(ZDNET) In the wake of strong streaming competition that it is impossible to catch up to, Quickflix is instead looking towards the greener pastures of tech IPOs and ecommerce services in order to survive.
Quickflix, one of the first players in the Australian subscription video-on-demand (SVOD) market, has lost so much ground to competitors that it is turning its attention towards launching into the technology and ecommerce service sectors.
According to Stephen Langsford, CEO and founder of Quickflix, the company will not completely abandon the entertainment arena, however.
“We have a vision now to … do things beyond the entertainment sector as a kind of an innovator, a technology platform; we’ve got a large customer base to market to,” Langsford said in an interview with ZDNet.
“There are some very exciting opportunities out there: Digital businesses, ecommerce businesses that would be quite compatible with Quickflix so that we’re able to, in time, basically reposition the listed group to something like a tech, commerce, and entertainment group, [of] which the existing Quickflix business is kind of a division.”
Langsford explained that technology companies eyeing their own initial public offerings would find it “very attractive” to partner with Quickflix, as they could leverage its existing customer base and entertainment offerings to bundle into their own propositions.
“That’s kind of where I see ourselves over the coming months of that repositioning through corporate transactions and M&A [mergers and acquisitions],” he said.
In order to sustain its core business, however, Quickflix needs to attract investor support — a difficult task after repeated customer losses during 2015 following the launch of Netflix Australia and the entry of local streaming services Stan and Presto. This was exacerbated by telcos Optus and iiNet offering unmetered access to Netflix, with Optus now also providing unmetered access to Stan.
To deal with the influx of competition, Quickflix dumped 20 percent of its workforce in October to attain AU$1.7 million per annum in cost savings, with another AU$2.3 million per annum in savings achieved by adjusting the company’s content management, tech development and infrastructure, corporate overhead, call centre support, and marketing processes.
The company then successfully restructured debts of over AU$7.5 million by signing deals with several “major” studios.
“Quickflix has finalised an agreement with a major studio licensor for the release of approximately AU$2 million of debt,” the company said in an Australian Securities Exchange announcement [PDF] in October.
“The company has also secured in principle agreement with three other major studio licensors for the restructuring and release of a further AU$4 million in commitments.”
While Langsford would not be drawn on revealing the studios responsible for winching Quickflix out of its crevasse of debt, he did laud those involved, suggesting that these rights holders aided the company because it has long facilitated legal access to copyrighted content within Australia.
“I can’t explicitly name them, but we had a handful of major US studios that were very supportive, actually,” Langsford said,
“That was very heartening, and I think the net result from that was that they recognised what we’ve done by way of our technology, our distribution, they want to see competition in the marketplace, and recognise the challenges in the marketplace, too, around VPN accessing etc that made it challenging.
“Not that we’ve got too many friends in the digital world,” he added.
In this vein, Quickflix must now address the redeemable preference shares (RPS) that made their way into the hands of one of its Australian competitors, Stan, in order to make its business more lucrative to investors.
Stan, a joint venture of Nine Entertainment and Fairfax Media, took ownership of the Quickflix RPS in July 2014, when Nine acquired the shares from HBO for an undisclosed amount. HBO had been issued the RPS by Quickflix in March 2011 during their commercial relationship.
Stan’s RPS, though legally an equity, are recorded as debt amounting to AU$11,653,329 due to accounting standards.
RPS outrank ordinary shares in terms of dividends and capital returns, meaning Quickflix is having difficulties in attracting investors while the RPS is in continuation. Due to its plummeting customer numbers and declining sales, Quickflix also cannot fund redemption of Stan’s RPS.
“We’re certainly in negotiations with them [Stan], and obviously I cant go into the nature of those, but we have stated clearly to the market that we’re a small player that’s made an investment, that’s delivering a service, that in the whole completion of the restructuring process, we need more capital, and to have that structuring base is essentially an impediment that needs to be addressed,” Langsford said.
The chief executive argued that Quickflix has already demonstrated to Stan — by not bidding on any highly sought-after shows — that it does not intend to compete in mainstream SVOD sector, leaving Stan with little reason to retain its RPS.
“[We’re] in a world where, frankly, we don’t pose a competitive threat to Stan.”
Indeed, Quickflix relies just as much on its somewhat archaic DVD-mailing business as it does on streaming: Langsford said it makes up 50 percent of the company’s entire customer base thanks largely to baby boomers who have little knowledge of streaming, as well as regional customers who don’t have broadband of a sufficient quality and speed to allow for streaming.
“About a third of our base take DVD only, about a third take streaming only, and then a third take both,” he said.
Quickflix has also stated that it wants to refocus its offerings on “niche content” for its entertainment. Its current model sets it apart from Netflix et al anyway, Langsford said, as its physical DVDs are able to offer a far broader range of choice than streaming services can due to licensing issues, and its transactional streaming service provides faster access to new content.
“At the end of the day, our offering is different because we offer both physical DVDs and … both subscription and transactional [streaming services], which is something different and means that when it comes to transactional, a la more the iTunes model, as a streaming service, we’re able to offer access to latest-release movies way earlier than your SVOD players,” he said.
In its most recent financial results, Quickflix reported a 35 percent year-on-year drop in customer receipts, from AU$5 million in December 2014 to just AU$3.3 million at the end of December 2015.
Net operating and investing cash outflow amounted to negative AU$180,000, with operating and investing costs increasing by 2.6 percent quarter on quarter, to AU$4.1 million.
Quickflix also continued losing customers over the second FY16 quarter; as of the end of December, its total customer base was down by 26 percent year on year, from 136,670 customers to 101,195. Its total paying customers similarly fell by 21.6 percent, from the 117,106 in the same quarter a year previous to just 91,817.
It lost 7,856 customers over the quarter.
By comparison, the Australian Communications and Media Authority estimated that as of June 2015, Netflix Australia has 2.5 million users.
In spite of this, Langsford remains convinced that the company can recover — and deserves to, for providing legitimate access to content for more than 11 years.
“I’m a positive person and committed to the journey of Quickflix,” he said.
“We’ve done the right thing in the marketplace, with legitimately licensed content, and played the game. I’m forever optimistic that we’ll be allowed the opportunity to get through this piece.
“And it’s a big market. I think it’s a market that can accommodate many players.”
