are two people with that name or one of us doesn't know what dyslexia is.

              P.S. I'll see your Brian Cox (fnarr fnarr) and raise you Hannah Fry gazing wistfully into the distance... though I can sort of put up with that.

              • Re: (Score:1)

                by AmiMoJo ( 196126 )

                So... You called her out for being black and having dyslexia. That is your objection to her presenting The Sky At Night?

                I want to be really clear about this.

                • I'll call you out for being a liar, an aspie or having appalling reading comprehension.

                  You can choose more than one if you like.

    • Re: (Score:2)

      by AmiMoJo ( 196126 )

      Or un-cancel Luke Cage and Iron Fist. I really enjoyed the former, Iron Fist season 1 was not the best but I hear season 2 is a great improvement.

      And for the love of his noodliness don't cancel The Expanse.

      • Re: (Score:2)

        by Hodr ( 219920 )

        I watched every episode of both those series, kept holding my breath waiting for them to get good In my opinion they never did. And these are the types of shows that I like most, and I am incredibly easy to please (hell, I liked ALL of the mortal kombat movies).

  • One Remaining Movie in Every Categtory (Score:3)

    by BrendaEM ( 871664 ) on Monday October 22, 2018 @08:04PM (#57520895) Homepage
    Nextflix has done everything in their power to go out of business. They devised a bogus rating system. They are doing away with reviews altogether. They put movies in categories where they don't belong. There are fewer movies, now. There are hardly any cult moves, hardly any classics. They've alienated studios by creating their own content.

    What more can they do and still keep the lights on?
    • You're talking about Dvd.com, not Netflix. Oh, wait....
    • Their interface is very well designed and they integrate quite well with Android, webOS, Chromecast and iOS...
      However, working well does not suit them any better if they are only carrying two year old series and movies, at best.
      And it is a shame...

      • Re: (Score:1)

        by Anonymous Coward

        Work well? I can rarely find anything that interests me to watch on Netflix. The options for search are terrible and the recommendations are barely any better. If I'm lucky, i'll stumble across a series that interests me, but usually not.

        I wouldn't have a subscription at all if I had to pay for it.

      • Two years old is meaningless. Any content I haven't yet seen is fair game. As it is, I've switched around my own TV recording habits and watch shows one season at a time, a year after it airs. If you're not paying to watch it two years ago elsewhere, it's just as fresh as anything.

    • Re: (Score:2)

      by AmiMoJo ( 196126 )

      Netflix needs original content to survive. The other studios are setting up their own streaming services now, and removing their content from Netflix. Original content is the only reason I subscribe any more.

    • Well, the studios were going to screw Netflix anyway by creating their own streaming services so Netflix made a heads-up move by getting into content production.

  • Enjoy while it Lasts (Score:5, Insightful)

    by Roger W Moore ( 538166 ) on Monday October 22, 2018 @08:29PM (#57521031) Journal
    Their content is great but their business model is beginning to look something like a Ponzi scheme. They have to borrow more and more in order to make more new content to both attract new subscribers and maintain their existing ones. However, at some point, they will no longer be able to increase their subscription base fast enough to cover their ever-increasing debt at which point things are going to get very bad very fast as they will haemorrhage subscribers like crazy.

    They really need to find a way to pay for the new content from our subscriptions. I would much rather have a lower rate of quality shows over the next 30 years than a huge glut of new material for a few years followed by nothing because their business model has imploded.

    • Re: (Score:2)

      by AvitarX ( 172628 )

      They profit a billion a year or so.

      I'm not sure their cashflow situation (but with so much debt it may be negative).

      They'll need to slow down the borrowing soon, but they also will be able too.

      Someone signing up today already has a pretty big back catalog, in three more years, it'll be even more.

    • they need a back catalog to keep subs. As everyone and their dog jumps into the streaming services market Netflix needs their own content.

      As for, why debt, the answer is taxes. They'll write it off as a business expense.
      • Yes, they do need their own content but that content needs to be paid for by existing subscribers. At the moment it is being paid for by borrowing money plus subscribers. The problem is that if their subscriptions stop growing, they will not be able to borrow more and then the rate of content production will drop to what the subscriptions (minus debt repayments) will support. This drop in rate will mean that they are likely to lose existing subscribers further reducing the rate of new content, causing more

    • Re: (Score:2)

      by AmiMoJo ( 196126 )

      They have to borrow more and more in order to make more new content to both attract new subscribers and maintain their existing ones.

      That's the normal way business works. They have a product that is successful and profitable, so people are willing to invest more money in them to expand it.

