"When you allow a P&A credit, your only collateral is how a film performs," says the investment banker. Still, the sums involved with these firms are minor compared to the amounts that have gone to such behemoths as Netflix, Comcast and AT&T. As of June 30, Netflix carried debt of $12.5 billion, Comcast of $108 billion and AT&T of $170 billion, per SEC filings.
Currently, among the major entertainment companies, only Netflix falls into that bracket with a ratio of 4.4. Even so, says Abrams, "if a company appears to have a high amount of debt, it may be just fine servicing it. While Netflix may not have the hard assets [of Comcast and AT&T], the company can service its debt due to today's low interest rates — and it will be fine as long as it continues to improve its operating margins.
While many analysts think these corporations are relatively recession-proof — they believe subscribers will continue to pay for their services while cutting other expenses — each is continuing to spend exorbitantly, driven by the race to develop premium content. Still in question is whether new streaming platforms that are being launched by these conglomerates — HBO Max, Peacock, Disney+ — will be embraced by consumers.
"These big companies are looking at the cash they have on hand to sustain the content wars in a world where they have to pay dramatic amounts of money to secure their competitive positions," says the executive, "and they're looking for other ways to do it than by borrowing."
Much is made about Netflix debt but AT&T Comcast and Disney debt dwarfs them and all three will spend billions over the next decade with the completely unnecessary streaming war to try to get to Netflix subscriber numbers