Junk bonds account for about a quarter of Netflix’s $14 billion in debt. Since 2014, Netflix has grown at a rapid pace. The company’s annual net income has increased from 266 million to 1.8 billion dollars. In order to pay off its first tranche of bonds, which will begin in 2027, it will need to double that amount. Anything less than 7 years of continued parabolic development is failure. The only catch is that their opponents must do the same. This story from The Verge outlines how AT&T got itself into a 151 billion dollar debt by trying to buy out the streaming wars. When AT&T realized what Netflix and others were up to, it made the classic “hold my beer” move.
Is Netflix a risky investment?
Netflix began as a DVD library for subscribers before licensing films and series for streaming, but today television and film companies want to maintain their creative properties and sell access to them on their own streaming platforms. Netflix has been compelled to adjust its business strategy and go deep into the world of junk bonds as a result of this. The Indicator, a daily economic podcast hosted by Stacey Vanek Smith and Cardiff Garcia of Planet Money, explains why.
SMITH, STACEY VANEK: Netflix has already lost “Friends,” “The Sixth Sense,” “Coco,” “Star Wars,” and “Pulp Fiction” in 2019. What is the explanation for this? That is the answer: competition. The owners of these shows and films, Disney, CBS, HBO, ESPN, NBC, and Warner, are returning them since they are creating their own streaming services. Ampere Analysis, which specializes in media analysis, has Richard Cooper as its research director. Netflix, he claims, understood it needed to make a major shift if it was to survive.
RICHARD COOPER: They’re transitioning from being a distributor of other people’s work to being a studio in their own right.
VANEK SMITH: That’s exactly what Netflix has been doing. They’ve developed big-budget, sumptuous shows like “The Irishman” and “Marriage Story,” which are Oscar fodder. They also created “The Crown” and “When They See Us,” a television series.
CARDIFF GARCIA: But here’s the thing: all of this information is expensive to produce; I mean, a lot of money.
GARCIA: When a business needs to borrow money quickly, one option is to issue bonds. A bond is similar to a small loan. So, an investor purchases a bond, and, similar to a loan, the investor receives his or her money back, plus interest, after a set length of time.
SMITH, VANEK: However, because Netflix has taken on so much debt in comparison to its earnings, its bonds are considered hazardous and are referred to as trash bonds. Because of the risk, the bonds typically have to pay out a little more than ordinary bonds. To entice individuals, you need to sweeten the pot.
GARCIA: It’s not like Netflix has a problem with it. According to Richard Cooper, Netflix issued more than $2 billion in bonds in the last three months of 2019, and investors went crazy for them, snapping them up straight away.
SMITH, VANEK: (Laughter) Netflix, however, is demonstrating that it can compete in the content development space, according to Richard. They’ve had a number of big successes in a variety of genres. He also claims that they don’t have an option because Netflix is in a debt-or-death position. So they’ve decided to go with debt.
GARCIA: I’m really into debt. They’re currently buying “anything that moves,” according to Richard, including books, video games, and even podcasts.
VANEK SMITH: Whoa, whoa, whoa, whoa, whoa, whoa, whoa, who And it’s a formula that’s worked for Netflix in the past. With a show named “The Witcher,” they gained a lot of success. Last year, Netflix converted a series of bestselling books into a TV series called “The Witcher.”
COOPER: One of the reasons they invested in “The Witcher” is that the novels have such a large fanbase that you can almost ensure that people will subscribe to Netflix solely to watch “The Witcher.”
GARCIA: And it was successful. For months, “The Witcher” was said to be the most popular show on any platform, anywhere on Earth – it was that popular. However, despite the billions it spends on programming, Netflix only produces approximately 10% of the content it offers. Other studios and networks hold the remaining 90%, thus it could be taken away at any time.
VANEK SMITH: “The Witcher” – Netflix has announced that a second season of “The Witcher” will be released soon, and it will be available in a junk bond market near you.
What is the best way to invest in junk bonds?
