Netflix Raising $400M in Debt to Fund New Shows

Netflix wants to use the money to keep funding shows like "House of Cards" and "Arrested Development"

Last Updated: January 29, 2013 @ 10:01 AM

Netflix is looking to raise $400 million in debt so it can keep licensing movies and shows from studios and fund its slate of original programming, the home entertainment company said Tuesday.

The company said it will use $225 million of the money it raises to refinance existing notes. The rest will be deployed for investments, acquisitions and other corporate purposes. During a conference call with investors last week and in a note to shareholders, Netflix hinted that it wanted to raise outside money to help it contend with the rising costs of digital content.

"We are exploring taking advantage of the current low interest rate environment to refinance our $200 million in outstanding notes and raise additional cash through new debt financing," Chief Executive Officer Reed Hastings wrote. "This would give us additional reserves as well as increased flexibility to fund future originals."

Also read: Why Netflix's Future Is in 'House of Cards,' 'Arrested Development' – Not Disney

Likewise, Chief Financial Officer David Wells told analysts that the money would allow the company "…to preserve the flexibility, if we see massive success with originals, to expand that program and develop more down the road."

The announcement comes as Netflix's stock is surging after it shocked analysts by posting a quarterly profit for its most recent earnings period when most members of Wall Street's cognoscenti were bracing for a net loss.  It also added more than 2 million streaming members domestically, trumping projections. Shares of the company, which last week were trading at less than $100 hit $160 before markets opened Tuesday.

Netflix with its more than 27 million members is the indisputable king in the streaming marketplace, but its crown is costly.  Deep pocketed rivals like Amazon and YouTube have begun writing big checks for shows and movies, driving the price tag for splashy deals, like the one Netflix signed last year with Disney giving it the rights to Marvel and Lucasfilm titles, through the roof.

At the same time, Netflix is betting heavily on original programming that it has exclusive rights to air —  shows like the Kevin Spacey political thriller "House of Cards" and new seasons of the cult comedy "Arrested Development." Yet, partnering with A-list talent carries financial risks, as well as the potential for reward.

"It's a great brand and it has a great head start over its competitors, but a lot of the content is ubiquitous on all of these streaming services," Eric Wold an analyst with B.Riley & Co. told TheWrap last week. "They're going to have to keep spending an increasing amount on content."

"If they raise outside capital to fund more content acquisitions, it's an admission that their current business outlook will not be enough to fund this content," he added.