Netflix's $1B plans to be the dominant media juggernaut

The company will use it create, and to acquire, content to fend off competition from Amazon

Back in 2005, Netflix was the place to get DVDs delivered to your home. Amazon was the place to buy books, without having to go down to the local bookstore. The two companies were far from being seen as competitors.

Today, 10 years later, Netflix is going head-to-head with Amazon, as well as the media establishment, as it has evolved into a media juggernaut, with its own distribution and production of original content, including Orange is the New Black, House of Cards and numerous others. 

There are more online streaming services than ever these days, and so the race for each one to get their hands on new, as well as exclusive, content is fierce and competitive. Netflix is among the most ambitious, with its plan to create 20 new original series per year.  The fact is that, well, that takes quite a bit of money to pull off.

And so the company is now looking to raise $1 billion in debt, it was officially announced on Monday. The money will go toward getting the rights to content, as well as developing its slate of original programming.

"Netflix intends to use the net proceeds from this offering for general corporate purposes, which may include content acquisitions, capital expenditures, investments, working capital and potential acquisitions and strategic transactions," it wrote in the note. 

The company did not reveal an official date for the debt offering, nor did it outline any terms. 

CEO Reed Hastings and CFO David Wells had previously revealed their plan to raise debt in a note following the company's Q4 earnings release on January 20th.

"Over the next few years we expect to continue financing our original content expansion with long-term debt. As long as the maturities are spread out, and the interest cost is built into our content budgets, we think long-term debt is the best way for Netflix to finance the production of content," it read.

In an earnings call the same day, Wells outlined why now was a good time to raise debt.

"And we think right now is still a good time to secure a long-term low cost capital in the debt market and that’s why we chosen debt. What we’ve done in the prior three years is actually we’ve done a raise every year," he said. 

The debt raising comes at a crucial moment for Netflix, as it is seeing increased competition, particularly from Amazon, which is coming off a historic win at the Golden Globes, in which it not only the first time that the studio won any big awards for its original shows, but the first time that any Internet streaming service won an award for best series. Not even Netflix, for all its critical acclaim, has been able to pull that one off.

Amazon is also beating Netflix in another area: film producing.

Last year, Netflix got the rights to produce a sequel to the early 2000's martial arts hit Crouching Tiger, Hidden Dragon. It's plan was to release the film on its website, and in IMAX theaters, on the same day. The operators of the majority of those screens balked at the idea and refused to show the film.

Amazon recently announced its own intentions to start producing original films, learning the lesson from the Netflix incident, allowing them to premiere on Amazon only four to eight weeks after debuting in theaters, thereby giving the theater chains the supremacy they desire. 

The two entities have even begun feuding over original content, with Amazon actually letting go of all of its BCC series simply because it didn't have the exclusive rights, and didn't want to share them with Netflix. Streaming is becoming a dog eat dog world

And, finally, while Amazon doesn't release exact numbers, it did reveal recently that the number of paying Prime members increased 53% in 2014. 

It likely doesn't come anywhere near Netflix's paid members, which number 39.11 million in the United States, and 18.28 million internationally, but the point is that Netflix is already dealing with major competition and it is growing fast. It needs this $1 billion if it is going to stay ahead of the pack.

Investor reaction to the news has been mixed. After dipping to a low of $433.70 earlier today, the stock has bounced back and is now up slightly for the day at $442.28 per share.

(Image source: newsbytesonline.net)