      The next big step for them is to get direct-to-stream movies given the same consideration as those shown in cinemas. Movies are ripe for disruption just like TV was, but it's a little harder because a lot of critics and awards won't look at anything that doesn't get a theatrical release, they consider them equivalent to straight to DVD trash.

      • That's the normal way business works.

        Absolutely correct but Netflix is not like a normal business. In a normal business you borrow money to build infrastructure that will continue to have a value long after the original investment because it can still make/sell widgets. However, with Netflix the value of the content they create rapidly declines because their subscribers will only watch it once or twice. The result is that Netflix's income is related far more closely to the rate of investment than the total amount invested so, if their rate of

    • Eh, with HBO for example, you can subscribe for a month or two a year and watch everything you were interested in. Netflix is trying to keep you subscribed all year.

    • Re: (Score:2)

      by syn3rg ( 530741 )
      It may be time to separate content from delivery [wikipedia.org], like the US did in 1948.

  • I can see it working but ... (Score:4, Insightful)

    by your_mother_sews_soc ( 528221 ) on Monday October 22, 2018 @08:40PM (#57521063)
    I can see it working but it's a big gamble. In a nutshell there are a few categories of funds needed by a business: startup costs (building, enhancements, equipment, etc), fixed costs (your monthly bills including payroll, utilities, service contracts, etc.), and variable costs (depends on the interest, but here it would be the costs to make a film or series - the more films/series, the more it costs). The revenue then goes against these expenses, and there's a break even point where you make X number of widgets and take in enough revenue (from sales, licensing, etc.) to cover the costs.

    You would think that Netflix has saturated the market by now, so how does throwing more money at content generate more revenue? Netflix has obviously done some thinking.

    More original content would mean less licensing films and TV shows from other companies. And they need a bootstrap to produce enough to begin to be free of other studios and distributors. But then where do we go for all the shows that brought us to Netflix? Maybe it's Plan B.
    br/> Original content is still key, but perhaps Netflix knows about other markets, like PPV. I don't have any idea how much people pay for films that were recently in theaters and are now in PPV. It could be that Netflix wants to do more films that are either screened broadly or maybe limited run and then charge a few more bucks to watch them.

    Whatever they do it's a lot of money and a big risk. The markets are not looking favorably at tech right now, either. I'd be cautious.

    • You would think that Netflix has saturated the market by now,

      Which market? They have original series all over the globe. Plenty of them are enjoyable with English subtitles if you don't like dubs.

    • It reduces content acquisition costs, and ensures ongoing access to new content. Their own content is much easier to predict future costs on-- licensed deals not so much.

  • At this point, Netflix should seek out media company acquisitions to bring some established IPs in-house. With Disney and Comcast gobbling up everything in sight, there may not be a lot of low-hanging fruit left, but they could try and pick up a smaller movie & TV studio like Paramount or Dreamworks so that they can establish some exclusivity around big IPs. They have some decent self-made programming, particularly their comedy specials, but it feels a lot like a moving conveyor where nothing sticks o

  • All this competition between subscription services means that a lot of great content that people want to see gets made. That's great for us but unsustainable as we can see from the amount of debt they're racking up. It looks like they're all going for market dominance or broke. This isn't going to last & we'll soon be going back to reality TV, game shows, & re-runs.

    However, all these competing services mean that the good TV & movies that we might want to see are fragmented across several provide

  • I guess Netflix shouldn't have burned piles of cash with four Adam Sandler movies that were worse than garbage.

  • and starts being the cable companies they hated so much.

    • Netflix never hated the cable companies. Users hated the cable companies, but Netflix just wanted to win.
  • That's what I want to see next. Where is it ?

    No seriously. I struggle 30 minutes every time I put netflix on to find something that's not absolute shite or mediocre at best. Every possible title I put in IMDB the ratings are between 4.8 to 5.8, and sometimes when I go for it... I find the score to be more or less precise. Netflix content is mediocre, with couple of things that stand out but not so much. People talk about some things for a month, and then after 5 months nobody even remembers it existed an
  • Long time Netflix subscriber here.

    I started with them around 2002, when it was optical media only.
    It was great to not have to go to the movie rental places anymore and just choose films online.
    And as the years went by their catalog got better, right up to and during their initial venture into streaming.

    Holy fuck those were the days.
    A halcyon era of choice, where they had an amazing catalog of classics, b films, foreign films, all the new stuff as well as all kinds of great stuff to stream.

    The

  • Netflix knows what is popular. They have years of aggregated data showing what people watch and re-watch. Any shows they produce should be a reflection of that. I really hope that this will produce more good series than the current ten fold recycled garbage available on network based tv.

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