As Netflix Takes On More Debt, Its Dominance In The Market Is Secured

Variety is reporting that Netflix is going shopping and it has a new credit card with a HUGE credit limit. According to a regulatory filing, Netflix’s new line of credit is worth up to an astounding $750 million. That’s either a lot of new striped shirts from Macy’s for CEO Reed Hastings, or subscribers can expect even more original content headed their way.

Starting as a DVD-by-mail service in the late ’90s, Netflix has grown to attract more than 100 million subscribers and is squarely focused on delivering video on demand through their internet service (it still has a small DVD-by-mail service accounting for around 5% of its quarterly revenue). In recent years, Netflix’s focus on original content has exploded their appeal, helping to attract around 80 million new subscribers in a five year period and giving them year-to-year growth over 30%. Numbers aside, it has also helped Netflix become a household name and if you’re reading this, I’d bet the small flophouse that my blogger’s salary can afford that you’ve heard of them.

The new line of credit seems to hint that Netflix will continue to be big spenders in the original content game. In a recent call to shareholders, Hastings stated that the company would continue to have, “negative free cash flow” (read: racking up debt) for many years. While grandmothers will tell you that debt is bad, you can’t tell the billionaires in Silicon Valley anything to that effect. Netflix’s debt financing of their content is an investment — just this month, Morgan Stanley valued their content library at $12 billion. Of that amount, $1.7 billion was Netflix’s original content, which is great news for the company, since they don’t have to continue to pay subscription fees for shows and movies they own.

But if a $750 million credit line is still tough for you to swallow, consider this: in just the second quarter of 2017, Netflix’s revenue grew to almost $2.8 billion, showing that, if they needed to, the streaming video service could turn on a firehose of cash to quell any debt-incurred flames that may threaten. The only potential downside is that Netflix must continue to keep its subscriber rates high, so it may need to keep on the debt financing wheel for some time.

Starting in 2016, Netflix has been ranked as the #1 original content media company in the U.S., ahead of rivals HBO, AMC and others. Do you agree with that assessment? Hit me up and let me know in the comments below, or on Twitter at @LRM_Brian. I’ll be watching Stranger Things for the eleventh time.

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SOURCES: Variety, Yahoo! Finance

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