Australian subscription video-on-demand (SVOD) company Quickflix is looking to restructure the redeemable preference shares (RPS) owned by rival streaming service provider Stan in an attempt to continue competing in the sector.
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.
In a statement to the Australian Securities Exchange [PDF] (ASX), Quickflix explained that 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 plummeting customer numbers and declining sales, Quickflix cannot fund redemption of Stan's RPS, either.
"The existence of this right is a significant disincentive for incoming investors. The board and its advisors therefore believe that securing necessary investor support for an equity capital raising, including an offer to existing shareholders, is likely to be conditional on Stan agreeing to restructure the RPS," Quickflix explained.
"In order to progress its restructure and raise new capital, Quickflix is therefore seeking to reach agreement with Stan for the immediate restructuring of the RPS."
Quickflix also said that it has been successful in restructuring its obligations with content providers by over AU$7.5 million, as well as reducing operating costs. The company added that it will attempt to expand its customer base "through transactions with complementary businesses, including those in the content, digital consumer, ecommerce, and technology sectors".
The streaming service wants to refocus its offerings on "niche content", but said it must secure new capital to fund this.
At the end of December, Quickflix had announced the recovery of AU$7 million in debt through licensing deals with "major" studios, helping the struggling streaming service to continue competing with Netflix, Presto, and Stan.
According to Quickflix, its remaining SVOD payment obligations were restructured, with "certain royalty payments" to be based on revenues made from July 1, 2016. The company also agreed to issue more than 51 million options for ordinary shares to be non-exercisable until October 31, 2018.
Quickflix's restructure program saw the company attain AU$1.7 million per annum in cost savings by dumping 20 percent of its workforce.
Another AU$2.3 million per annum in savings was achieved by adjusting the company's content management, tech development and infrastructure, corporate overhead, call centre support, and marketing processes.
"Since the start of the program, the company has reduced headcount by over 20 percent, which has yielded a 33 percent reduction in staff costs, or over AU$1.7 million per year once complete," the company said.
Quickflix also signed deals with streaming services in the APAC region to bring more customers on board.
Last month, Quickflix announced its second-quarter results for FY16, revealing 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.
Quickflix also continued losing customers over the quarter; as of the end of December, Quickflix's 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.
Total receipts for the quarter amounted to AU$3.9 million, including a research and development tax rebate of AU$0.6 million.
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.
Average monthly receipts per paying customer totalled AU$10.54, a drop of 7 percent from last quarter's AU$11.39, and a decrease of 20 percent from the AU$13.12 reported during the same period the year previous.
It had previously attributed its customer losses to the launch of Netflix in Australia and New Zealand, particularly because of deals with telcos Optus and iiNet to offer unmetered access to Netflix. Optus now also offers unmetered access to Stan.
The Australian Communications and Media Authority (ACMA) estimated that as of June 2015, Netflix Australia has 2.5 million users.