Quickflix recovers AU$7m debt through deals with 'major studios'

Australian subscription video-on-demand (SVOD) company Quickflix has 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 have been restructured, with "certain royalty payments" to be based on revenues made from July 1, 2016. The company has also agreed to issue more than 51 million options for ordinary shares to be non-exercisable until October 31, 2018.

"The total amount of SVOD licensing obligations from which the company has been released now exceeds AU$7 million," the company said in an Australian Securities Exchange (ASX) announcement [PDF] on December 24.

"The formal agreements and release from debt obligations significantly improve the company's balance sheet position and enables it to now proceed with plans for a recapitalisation."

Quickflix had announced AU$2 million in debt recovery in October by signing deals with one "major" studio, adding that another three studios were close to signing deals worth AU$4 million.

"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 ASX announcement [PDF].

"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, which is pending final documentation."

Quickflix's restructure program, announced on August 31, also 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, which remains in voluntary suspension until the completion of its restructuring, also previously signed deals with streaming services in the APAC region to bring more customers on board.

"Quickflix has reached agreement to enter affiliate arrangements with SVOD operators in Australia and New Zealand, whereby the company will introduce a special SVOD offer to its customers and derive a fee for signups to that offer."

Several days after its October announcements, however, Quickflix released its results for the quarter ending September 30, announcing the loss of another 12,076 customers -- a 10 percent drop quarter on quarter, from 121,127 customers down to 109,051.

Despite Quickflix having been registered with 195,000 more devices than it was in 2014 -- from 557,000 devices to 752,000 devices -- the customer drop signalled a 16 percent decrease year on year in its total customer base.

Average monthly receipts per paying customer totalled AU$11.39, a growth of 1 percent from last quarter's AU$11.25, but a decrease of 10 percent from the AU$12.63 this time last year.

Cash receipts from paying customers amounted to AU$3.9 million for the quarter, down 8 percent quarter on quarter and 23 percent year on year.

The streaming company's cash at the end of the financial period plummeted by 69 percent, from AU$2.7 million in September 2014 to just AU$840,000.

"Quickflix is operating in the high-growth yet challenging video-streaming sector," the company pointed out in its results.

"Competitors are expending enormous amounts of money on marketing and content in a bid to secure market share. Quickflix will not seek to compete head-on in this environment; rather, it will focus on developing a niche and differentiated streaming service supported by its profitable online DVD rental service and attracting new customers through low-cost partner and affiliate channels."

The company had similarly reported a 14 percent drop in its customer base for the quarter to June 2015, and 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.

It had attributed its Q2 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.

In August, the company announced [PDF] that it had entered a voluntary suspension from trading "pending release of an update regarding a potential corporate transaction with an international party which may result in an acquisition".

This was followed by news [PDF] that conditions precedent to an attempted reseller agreement with pay-TV company Foxtel's streaming service Presto had not been met, with the agreement thereby terminated.

Quickflix subsequently announced a non-binding memorandum of understanding with an unnamed Chinese entity, which produces original content in China and internationally, and is also contracted to co-produce content in the United States.

Quickflix claimed that the Chinese acquisition would "significantly" improve its results into the future, as well as growing its customer base; however, in August it backflipped on its bid to acquire the company.

Analyst firm Ovum in November predicted the rate of streaming subscriptions within Australia to increase by a factor of 17 between 2014 and 2019, to reach 4.707 million subscribers.

According to Ovum, there are now 1.6 tablets and 2.3 TV sets per home, in addition to smartphones, which are all used to consume TV content.

While streaming services are increasing competition in the sector, Ovum said that no form of television, including free TV and pay TV, will face "dramatic abandonment". Rather, streaming will become the dominant form of TV consumption.

The Australian Communications and Media Authority (ACMA) also recently released a snapshot report of the streaming industry, reporting that 3.2 million Australians, or 17 percent of the population, consumed streaming services during the six months to June 2015, and 2.2 million in the seven days prior to June.

The ACMA also estimated that as of June, Netflix Australia has 2.5 million users. Globally, Netflix in April recorded a total subscriber base of 62.3 million, with 40 million located in the United States.

Telcos are increasingly becoming IPTV providers as well, with Optus recently acquiring the exclusive rights to broadcast the English Premier League, taking the most-watched football league worldwide away from pay TV provider Foxtel, and in December announcing a 10-year deal to become the official telco partner for the Australian Olympic team, taking these rights from competitor Telstra.

Telstra itself launched a video-streaming device, Telstra TV, to provide home broadband customers with access to streaming services Netflix, Presto, and Stan; as well as catch-up services SBS on Demand, Plus7, and 9Jumpin.