There are a few potential options for an individual investor to purchase junk bonds:
- Individual bonds can be purchased. You might be able to buy trash bonds using the trading platform of your online brokerage account, just like stocks or mutual funds. However, just like buying individual stocks, this is exceedingly hazardous because it concentrates your money in individual trash bonds, increasing the chances of losing your money.
- Bond funds are a good investment. Hundreds of low-rated bonds are represented via high-yield or junk bond mutual funds and exchange-traded funds (ETFs). By spreading your investment dollars over a variety of junk bonds, you reduce the risk of losing money overall. Remember that many of these funds are actively managed, which means that a team of professionals choose which bonds to include. This kind of knowledge could be especially useful for investors navigating unknown areas, such as the junk bond market, but it comes at a price. Junk bond funds will almost certainly have higher expense ratios than low-cost index funds, lowering long-term investment returns.
What is the best way to buy bonds online?
There are a few different alternatives available to you if you want to buy bonds. However, not all vendors are created equal, since each one specializes in a certain form of bond investment, which may or may not be what you’re searching for. Buying bonds through a brokerage, for example, allows you to obtain very precise bonds. Buying through a bond fund, on the other hand, is less specialized but much more broad.
Buying Bonds Through the U.S. Treasury Department
Treasury Direct is a website where you can buy new Treasury bonds online. You must be 18 years old and legally competent to open a Treasury Direct account. You’ll need a valid Social Security number, a United States address, and a bank account in the United States. The Treasury does not charge fees or mark up the price of the bond.
Buying Bonds Through a Brokerage
Treasury bonds, corporate bonds, and municipal bonds are all sold by most internet brokerages. Bonds are available through brokers such as Fidelity, Charles Schwab, E*TRADE, and Merrill Edge. The purchasing process through an online brokerage, on the other hand, is nothing near as simple as it is with Treasury Direct. Transaction costs and markups or markdowns cause bond prices to differ from brokerage to brokerage.
Buying Bonds Through a Mutual Fund or ETF
If you don’t have the funds to invest in a variety of individual bonds, a bond fund is an excellent solution. Individual bonds are frequently purchased in big, often expensive chunks. Bond funds provide diversification at a reduced cost. Bond funds, unlike individual bonds, do not have a predetermined maturity, therefore your interest payments may fluctuate and your income is not guaranteed.
What does a junk bond look like?
Companies that issue trash bonds are some examples. The following are some well-known companies with “junk” credit ratings: Ford Motor Company (NYSE:F): Ford had previously been classed as investment-grade, but due to the coronavirus pandemic and worldwide economic collapse in 2020, the business lost its investment-grade ratings.
How does Netflix make money?
Netflix’s primary source of revenue today comes from its large subscription base, which ranges from $8.99 to $15.99 per month. With an estimated 182.8 million paying customers worldwide, the network generates millions of dollars in income each quarter.
Netflix is now having difficulty gaining new U.S.-based members, as evidenced by its most recent financial report, and is instead focusing on the development of its global user base. However, when compared to other prominent streaming sites, Netflix still has a significant lead. According to a recent Sandvine research, the service consumes more web bandwidth than Youtube, Amazon, and Hulu combined during peak times.
Netflix’s overhead expenditures stretch beyond the management of its online interface, despite the fact that it is an OTT platform. For example, throughout the first three quarters of 2018, the business spent $534 million more on streaming operations than it had expected. During the same time period, it accrued $18.6 billion in debt for “commitments and contingencies,” which covers the talent fees of all the big names Netflix hires on to produce its content.
The corporation has had difficulty fending off the prospect of new competitors such as the planned Disney+ and Apple TV+, while raising its plan pricing in early 2019. Netflix, unlike competitors like Hulu, does not provide any ad-supported, low-cost options. Furthermore, unlike AVOD platform Tubi, it does not offer any ad-supported content, requiring customers to subscribe to access any of its shows.
