Quickflix haemorrhages customers in Q2 after Netflix launch

Australian video-streaming company Quickflix has released its results for the second quarter of 2015 amid a trading halt pending a possible international acquisition, announcing a 14 percent drop in its customer base.

Total customers numbered 121,127 for the quarter, a 14 percent drop on the previous quarter, and an 11 percent drop from the same period last year. Paying customers decreased by 13 percent quarter on quarter and 12 percent year on year, to 107,969.

The streaming service had a net operating and investing cash outflow of AU$1.1 million, a 29 percent quarter-on-quarter drop, but an increase of 24 percent from the same period last year.

Revenue receipts from customers were AU$4.23 million, a drop of 19 percent on the same period a year ago.

Quickflix attributed its customer losses to the launch of Netflix in Australia and New Zealand, particularly because of its rival's deals with telcos Optus and iiNet to offer unmetered access to Netflix, as well as its free subscription trials.

"Quickflix paying customers declined by 13 percent in the June quarter, impacted by the unprecedented level of free trial promotions by competitors, including those associated with the official launch of Netflix in Australia and New Zealand. Pent-up demand for Netflix generated through media and other publicity ahead of its launch resulted in a spate of customers churning in April and May, and a challenging quarter overall for the company.

"When surveyed, over 95 percent of those customers churning from Quickflix in the quarter to try a competitor streaming service were opting for Netflix."

Netflix has since lamented its deals with Optus and iiNet; in an investor note in the company's Q1 results released in April, Netflix emphasised its stance on net neutrality and said it will not be signing similar agreements again.

Quickflix began losing customers as soon as Netflix Australia was announced, reporting a net loss of AU$8.6 million for the first half of the 2014-15 financial year in March.

Looking forward, the company said it has plans to restructure and integrate third-party subscription video-on-demand (SVOD) services, as well as upgrade its user interface.

The results were released off the back of Quickflix being placed in a trading halt on Thursday (PDF) "pending the release of an update regarding a potential corporate transaction with an international party, which may result in an acquisition". Normal trading is due to will resume on Monday, August 3.

"Beyond Australia and New Zealand, Quickflix is looking at global opportunities to exploit its streaming platform and capability. Quickflix is in advanced discussions with one party in particular, which may result in a corporate transaction," the company said in its Q2 results report.

Netflix has yet to release any results from its operations in Australia, but Roy Morgan released statistics in May stating that 1 million Australians were using the service.

The Australian government announced plans in May to introduce the so-called Netflix Tax, which would mandate that foreign companies selling digital TV shows, music, books, films, and subscription services to Australian customers pay the country's 10 percent GST.

According to Treasurer Joe Hockey, this measure would raise AU$350 million over four years.

"Both [Treasurer Joe Hockey] and I have been quite consistent in our call in providing a level playing field for the provider of key services in Australia, whether they come from overseas or whether they're provided domestically, and this is an area that we've been working with international parters on, trying to get a good understanding of where Australia's tax system should be for the future, because we have a growing digital and e-commerce world, and the tax system needs to stay up with that game," Assistant Treasurer Josh Frydenberg said.

In addition to streaming companies such as Quickflix, Stan, and Presto, traditional subscription pay-TV services including Foxtel are competing with Netflix, with the latter unsurprisingly supporting the introduction of the Netflix Tax.

"The government's move to enforce GST for the supply of digital content services is the right one. The digital marketplace is an increasingly competitive space, and it's critical to ensure that all players that do business in Australia do so on a level field, with no one player advantaged through tax loopholes," Foxtel's group director of corporate affairs Bruce Meagher said in a statement in May.

"The introduction of this legislation will not only help to maintain consistency across the competitive landscape, but it will also ensure that Australia gets its due taxes from the companies that choose to do business here, which benefits all Australians."