The old saying goes that you have to spend money to make money, and Netflix is certainly taking that to heart. The streaming giant has been spending billions in recent years to ramp up their original content, and they’re going to throw down another $6 billion across 2017. However, you’re not going to make that money back overnight, and according to the company’s SEC filings (via The Los Angeles Times) Netflix is currently sitting at $20.54 billion in debt, but they don’t seem too worried about it.
As the company have stated before, they’re aiming to make half of their catalog purely Netflix original content, and with more must-see material, they’ll grow their current base of 104 million subscribers. Even more, they’ll cut down on the expensive cost of licensing films and television shows from rival studios (and it should be noted, that Netflix “originals” such as “Orange Is The New Black,” “House Of Cards,” and “The Crown” are all produced by other companies).
“That’s a lot of capital up front, and then you get a payout over many years,” Chief Executive Reed Hastings explained in a recent investor call. “The irony is the faster that we grow and the faster we grow the owned originals, the more drawn on free cash flow that we’ll be.”
Indeed, the company even admits they’re going to be running a debt for a while, but believe that the payoff will be worth it.
Depending on which financial wizard types you talk to, this is either a normal or terrible idea, but major studios or tech companies running on debt is nothing new. The question is how long Netflix can go before investors want to start seeing some gains.