Netflix is More than $20 Billion in Debt, Netflix Responds
Netflix is proof that you can be on top of the game and still be losing. The leading streaming service, known for its instant availability of new and old films, television shows, and its original programming, is it a crossroads financially. According to The Los Angeles Times, Netflix is currently $20.54 billion in “long term debt and obligations.”
The irony of it all? Netflix’s mission to bring unique and quality original programming – the aspect of their brand that helps them grow – might be the very thing that’s killing them.
It is believed that this year, Netflix will spend an estimated $6 billion on original content alone. Additional funds will need to be allocated toward licensing fees and other expenses that will accompany programs contracted from TV studios. Furthermore, its net cash outflow is said to jump up from last year’s $1.7 billion to $2.5 billion.
Investors in the company aren’t worried and seem confident in Netflix’s long-term financial plan where it is believed that debt financing will ultimately “create growth” on a short-term basis. Of note, Netflix has increasingly built on its consumer base, with 104 million paying monthly subscribers – up by 25% since last year. They have also gained quite the critical acclaim for the bulk of their series – with 50 shows garnering 91 Emmy nominations last year alone.
On the flipside, industry experts are wary of Netflix’s ability to sustain growth, citing the possibility of a “Netflix bubble” where Netflix’s original content no longer draws in new subscribers. “I think they’re going to need some luck in not drowning in debt in the ultimate slowdown of growth,” media consultant Mike Vorhaus said, regarding the matter.
Debt for funds has increasingly been a large part of Netflix’s financial game plan and the platform hopes to eventually consist of a streaming library of 50% Netflix original content.
Netflix has since responded to the Los Angeles Times‘ claims in an effort to dispute it. Read the text below for Netflix’s full statement on the matter.
“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.”
Photo Credit: iStock
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