Netflix has become the new TV, let’s be real. The streaming company along with many others like it have made cable TV seem like an ancient invention, but it has come with a cost. As a result of their constant output of original content, Netflix has now incurred a $20 Billion long-term debt and obligation, according to the Los Angeles Times.
A little bit of context:
A lot of companies do this. Netflix actually responded to the claims made by the Los Angeles Times in order to give a point of reference as to how long-term debt works with such large companies:
The L.A. Times story inaccurately calculates our debt, counting our streaming obligations (i.e. our content contracts with studios) of $15.7b as debt, which it isn’t. The correct number: we have total gross debt of $4.8b vs. our equity market value of about $75b. They have since corrected the story.
More context, the $15.7b is future content expenses that roll through the income statement over time. Every broadcaster, cable network and streamer that has licensing agreements uses the same structure. As a point of reference, Disney/ESPN has $49b in similar commitments for sports contracts.
This is primarily why investors in the company aren’t really worried, hoping that financing the company through debt will create ‘growth’ in the short-term, and that has been the case with Netflix obtaining over 104 Million subscribers just last year (Not to mention the Emmy Nominations and critical claim around the world).
The Other Side Of The Coin:
If Netflix continues to rely on long-term debt ‘financing’ to launch its own original content, it will be in trouble. They have to find a ‘long-term’ solution (ironic) as to how they will make the transition to produce 50% original Netflix content on the streaming platform. Media consultant Mike Vorhaus, like some industry experts, warns of a ‘Netflix bubble’ that could eventually slow down the growth of the company, but investors are still confident in the $2.5 Million Net Cash Flow they bring in each year.
In conclusion, if you’re an everyday consumer like myself (i.e you’re not investing stock in Netflix), don’t worry, your monthly rates for streaming won’t be increasing anytime soon. Now if you excuse me, I’ll be patiently waiting for the Marvel’s Defenders to drop on August 18th.