Netflix has distinguished itself by rejecting the push to switch to an ad-supported, tier-based strategy. Despite the expanding number of streaming options available, the corporation has persisted to its approach of assuming that committed consumers will continue with their subscriptions. Netflix, on the other hand, will have to find new ways to maintain its existing members as some of its most popular streaming series, such as The Office and Friends, have moved to competitor platforms.
Netflix’s battle to be the most dominant competitor in an increasingly crowded sector will undoubtedly continue to cost it money. With investors becoming increasingly concerned about the firm’s sluggish domestic revenue, the company must devise a long-term strategy to maintain its leadership position.
Netflix’s business plan has proven to be a successful one. Today, owing to technologies like MAZ’s bespoke app platform, businesses of all sizes can easily mimic Netflix’s subscription technology. They are truly pioneers in the field, having pioneered the way for a completely new manner of viewing video material.
Contact a member of the MAZ team if you’d like to learn more about having your brand on connected TVs and mobile apps, including subscriptions and ad support.
Is James Bond going to be on Netflix?
It is currently unknown when the film will be accessible to stream in the United Kingdom or elsewhere in the world. Disney+ is the only streaming service that is unlikely to offer No Time To Die because Disney does not own the brand and does not host Universal or MGM films on the platform.
What is the procedure for purchasing an I bond?
When it comes to tax considerations, I bonds have the upper hand over CDs. State and local income taxes do not apply to I bond interest, and you can elect to postpone federal income taxes on your earnings until you cash the bonds in. (On the other hand, CD bank interest is taxed annually as it accrues, even if you reinvest it all.) Another tax benefit that parents and grandparents may be interested in is that if you cash in an I bond to pay for higher education, the interest may not be federally taxable at all. However, to qualify for this income exclusion, your modified adjusted gross income must be below a particular threshold—in 2021, the threshold will be $83,200 for singles and $124,800 for couples. This figure is updated for inflation every year.
Set up an account with TreasuryDirect and link it to your bank or money market account to purchase I bonds. You can also purchase I bonds by enrolling in the Treasury’s payroll savings program, which allows you to set up recurring purchases of electronic savings bonds with funds deducted directly from your salary.
Is buying paper I bonds the only option these days? Request that your tax refund be utilized to buy them. If you file your 2021 tax return by early April and are due a refund, consider investing it in I bonds to lock in that 7.12 percent interest rate for six months. (In addition to the $10,000 you can buy online through TreasuryDirect, you can buy up to $5,000 in I bonds with your refund.)
Are junk bonds dangerous?
A trash bond is a bond with a significant risk of the underlying company defaulting. Junk bond issuers are often start-ups or businesses that are experiencing financial difficulties. Investors in junk bonds take a risk because they don’t know if they’ll be repaid their principal and get regular interest payments. As a result, junk bonds pay a higher yield than their safer counterparts to help investors compensate for the increased risk. Because they need to entice investors to fund their operations, companies are willing to pay a high yield.
Are garbage bonds a better investment than stocks?
- High-yield bonds provide stronger long-term returns than investment-grade bonds, as well as superior bankruptcy protection and portfolio diversity than equities.
- Unfortunately, the high-profile demise of “Junk Bond King” Michael Milken tarnished high-yield bonds’ reputation as an asset class.
- High-yield bonds have a larger risk of default and volatility than investment-grade bonds, as well as more interest rate risk than equities.
- In the high-risk debt category, emerging market debt and convertible bonds are the main alternatives to high-yield bonds.
- High-yield mutual funds and ETFs are the greatest alternatives for the average person to invest in trash bonds.
What is the value of a $100 US savings bond?
You will be required to pay half of the bond’s face value. For example, a $100 bond will cost you $50. Once you have the bond, you may decide how long you want to keep it for—anywhere from one to thirty years. You’ll have to wait until the bond matures to earn the full return of twice your initial investment (plus interest). While you can cash in a bond earlier, your return will be determined by the bond’s maturation schedule, which will increase over time.
The Treasury guarantees that Series EE savings bonds will achieve face value in 20 years, but Series I savings bonds have no such guarantee. Keep in mind that both attain their full potential value after 30 years.