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Quickflix enters voluntary administration after Stan negotiations fail

Unsuccessful negotiations with rival streaming service Stan over its AU$11.7 million worth of redeemable preference shares have led to Quickflix entering voluntary administration.
Written by Corinne Reichert, Contributor

Australian subscription video-on-demand (SVOD) provider Quickflix has entered voluntary administration following its failed negotiations with competitor company Stan, as well as constant customer and cash losses over the last year.

The embattled streaming service provider attributed its inability to raise new capital to save the company on the redeemable preference shares held by rival company Stan, now worth AU$11,730,549.

Stan told Quickflix that it would only consider structuring the RPS if Quickflix were to pay it AU$4 million in cash. Alternatively, Stan suggested that Quickflix could provide AU$1.25 million in cash, as well as transfer all of its customers -- worth AU$250,000 -- to Stan and sign an agreement not to compete.

"Neither alternative presents a viable option for Quickflix," said in an announcement to the Australian Securities Exchange [PDF] on Tuesday morning.

"In the first instance, Quickflix does not have the funds to make payments to Stan, nor does the company believe it can raise funds from investors for that purpose.

"Neither alternative leaves Quickflix in a position to fund its unsecured creditors, nor with capital necessary to take the business forward."

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 AU$10 million commercial deal.

Stan's RPS, though legally an equity, are recorded as debt due to accounting standards.

RPS outrank ordinary shares in terms of dividends and capital returns, meaning Quickflix could not attract investors. Due to its plummeting customer numbers and declining sales, Quickflix also could not fund redemption.

"We're certainly in negotiations with them [Stan], and obviously I can't 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," Stephen Langsford, CEO and founder of Quickflix, told ZDNet in an interview at the start of this year.

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," Langsford said.

Quickflix added that the decision will not affect its existing and new Australian customers, as it intends to operate as usual. The company also added that its New Zealand business was not in voluntary administration.

"The management of Quickflix remain dedicated to achieving a successful restructure of Quickflix through a Deed of Company Arrangement that will reposition the listed group to a broader-based digital consumer, ecommerce, and entertainment player leveraging its existing marketing database, data, and platform whilst also pursuing M&A opportunities," Quickflix said on Tuesday.

Langsford had previously told ZDNet that Quickflix has lost so much ground to its competitors that it is turning its focus towards launching into the technology and ecommerce service sectors.

"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.

"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."

Quickflix experienced 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 Optus and iiNet offering unmetered access to Netflix, with Optus also providing unmetered access to Stan.

Quickflix announced in early April that it would be shuttering its Sydney CBD and Auckland offices and making 15 percent of its staff members redundant as a result, adding that it would also "insource" its customer care and support, reduce costs in its Perth office, trim down its delivery network charges, and get one board member to step down.

Quickflix said it hoped to save around AU$1 million per annum through these measures.

Its executive directors also agreed to a "substantial reduction" in their salaries: Langsford's salary was reduced from AU$280,000 down to AU$200,000, while CFO Simon Hodge's salary shrank from AU$250,000 down to AU$170,000 as of April 1.

Any part of their salaries exceeding AU$150,000 will also be deferred in payment so as to provide the company with extra cash reserves until it raises a minimum of AU$2 million through the issue of new equity.

Quickflix also 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.

It has yet to report its customer numbers as of this quarter, after having lost 7,856 customers over the December quarter, but last week turned its cash flow around thanks to spending less on staff, advertising, and marketing.

Net operating cash flows for January to March were AU$462,000 -- a AU$551,000 jump from the negative AU$83,000 announced for the December quarter -- and cash at the end of the period stood at AU$1.04 million, 57.8 percent higher than last quarter's AU$659,000.

Although receipts from customers fell by 5.8 percent, from AU$3.263 million [PDF] down to AU$3.074 million [PDF], Quickflix's total operating and investing cash flows also turned positive, from negative AU$180,000 in December back to AU$381,000 in March.

This was partially due to a substantial decrease in staff costs -- from AU$1.141 million down to AU$930,000 thanks to the redundancies. Its advertising and marketing costs almost halved, from AU$431,000 in December to AU$231,000 in the March quarter.

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