×
You will be redirected back to your article in seconds

Netflix to Raise $1.6 Billion More Debt Financing to Fuel Content-Buying Binge

Netflix, as it signaled last week, on Monday announced plans to offer $1.6 billion in new debt to fund its expanded content budget for 2018.

In reporting third-quarter 2017 results last week, Netflix said it will spend between $7 billion and $8 billion on content (on a profit-and-loss basis) next year, up from a previous target of $7 billion. For 2017, original content will represent more than 25% of total programming spending, and that “will continue to grow,” Netflix said.

As part of its originals slate, Netflix expects to release around 80 films next year, according to chief content officer Ted Sarandos, up from about 50 this year.

The proposed debt offering would be Netflix’s biggest to date, and the fourth time in less than three years that it’s raised $1 billion or more through bonds. That included $1.4 billion (1.3 billion euros) in new debt financing this spring, after $1 billion in the fall of 2016 and $1.5 billion in February 2015. In addition, this summer Netflix took out a line of credit to borrow up to $750 million.

As of the end of Q3, Netflix reported $4.89 billion in debt (up from $3.36 billion at the end of 2016). The company currently has $17 billion in streaming-content commitments over the next few years, up from $14.4 billion for the year-ago quarter.

Netflix’s thesis: maintain a high cash-burn rate now to acquire original content across a broad ranges of genres and formats (including in-language regional programming), in order to bring more subscribers onto its rolls — especially internationally. For Q3, Netflix topped expectations with 5.3 million net new subs, a third-quarter record for the company, to stand at 109 million worldwide.

In announcing Q3 results, Netflix told investors that it was looking to raise more debt: “We anticipate financing our capital needs in the debt market as our after-tax cost of debt is lower than our cost of equity,” the company said in its quarterly letter to shareholders.

As its debt load grows, Netflix is paying more to service that debt. It recorded $163 million in interest expenses for the first nine months of 2017, up 53% from the comparable period last year. Revenue over the first nine months of 2017 increased 32%, to $8.4 billion.

Netflix continues to operate with negative cash flow, which the company says it expects to continue for the next few years. Free cash flow in Q3 was -$465 million (vs. -$506 million in the year-earlier period). The company expects free cash flow to be between -$2.0 billion and -$2.5 billion for the full year 2017. Netflix is operating with negative free cash flow because it pays for titles before consumers watch the content, and the cost of those TV shows and movies are amortized by estimated viewing over time, according to the company.

Pictured above: Will Smith in action-thriller movie “Bright,” premiering on Netflix on Dec. 22, which had a reported production budget of $90 million.

Popular on Variety

More Digital

  • Verizon Stream TV

    Stream TV Review: Verizon’s New Streaming Device Is One Odd Duck

    Verizon has an answer to Roku, but it’s not talking much about it: The mobile carrier quietly released a new streaming device this week that promises to bring services like HBO, Hulu and YouTube to your TV. Dubbed Stream TV, the device is a solid streamer based on Google’s Android TV platform, albeit with a [...]

  • Hulu With Live TV Full Channel

    Hulu Hiking Price of Live TV Service 22%, to $55 per Month

    Hulu is implementing its second price increase in less than a year for its Hulu With Live TV product — with the base package of 60-plus live channels increasing 22%, to $54.99 per month. The price hike on the monthly base price of Hulu With Live TV will go into effect Dec. 18 for all [...]

  • Hulu With Live TV

    Hulu Live TV Tops Sling TV as No. 1 Streaming Pay-TV Service, Analysts Estimate

    Hulu With Live TV has edged out Dish Network’s Sling TV to take the crown as the biggest virtual pay-television service in the U.S., according to new analyst estimates. They were among the only winners amid the cord-cutting carnage that slashed through the sector in the third quarter. As of the end of the third [...]

  • Mubi India

    Mubi Launches Two VoD Channels in India

    Film specialist streaming platform Mubi launched on Friday in India with two channels, Mubi India and Mubi World. The channels are available together for an introductory offer of INR 199 ($2.75) for three months. Thereafter the channels will cost INR 499 ($7) a month or INR 4788 ($66.75) annually. For Mubi India, a channel dedicated [...]

  • U.K. Producer Barcroft Studios Sold to

    U.K.-Based Producer Barcroft Studios Sold to Future in $30 Million Deal

    Barcroft Studios has been bought by Future in a £23.5 million ($30.1 million) deal. The U.K.-based production outfit specializes in factual fare for channels and platforms, and its own branded channels on the likes of YouTube. Future is a U.K.-listed print and online publishing and events business. Sam Barcroft will stay on as CEO at [...]

More From Our Brands

Access exclusive content