Netflix, the most popular and the biggest streaming service in the world, is involved in an intense war against its rivals. The company which is known to create expensive original content is back to a game that it plays so nicely. It is raising junk bonds to meet the requirement of vast reserves of cash to be able to take on the might of Disney. These junk bonds will make available nearly $2.2 billion to Netflix to come up with more engrossing entertainment for its viewers.
It is really surprising for many to see Netflix starved of cash despite increasing its customer base so rapidly. Netflix support is growing at an exponential rate but so are its expenses. For those who know how the company spends money in an extravagant manner, these bonds do not come as a surprise. Some of the most popular blockbusters produced by Netflix like House of Cards and Bird Box also happen to be two of the costliest TV shows ever made.
According to Fitch ratings director Patrice Cucinello, Netflix is a serial borrower. But he does not blame the company for borrowing too much. He says that streaming services have become highly competitive. When every major player is spending in an extravagant manner, Netflix cannot remain a mute spectator.
Netflix is such a big name that it did not take the company long to raise $2.2 billion from the market despite having a reputation of a serial borrower. Creditors seem to have a blind faith over the ability of Netflix to turn things around. In fact, Netflix obtained this debt at highly generous terms. These terms were more generous than what Netflix had anticipated. Netflix tech support says the deal will be closed next week and the money will be used for creation and production of more original content.
In the last 10 years, Netflix has borrowed more than $12 billion from the market. Out of this money, more than 75% has been borrowed by the company in last 3 years alone. This tells how much money Netflix has spent on creating TV shows and movies for its subscribers.
Netflix is convinced that overspending has actually helped the company in increasing its subscriber base to a staggering figure of 150 million. This is a figure that all other streaming services can only dream of. But they are nevertheless trying hard, and also spending lots of money to achieve their targets.
The biggest threat to the monopoly currently enjoyed by Netflix is going to come from Disney which is planning to introduce its streaming serviced at a price of just $6.99 per month. Warner Media, the parent company of CNN, is also planning to come up with its own streaming service by the end of this year. Given these threats in the offing, Netflix has planned to spend more than $3 billion this year on creation of original content to woo its subscribers.
Economists say that this splurging is not sustainable in the long run. Credit rating agency Moody’s says it may downgrade Netflix if it continues to face liquidity issues.
