The quick and the dead: Quickflix searches for streaming's silver bullet

Enlarge Image

It's been six months since Australia first felt the Netflix effect. When the US streaming giant launched in Australia in March, the local content streaming and home entertainment players lifted their game, and movie and TV lovers were suddenly awash with binge viewing options.

But amidst the bravado and bluster of the marketing campaigns and talk of 'exclusives' and quota-free streaming, the future of local provider Quickflix has remained unclear.

Similar to Netflix, Quickflix got its start at the turn of the millennium by delivering DVDs direct to your door. While the disc rentals remain, Quickflix has now built itself into a video-on-demand streaming service. Its app is available on more devices than any other local player and it lets users both purchase titles outright or pay a monthly fee for "all-you-can-eat" streaming.

But 2015 has been a tumultuous year for Quickflix.

The streaming service once again paused trading on the ASX this week to conduct a major "restructure" of its content licensing deals. Quickflix said legacy licensing deals in its subscription video-on-demand business (SVOD) were causing significant financial losses.

According to company CEO Stephen Langsford, old deals with streaming rights holders have failed to bring in the customers and revenue that Quickflix had desired, and the company says licenses need to be reworked "to enable Quickflix to become a viable and sustainable business."

Coming off the back of a string of trading halts, aborted business deals and weak financial results, this latest news points to a deeper problem for Quickflix. Despite its decade-long history in the Australian media landscape and its profitable DVD mailout business, the company is struggling to tread water as the streaming tide turns.

Deal or No Deal?

In a space where companies live or die by licensing deals to land marquee movie titles and exclusive TV series, Quickflix is feeling the pinch.

The DVD delivery company expanded into streaming in 2011, setting up early deals with Warner Bros., Sony and NBCUniversal. But Quickflix now says it is committed to paying rights holders for content licensed to its streaming platform, regardless of how many subscribers it has or how many are people were actually watching this content.

Langsford now says that, "in retrospect" some of these deals weren't worth it.

Quickflix announced this week it would stop trading on the ASX for "at least a month" while it attempts to exit these unprofitable arrangements. The company is hoping to "eliminate" losses, cut costs, secure new investors (and much-needed capital) and "become a viable player" in the SVOD market. Despite this, Quickflix also said it would be launching a campaign "for acquiring new customers."

Shedding excess baggage may be necessary for Quickflix's survival, but it could also mean losing the content that sets it apart from rivals, with Langsford conceding that the restructure could see some titles removed from its platform.

It's the third time in as many months that Quickflix has made a major announcement around licensing, with the company attempting to broker streaming partnerships to shore up its content offering and improve its bottom line.

One such deal saw Quickflix suspend share trading in early August ahead of news that it had entered a "memorandum of understanding" with an unnamed, Shanghai-based media company.

The deal would have seen the two companies combine to form a "global media streaming platform" to distribute Chinese content both in China and across the world. The news also led to speculation about a reverse takeover -- a process whereby a public company acquires a private (often internationally-based) business, largely handing the reins of both companies over to the newly acquired business.

The announcement about a potential merger certainly followed a tough financial period for Quickflix. In its June 2015 quarterly results, Quickflix's customer numbers were down, in part due to what it saw as "pent-up demand" for rival service Netflix, while the company's cash on hand fell to AU$913,000, less than half of its AU$2.1 million bank balance just 6 months earlier.

But just as Australia's media pundits were boning up on their Mandarin and trawling the Shanghai Stock Exchange for merger news, the deal was shelved.

In Langsford's words, "there are opportunities that come our way, and we don't pull off every one of those opportunities."

The Shanghai deal was not the first opportunity that didn't come to fruition. Just one day before announcing the news, Quickflix quietly confirmed that a previously mooted partnership with competing streaming provider Presto was no longer on the table.

In May, Quickflix announced it would be working with the Foxtel- and Seven West Media-backed SVOD service to deliver Presto-branded content on its own platform. Less than three months later, the strange bedfellows were competitors once more, with Foxtel saying in a statement that Quickflix had been unable to meet its requirements to finalise the deal.

Langsford was disappointed that the deal failed to launch.

"But that's life," he told CNET. "On one hand you've got the fast-moving, innovative, entrepreneurial, which is Quickflix, and we're dealing with a big player on the other side, so not everything works to our timetable."

While Langsford might now characterise his company as agile compared to "Australia's largest entertainment company and the number one free-to-air broadcaster," as Quickflix previously described Presto's backers Foxtel and Seven, the company is certainly no start-up.

Quickflix has been on the scene for more than a decade and has played in the streaming space for the last four years, but is now struggling to find purchase in a fast shifting environment.

Money Talks

In the past year, a raft of new streaming services have launched in Australia. But more players also means more bidders looking to get their hands on exclusive content licensing deals.

