This Giving Tuesday, Investor Dr. Rush is matching your donations to Marketplace - can we count on your support? Count Me In! ✔

Netflix raises more debt. Is it sustainable?

Jasmine Garsd Apr 22, 2020
HTML EMBED:
COPY
Netflix CEO Reed Hastings. The entertainment company, popular with quarantined viewers, is taking on debt. Ethan Miller/Getty Images

Netflix raises more debt. Is it sustainable?

Jasmine Garsd Apr 22, 2020
Netflix CEO Reed Hastings. The entertainment company, popular with quarantined viewers, is taking on debt. Ethan Miller/Getty Images
HTML EMBED:
COPY

If there’s a deep dent in your couch from all the Netflix watching during quarantine, you’re not alone. The company recently announced its new viewership is double what was expected. 

Tim Hanlon from media consulting company Vertere Group cautions against reading into that too much. “Subscribers, and viewing, doesn’t translate into profits,” he said. “Even [Netflix CEO] Reed Hastings said in his call today, he expects those growth numbers to be relatively short-lived and will sort of tamp down as the virus starts to play out and people start to go out again.”

So it might come as a surprise that Netflix also announced it will be raising $1 billion in debt to acquire and produce new content. Netflix has always done this, but as the economic crisis deepens, many wonder whether that’s a sustainable model.

There are more streaming platforms than ever competing with Netflix, trying to tap into that captive audience. Meanwhile, Netflix has been losing licensed content, shows like “Friends.” “The Office.” “Scandal.” 

It’s been pivoting to original content for quite a while now — and that costs more money upfront than licensing an old sitcom. Rahul Telang, with Carnegie Mellon University, said investors understand that. “At the end of the day, this business is going to be about who can make the show that people are willing to pay for.”

Netflix’s debt has always raised eyebrows. But with the pandemic, it’s hardly the only streaming service making investors concerned. Consider its competitor Disney. Eric Haggstrom is an analyst with eMarketer. “Their parks are shut down. Live sports are canceled right now, which is bad for ESPN, which is also owned by Disney. What I will say is, Netflix is in a much better place than many of their competitors.”

Netflix’s cash burning might seem risky. But at least they don’t have a bunch of empty roller-coaster rides to worry about.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.