Netflix Takes Out $500m Line of Credit to Finance Content Binge (Jul 28, 2017)
This may help explain why Netflix laid out its content economics in even more detail than usual in last week’s earnings material: it’s apparently taking out a further $500 million line of credit, with an option to extend that by an additional $250 million. The driver is clearly its rapidly growing investment in original content, which has to be paid for up front, in contrast to the existing content it licenses, which is paid for as it’s made available on the site. All of that means that shifting to original content pushes cash burn much earlier in the process and thereby dramatically increases Netflix’s negative free cash flow, something I explained in some detail in this Variety piece last month. As I’ve said before, there’s no real reason why this should be a concern for investors, as long as Netflix is able to keep up its rapid pace of revenue growth, which is currently more than enough to fund its content investments and justify its increased borrowing. But the company’s debt load continues to rise fairly rapidly and at some point it will need to ease off and see that free cash flow picture change to something more positive.
via Variety
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