Netflix offers $2 billion more in debt to fund its content spending

Netflix is raising another $2 billion in debt to fund its content spending and other expenses, the company announced this morning. The news comes ahead of the launches of new streaming service competitors from Disney, Apple and AT&T’s WarnerMedia. It also follows Netflix’s offer of another $2 billion in debt back in October 2018.

The streaming service says it plans to use the debt funding for general purposes, including “content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.”

The funds will be raised through unsecured notes that will be issued in two series in both U.S. dollars and euros, it says.

Netflix spends a lot of cash to stay ahead of the competition and acquire subscribers. It believes that its investment in original content — shows and movies that users can’t find anywhere else, and to which it owns the rights — will help the company generate revenues in the years ahead.

In January, Netflix said its cash burn would peak in 2019, and its free cash flow deficit for 2019 will end up around $3.5 billion, CNBC notes.

This year, its content budget is expected to reach $15 billion, Variety reported earlier.

The additional $2 billion in debt will bring Netflix’s long-term debt to around $12.3 billion, Variety now points out. It also says Netflix hasn’t paid down any significant amount of that debt to date. Instead, its interest on that debt is increasing — $135.5 million in interest expense in Q1 2019, or around 3 percent of revenue. That’s up 67 percent from the $81.2 million a year ago, the report adds.

In a letter to shareholders earlier this year, Netflix warned investors it would continue to raise debt.

“As long as we judge our marginal after-tax cost of debt to be lower than our marginal cost of equity, we’ll continue to finance our working capital needs through the high yield market,” it read.

The additional funds come just ahead of several notable streaming service launches, including Apple TV+, which is smaller on the content side but will tap into Apple’s massive iPhone user base; AT&T’s WarnerMedia service; and perhaps most significantly, Disney+.

The latter could even end up being a low-cost alternative to Netflix for families, who are looking for more kid-friendly content as well as programming that parents and kids can watch together. There’s not as much of that out there today, as so many shows are now either adult-oriented or only for children, with no middle ground. Disney+, however, will include a range of family fare from Star Wars, Marvel, National Geographic and Pixar, in addition to its Disney animation. And at $6.99 per month, Disney+ is a big step down in price from Netflix’s entry-level plan at $12.99 per month.