With more than 65 million customers globally and $5.5 billion (AU$7.85 billion) in revenues at the most recent count (December 31, 2014), Netflix certainly brings deep pockets to the game. Stan was also vocal about its budget when it first launched, bringing with it AU$100 million from backers Fairfax and Nine Entertainment.

By comparison, Quickflix revenues for the 2014 calendar year were AU$20.4 million, albeit for a much smaller market and customer base than its US rival.

Langsford says there has been plenty of "speculation on numbers from Quickflix's competitors" and that the more mainstream media "ends up having a vested barrow to push" regarding the success of different services.

"I think in order to assess Quickflix's performance, you need to get the real numbers of our competitors and particularly the Australian and New Zealand competitors," he said. "For the small enterprise that is Quickflix, we actually are holding up quite well on a relative basis."

Media analyst and telecoms research director for Ovum David Kennedy said the future of streaming and media consumption in Australia could come down to survival of the biggest.

"It will be tough for small players to survive in the mass market for SVOD services," said Kennedy. "The buying power of the large players gives them a commercial advantage that is hard to overcome...even Stan and Presto will find it tough."

Langsford agreed that Quickflix is not alone.

"I know that a lot is made of, 'Quickflix is a struggling company,'" he said. "I think the fact is every company that's playing in this space is challenged and will struggle."

Despite the public posturing from streaming and pay TV providers about big budgets, and despite the inherent differences between Netflix's global customer base and the local audience that Australian providers command, there is still the question of how companies with lower budgets will keep up.

Considering Netflix secured US crime drama "The Blacklist" for $2 million per episode (AU$2.85 million) last year, Quickflix's AU$900,000 bank balance raises questions -- and both companies are ultimately looking to snag the same customer dollar.

But Langsford said his company's had stared down plenty of big hitters in its 11 year history.

"We know what it's like to be up against very, very large competitors who are throwing money around," he said. "We never have the balance sheet to go and compete against that, so we have to do things smartly, rationally, and sometimes keep our head down as well."

Indeed, Ovum's David Kennedy said despite how tough it will be for small SVOD providers to survive, that doesn't mean the little guys will disappear altogether.

"The best long-term option is a change of focus towards niche audiences where Netflix and its imitators are weak," he said.

Langsford says such targeted partnerships and niche markets "make sense" for the company, and that it is "in discussions with another party" for such a deal. But a publicly-traded company can only chalk up so many failed attempts at partnerships before others read the failures as a warning sign.

The Road to Redemption?

Any potential buyer will have to contend with a legacy clause in Quickflix's books that brings a hefty price tag.

In 2013, US cable provider HBO made a pass at the Australian media market spending $10 million to buy a "strategic stake" in Quickflix, in the form of roughly 83 million "redeemable convertible preference shares." Nine Entertainment bought these shares from HBO in July 2014, giving the established media company a further foothold in the new streaming space.

Vagaries of the stock market aside, Nine will need to be paid out to the tune of AU$10 million for these shares if Quickflix enters a "liquidation event." So any company eyeing Quickflix for its assets, for a merger or takeover or to gain majority voting power will need to factor an extra AU$10 million into the equation.

While Quickflix considers its future, smaller players are already falling away.

Last week, local service EzyFlix announced it was shutting up shop and that customers would "="" content"="" shortcode="link" asset-type="article" uuid="f70614fb-7652-475e-b673-486404150221" slug="zero-flix-to-give-ezyflix-closure-shows-perils-of-digital-ownership" link-text="lose access to any streaming or " section="news" title="Zero flix to give: EzyFlix closure shows perils of digital 'ownership'" edition="us" data-key="link_bulk_key" api="{"id":"f70614fb-7652-475e-b673-486404150221","slug":"zero-flix-to-give-ezyflix-closure-shows-perils-of-digital-ownership","contentType":null,"edition":"us","topic":{"slug":"digital-media"},"metaData":{"typeTitle":null,"hubTopicPathString":"Tech^Services and Software^Streaming Services^Digital Media","reviewType":null},"section":"news"}"> they had paid for through its platform.

Langsford said the closure was "regrettable" but that, by comparison, Quickflix was in a strong position.

"There have been companies that have come and gone," he said. "But as far as Quickflix is concerned we've generated a lot of transactions to date, we continue to support a large customer base, and we will continue to do so."

In the past six months, Australians have had a chance to try the different streaming services on offer, but the free trial honeymoon is over and it's now a question of where their money will go. The closure of EzyFlix and Quickflix's major licensing overhaul show that a period of consolidation is beginning.

But in this period of change, Langsford remains steadfast.

"We know what it's like to be entrepreneurial and innovative," he said. "We've got to be fleet of foot to do pivots in terms of our strategy, and make sure that we we're there to fight another day."