Capital Markets

Between 2016 and 2021, US interest rates sat near zero. Netflix burned through over $15 billion of free cash flow trying to become the dominant entertainment platform. The spending was justified internally by the assumption that scale would eventually make the cash flow turn positive. What made it possible was not Hollywood ambition. It was the cost of borrowing. Every streaming service had access to bond markets where institutional investors lent it three or 4% for 10 year paper. Apple paid $100 million for a single Martin Scorsese feature. Netflix greenlit a 150 international shows a year. Then the Federal Reserve raised rates 11 times in 18 months. By July, 2023, the policy rate sat above 5%. The same studio borrowing that had cost 3% now costs 6 or 7.