Edited by Avleen Grewal
You probably know by now The chilling adventures of Sabrina, and you have most likely seen To all the boys I have loved and The kissing booth. These were all Netflix original productions, and they were all funded by the company itself. But, how did Netflix got to finance more than 700 original productions all by itself? The answer is debt. Yes, debt, and not a “25-year loan” type of debt. Netflix actually let any investor help them with funding by tapping the debt market with bonds since 2013.
What you are probably wondering now is: What is a bond? What is the debt market? How does Netflix use this? Well in simple words, a bond is a source of financing for companies in which investors (and by investors meaning any person) lend their money to a company for a determined period of time, and the company promises to return the money invested plus periodical payments until the end of the agreement. Basically, you act as a bank for a company, giving them money for a fixed amount of time, and receiving periodic payments at a fixed rate. Debt market on the other side is where all these bonds or loans are been traded. Pretty cool right? You actually get to loan money to big companies! It is possible to feel like Mark Cuban sometimes.
Netflix has been using this type of financing since 2013, and in the past 5 years, it has increased its debt substantially to develop their own original productions.
The video-streaming company has greatly grown in the past decade and now by targeting new markets with their original movies/series, there’s no wonder why they need more capital to remain relevant.
Netflix has issued more than 8 billion dollars in debt financing (bonds) in the last 3 years and is planning to increase that figure by 2 billion dollars in 2018. The company is currently focused on getting financing to continue developing their own productions (that currently represent more than 700 shows available in the platform).
Furthermore, it really isn’t that simple for Netflix to get all that money. The video-streaming service do have to take into account the misbelief that new investors have on platform nowadays. Although Netflix has shown great strength in the markets lately, and an unmeasurable growth since it was created, investors are doubtful it will remain competitive in the video-streaming business. New video-streaming services such as Amazon and HBO that are also creating their own original productions, setting a high standard for Netflix and the filmmaking market in general.
Netflix has not yet disclosed the terms by which bonds are going to be issued, or if the amount needed for financing has will change in 2019. Gathering funding will certainly represent a challenge for Netflix, nevertheless, taking into account the amount of money it has been able to gather in the past years, there is no doubt the company will be able to meet their financing needs for funding in no time.